Growth, fiscal goals need to be ‘more realistic,’ says DoF chief

The development Budget Coordination Committee (DBCC) may need to adjust its growth and fiscal targets to be “more realistic,” Department of Finance (DoF) Secretary Ralph G. Recto said last week.

“We’re discussing that right now because I think we have to come up with more realistic targets,” Mr. Recto told reporters on the sidelines of an event on Thursday.

“Don’t you think we need some adjustment there? I think we need to. Something more realistic but still high for 2024 and beyond,” he added.

The government is targeting gross domestic product (GDP) growth of 6.5-7.5% this year and 6.5-8% from 2025 to 2028 under the DBCC’s latest macroeconomic assumptions and medium-term fiscal and growth goals.

The economy grew by 5.6% in 2023, slower than the 7.6% expansion in 2022. It also fell short of the government’s 6-7% goal for the year.

“We are reviewing all of that. It’s a six-year term for the President and we’ve finished one year and a half. We know what’s happening globally, so we have an idea of something more realistic,” the DoF chief said.

National Economic and Development Authority Secretary Arsenio M. Balisacan earlier said it could be too early to adjust their economic growth targets.

“It’s only the first (quarter) of the year and now you want to say reduce the 6.5% — that’s too defeatist,” he said.

Meanwhile, the Finance chief said the entire medium-term fiscal framework is also under review.

“The fiscal plan was made when (Ferdinand R. Marcos, Jr.) became president in 2022. There was no war in the Middle East, the Ukraine war had just begun. Thereafter, prices of food and oil rose,” Mr. Recto said. “That plan was done way back a year and a half ago. It’s always under review and more so today.”

The DBCC expects the National Government’s budget deficit to hit P1.39 trillion this year, equivalent to 5.1% of GDP. Broken down, revenues are expected to reach P4.24 trillion while disbursements are seen to hit P5.63 trillion.

Under the fiscal framework, revenues are programmed to account for 15-16% of GDP, while expenditures are equivalent to around 20% of GDP.

Mr. Balisacan also said earlier that the contraction in state spending in the fourth quarter was “intentional” due to the government’s fiscal consolidation plan. In the fourth quarter, government spending contracted by 1.8%, a reversal of the 6.7% growth in the previous quarter and 3.3% a year ago.

Mr. Recto noted that the government is not planning on cutting back on its expenditures.

“I’m not considering slower spending. At the very least we will keep the spending level at whatever it is right now under the DBCC program. Hopefully, we can even improve it. For as long as the deficit is going down and your debt-to-GDP ratio is going down, that’s what is important,” he added.

The DBCC last reviewed its targets in December. Its next meeting is scheduled in March.

TAX REVENUES

Meanwhile, the Bureau of Internal Revenue (BIR) said streamlining tax processes to attract more investments could mean foregone revenues for the government, which it will need to make up for by intensifying collection efforts in other areas.

“That’s the challenge, as we try to improve the process and implement the ease of paying taxes, of course we may lose revenues because of all the improvements,” BIR Commissioner Romeo D. Lumagui, Jr. told reporters on the sidelines of an event on Thursday.

“As we want to grow the economy, we’ve been giving incentives. We’ve been lenient on those in the hopes we will be able to attract investors. There are lost revenues in the meantime, so there is a lot we need to do to set off those revenue losses.”

For example, Mr. Lumagui said the agency will be focusing on improving excise tax collection this year, especially on tobacco and vape products.

“For this year, that will be our concentration, excise tax. We’ve analyzed what happened in 2023,” he said.

Mr. Lumagui earlier said there was an estimated 20% shortfall in excise taxes in the first four months of 2023 due to illicit tobacco.

“So many are shifting to vape. Hopefully, vape product registration will increase. Last year, we saw an increase in registrations because of what we’ve done, so hopefully it will increase this year,” he added, noting that the excise tax collection shortfall has been trimmed to about 13-14% at the end of 2023.

Data from the BIR showed it generated P137.18 billion in revenues from operations targeting the illicit trade of cigarettes, vape and other excisable articles in 2023.

The BIR collected around P2.53 trillion last year, missing its P2.64-trillion target for 2023 but surpassing its P2.34-trillion collection in the previous year.

This year, the agency is tasked to generate P3.05 trillion in revenues.

Mr. Recto also ordered the agency to accelerate its digitalization and modernization programs to make tax compliance easier.

“Additionally, we will strengthen enforcement efforts against tax cheats and ensure fairness in the tax system to build taxpayers’ trust,” he added.

Source: Business World

DBCC set to review macroeconomic assumptions

The development Budget Coordination Committee (DBCC) is expected to review its macroeconomic and fiscal program assumptions at its next meeting, taking into consideration government underspending and lower growth forecasts from multilateral lenders.

Finance Secretary Benjamin E. Diokno told reporters on Friday that the DBCC will see if growth targets need to be changed after the economic performance in the first semester.

In the first half, gross domestic product (GDP) growth averaged 5.3%, lower than the government’s 6-7% target.

“There are some changes from the Asian Development Bank (ADB) and World Bank, so we will review the growth targets, where we are on inflation, and then of course we will also review (government) underspending,” he said.

Multilateral agencies recently downgraded its Philippine growth projections after GDP grew by 4.3% in the second quarter, its slowest growth in over two years. The weaker-than-expected second-quarter expansion was partly driven by the 7.1% contraction in government spending.

The ADB recently lowered its Philippine growth outlook to 5.7% this year from 6% previously. The ASEAN+3 Macroeconomic Research Office (AMRO) also cut its GDP projection for the Philippines to 5.9% from 6.2% previously.

The World Bank is set to release its East Asia and Pacific Economic Update today (Oct. 2).

Asked if the DBCC will likely revise targets, Mr. Diokno said “there is always a chance, based on the most recent information.”

“Well, I think the general sentiment, at least based on my conversation with the World Bank, (is that) globally every country is being downgraded, but the good news is the Philippines will remain to be the fastest growing in this part of the world. We beat China, we beat Vietnam and Indonesia. Our growth is still faster,” he added.

The DBCC, which last met on June 9, is scheduled to hold another meeting before the end of the year.

Mr. Diokno also noted that a team from the International Monetary Fund (IMF) is conducting its Article IV Consultation mission for the Philippines since Sept. 21. A press briefing is scheduled on Oct. 3 (Tuesday).

The IMF earlier said it may revise its growth outlook for the Philippines, after slower-than-expected second-quarter GDP expansion.

The National Economic and Development Authority (NEDA) earlier said GDP has to expand by at least 6.6% in the second half to be able to meet the government’s 6-7% target.

Meanwhile, Mr. Diokno said the DBCC will also review its fiscal program since some key tax measures may not be approved by Congress in time for implementation in 2024.

“There are many measures that may not be passed this year, but there are some measures that will, so we will review (that). We do that every quarter,” he added.

For example, the Department of Finance’s (DoF) proposed junk food tax currently has no sponsor at the Senate and House of Representatives.

Mr. Diokno said he does not expect the junk food tax proposal to be passed this year.

“We will just rely on those bills that are likely to be passed. For example, single-use plastics (and) digital payment, that will go through,” he added.

In June, the DoF announced it was pushing for a tax on junk food and an increase on the tax on sweetened beverages. It earlier said that the combined measures could yield P76 billion in revenue in the first year of implementation.

Revenues from the junk food tax alone could generate around P20 billion, according to the department.

The government set its deficit ceiling at P1.499 trillion this year, equivalent to 6.1% of GDP. Its fiscal program this year is set at P3.729 trillion in revenues and P5.228 trillion in disbursements.

Source: Business World