IBON- Budget 2010 (notes) 0909-17(2)

8/14/2019 IBON- Budget 2010 (notes) 0909-17(2)

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2010 NG Budget: ConfirmingGMAs Legacy of Fiscal Decay

IBON Foundation

September 17, 2009


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Intro (1)

Budget objectives (for a socially responsiblegovt): raise revenues & spend in ways thatpromote peoples well-being

Public spending is a key instrument fordevelopment Providing social services

Subsidizing consumption

Subsidizing agriculture & domestic industry Building infrastructure


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Intro (2)

Minimizing public spending & deficitsare not automatically best way topromote peoples welfare although IMF, WB and intl finance

markets (ex. credit rating agencies)prefer balanced budgets as better

ensuring continued debt payments


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GMAs fiscal record (1)

1. Anti-developmental spending Overall spending compression Absolute priority to debt service

(interest & principal) always at expense of social services (poor

education, health & housing services delivery) Unproductive military spending spawning HRVs Unhindered corruption (standard leakages,

items subject to GMA discretion & patronage) Note: Arroyo admin greatest payer of debts in

countrys history (in both absolute & relativeterms)


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1. Regressive revenue-raising& debt-dependence Stress on consumption/indirect taxes that

unfairly burdens low income families (ex. RVAT)

Avoids direct taxation (ex. corporations, high-income individuals)

Preserves tax breaks & subsidies forcorporations and foreign capital

Aggravated by trade liberalization/tariff cuts &

corruption Steadily rising NG debt Note: Arroyo admin most indebted in countrys

history (in both absolute & relative terms)


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(indirect impact) NG budget supporting& reflecting implementation ofbackward economic policies

Policies resulting in record joblessness & forcedmigration, falling incomes, and rising poverty(despite economic growth)

Even upon onset of global crisis, policieskeeping economy dependent on debt & onexternal sources of growth

Economic services & social services for whom?


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Anti-developmentalspending


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Note: mainly overallquantitative analysis, notyet looking into sectoraldetail or quality ofspending


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General decline in govt budget,even amidst crisis


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General increase in debt service,even amidst crisis


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Only slight nominal increase in 2010,continues overall trend of budgetcompression


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Real decrease in non-debt NGspending in 2010


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Debt service given priority over socialservices, especially under Arroyoadministration


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Average spending in nationalbudget per admin (% of GDP)

10.16.66.88.9

Debt service(interest &principal)

0.91.11.31.3Defense

0.10.20.10.0Housing

0.30.50.50.7Health2.73.73.12.7Education

Arroyo

Estrada

Ramos

Aquino


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Arroyo admin paying the mostout of revenues to debt

Debt service as share of total revenue, 1987-2010e

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009e

2010e

Year

%o

ftotalreve

nue

59.8

36.2

40.9

65.2


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Average sectoral allocation innational budget per admin (%)

25.219.225.340.0Debt service

(interest only)

5.05.66.76.1Defense

0.40.80.60.1Housing

1.82.42.63.1Health15.118.715.512.3Education

Arroyo

Estrada

Ramos

Aquino


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Debt service always atexpense of social services (1)


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Debt service always atexpense of social services (2)


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Regressive revenue-raising& debt-dependence


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Declining revenue & tax effortsince 1990s: Arroyo admin worstrevenue effort since 1986

15.53

18.82

16.27

15.50

12.8

16.2

14.613.4


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despite unprecedentedprivatization


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Declining revenues dueto trade liberalization


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W i d b d d


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Worsening debt-dependence:Arroyo admin most indebted incountrys history

49.8

57.760.1

65.8

1972-85 ave.: only18.8 %


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Budget supportingbackward economic policies


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Increasingly jobless growthPhilippines Real GDP Growth and Unemployment

by Administration, 1986-2009e (%)

(2.0)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Year

%

Real GDP growth

Unemployment rate

3.9%

3.8%2.4%

4.9%


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Looming fiscal crisis


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Debt service single biggestfactor driving fiscal troubles

D bt id f b f th b i


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Debt paid for by further borrowing:Arroyo admin biggest borrower incountrys history


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Fiscal deficits reflecting burdensome debtservice & leading to more debt: Arroyo adminhas worst deficits in countrys history


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Note: Rising debt not just due to deficits

National govt debt increases due to:1. NG deficit2. Off-book items (ex. GOCC contingent

liabilities)3. Non-budgetary accounts (ex. other

assumed GOCC debt)4. Peso depreciation5. Increase in cash

Moreover National govt debt + GOCC, GFI, BSP, LGU

debt = Total public debt


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Non-solutions, temporary:Privatization/oil price windfall

(211.3)

(103.1)(119.4)

(297.9)

(12.4)?(68.1)?


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Roots of fiscal troubles remain

1. Fundamentally, backward economy & loweconomic activity (doesnt generatesubstantial resources)

2. Vicious cycle of debt-dependence & debtservice

3. Revenues lost/uncollected/foregone dueto:

i. Corruption (tax evasion)

ii. Trade liberalization (tariff cuts)

iii. Investment liberalization (tax breaks, subsidies& incentives)


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Soaring debt service, social servicecuts, new taxes

2002-06 fiscal crisis resulted in:1. P3.0 trillion in debt service2. Regressive RVAT (Nov-05)

every Filipino 15 years old and over paidan extra P5,059 in taxes over 2006-2008

1. Falling budget shares, 2000-06: Education 17.1% 13.8% Health 2.1% 1.5% Housing 1.2% 0.6%


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again in period to come?

2009-?? fiscal crisis:1. Trillions more in debt service2. New taxes

? sin taxes (P19-20 B) ? telcos metering device (?6 B)/text tax ? gasoline taxes ? rationalization of tax incentives (P10 B) ? simplification of net income tax (P6 B)

1. New round of cutbacks in social services


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Final notes

Revenue prospects poorer than asprojected in budget 2009 revenue performance: 3.0% growth

projected but -4.1 so far (Jan-Jul) 2009 tax performance: 3.2% projected but -5.4

so far (Jan-Jul) ? Projected 2010: 7.8% revenue growth, 10.5%

tax growth

IMF-WB has long been pushing for newtaxes (esp. Article IV Consultation andPost-Program Monitoring Discussions)


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Addressing the fiscal crisis

Debt cancellation, repeal law on automaticappropriation

Real crackdown on corruption Overhaul tariff & investment incentive

policies Cut unproductive/wasteful spending (ex.

military, non-essentials) Strategic development of agriculture &

industry (Oppose new burdensome taxes &

regressive tax system)


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Salamat po

IBON- Budget 2010 (notes) 0909-17(2)

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Transcript of IBON- Budget 2010 (notes) 0909-17(2)