As spending for COVID-19 response pile up while revenue collection slows down during the pandemic, Finance Secretary Carlos G. Dominguez III on Wednesday (May 6) said that 2020’s budget deficit could balloon to “around P1 trillion.”
Dominguez told a press conference that the additional funding for COVID-19 response would come from more loans from Asian Development Bank (ADB), World Bank (WB) and Asian Infrastructure Investment Bank (AIIB).
Talks with these lenders were “making good progress,” said Dominguez.
The Duterte administration has thought of what officials said was a four-pillar socioeconomic strategy against COVID-19.
To finance it, however, the government was resorting to more loans of up to P310 billion from foreign lenders on top of a record-high P1.4 trillion in borrowings programmed in the 2020 national budget.
Dominguez disclosed that the Philippines was also in “very early stages” of talks for project-based financing from other countries like China, France, Japan and South Korea.
The Cabinet-level Development Budget Coordination Committee (DBCC) in April projected 2020 expenditures on public goods and services to climb to P4.163 trillion from P3.798 trillion in 2019, leading to wider budget deficit of P990.1 billion equivalent to 5.3 percent of GDP.
The government expected to collect P3.173 trillion in tax and non-tax revenues in 2020, barely up from P3.138 trillion in 2019.
Dominguez said the extension of tax-filing and payment deadlines to help people stay at home had delayed collection of income taxes earned in 2019.
“So we should still have a hefty collection, only postponed,” Dominguez said.
Dominguez, however, said collection of “sin” taxes on alcohol and tobacco were “very bad” while the take from levy on sugar-sweetened beverages was “weak” during the enhanced community quarantine of Luzon and other parts of the country since middle of March.
Since sin taxes will finance a portion of the universal health care (UHC) program, Dominguez said that the government will review the funding projections of the state-run Philippine Health Insurance Corp. (PhilHealth).
“We will have some proposals on that, because the expenditures of PhilHealth are also going up because of this COVID-19 virus,” the finance chief said.
“We have to measure both sides—the additional expenditures and growing revenue,” Dominguez said.
As a form of relief to businesses post-pandemic, the government may also slash corporate income tax rates “more quickly than originally planned” through the proposed Corporate Income Tax and Incentives Reform Act (Citira), Dominguez disclosed.
Citira was aimed at giving rational to tax perks for investors, while gradually reducing the income tax rate on businesses to 20 percent over a 10-year period from 30 percent at present—the highest in Southeast Asia.
Given smaller revenue collections and projections to date, Dominguez said that the executive could not seek from Congress a supplemental budget for 2020.
“We have been very careful about asking for supplemental budget because, actually, we don’t have supplemental revenue,” Dominguez said.
“So we will strive to live within the P4.1-trillion budget this year, and so far we’ve been okay with that,” he said.
“It’s difficult because we have to reallocate from past priorities to new priorities, but that’s the reality of the situation,” Dominguez said.
He added that finance officials are reviewing the budget proposal for 2021 “to see how this will proceed.”
Asked for his expectations on first-quarter gross domestic product performance, Dominguez said that GDP could still post positive growth at the start of 2020.
The government will report the first-quarter GDP figures on Thursday (May 7).
He said a series of events was taking its toll on the economy starting with the Taal eruption in January, travel ban on China and the lockdown in March.
“When we calculated it, it’s more positive than negative because the curtailment was less than one-half of the period of the quarter. But I think April, May and June are going to be quite bad,” Dominguez said.
Dominguez admitted that full-year GDP “might be” worse than the DBCC’s projection last month that the economy may post zero growth at best, or shrink by 1 percent at worst.
“We are monitoring reports from other countries, and it looks like there is no magic medicine for this thing,” Dominguez said, referring to the COVID-19 pandemic.