ADB concerned over RP's swelling budget deficit

MANILA, Philippines - The Asian Development Bank (ADB) has expressed concern over the government’s swelling budget deficit.

In a March 6 letter to Finance Secretary Margarito Teves, ADB Southeast Asia department director general Arjun Thapan said that while the government’s revised deficit projection for this year seems manageable, it warned that deficits may not be sustainable in the long term.

The Department of Finance has revised the country’s budget deficit program to P177.2 billion for 2009, higher than the original ceiling of P102 billion for this year. The move is in response to the global financial turmoil that has affected the country.

“While this new projection seems manageable, given the country’s current debt to gross domestic product (GDP) ratios, our perception is that the Philippines has relatively limited fiscal space to run larger deficits for a sustained period,” Thapan said in the letter.

At the same time, the multilateral lender expressed support to the government’s request to Congress to pass crucial revenues measures. These include bills seeking to rationalize fiscal incentives, seeking to restructure excise taxes on cigarettes and alcohol, seeking to remove the Bureau of Internal Revenue and the Bureau of Customs from the Salary Standardization Law and seeking to simplify the net income taxation scheme in the country.

“These are measures that ADB supports through its proposed third subprogram of the Development Policy Support Program (DPSP),” the ADB said.

Of the different revenue measures, the government is primarily pushing for the increase in sin taxes.

In terms of revenue impact, the DOF said that the proposed increase in the tax on alcohol and tobacco products would raise P89 to P112 billion in the first three years of implementation.

In the first year of implementation, the government is estimated to raise P19 billion to P22 billion in additional excise tax collection, P30 billion to P40 billion on the second year, P40 billion to P50 billion on the third year, and P60 billion to P70 billion annually thereafter.

The government’s budget deficit last year stood at P68.1 billion.