DOF: Share of tax collection, gov’t spending in GDP hit record highs in Q1

Thanks to additional revenues from the first tax reform package, the share of taxes collected by the government to the growing economy increased to a record high in the first quarter, the Department of Finance (DOF) said on Friday.

Also, the first-quarter expenditure effort or share of government spending in the Gross Domestic Product (GDP) reached a 15-year high of 20 percent.

These were achieved amid the rollout of the ambitious “Build, Build, Build” infrastructure program, Finance Undersecretary Gil S. Beltran said in an economic bulletin.

Last Thursday, the government reported that the GDP grew by 6.8 percent in the first quarter, still among the fastest in the region, although it was below the full-year target range of 7-8 percent as high inflation tempered consumption growth.

The expenditure effort from January to March this year also went up from 17.2 percent in the same period last year, which Beltran said was “the highest first-quarter expenditure effort since 2003, thus boosting its contribution to GDP growth.”

Philippine Statistics Authority data showed that government consumption jumped 13.6 percent in the first quarter, compared to 12.2-percent and 0.1-percent growth a quarter ago and a year ago, respectively.

Citing DOF data, Beltran said expenditures on public goods and services climbed 27.1 percent year-on-year to P782 billion as of end-March, “outstripping the 9.7-percent nominal GDP growth due to the estimated 40-percent increase in capital outlays.”

The share of taxes collected to the economy, meanwhile, improved to 14.5 percent from 13.4 percent last year, “the highest first-quarter tax effort ever achieved,” Beltran said.

The government’s tax take climbed 18.2 percent year-on-year to P567.1 billion in the first quarter, which Beltran attributed to the Tax Reform for Acceleration and Inclusion (TRAIN) Act as well as “improved” tax administration.

Signed by President Rodrigo Duterte in December, Republic Act No. 10963 or the TRAIN Law has jacked up or slapped new excise taxes on cigarettes, sugary drinks, oil products and vehicles, among other goods since January 1 this year to compensate for the restructured personal income tax regime that raised the tax-exempt cap to an annual salary of P250,000.

Combined with non-tax collections, total revenues grew 16.4 percent year-on-year to P619.8 billion, “as the first phase of the TRAIN Law took effect, almost doubling nominal GDP growth,” Beltran added.

As such, the revenue effort inched up to 15.8 percent from 14.9 percent a year ago, according to Beltran.

The first-quarter budget deficit of P162.2 billion was 4.1 percent of the P3.918-trillion nominal GDP, hence slightly above the 4-percent ceiling programmed by the Duterte administration until 2022 as part of its plan to ramp up infrastructure investments.

“Fiscal space expanded by the TRAIN Law and tax administration enabled government to boost investments and growth in the first quarter. Public construction expanded 25.1 percent, boosting GDP growth by 0.4 percentage point, while government consumption rose 13.6 percent, contributing incremental 1.4 percent to growth,” Beltran said.

“Strong macroeconomic fundamentals backed by tax reforms and the ‘Build, Build, Build’ program will continue to boost economic growth to the optimum 7-8 percent level as the competitiveness of the economy rises and more jobs are created,” Beltran added.

Under “Build, Build, Build,” the government plans to rollout 75 “game-changing” projects, with about half targeted to be finished within President Duterte’s term, alongside spending a total of over P8 trillion on hard and modern infrastructure until 2022 in a bid to usher in the “golden age of infrastructure.”

In a separate economic bulletin, Beltran said “strong macroeconomic fundamentals such as strong external position and ample fiscal space will continue to sustain the momentum for high growth.”

“The passage of the first package of tax reforms will bring in additional resources to fund the ambitious infrastructure plans and greater spending on social services. These investments are game-changing in the sense that they catalyze further investments, which, in turn drive investment-led growth, generate meaningful employment, and subsequently reduce poverty. With the implementation of infrastructure projects, the motion is set for investment-led growth,” according to Beltran.

Following the passage of the TRAIN Law, the DOF aims at least four more tax packages for Congress’ approval before yearend. /vvp