DOF: PH borrowed P1.15 trillion to fight COVID-19

 

The Philippines’ borrowings to finance the prolonged fight against COVID-19 already hit P1.15 trillion, adding to the pandemic-induced fiscal scarring which could be aggravated by foregone revenues from stimulus measures and the bigger budgets to be enjoyed by local governments, the Department of Finance (DOF) said on Tuesday.

While the COVID-19-related loans totaled $22.58 billion, the DOF said in a statement that the total financial cost — including interest payments — amounted to a bigger $28.91 billion or P1.47 trillion.

“The projected amount of interest payments until maturity is $6.32 billion or P320.85 billion. These loans will mature between 2024 and 2060,” the DOF said.

These higher financing costs borne by the government were among the challenges the DOF wanted to be addressed by the fiscal consolidation plan it was crafting, to be pitched to the next administration to narrow the budget deficit and repay ballooning debt.

Finance Secretary Carlos Dominguez III also flagged the possible “long-term economic scarring” if the national government’s revenues cannot keep up with expenditures on public goods and services, which will be reduced starting next year by implementing the Supreme Court’s Mandanas-Garcia ruling.

“Tax revenue losses from the pandemic-induced economic slump, the rise in debt to fund our COVID-19 response, the looming revenue impact of our economic recovery measures, and lower spending efficiency as a result of the Supreme Court decision to expand the share of LGUs [local government units] from the NTA [national tax allotment] must be adequately addressed by the next administration’s economic team,” Dominguez said.

Next year, LGUs will receive over P959 billion in NTA, formerly called internal revenue allotment (IRA).

To recall, the Supreme Court granted in 2018 and reaffirmed a year later the petitions of Batangas Gov. Hermilando Mandanas and former Bataan Gov. Enrique Garcia Jr., which stated that the LGUs’ IRA should come from 40 percent of the collection of all national taxes — the Bureau of Internal Revenue’s (BIR) tax take, as well as the Bureau of Customs’ (BOC) collections of import duties and other taxes.

“Based on our estimates, the implementation of the Supreme Court’s 2018 ruling will yield lower economic growth because local governments spend less efficiently,” Dominguez said.

“The DOF’s estimates found that implementing the High Tribunal’s 2018 decision will yield 3-percent lower economic growth, because the higher LGU allocation will be subject to a lower spending efficiency,” Dominguez said, referring to the share to total disbursements of productive expenditures which goes back to the economy, generates multiplier effects, creates jobs, stimulates demand and improves the quality of life.

Dominguez said the national government spends more than twice as efficiently as LGUs.

The World Bank had estimated that LGUs might fail to spend as much as P155 billion from their NTA next year.

Up to this year, LGUs’ IRA represented two-fifths of national internal revenue taxes collected by the BIR.

The NTA, meanwhile, was based on LGUs’ 40-percent share from all tax revenues collected three years prior, hence next year’s allotment had 2019 as the base year.

LGUs’ 2022 NTA jumped from an estimated IRA of only P846.31 billion for next year without the so-called Mandanas ruling. This year, LGUs’ IRA amounted to P695.49 billion.

Next year’s implementation of the Supreme Court’s 2018 decision on the Mandanas-Garcia petitions reduced the government’s fiscal space, such that President Duterte issued Executive Order (EO) No. 138 in June to transfer to LGUs the responsibility to spend on local infrastructure, agriculture, social welfare, health care, and livelihood, among other sectors included in the Local Government Code.

While the Supreme Court’s Mandanas ruling will provide LGUs with more money, they were expected to struggle spending their larger budgets to implement big-ticket programs and projects devolved by the national government through EO 138.

Dominguez also pointed to foregone revenues to be inflicted by the Corporate Recovery and Tax Incentives for Enterprises (CREATE) as well as Financial Institutions Strategic Transfer (FIST) Laws.

While both were “crucial to a quick economic recovery,” Dominguez said that for 2021 to 2024, these two laws would result in revenue losses reaching P1 trillion on average each year.

For instance, the CREATE Law cut the income tax rate slapped on large corporations to 25 percent while slashing the levy on micro, small and medium enterprises (MSMEs) to 20 percent, retroactive to the middle of last year, from 30 percent previously, which had been the highest in Asean.

The government was hopeful that firms’ tax savings from CREATE would be reinvested amid economic recovery from the pandemic-induced slump.

The Development Budget Coordination Committee (DBCC) had estimated the CREATE Law will shed P118.8 billion from tax collections next year; P115 billion in 2023; and P106.5 billion in 2024. This year’s revenue loss from CREATE was estimated to reach P138.2 billion.