10/28/2009 | 01:20 AM
Whoever replaces President Gloria Macapagal Arroyo next year should brace for a fiscal crisis — a situation where the government does not have enough resources to pay off its debts — due to falling revenues and legislated tax cuts, a former Cabinet official claimed on Tuesday."The next president will inherit a very weak fiscal position... There is increasing risk that we are going to have a fiscal crisis," former Budget secretary and University of the Philippines economist Benjamin E. Diokno said during a meeting of the Management Association of the Philippines.
"If ever, that [crisis] will erupt during the next administration... Government spending will be constrained by weak public finance."
Mr. Diokno, who also writes a column for BusinessWorld newspaper, noted that Congress was continuously passing revenue-eroding measures despite the government’s lackluster revenue collection performance.
"Revenues are much lower... The BIR (Bureau of Internal Revenue) and Customs continue to have problems. There are also laws that resulted in revenue losses. What the government should do is to stop the passage of tax-shredding measures," he later told reporters in Filipino.
Sought for comment, Finance department fiscal and policy planning director Teresa F. Habitan said the government would work hard to avert a fiscal crisis and raise additional revenues.
"There will be challenges since there are laws that led to the erosion of revenues. We are already looking for measures to plug the loopholes. We will try to collect more revenues. We will not allow it (a fiscal crisis) to happen," she said in a telephone interview.
"We will also ask Congress to pass measures that will generate revenues."
Peter L. Wallace, founder of the Wallace Business Forum, said: "I think it’s a little too early to say [that a fiscal crisis is looming]. What has happened is that we raised the red flag. There is quite a possibility of a fiscal crisis if [fiscal] discipline is not maintained over the next few months."
Mr. Diokno said the government’s fiscal flexibility — recurring revenues less personal service, interest payments, internal revenue allotment to local government units and net lending — would nearly disappear next year if it failed to raise enough revenues.
"The flexibility would be practically nil ... What if the next administration needs a stimulus program?" he asked, adding that this would be aggravated by a huge debt load.
Mr. Diokno said the next administration should come up with a solid "fiscal recovery program" composed of new tax measures and targeted spending.
"I am in favor of raising consumption tax and cutting personal income tax. This is taxing people on what they take away from society, which is consumption, [rather] than what they give to society which is income," he said.
"The plan should also involve more focused public spending ... There is also a need to address corruption."
It would also be impossible for the government to attain a balanced budget in 2013, he said.
"Not even in the next six years given the severity of the fiscal problem," Mr. Diokno said.
He called the goal to close the budget gap in 2013 "ill-advised" as this would entail cutting spending on vital public services.
The economist said the government should instead allot resources to expand the coverage of conditional cash transfers and health care.
"You do not need to balance the budget. A 2 percent or 1 percent deficit to GDP (gross domestic product) ratio is okay if this would mean providing help to the poor," Mr. Diokno said.
Revenues for January to September totaled P839.8 billion, lower than last year’s P879.9 billion, which officials claimed was due to slower economic activity and tax perks enacted by Congress.
Declining revenues were the main reason why the deficit ballooned to P237.5 billion as of September, 95 percent of the full-year target of P250 billion.
Congress has so far approved six revenue-eroding measures — the income tax relief law, the National Grid Corp. franchise which allowed the firm to pay a 3 percent franchise tax in lieu of other taxes, perks under the Personal Equity and Retirement Account, Real-Estate Investment Trusts and Tourism laws, and the abolition of the documentary stamp tax on the secondary trading of stocks.
Expectations of lower revenues and the need to hike spending to mitigate the impact of the global downturn forced the government to defer the balanced budget goal from next year.
The government is also raising funds to rehabilitate the areas hit by storms Ondoy and Pepeng, which cased over P30 billion worth of damage and killed nearly a thousand people. - BusinessWorld
Source: http://www.gmanews.tv/story/175739/arroyo-successor-should-prepare-for-fiscal-crisis
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