Former senator, former NEDA Secretary, congressman, and deputy speaker until this week, and now Secretary of the Department of Finance (DOF), Ralph Recto has a colorful and multiple experience in both the Legislative and Executive branches of the government.
That wealth of wisdom, political, and business network will help him push for more hard, but necessary economic and fiscal reforms to achieve two important goals: reduce the huge public debt and sustain fast economic growth so that our public debt/GDP ratio will decline and more resources will be devoted to public infrastructure and social development.
His predecessor, former DBM Secretary twice, former BSP Governor, and immediate past DOF Secretary, Benjamin Diokno has led the economic team in steering the country to have the third fastest GDP growth at 5.6 percent in the first to third quarter of 2023 among the world’s top 40 largest economies. Great job, Mr. Diokno.
After reviewing some macroeconomic and fiscal conditions of the country and the congressional bills he filed, here is my list of what the public can expect from Secretary Recto at the DOF.
One, vigorous campaign to raise overall revenues from many sources, reduce annual financing or borrowing from P2+ trillion/year average for the past four years 2022-2023, back to below P1 trillion/year by 2028. Big challenge for the Secretary there.
Two, sustain GDP growth at 6.5 percent to eigth percent yearly from 2024 to 2028, significantly raise the denominator, GDP size, so that the debt/GDP ratio can decline to possibly 40 percent or lower.
The reason for these twin challenge is shown in the numbers below. The Philippines’ public debt has significantly increased from $139 billion in 2019 to $187 billion in 2020, up to $224.6 billion in 2021 and $232.5 B in 2022. Our public debt/GDP ratio has jumped big time from 37 percent in 2019 to 52 percent in 2020, and 57 percent in 2022.
People may argue that a debt/GDP ratio of 60 percent is no big deal because Japan and Singapore have a ratio of 260 percent and 168 percent and they are not in any “fiscal crisis” whatsoever. True, but the bulk of their debt is domestic, to their own citizens and lenders, and growth deceleration if not contraction is on their doorstep already. Our 57 percent ratio covers only actual debt and do not include contingent liabilities. Yet we have a high external debt and subject to foreign exchange risks. We have high interest rates like government bond 10-years at seven percent versus one percent in Japan and three percent in Singapore, among other factors.
Three, implement efficiently four new revenue and public finance laws that Diokno had helped shepherd in Congress, and then as congressman Recto had helped as deputy speaker.
The PPP Code and MIF Act will help reduce public spending in big infrastructure because private funding both domestic and foreign will fill the gap. The EOPT Act and AICLGU Act will help expand the revenue base and raise overall collections.
Four, pursue and push in Congress the seven priority revenue measures initiated by Diokno: Comprehensive Tax Reform Package (CTRP) Package 3: Real Property Valuation Reform Act (RPVAR), CTRP Package 4: Passive Income and Financial Intermediary Taxation Act (PIFITA), VAT on Digital Service Providers (DSP), Motor Vehicle Road User’s Tax (MVRUT), Excise tax on Single-use Plastics, Junk Food and Sweetened Beverages Tax, and the Mining Fiscal Regime. Plus the Taxpayers Bill of Rights and Obligation (TBORO).
Five, work with the DBM and Congress to push reforms to control huge rise in spending. At least three bills: the Military and Uniformed Personnel (MUP) pension reform, the National Government Rightsizing Program (NGRP), and government procurement reforms.
DBM Secretary Amenah Pangandaman will definitely be able to work harmoniously with Sec. Recto because of her multiple experience in Legislative and Executive branches, as former chief of staff of former Senate President Edgardo Angara, then Sen. Loren Legarda, and as DBM undersecretary and BSP assistant governor. The NGRP, MUP pension reform, public procurement reforms, open government partnership, digitalization of government transactions are among her important advocacies.
Six, Sec. Recto is expected to help broaden the tax base. Among the tax amnesty and exemption bills he filed as a congressman were: Tax amnesty for taxable year 2021 and prior years, Extending the coverage and availment period of estate tax amnesty, tax exemption on the sale of real property in the exercise of state’s power of eminent domain from payment of capital gains and documentary stamp tax, estate tax exemption on agricultural lands awarded under CARP law, tax exemptions for local film and music industries, and a VAT refund mechanism for non-resident tourists.
Seven, Sec. Recto will push for lowering the cost of electricity by exempting the system loss charge from VAT, lowering the cost of electricity in special economic zones (SEZs) and freeport zones.
Eight, he will go for some privatization measures to raise government revenues. Among the bills he filed were: creating mechanisms for the disposition of government assets to help fund MUP pension, creating the Philippines amusement and gaming commission (PAGCOM) when PAGCOR privatization has materialized.
Nine, mandate the annual public disclosure of all contingent liabilities incurred by all national government agencies, LGUs, government-owned and controlled corporations (GOCCs), government financial institutions (GFIs), other government instrumentalities, contingent liabilities from PPP projects. This will institutionalize fiscal discipline and enforce transparency and accountability on utilization of public funds.
And 10, a combination of economic liberalization and public subsidies, social safety net programs that will help both hard and soft infrastructure, and improve the investment attractiveness of the country.
Congratulations for a new, bigger challenge to help the President and the country move towards a wealthier, more prosperous future, Secretary Recto.
Bienvenido Oplas Jr. is the President of Minimal Government Thinkers and a BusinessWorld columnist. minimalgovernment@gmail.com