Bu-lat-lat (boo-lat-lat) verb: to search, probe, investigate, inquire; to unearth facts Volume III, Number 50 January 25 - 31, 2004 Quezon City, Philippines |
2004
Budget Based on Flawed Speculations A
review of the macroeconomic assumptions prepared by the Department of Budget of
Management (DBM) shows that there are glaring contradictions in government
projections. By
DANILO ARAŃA ARAO According
to news reports, the Senate took only five days to approve the national budget
for 2004. A senator says that its swift passage “would ensure stability in the
country and assure the continuity of government operations even if there is a
changing of the guard on June 30.” This
year’s P862.8-billion budget is P2.5 billion less than the budget proposed by
the House of Representatives since the Senate decided to cut the budgets of the
transportation and agriculture departments. The Commission on Elections (Comelec)
was also denied an additional P300-million for reverting to manual counting in
the May elections. Even
prior to its passage, various groups have criticized the election budget,
originally pegged at P864.8 billion because of its inherent flaws. A study by
Bayan Muna party-list stresses that, as in the past, debt service has the
biggest single expenditure which accounts for nearly one-third of the entire
budget. The
allocations for various items may have been adjusted but it is apparent that the
lawmakers harp on the macroeconomic assumptions behind the formulation of the
budget. The only legislator who voted no, Sen. Aquilino Pimentel, merely
explains that the budget leaves “so much to be desired for the development of
Mindanao.” A
review of the macroeconomic assumptions prepared by the Department of Budget of
Management (DBM) shows that there are glaring contradictions in government
projections. High
growth rate It
assumes, for instance, a relatively high growth rate in national income at 6.0
percent but at the same time acknowledges a trade deficit of $1.4 billion. (See
Table) Although it is not included in the DBM’s macroeconomic assumptions for
2004, the budget deficit is expected to reach P197.8 billion by end-2004 ($3.55
billion, based on an exchange rate of P55.75 per U.S. dollar). The
exchange rate is expected at P54 per U.S. dollar, but the current rate is
already beyond the P55 mark. As regards inflation rate, the government
acknowledges a higher rate of 5.0 percent to 6.0 percent for 2004 compared to
last year’s 3.0 percent. This implies higher prices at a time when prospects
for a wage increase are dim, based on government’s repeated pronouncements
that it is not investor-friendly. The
kind of economic growth that will be attained, if at all, could therefore be
debt-driven to offset the deficits expected to be incurred as early as now.
There is also a possibility of new or higher taxes to generate more revenues for
the government. According
to Bayan Muna, the government may need to “borrow some P411.9 billion ($7.39
billion)… (P288.1 billion or $5.17 billion from domestic and P123.8 billion or
$2.22 billion from foreign sources) to finance its expenditures for this year.
Around 66 percent of…borrowings will be used to finance debt obligations while
33 percent will be used to finance the budget deficit.” Four
reform measures Before
Congress last year, the Department of Finance (DoF) proposed four reform
measures that would result in additional revenues. These are the creation of a
National Revenue Authority (NRA), a semi-private tax collection body to replace
the Bureau of Internal Revenue (BIR); restructuring of excise taxes on
automobiles (additional P1.4 billion or $25.1 million); indexation of sin taxes
or higher taxes on cigarettes and liquor (additional P7.0 billion or $125.6
million); and rationalization of documentary stamp taxes (additional P5.0
billion or $89.7 million). The
highest revenue-generating bill, the indexation of sin taxes, is an indirect tax
that is inherently biased against the poor given their low purchasing power.
Just like the value-added tax that was imposed in the late 1980s and whose
coverage was expanded through the years, government may expect opposition from
concerned groups and individuals if this will be enacted into law. The 2004 budget must therefore be analyzed not only along the lines of how it reflects government priorities based on the allocations for every item. Equally important are the macroeconomic assumptions because these concretely manifest the government’s views on how development will be pursued and for whose purpose its development thrust serves. Bulatlat.com
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