Chua: Gov’t can’t fund stimulus packages worth trillions of pesos
The Duterte administration’s economic team is trying to convince Congress to scale down proposed economic stimulus packages costing trillions of pesos, as the government cannot afford them while much of limited public funds continues to go to COVID-19 response.
Since Congress already adjourned sine die on Thursday (June 4), Finance Secretary Carlos G. Dominguez III said on Friday (June 5) that the economic team was in discussion with the Office of the President to possibly convene a special session for pending priority bills.
One of the priority bills left hanging when Congress adjourned was the proposed Corporate Recovery and Tax Incentives for Enterprises (Create) Act, which Dominguez had described as a stimulus package that could restart the economy post-pandemic.
Dominguez, chief economic manager of President Rodrigo Duterte, first raised the possibility of a special session by Congress last week as a Plan B if the Senate failed to pass Create for lack of time.
Create, when it was still known as Corporate Income Tax and Incentives Reform Act (Citira), was passed by the House of Representatives last year.
It seeks to slash corporate taxes from 30 percent, the highest in Asean, to 25 percent in July, which would translate to P45 billion in forgone government revenue, according to Dominguez.
Dominguez said this amount could be reinvested by companies which would rev up the economy.
Albay Rep. Joey Salceda, who is also an economist, already urged his colleagues to meet during the break and pass legislation to bring health back to the economy.
The two chambers of Congress also failed to pass the Bayanihan to Recover as One Act, or Bayanihan 2.
But acting Socioeconomic Planning Secretary Karl Kendrick T. Chua earlier on proposed to instead extend the existing Bayanihan to Heal as One Act, which he said could be the simpler way to continue allowing the Executive to realign funds and be flexible on procurement.
On Friday (June 5), Chua told an online press conference that the Philippines could afford a budget deficit equivalent to only as much as 9 percent of gross domestic product (GDP) in 2020.
Last week, the Cabinet-level Development Budget Coordination Committee (DBCC) approved a higher deficit ceiling of P1.613 trillion, or 8.4 percent of GDP, from P1.563 trillion or 8.1 percent of GDP.
Taking these numbers into account, the P1.3 trillion Accelerated Recovery and Investments Stimulus for the Economy of the Philippines bill, passed by the House on third reading, could be unaffordable to the government.
“We are in discussion with the congressmen that such an amount would not be fundable,” said Chua, who also heads state planning agency National Economic and Development Authority (Neda).
He said this was “because any supplemental budget or stand-by appropriation would require new revenue sources—and that is very limited.”
The yearly budget deficits in 2020 and 2021 were expected to reach more than P1 trillion as a result of low tax collection because of the recession and increased spending on COVID-19 response.
This prompted the economic team to shoot down proposals for a supplementary budget this year.
“Financing or borrowing is not a revenue source—they [legislators] are beginning to understand,” Chua said.
Legislators, he said, would have to meet in the bicameral conference committee to address this.
“We are in the most uncertain times,” Chua said.
He added that the 9 percent deficit is “where we will be at the median of our comparative countries in Asean, East Asia, emerging markets and those with similar credit ratings.”
“And these things are changing, so if we find ourselves in the near future that the median has adjusted, then that will provide us more room to increase the stimulus,” Chua said.
“But for now, we have to be very mindful of the situation wherein we have to balance the need to respond to the people and to maintain our fiscal position,” he said.
He added that doing so would “allow us to respond even more in case there are future shocks or a second wave” of coronavirus.
“Nothing is certain,” he said.
“For now, we think that the best way to help the economy is a combination of fiscal support and monetary support,” according to Chua.
Neda and the Department of Finance (DOF) had been pushing for their own stimulus package—the P173-billion Philippine Program for Recovery with Equity and Solidarity (PH-Progreso), equivalent to only 0.9 percent of GDP.
PH-Progreso included the extension until yearend of the Bayanihan Law and passage of these two bills—Financial Institutions Strategic Transfer (Fist) and Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery.
The proposed package also offers capital and spending support for businesses and consumers by providing liquidity to banks and companies.
Last week, Chua said a fresh P846-billion stimulus was needed to revive the economy estimated to shed P2.2 trillion this year.
So in case PH-Progreso was passed by Congress, the remaining P673 billion—equivalent to 3.5 percent of GDP—required to finance the package could come from budget savings, off-budget items, monetary policy, regulatory relief and private sector contribution.
The funds would be raised without pumping further the deficit balloon.
