DOF plans to cut CPS deficit

The Department of Finance (DOF) is going for an ambitious target to reduce the consolidated public sector deficit (CPSD) to 2.3 percent of gross domestic product (GDP), a sharp drop from the original 4.8-percent target for 2005.

Finance Secretary Cesar V. Purisima told reporters over the weekend that the DOF’s target was to dramatically improve the consolidated public sector financial position by raising revenues by as much as 2.5 percent.

According to Purisima, the reduction would be equivalent to 2.5 percentage points.

The CPSD represents the combined financial position of the National Government and government-owned and controlled corporations (GOCCs) including government financial institutions (GFIs).

At the end of 2004, the CPSD was recorded at P233.457 billion, equivalent to 4.8 percent of GDP, much lower than the P315.975 billion programmed for the year which was equivalent to 6.7 percent of GDP.

At this level, the total public sector borrowing requirement was P286.104 billion, equivalent to 5.9 percent of GDP.

Finance Undersecretary Emmanuel Bonoan said the drastic reduction was possible if the government would be able to collect the incremental revenues that it was targeting.

For the year, the Arroyo administration expects to increase its tax revenue collection by 2.5 percent of GDP, equivalent to P128 billion. This amount is about P48 billion more than the P80-billion incremental revenues covered by its tax reform agenda.

Bonoan said it would be possible to raise tax revenues by improving the tax effort as well as legislating new taxes or raising the rates of existing taxes.

The DOF had originally expected the CPSD to drop to P203.865 billion in 2005 from P263.217 billion in 2004 as the Arroyo administration anticipated the impact of its revenue measures.

According to the DOF, the revised estimates indicated that CPSD this year would be only P203.865 billion equivalent to 3.8 percent of GDP and the PSBR would reach P240.878 billion or 4.5 percent of GDP.

But Purisima said the numbers could be even better than 4.8 percent especially with the improvements in BIR’s revenue collection under existing tax laws.

Purisima, however, did not say how drastically the DOF would have to reduce the target deficit for the National Government which accounts for over 80 percent of the CPSD.

The original CPSD estimate was based on the revised 2005 deficit target of P180 billion but even then, the DOF already had to make two serious assumptions: that it would collect additional revenues from administrative measures already in place and legislative measures will be passed in 2005 without being offset by increase in government spending.

The DOF also included in its projection partial proceeds from the privatization of some assets of the Power Sector Assets and Liabilities Management Corp. (PSALM) and further assumed proceeds from the increase in power rates of the National Power Corp.

The returns from the restructuring of the power sector, however, were also expected to be offset by a corresponding increase in the capital expenditures of some government owned and controlled corporations.

The Arroyo administration had opted for a more aggressive deficit reduction program, revising its 2005 deficit target from P184 billion to P180 billion even with the additional debt burden absorbed from the National Power Corp. (Napocor).