"Higher expenses, lower revenues."
"Higher expenses, lower revenues."
The preparation on the annual General Appropriations Act (GAA), aka the national budget, essentially involves two numerical estimates. One of these is the estimate of total government expenditures during the year being budgeted for; the other estimate is of total government revenues during that twelve-month period. If the revenues exceed the expenditures – a very rare happening – the government records a surplus. If, on the other hand, the expenditures exceed the revenues, the government resorts to borrowing, either from its own citizens or from foreigners.
A budgetary deficit – an excess of expenditures over revenues – is usually caused by a single whammy: either government above-budget spending or government revenues’ falling short of the estimate. Seldom is it the result of above-estimate expenditures coupled with a revenue shortfall. That’s a double whammy.
But a double whammy is what has hit the government of this country in the wake of the outbreak of the coronavirus pandemic. With the massive loss of jobs and the widespread business shutterings following the placement of Metro Manila, and later the whole of Luzon, under an expanded community quarantine (ECQ), the government had no choice but to enact legislation providing for a program of special-amelioration assistance to jobless workers and MSMEs (micro, small and medium-sized enterprises). Needless to say, the nearly P500 million approved for the program has sharply increased the deficit that was projected by the 2020 GAA. The first round of financial-relief payments apparently having fallen short of the mark, Congress is poised to enact legislation calling for a second round of payments. The amount being considered is close to P500 million also.
As if the sharp increase in government spending were not enough, the revenue side of the public-sector fiscal equation has turned very bad. The government’s revenues have been gravely weakened by the business closures and job losses resulting from the Luzon-wide ECQ. The stay-at-home regimen has hit workers across the board and the major revenue-producing economic sectors – tourism, services and manufacturing – have seen their tax-paying capabilities severely eroded. May 15 and July 15 this year are going to be sad days for the Bureau of Internal Revenue.
It has truly been double-whammy time for the government. The present situation is unprecedented; never in the post-war era have the fiscal authorities been whammed on the expenditure side and the revenues side simultaneously.
One of the macroeconomic fundamentals that the Philippine government – any government, for that matter – watches very closely is the ratio of the national debt to GDP (gross domestic product). After the economic crisis of 1969-1970, which saw this country unable to service its external debt, successive administrations have sought to steadily reduce the debt-to-GDP ratio to a prudent level. The ratio has been in the 41-45% level during the past decade. Given the uncertainty of the present pandemic situation, it is very difficult to say where the ratio will eventually settle. What can be said with certainty is that the government will have a lot of work to do in order to restore the debt-to-GDP ratio to a level acceptable to the international credit rating agencies. The government will have to either produce higher GDP growth – a difficult thing to do, given the Philippine economy’s inability to attain the 7-8% annual growth target of the current Philippine Development Plan – or reduce its expenditures and hence its borrowings. Spending cuts are highly unpopular, and therefore politically risky, particularly when undertaken in the context of a 21% national poverty rate and an inadequate physical and social infrastructure.
Very daunting will be the task of those charged with preparing the 2021 GAA proposal, which by law must be submitted to Congress within one month after the delivery of the president’s state-of-the-nation address. They will have to deal with the fiscal debris of the coronavirus pandemic.
The Philippines is, of course, not the only country that has been dealt a double whammy by the pandemic. Every country that has had to place its economy on lockdown has seen its national budget devastated by sudden sharp increases in expenditures and equally sudden and sharp revenue downturns. The major countries have all enacted emergency legislation providing for hundreds of billions of dollars of disaster-relief payments to jobless workers and closed businesses; US legislators have provided thus far $4 trillion worth of such payments. Knowing that the Philippines is not alone in its present fiscal predicament is doubtless a source of consolation – though not much to the fiscal authorities of this country.
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I would like to share with the concerned government agencies, especially the Department of Information and Communication Technology, a suggestion I have received from former Bais City Mayor Hector C. Villanueva for raising additional funds for the government’s social amelioration program. Why not request the more than 150 million subscribers of the telecoms companies Smart/Sun and Globe to contribute P1 per day to the SAP, Mr. Villanueva asks. That would raise P150M/day, or almost, P4.5B per month. Even 10 percent of that subscriber base would yield P10M per day.
Paging DICT chief Gregorio Honasan and the telecoms companies’ top honchos.
