Dominguez on Congress’ trillion-peso stimulus plans: No funds for that
The trillions of pesos in stimulus bills which Congress passed to revive the economy post-pandemic cannot be funded because of lack of excess revenue, according to the government’s chief economic manager.
Finance Secretary Carlos G. Dominguez III said if Congress insisted on passing the bills, the legislature would be committing an unconstitutional act.
Among the bills that legislators were toying with were the proposed P1.3-trillion Accelerated Recovery and Investment Stimulus for the Economy of the Philippines (Arise) and the P1.5-trillion COVID-19 Unemployment Reduction and Economic Stimulus (Cures).
The proposals would kick up the 2020 budget deficit to more than P3 trillion, or double the current deficit of P1.613 trillion already equivalent to 8.4 percent of gross domestic product.
Governments closely watch their budget deficits as these are indicators of a country’s creditworthiness.
Philippine economic officials had said they can allow a maximum of only 9 percent deficit this year to keep it in the median of other countries in Southeast Asia and those considered emerging markets.
An unmanageable deficit will imperil current credit ratings of a country and, in turn, blow borrowing costs upwards at a time when loans had become a key component of revenue generation for COVID-19 response.
“You have also seen other economic stimulus measures being debated in the legislature,” Dominguez said at the online Sulong Pilipinas workshop.
“We remain cognizant of the constitutional parameters that determine how we can fund various initiatives, well intentioned as they may be,” he said.
“The Constitution specifically requires the certification of excess funds and new revenue sources to support the passage of any supplemental budget,” he said.
“In running a business or a company, we know that borrowings or loans are not revenues,” he added.
He said there was wisdom in the constitutional provision barring supplemental budgets in the absence of additional revenue—“we jeopardize our fiscal sustainability” if new spending laws are passed without sources of funds.
At a press briefing after the forum, Dominguez pointed to a paragraph in the Constitution that reads: “A special appropriations bill shall specify the purpose for which it is intended, and shall be supported by funds actually available as certified by the National Treasurer, or to be raised by a corresponding revenue proposed therein.”
National Treasurer Rosalia V. de Leon explained that while the Bureau of the Treasury said funding for general appropriations and supplemental budget cannot come from borrowings as these are not considered revenue.
It was not only Dominguez who frowned upon the trillion-peso stimulus proposals in Congress.
Karl Kendrick T. Chua, acting socioeconomic planning secretary, had also shot down proposals for a supplemental budget because of weak collections amid a recession.
Dominguez said the stimulus bills proposed by legislators carried provisions “that make the proposals fiscally unsustainable.”
One of these, Dominguez said, was a provision that credit should be the sole responsibility of government financial institutions (GFIs) with “expertise on such functions” when the burden should be shared by “various executive agencies with different mandates.”
“We support cash-for-work and propose that this be redirected towards pressing needs related to managing the pandemic, such as the hiring of contact tracers,” Dominguez said.
“We recommend wage subsidies that are fiscally viable. Therefore, beneficiaries should be from areas that remain under the enhanced community quarantine and distribution should be done via digital payout technologies,” Dominguez added.
Asked if the economic team will seek a veto of the Congress-led proposals when they reach the President’s table, Dominguez replied: “That is a political question.”
“How will it look to the ordinary people when you’re saying, ‘oh, we promised you so much,’ knowing that is not fiscally sustainable? Is that the responsible political message you are sending? I’m not sure,” he said.
Dominguez noted that the Senate had already downscaled its proposed stimulus package to P140 billion—“so far” from the House bills in terms of cost.
“So we have to have some reconciliation of the bills before we really can move forward,” he said.
The Department of Finance (DOF) and the state planning agency National Economic and Development Authority (Neda) 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 features these:
- Extension of the Bayanihan law until end of the year
- Passage of Financial Institutions Strategic Transfer (Fist)
- Passage of Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery (Guide)
- Capital and spending support for businesses and consumers through bank liquidity support
- The Create bill that seeks to slash corporate income taxes to 25 percent as early as July
Edited by TSB
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