Budget, sustainable financing key to economic growth – think tank

MANILA, Philippines — The government will need to make wise use of the budget and have sustainable financing to achieve higher economic growth, according to think tank GlobalSource Partners.

In a report, GlobalSource country analyst Diwa Guinigundo said the higher budget proposed for next year compared to this year does not guarantee any significant gains in economic growth or development.

The government’s proposed budget of P6.352 trillion for 2025 is 10.1 percent higher than the P5.768 trillion allocation for this year.

“The bottom line is the ability of the Philippine government to make wise use of the budget to establish more critical infrastructure like power, address the fundamental issues in health and education, strengthen the country’s connectivity and digitalization, make headway in promoting rule of law and reducing poverty,” Guinigundo  said.

He said higher production of goods and services would help reduce price pressures and sustain a lower inflation path.

“Apart from judicious budget utilization, sustainable financing of the increasing fiscal deficit is key to higher economic growth,” he said.

He said the government, however, seems bent on relying on intensified tax collection to fund the deficit.

“This course may have its natural limits and sooner or later, additional or higher tax rates may be inevitable,” Guinigundo said.

He said the government may also have to increase its borrowings.

Last year, the country’s tax effort went down to 14.1 percent from 14.6 percent in 2022. It was also below the 14.4 percent target.

On the other hand, public debt  had bloated from P7.7 trillion before the pandemic in 2019 to P14.6 trillion in 2023.

As of end-May, the country’s debt hit a new record high of P15.347 trillion.

“With the persistent issues in governance, the old formula of intensifying tax collection and ensuring compliance with tax laws may not deliver sufficient revenues. The legislative process could also be protracted if new tax laws are required so it’s critical to already line up priority tax bills,” Guinigundo said.

The government is looking at implementing tax initiatives such as Passive Income and Financial Intermediaries Taxation Act, imposition of value-added tax on digital service providers and the introduction of excise tax on single-use plastics.

The government is aiming for a six to seven percent gross domestic product (GDP) growth this year.

In the first quarter, the economy grew by 5.7 percent.  For next year, the goal is to achieve 6.5 to 7.5 percent GDP growth.