An off-target budget

It started as a very manageable and non-threatening figure of P102 billion, revised thrice  to a more realistic target of P250 billion and is now headed to something that will be  three times more than what was originally targeted. If it’s not the government’s supposed

stimulus plan, then what is it? Well, to us avid economic watchers, it could be no other than the budget deficit.

The shortfall in the first nine months had swelled to P237.5 billion, already exceeding all annual budget gaps since the republic was born and is equivalent to 95 percent of the  target with still a quarter to go.

The culprit, as it had always been, is poor revenue collection. The two biggest income earners, the Bureau of Internal Revenue and Bureau of Customs, have not only been missing targets but turning in less money than last year.

The BIR, which makes up almost 70 percent of state revenue, collected P557 billion in the first nine months, short by P39.2 billion against target while the Customs incurred a P36 billion shortfall, with total take reaching only P165.4 billion in the same period.

Year-earlier collections are down 5.2 percent for BIR and 14.4 percent for Customs as of September, which begs the why and the how-come. The economy still managed to grow a marginal 0.6 percent in the first quarter and even accelerated to 1.5 percent from July to September. Offhand, these agencies have no excuse.

Fundamentally of course, we could cut the Customs some slack because of the sustained, double-digit slump in imports and also the BIR for the tax breaks the government

had implemented since last year.

Oplan Kandado On the surface, the BIR appears to be doing something to improve tax administration and instill a sense of that so-called “fear factor” by shutting down  establishments caught violating tax provisions or simply evading.

The agency supposedly closed more than 90 establishments in its Oplan Kandado and raised a few millions, less than P100 million from the drive. It seems the shops reopen right after, as soon as they settle their deficiencies with the BIR. The thing is, how sure are we that this Oplan is not just a high profile version of what taxpayers’ derisively call as “assessment”?

Insider talks is that when the BIR calls on a taxpayer for “assessment,” the officer quotes a big figure as deficiency, agrees to cut it down a few notches, closes the case, then pockets the money. Maybe it would help if the BIR provides a detailed account of Oplan Kandado so the public would get a better sense of how serious they are in this campaign because so far, anecdotal evidence suggests it’s not instilling the fear it was originally meant to instill.

Spending wise, the government is still five percent off its target for the first nine months, showing that expenditure is really not the issue here. Then again, it should actually be.

Investors and credit-rating agencies have largely ignored the country’s budget deficit this year because everybody else around us is incurring shortfalls, probably even bigger ones – unlike in 2002 when we were unique and all eyes were on us when the gap peaked to P210 billion.

The world post-Lehman, AIG and Bear Sterns engaged in a massive stimulus drive to revive economies, supposedly including us. We’ve heard analysts say that the deficit, for as long as it’s caused by higher spending, should not be an issue this year.

Privatization

In fact, Moody’s Investors Service even gave us the first rating upgrade in 12 years in July, saying that overseas remittances will support the economy and overlooked what was at the time, the telltales of another runaway deficit.

What is making it difficult for officials this time was the absence of privatization receipts to tide them over unlike in the past. The government budgeted P30 billion this year to come from the sale of the 103-hectare Food Terminal Inc. property and a stake in PNOC Exploration Corp.

The FTI auction earlier this month failed as nobody showed up to bid, prompting Government Service Insurance System president Winston Garcia to offer P7 billion for the asset, subject to due diligence. That’s P6 billion less than what the government said was the value of the property but hey, Garcia countered: “Do they have a better offer?”

Finance Secretary Gary Teves had been talking about the possibility of selling the San Miguel Corp. shares this year, whose value he placed at P50 billion. The thing is, for him to be able to do that, the Supreme Court has first to clear the plan because of the claims of coconut farmers. It seems this isn’t forthcoming.

Given the huge revenue shortfall that Teves said could bring the deficit to a “worst case” P300 billion this year, the government did what it does best and borrowed again.

Dollar bonds

Last week, the government sold another $1 billion of dollar bonds, bringing its total dollar issuance this year to $3.25 billion. The bond sale was timed perfectly as yields were at record lows, at least for the 10-year papers the republic sold in January and July. Its borrowing cost for this new 25-year debt was also the lowest ever and demand was almost five times, reaching $4.7 billion.

Teves and his team could well pat each other on the back for the very successful debt sale except that some investors are probably getting turned off because two days after buying the October 2034 notes, the government announced its nine-month budget gap.

Those who just bought the notes soon found the price of the security they held dropping because of the knee-jerk market reaction to the deficit. As an observer, I find the government’s behavior a bit cheeky.

The decent thing to have done was to announce the deficit first then sell the debt after so that investors know exactly what they were buying into and that they’ve factored in market reaction in the equation.

With the glut in money supply everywhere, borrowing whether here or overseas shouldn’t be a problem. The government, a perennial borrower, could do well in treating investors better in the future.

2009 Philippine Collegiate Championship update

The top four teams from Northern and Central Luzon resume this weekend their competition for the PCCL regional championship title which was postponed due to floods at Dagupan City. The winner will advance to the zonal qualifying games to be held in Manila on Nov. 9 to 12, 2009. The top two in the Manila zonals advance to the “Sweet 16” Finals.

The contenders are the University of Northern Philippines (UNP) Sharks from SCUAA-Vigan, University of Baguio Cardinals from the Baguio-Benguet Educational Athletic League (BEAL), Lyceum Northwestern University Dukes from the Universities & Colleges Association of Pangasinan (UCAP) and the Lyceum of Subic Bay Sharks of the United Central Luzon Athletic Association (UCLAA).

The series continues today at Subic with the initial winners Lyceum of Subic Bay Sharks going against the Lyceum Northwestern University Dukes. The following day at Baguio City, University of Baguio Cardinals will engage in a do-or-die battle with University of Northern Philippines Sharks.

The North-Central Luzon regional champion will join Universal College Dragons (UCAA champion), University of Manila Hawks (NAASCU runner-up), the ISSA champion and the NCAA sixth placer, Emilio Aguinaldo Generals, in the Manila zonal qualifying games.

For updates on progress of teams as they continue the journey in the 2009 Philippine Collegiate Championship games, visit the official website, www.CollegiateChampionsLeague.net or send email enquiries to [email protected].

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.