PERA, a voluntary provident personal retirement plan, was intended to complement the mandatory retirement systems under the Government Service Insurance System (GSIS) and the Social Security System (SSS).
The proposed bill has been approved in both houses of Congress and finance officials have been struggling to contain the fiscal impact of the incentives contained in the proposed law.
Finance officials said losses from the PERA program would compound annually but an initial agreement has been reached postponing the implementation of the incentives for PERA contributions and investments until 2009.
Once the law is implemented in 2009, however, the Department of Finance (DOF) said its simulations showed revenue losses of at least P6.73 billion up to P13.56 billion annually from the tax-preferred treatment of PERA contributions.
In addition, the DOF estimated revenue losses from the investments of PERA contributions ranging from P1.88 billion to P3.5 billion annually.
According to the DOF, these revenue losses would be compounded annually as additional PERA contributions and investments are made every year.
Finance Undersecretary Gil Beltran told reporters that revenue losses would also depend on how much funds would be shifted from existing pension plans to the PERA program.
The DOF had originally asked Congress to defer the entire program until the 14th Congress is seated but the bill has passed through all the relevant committees and was ready for signing into law.
According to Beltran, however, the government has reached an agreement with the Capital Market Development Council (CMDC) to defer the implementation of the incentives until 2009.
"We’ll balance the budget first and then phase it in so that the revenue impact will not be too big too sudden," Beltran said.
Beltran said the finance department also expects natural limiting factors in the shift from private pension funds to the PERA since pre-termination normally entails penalties.
Beltran said the preferential tax treatment would also be limited to the pension fund and there would be a limit on the amount of savings that individuals could put in the fund.
The DOF has been struggling to contain the fiscal impact of various Congress initiatives seeking to hand out fiscal incentives to various sectors and specific concerns such as the retirement fund.
Beltran said there should be some measure of control over the tendency to think that once the budget is balanced in 2008, the government’s fiscal position could afford to ease its consolidation program.
"This could not be more wrong," Beltran said. "Once we balance the budget, the fiscal space we will have is really only big enough for critical infrastructure that we need to lay down because we have been left behind for so long by our neighbors."
According to Beltran, eroding the revenue cushion being paid for by the increase in the value-added tax rate would remove this flexibility and possibly create another cycle of declining revenues that would put new pressures on the national budget.