Core
Business World, 20 August 2014
For fiscal years 2011 through 2013 and the first half of 2014, the Aquino III administration has failed to collect revenues it promised to collect, and underspent for programs, projects and activities that it promised Congress it will do. Is underperforming in revenue raising and spending the new normal? If so, shouldn’t Congress question the ability of the Executive Department to raise P2.3-trillion revenues and disburse P2.6 trillion in 2015?
For the first half of 2014, the planned budget deficit is P192.5 billion. Actual deficit was P54.0 billion.
But isn’t a lower deficit better than a bigger deficit? Yes, if you’re looking at it from the viewpoint of a bean counter: the lower the deficit, the better. No, if you’re looking at it from the viewpoint of the overall economy. The government has to incur a bigger deficit in order to invest in human resources and in the infrastructure needs of an expanding economy.
For the first half of 2014, the government planned to spend P1.179 trillion; it spent P987.7 billion or a difference of P191 billion. Imagine the beneficiaries of the government services that were denied such services because the government failed to implement its planned programs and projects.
For example, when school buildings are not built, the size of the deficit might appear smaller, yet public school children are denied the benefits of a better educational environment conducive for learning.
When farm-to-market roads are not constructed, the size of the deficit might look less threatening, but farmers are denied the opportunity to bring their produce from their farms to the markets, and hence earn higher income.
When housing for the calamity (Zamboanga and Yolanda) are not built on time, the size of the deficit might look more encouraging, yet potential beneficiaries are denied decent housing and more livable conditions.
The first lesson in public budgeting is that a smaller deficit (relative to planned level) is not necessarily good. Yet, Mr. Aquino’s economic managers generally make a virtue out of having a small deficit.
For the last three years and a half, the Aquino administration has consistently missed its revenue targets. In 2011, it promised to raise P1.411 trillion; it actually collected P1.359 trillion, or a shortfall of P51.4 billion.
In 2012, it promised to raise P1.560 trillion; it actually collected P1.535 trillion or a shortfall of P25 billion.
In 2013, it promised to raise P1.746 trillion; it actually generated P1.716 trillion of revenues, or a shortfall of P29.8 billion.
Apart from these historical facts, there are some serious questions on the ability of Finance Secretary Cesar Purisima to deliver on his promise to bring in P2.3 trillion worth of tax and non-tax revenues in 2015.
From 2011 to 2013, tax revenues grew, on average, by 11.97%. Yet, the Department of Finance (DoF) is assuming that tax revenues will grow by 16.7% from 2014 to 2015. Is this realistic?
From 2011 to 2013, Bureau of Internal Revenue (BIR) collections grew, on average, by 13.9%. Yet, the DoF is targeting that BIR collections will grow by 18.2% in 2015. What have the DoF done or plan to do to have such a rosy forecast?
The same doubt applies to the Bureau of Customs. Its collection from 2011 to 2013, on average, grew by 5.6%. Yet the DoF is forecasting that customs collections will increase by 11.9%. Is this realistic? What has the bureau done or plans to do to expect a doubling of the expected growth rate of customs collection?
For the last three years and a half, the Aquino administration has consistently been underspending, hence denying the economy and its people the benefits that it promised in the most recent budgets.
In 2011, the Aquino administrations promised to spend P1.711 trillion for various programs, projects and activities. In reality, it only spent P1.557 trillion (the Disbursement Acceleration Program, or DAP, included), or a difference of P153 billion.
In 2012, it promised to spend P1.84 trillion (again DAP inclusive) for various programs, projects and activities. It actually spent only P1.778 trillion, or a difference of P62 billion.
In 2013, it promised to spend P1.984 trillion for various programs, projects and activities of the government. In reality, it spent only P1.881 trillion, or a whopping difference of P103 billion.
Given the present crumbling and collapsing state of public infrastructure in the Philippines, the government should be spending the equivalent of 5% of GDP for public infrastructure. Yet, it has consistently under-budgeted for public infrastructure. Worse, the Aquino administration has failed to spend what little has been budgeted for public infrastructure.
In 2011, it promised to spend for public infrastructure the equivalent of 1.9% of GDP; it actually spent only the equivalence of 1.6% of GDP.
In 2012, it promised to spend for public infrastructure the equivalent of 2% of GDP; it actually spent only the equivalent of 1.8% of GDP.
In 2013, it promised to spend for public infrastructure the equivalence of 2.2% of GDP; it actually spent only 1.9% of GDP.
With this pattern of public infrastructure spending, there is little doubt that the Philippines won’t meet its goal of achieving sustained, strong and inclusive economic growth in the next few years.
The failure of the Aquino III administration to achieve both its revenue and spending targets may be attributable to three problems: first, overly optimistic revenue forecasts; second, poorly prepared budgets; and third, the existence of some inept secretaries.
Unless there are serious changes to address these problems, the pattern of missing revenue targets and government underspending would continue to exist.
