PH spending-to-GDP ratio hits record 24.1 percent

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MANILA, Philippines—The Philippines’ annual expenditure effort, or the share of spending on public goods and services to the economy, reached a historic high of 24.1 percent in 2021 as the government spent more to fight the prolonged COVID-19 pandemic.

However, the latest Department of Finance (DOF) data on Thursday (March 3) showed that the revenue effort or share of tax and non-tax collections to gross domestic product (GDP) further declined to 15.5 percent last year from 15.9 percent in 2020 and 16.1 percent in 2019, pre-pandemic.

Last year, the national government’s expenditures reached a record-high P4.68 trillion, over a tenth higher than the P4.23 trillion spent in 2020. Actual 2021 disbursements were 1.3-percent below the P4.74-trillion program due to interest payment savings.

Total revenues grew 5.2 percent to more than P3 trillion in 2021 from P2.86 trillion in 2020 while also exceeding the P2.88-trillion target by 4.3 percent. But last year’s revenues remained lower than the record P3.14 trillion generated in 2019.

DOF data showed that the tax effort nonetheless inched up to 14.1 percent in 2021 from 14 percent in 2020, although still below 2019’s 14.5 percent. Tax collection last year improved by a faster 9.4 percent to P2.74 trillion from P2.5 trillion in 2020, but still lower than 2019’s P2.83 trillion.

The Bureau of Internal Revenue’s (BIR) tax effort declined to 10.7 percent in 2021 from 10.9 percent in 2020 and 11.1 percent in 2019. The Bureau of Customs (BOC), meanwhile, improved its tax effort to 3.3 percent last year from 2020’s 3 percent and 2019’s 3.2 percent, as the agency ramped up collections of import duties and other taxes amid more expensive oil and economic recovery in 2021.

The larger expenditures yet still recovering revenues last year resulted in the Philippines’ biggest budget deficit ever, amounting to P1.67 trillion in 2021, equivalent to a record 8.6 percent of annual GDP.

Speaking at the BIR’s 2022 national tax campaign kickoff, Finance Secretary Carlos Dominguez III said this year will be “critical” to jump-start fiscal consolidation or narrowing the budget gap to pre-pandemic levels of about 3 percent of GDP, mainly by growing the economy faster and improving tax administration through digitalization.

“Due to the unexpected costs of the pandemic and the lower revenue collections arising from a slowdown in economic activity, our budget deficit and debt-to-GDP ratios have temporarily increased. But they remain manageable, and we are determined to return quickly to fiscal consolidation,” Dominguez said.

The fiscal consolidation program spearheaded by the Department of Finance (DOF), which will be pitched to the next President, was aimed at narrowing the budget deficit while easing the 16-year-high public debt ratio. Dominguez said this strategy will form part of the Duterte administration’s transition plan to the next administration.

Dominguez said “essential to our fiscal consolidation program is the improvement of our revenue collections to meet our expenditure requirements.”

“We need to begin outgrowing our debt by restoring our high growth. To lead our strategy for quick recovery, we need to spend more on infrastructure modernization,” Dominguez said.

“We must invest more in our public health system and social services. We have to continue procuring vaccines for our people. We need to rebuild communities damaged by severe weather events caused by climate change,” Dominguez added.

He said the BIR, as the country’s biggest tax-collector, needs to sustain its modernization to not only facilitate transparency but also bring convenience to taxpayers en route to ramping up collections. The BIR had been tasked with collecting P2.44 trillion in taxes this year.

TSB