Where is the money?

There is no doubt that Junior assembled an A-team of economic managers to help him manage our economy. It is just as well that he selected experienced and respected economic managers because there is no time to waste.

There is no doubt too that this A-team will boost the confidence of the business and financial sector in the incoming administration. The selection also earned Junior some brownie points from skeptics because he didn’t just pick old friends or supporters.

The onus is now on these technocrats to prove that they are brave enough to stand their ground when politics interfere badly with their responsibilities.

They shouldn’t end up merely deodorizing the regime. They have to do better than the also respectable technocrats in the Marcos Senior administration who said nothing when cronies plundered the economy.

With Ben Diokno in Finance, there will be a good continuity and familiarity with the problems at hand. Ben was Erap’s and Duterte’s Budget Secretary before becoming Governor of the Bangko Sentral. No learning curve needed on day one.

Indeed, Ben should be familiar with the fiscal challenges he must face right away. Outgoing Finance Secretary Sonny Dominguez has called for “a fiscal consolidation and resource mobilization plan.”

Minus the bureaucratic gobbledegook, Sec. Sonny is saying the new administration will have a money problem. Of course, they will. Duterte’s borrowings, by Sec. Sonny’s admission, “brought our debt to higher levels than originally planned by P3.2 trillion.”

The Bureau of the Treasury has estimated the government needs to raise P249 billion every year in revenues to avoid resorting to borrowings to pay the P3.2-trillion additional debt incurred during the pandemic. As of end-March, the National Government debt stood at a record P12.68 trillion.

Junior has to make sure his administration can continue to invest in infrastructure, education, and healthcare for economic growth and recovery.

According to Sec. Sonny, Junior has the choice of covering existing debt by borrowing more or reducing spending by P249 billion each year. Or he can raise taxes. Improving tax administration and cutting unnecessary spending with fiscal reforms are all easier said than done.

Sec. Sonny is suggesting, among others, the expansion of the value-added tax (VAT) base. That probably means senior citizens and those with disabilities will no longer enjoy VAT exemption. New sin taxes on tobacco and sweetened beverages are also proposed.

The DoF also proposed increasing petroleum tax by P1 a liter for a minimum of three years, imposing excise tax on domestic coal and increasing excise tax on domestic and imported coal. Given current sky high oil prices, the government imposing another peso per liter is not going to go well with everybody.

Sec. Sonny warned that failure to implement new tax measures would lead to unsustainable deficit and debt levels, which in turn would cause slower growth, and eventually an economic crisis.

Dominguez warns we cannot borrow more to pay our debt because with a higher debt level, we may lose our investor credit rating. We cannot cut spending because that will risk our economic recovery and sacrifice key socio-economic priorities, notably in infrastructure, education, healthcare among others.

But incoming Finance Secretary Ben Diokno doesn’t think we need to impose new taxes.

“To me, grow the economy, focus on tax administration first, improve the collection,” Diokno told ANC news channel. Diokno also wants to cut down on corruption in collection agencies through digitalization.

Diokno also isn’t too worried about the level of debt he will inherit.

“I am not worried about the level of the debt,” said Diokno who sees it as “easily manageable,” as long as the economy is able to return to a pre-pandemic annual growth rate of six to seven percent.

Rep. Joey Salceda agrees with Diokno that tax leakages must be addressed first before imposing new taxes. The first year of the Marcos administration can be devoted to streamlining tax collection, improving tax administration, and making tax compliance easier,” Salceda said.

Here are Salceda’s proposals:

“First, fiscal protection - we need to make sure we do no further harm to our finances by preventing any wasteful spending, and plugging loopholes in the tax system.

“Second, fiscal consolidation - we need to strengthen the current tax structure with stronger and more modern tax administration. This morning, I heard PBBM wants to codify how we do taxes, and I am proposing that we codify our tax administration rules in a manual similar to the BSP’s Manual of Regulation for Banks so that we are all looking at just one central rulebook.

“That will also involve some tax policy reforms in the ‘low-hanging’ areas, the easiest being real property valuation reform, some easy VAT reforms like those on input VAT over declaration or a temporary deferral of PIT (personal income tax) reduction in 2023.”

But whatever course of action the new administration takes, they will have limited resources for the rest of the year. Eventually, they can raise revenues by selling assets like the NAIA, but that will have to wait for one of the new airports to be up and running first.

For new infrastructure, they will have to review the new PPP rules that killed interest from private sector investors. Arsi Balisacan, the incoming NEDA chief, has expressed support for PPP and so did Manny Bonoan who will take over DPWH.

It is hoped Junior will appoint competent and experienced secretaries for Energy and DICT. He should learn from our sad experience when Duterte appointed washed out politicians who had no experience in both sectors for these two positions. We are facing a crisis in power supply and we are playing catch up in information and communications technology.

Junior will find out he will have to work like he never had all his life. It will be a big change from his lifestyle the past many years. It helps that he selected competent economic managers to help him. But in the end, the buck stops with him.

And we have not even talked about the impact of a potential international economic recession.

The most important question Junior must resolve is, where will he get the money?

Boo Chanco’s email address is [email protected]. Follow him on Twitter @boochanco