NG is back to its perennial deficit position

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Getting Out of the Fiscal Bind
Presentation by Romulo L. Neri Director
General Congressional Planning and Budget
Department
Getting Out of the Fiscal Bind
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NG is back to its perennial deficit position
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To Keep 2002 Deficit at P 130b..
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If current tax collections will not improve,
deficit will be at P160b
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As a consequence of the deficit, NG borrowing
increased significantly.
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Deficit financing bloats outstanding debt
In percent
In billion pesos
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Deficit financing leads to higher debt service
burden.
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The continuing deficit and increasing debt
raise the issue of sustainability.
in Percent
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As of July 3, 2002 SourceBloomberg L.P.
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Rising interest payments crowd out important
government expenditures
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Huge budget allocation also goes to personal
services
NG EXPENDITURES BY OBJECT (SHARE OF TOTAL BUDGET)
in Percent
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in Percent
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Compared with ASEAN, the Phil. spent less on
capital expenditures
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NG Revenue Performance
In Percent
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Tax Effort by Source
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The countrys revenue performance has
consistently lagged behind its ASEAN neighbors
Source Asian Development Outlook 2002
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Summary of Revenues Waived from Various Fiscal
Incentives Provisions, 1998-2000 (in billion
pesos)
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VAT evasion is estimated at 60 of potential
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40 of corporate income tax is not collected
In billion pesos
In percent
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Leakage in individual income tax is around 60
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Analysis NG of Fiscal Position, January-August
2002 (Amounts in Billion Pesos)
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National Government Revenue January-August, 2001
vs. 2002
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Large Regular Taxpayers by SectorJanuary to May
2002
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In percent
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In percent
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What Congress Needs to do

• Approve the Procurement Reform Bill
• Estimated loss due to corruption in public
  procurement ranges from P15b to P22b per year.
  Shift in electronic procurement will result in
  annual savings of up to 40

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What Congress Needs to do

• Approve the Reengineering of BIR
• Transform the agency into an autonomous,
  performance-based agency, i.e. governed by a
  Revenue Board and headed by a CEO who is under
  time bound performance contract with the Board.

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What Congress Needs to do

• Conduct Oversight of BIR
• Convene the Joint Congressional Committee as
  mandated in the Tax Code. Also, require BIR to
  submit to COA revenue audit.

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What Congress Needs to do

• Rationalize Fiscal Incentives
• Fiscal incentives granted under various laws
  have resulted not only in huge revenue losses but
  have also made tax administration very unwieldy,
  thus, opening avenues for graft and corruption.

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What Congress Needs to do

• Restructure Excise Tax
• Existing specific tax rates should be adjusted
  to its 1997 levels. Automatic indexation should
  also be provided to capture changes in price.

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What Congress Needs to do

• Reformulate the IRA
• New IRA formula should consider the disparities
  in expenditure needs and revenue generating
  capacities of LGUs. Criteria for distribution
  may include poverty indicators and HDI, assessed
  property values and average family income.

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ECONOMIC FACTORS IN COMPETITIVENESS
- Inefficient Shipping - Port Monopolies
LOW INVESTMENT