Business World, 6 March 2013


In 2011 the Philippine government targeted a budget deficit of ₱290 billion, equivalent to 3.2% of gross domestic product (GDP). It was so slow in implementing authorized public projects, that it ended up with a deficit of ₱197.8 billion, or ₱92.2 billion lower. By any standard, 2011 was a bad year. But 2012 was not any better: after targeting a budget deficit of ₱286 billion, actual deficit was only ₱242.8 billion.

The 2012 actual deficit could have been much lower had the government collected what it was supposed to collect in taxes and other non-tax fees and charges (revenue shortfall of ₱26 billion) and had it paid what it was to pay in interest payments (₱4.9 billion lower).

The Bureau of Internal Revenue had a revenue shortfall of ₱8.2 billion while the Bureau of Customs failed to collect a whopping ₱57.2 billion. These tax collection shortfalls were offset by better-than-planned revenue collection by the Bureau of Treasury (₱22 billion) and by other offices (₱17 billion). In sum, the net revenue shortfall was ₱26 billion.

Note that the collections of BIR and BoC are more or less stable, while revenue collections by the Bureau of Treasury and other government agencies more volatile.

Interest payments which are automatically appropriated was ₱312.8 billion, ₱4.9 billion less than the program level of ₱317.7 billion. Fiscal authorities should not get credit for lower-than-planned interest payments because interest rates are generally beyond their control. It could also be a case of over-programming, which is usually used to provide a buffer for possible revenue shortfall.

So, if everything worked out perfectly — revenues collected as planned and interest payments paid as programmed — actual deficit in 2012 should be ₱211.2 billion instead of ₱242.8 billion; in percent of GDP, it should be 2.0% instead of 2.3%.

But isn’t a lower deficit better than a higher one? Not necessarily and sometimes it depends on where one sits. From the viewpoint of a finance manager who’s more focused on the bottom line, a smaller deficit is better than a big one. But from the viewpoint of an economist, given the state of our economic development, we need to spend more to make up for epic infrastructure deficiencies and to spur development which would create a lot of jobs.

In any event, the deficit level of ₱268 billion [roughly 2.7% of GDP] was decided upon by the economic managers, and approved by the President. Hence, the inability of the Executive department and the bureaucracy to spend the national as authorized by Congress should not be seen as a sign of success. Rather, it should be seen as a sign of failure.

To claim success despite one’s failure to meet his own target is tantamount to intellectual dishonesty.

At this stage in our economic development, we should be spending the equivalent of 5% of GDP for public infrastructure annually. That’s about ₱528 billion in 2012 alone. Yet the 2012 national budget authorized only ₱258 billion, or only 2.4% of GDP. Worse, as of November 2012, roughly 40% of these have yet to be disbursed.

There is a huge difference between government budgeting and household budgeting. Governments pursue countercyclical fiscal policy: they spend more when times are hard, and generate surpluses when times are better.

Good governments don’t skimp on public infrastructure when times demand heavier spending for roads and bridges, urban transit systems, airports and seaports, irrigation facilities, water systems, plants, and other projects that enhances the productive capacity of the economy.

The Philippines rated poorly in terms of international competitiveness because of its crumbling public infrastructure. Yet, the government has not allocated enough funds to reverse this woeful situation. And what little money has been appropriated remains tied up in the bureaucratic labyrinth.

The much-vaunted public-private partnership (PPP) projects remain stalled. Many good projects have not gone beyond the talking stage. Others have not gone beyond the project feasibility preparation stage. The crucial decision on whether we want to have two major international airports (Manila and Clark) or just one still hangs in the air. (see table)

When compared with 2011 (clearly a bad year for comparison), revenues and expenditures in 2012 might appear impressive. But that’s the wrong comparison. Everyone knows that 2011 was a terrible, underwhelming year.

Fiscal year 2012 was equally underwhelming. Revenues were below target. The Bureau of Customs failed to meet its revenue goal miserably. Government spending performance was much worse than the P62 billion underspending. Slow implementation of public infrastructure projects was the major reason for underspending. Imagine the benefits postponed and the number of decent jobs not created as a result of the delays.

A detailed report by the Department of Budget and Management on the extent of underspending is long overdue. Delays in releases of government reports usually mean bad news.