Philippines 2011 budget deficit at P197.8-B
Will taxes increase? Should the government borrow more to finance social services?

MANILA, Philippines [UPDATED] – The government ended 2011 with a budget deficit of P197.8 billion, equivalent to 2% of its gross domestic product (GDP), government officials announced on Monday, March 5.

The Aquino government had programmed a P300 billion budget gap for its first full year in office after hitting a record high of P314.46 billion in 2010, which was equivalent to 3.5% of GDP.

In 2011, the government spent P1.557 trillion against a total revenue collection of P1.359 trillion. 

Below is the breakdown of revenue collections:

  • P924.146 billion from Bureau of Internal Revenue (BIR), which accounts for about 70% of state revenues
  • P265.108 billion from the Bureau of Customs
  • P75.236 billion from Bureau of Treasury, which also collects dividends from government-owned and –controlled corporations

The BIR improved its tax effort to 9.5% in 2011 from 9.1% in 2010, while Customs’ slightly decreased to 2.8% from 2.9% due to lower rice importations.

Finance Secretary Cesar Purisima cited efforts to catch and file cases against tax evaders and other wrongdoers for the improvement in tax effort.  

“This is a concrete proof that our efforts to plug the loopholes in our tax system and fight tax evasion and smuggling are bearing fruit,” Purisima said on Monday.

Still, he admitted that there is a need to generate more revenues to keep the economy growing.

The reforms in sin taxes and rationalization of fiscal incentives top his fiscal agenda.

“We are pushing for the enactment of these vital bills in Congress as we believe on their positive contribution to the economy,” Purisima said.

Catch-up spending

On the spending side, the lower deficit resulted in “savings” of P42.6 billion in interest payments on debts. The government paid a total of P279 billion in interest payments, reflecting a 5.2% year-on-year decline.

Meanwhile, the government’s Disbursement Acceleration Plan pushed disbursements in December 2011 to an all-time high of P211.7 billion.

Monthly spending traditionally contributes 8% to 10% to the annual aggregate, but December’s was at 13.6% as the government played catch up since spending was on the slack during the earlier parts of the year.    

Overall, however, the annual aggregate spending still fell 7.8% short of the government’s target.

Budget Secretary Florencio Abad attributed this to government’s anti-corruption efforts.

“We nonetheless acknowledge that the pace of government spending was dampened by efforts to improve the quality of spending, particularly in infrastructure where this government undertook a painstaking-yet-necessary review and reform of cost assumptions, quality standards and procurement processes,” Abad said in a statement.

Economic health

Philippine officials, analysts and market participants usually watch the deficit reports to get guidance on whether new tax measures should be passed, new debt instruments would be issued, interest rates are raised or lowered, or whether the government could increase or temper spending for social services. 

The budget deficit is a measure of the economic health of a country and reflects discipline in fiscal spending. It is the difference between the actual amount spent by the government for social services, military, education, and other government services and the revenues it collected through the tax, customs, and treasury agencies, as well as from sale proceeds of state assets.

The Philippines is one of the most active participants in the global debt market where it sources funds to plug the deficit.

Concerns about a possible fiscal crisis have led the previous administrations to raise taxes in the past. However, alarms on deficit levels of the Philippines and other countries have waned in recent years given the massive levels reached by the likes of the US, Greece and other countries in fiscal distress.

Amid global financial woes, however, support for economies like the Philippines to increase government spending – despite impact on deficit levels – are apparent to continue growing.

The Philippines grew only by 3.7% in 2011 – slower than the 7.6% in 2010 – due to delays in infrastructure spending and impact of external events to our exports. –

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