Next admin urged to raise spending on social security

MANILA, Philippines — If the next administration hopes to minimize the budget deficit and shrink the poverty rate, it has to raise spending on social security at the expense of some infrastructure projects, according to analysts.

Experts, including a former economic manager, told The STAR that the next administration may have to cut its infrastructure expenditures and redirect resources for social interventions.

In doing this, they said president-elect Ferdinand Marcos Jr. can achieve his goals of pulling the budget deficit to pre-pandemic levels and slashing the poverty count to below 10 percent, as laid out by incoming finance secretary Benjamin Diokno.

Former socioeconomic planning secretary Ernesto Pernia said the incoming Marcos administration should look for ways on how to deliver public infrastructure other than depending on the annual budget and offshore loans. He proposed that the incoming administration return to the Aquino signature of tapping private firms for financing through public-private partnerships (PPP).

“Fiscal space is already quite narrow and narrowing still. Infrastructure spending will be severely constrained and the PPP modality will be the only way out,” Pernia said.

Infrastructure spending reached P1.12 trillion or 5.8 percent of gross domestic product in 2021, and state economists want to keep it at above five percent of GDP until 2024.

However, Ateneo de Manila University economics professor Leonardo Lanzona said additional funding for social security should be prioritized by the next administration or else it may repeat the same mistakes its predecessor committed at the onset of the pandemic.

By investing in welfare programs, Lanzona said the government would protect the poorest from the impact of future emergencies, unlike during the pandemic when cash subsidies had to be given out multiple times to mitigate losses.

“The government should have pursued a stimulus program at the start in order to sustain social security. Even up to now, no such program has been instituted and structural reforms that have been passed are evidently not enough,” Lanzona said.

“We needed a more proactive stance then at the height of lockdowns, with an industrial policy that addressed the weaknesses exposed by the virus. And we still need it now,” he said.

The economy, as measured by the GDP, declined by an all-time low of 9.6 percent in 2020, but managed to rebound by 5.7 percent when quarantine restrictions were lifted in 2021.

However, the economic slump worsened the poverty incidence to 23.7 percent – or 26.14 million Filipinos – in 2021 from 21.1 percent in 2018.

IBON Foundation executive director Jose Enrique Africa asked the next administration to select the public works it wants to pursue given the fiscal space it will inherit.

Similar to Lanzona, Africa proposed that public health and social welfare spending be increased to stimulate inclusive recovery.

“Other countries in the region didn’t rely as much on lockdowns and gave more for public health measures. As a result, their economies didn’t collapse as much and their public deficit and debt also didn’t bloat as much,” Africa said.

“The insistence on infrastructure just added to the already huge deficit pressure from collapsed revenues,” he said.

The Department of Finance, for its part, wants the next administration to keep the infrastructure program as a budget priority during its six-year term.

Instead of cutting infrastructure expenditures, it proposed that VAT exemptions be removed, tax reductions be deferred and new taxes be slapped to consolidate finances.