By PressOnePH Business
The costs of President Rodrigo Duterte’s populist policies are starting to bite.
Economic managers on Thursday programmed a wider deficit for the government to give more budget room for two new programs to be implemented next year, despite new revenue sources that are expected to come on stream.
The programs, the universal healthcare law and the establishment of a new Bangsamoro region, will easily add about P250 billion in new spending next year, which will come on top of trillion-peso costs from the Duterte government’s infrastructure program.
Apart from these, freebies granted by Duterte during the first half of his term will add to the ballooning bill. More college students are expected to benefit from free tuition in state universities, while bigger allocations also await free farm irrigation and Wi-Fi programs.
For the public, these state programs mean direct benefits that will uplift the lives of many. For the government, they mean a bigger bill that needs to be funded, and one that risks rising further in the coming years.
Amid all the spending, the Duterte government is relying on the next tranches of its tax reform program for additional revenues. Four tax bills, which, among others, will raise tobacco and property levies, are stuck in Congress.
“The comprehensive tax reform program can help ensure a reliable revenue base and, more importantly, enhance the modernization of our economy,” economic managers said in a statement after their meeting.
“Completing the passage of the remaining tranches of the tax reform will ensure a steady revenue flow and equitable sharing of contributions for the government’s social and infrastructure programs while securing fiscal stability long into the future,” they added.
Adjusted
On Thursday, Duterte’s economic officials said the government was raising its budget deficit cap to 3.2 percent of gross domestic product (GDP), from the original 3 percent. A deficit indicates spending is outstripping revenues.
The wider deficit projection prompted the Duterte administration to hike its 2020 budget proposal by 9.1 percent year-on-year to P4.1 trillion. Apart from infrastructure, two new programs are expected to add to the bill – the universal healthcare law and the implementation of the Bangsamoro Organic Law.
According to Department of Finance’s earlier estimates, the universal healthcare law alone will cost the government P1.4 trillion over the next five years, P257 billion of which will come in next year.
Officials are banking on a fresh hike in tobacco taxes next year to partly fund the law, together with higher premium contributions from members of the Philippine Health Insurance Corp.
Funding estimates for the new Bangsomoro government are still unavailable, although under the 2019 budget, the new autonomous region was allocated P30 billion.
Trouble
Last year, the government recorded a deficit of P558.3 billion, equivalent to 3.2 percent of economic output, and settling above the official 3 percent cap.
It was the first time in nine years that the deficit cap was breached, and it happened in a year when additional revenues from the government’s tax reform program supposedly boosted state coffers by some P90 billion.
While exceeding the deficit in a single year is not a cause for concern, the upward adjustment in deficit limits in succeeding years of President Duterte means accommodating more spending, without any assurance that additional revenues will come in.
For the Philippines, this recalls a painful past, the early 1990s, when the government’s budget shortfall meant more borrowings, a bigger debt pile and less public resources for projects that uplift people’s lives.
To be fair, Duterte’s economic team is justifying heavy spending as necessary to “sustain the government’s investments on infrastructure and human capital development.”
But not all the government’s programs are being applauded like the healthcare and Bangsamoro laws. In 2017, Duterte signed Republic Act (RA) 10931, which grants free tuition in state universities and colleges (SUCs). A year after that, he officially mandated the government to subsidize farm irrigation through RA 10969.
Analysts say the two laws are impractical and will be ineffective. For instance, the Philippine Institute of Development Studies (PIDS), the state think tank, said free tuition, which this year has a budget of P51 billion, is unlikely to improve the poor’s educational attainment. The cost is bound to go up next year.
“The bulk of students in public higher education institutions are mostly from the higher income groups…Thus, giving free tuition to enrolled students in SUCs will benefit mostly the richer students,” PIDS said in a policy note in February 2017.
Action for Economic Reforms, another think tank, wrote in an article in December 2016, “where do we get money for all of this?”
For now, it appears that the budget health is controlled. From January to May, the deficit was merely at P809 million and was nowhere near the P624.4-billion cap this year.
However, the low year-to-date deficit was heavily a result of the inability of the government to spend on new projects during the first four months of the year, due to the delay in the passage of the 2019 budget.
Finance Secretary Carlos Dominguez III himself said earlier that P98 billion in programmed expenses was not disbursed during the period.
But the deficit could surge again next year, supposing the budget delay is not repeated, and absent an election like this year’s, which banned new public spending on infrastructure for 45 days.
For now, economic managers are not worried. “We remain steadfast in our commitment to build a more dynamic and competitive economy, one that will provide jobs to our workers, improve the living conditions of the poor, and create more opportunities for all law-abiding Filipinos,” they said in the statement.