Arroyo mulls measures to stem worsening fiscal situation

President Arroyo met her top economic advisers yesterday to address the Philippines’ deteriorating fiscal situation, Economic Planning Secretary Romulo Neri said.

"We are pursuing action plans to help avert any threat to the fiscal sector and the economy as a whole," Neri said in a written statement as he and other senior aides of Mrs. Arroyo met in Malacañang.

"We aim (for) a balanced budget... by 2009 and this will be achieved through a combination of tax measures, rationalization of expenditures and reduction of the deficits of government-owned and controlled corporations," he said.

Neri said economic managers have identified "the ballooning national government and public sector deficits, and national government and public sector debt as threats to the economy."

The budget deficit is forecast to reach P197.8 billion ($3.54 billion) or 4.2 percent of the gross domestic product this year, while the consolidated public sector deficit is expected to rise from 5.6 percent of the GDP in 2003 to 6.7 percent by the end of this year, he added.

Total national government debt stood at 69.2 percent of gross national product in 2003, while the public sector debt was estimated at 126.2 percent of GNP, Neri said.

To improve revenue streams, the government is looking at several proposals, including higher "sin" taxes on liquor and tobacco, a tax on short messaging systems on mobile telephones, raising government fees, shifting to gross income taxation and amending incentives offered to the private sector.

Neri told a news conference later that "social marketing may be needed" to convince the public and Congress of the need for these taxes amid rising oil and electricity costs.

"We need more resources to improve the quality of education, the health system and our infrastructure," he said in his written statement.

Meanwhile, Neri said the government is also looking at tightening its own spending by focusing on its core functions.

"Thus, functions devolved to local government units will no longer be funded by the national government," he said.

The government will also push Congress to pass a bill that ensures that no new expenditure will be approved without new taxes to support it.

"With these and other measures, we hope to raise between roughly P85 billion to P115 billion so we can absorb" the losses and debts of the state-run National Power Corp. (Napocor), Neri said.

He explained that the Electric Power Industry Reform Act mandates the government to absorb P200 billion of the Napocor’s debts. The government also has to absorb the Napocor’s losses — about P100 billion a year — until the power firm can be privatized.

Neri said selling off Napocor’s assets to the private sector may take two to three more years and this is why the government allowed Napocor to increase its generation rates that it passed on to distributors like the Manila Electric Co. (Meralco), which then raised its power rates.

"The economic managers realized the impact of higher fuel prices resulting in higher power cost. We have to really explore measures that will make the (energy) industry more competitive. I guess we also need the cooperation of Meralco management because much of the areas that are quite expensive in terms of power rates are within the Meralco franchise areas," he said.

Neri said the economic managers sought the meeting with Mrs. Arroyo, herself an economist, to determine if she agrees with the set of economic policy measures they had drawn up to address the problems with Napocor.

"Basically, it was more of an exploratory type of discussion. We wanted to feel out how the President felt about certain policy measures and whether she was in agreement with the policy directions. I guess after this, we will meet again to finalize these policy directions," he said.

The meeting was attended by Executive Secretary Alberto Romulo, Energy Secretary Vicente Perez, Budget and Management Secretary Emilia Boncodin, Finance Secretary Juanita Amatong, Bangko Sentral ng Pilipinas governor Rafael Buenaventura and presidential adviser Tomas Alcantara.

Of the proposed tax measures, Neri cited the legislation on "sin" taxes as the "most important" since this can raise as much as P14 billion in additional revenues for the cash-strapped government.

The proposal to tax the gross income of corporations and the self-employed, if passed into law, can yield up to P40 billion. The measure to tax text messages can generate P7 billion in additional revenues, according to Neri, who said the President "is open to it. It is a matter of how we can sell this idea to the public in terms of using revenues derived from this source to finance housing, education or health projects. Maybe the public will see the benefit of this." — Marichu Villanueva, AFP