The government will not be able to balance its budget by 2010 as planned, said Economic Planning Secretary Ralph Recto, director general of the National Economic and Development Authority (NEDA).

The government will post a budget deficit equivalent to 0.5-1.0 percent of the gross domestic product by 2010, Recto said, noting that since the government would allow for a 2009 budget deficit of up to P102 billion—1.2 percent of the projected GDP—it would be difficult for the government to balance the budget in 2010.

He said the decision to adjust next year’s target limit for the budget deficit, from P40 billion, was necessary to help the Philippines weather the impact of a global recession projected next year.

Recto said the P1.4-trillion national budget for 2009 would add two percentage points to the growth in the gross domestic product. Combined with the private sector’s contribution, the government could attain its 2009 economic growth target of 3.7-4.7 percent, he said.

The economy is expected to grow 4.1-4.8 percent this year, compared with last year’s 7.2 percent.

To keep the economy afloat next year, the government is banking on the expected cut in the corporate income tax rate from 35 to 30 percent, as well as the tax relief that has been recently granted to individual taxpayers.

Recto said the measures would help boost domestic consumption and minimize the impact of a global recession.

The corporate income tax rate will be reduced by five percentage points next year as stated in the value-added tax (VAT) law of 2005.

A provision of that law, mandating a reduction in the corporate income tax rate, was inserted by Congress to provide relief to taxpayers following the increase in the VAT rate to 12 percent from 10 percent.

“The cut in the corporate income tax will be an incentive for companies next year, and this may help [prevent] them from cutting jobs,” Recto said.

The government will forego about P15 billion in potential tax collection in 2009 because of the drop in the corporate income tax rate, the Department of Finance said.

Recto said 2009 would not be as gloomy as others fear because there are positive factors that will offset the effects of a recession. Recto said domestic consumption, which is a major growth driver for the Philippines, would be supported by lower taxes, among other factors.