Lower Budget Deficit Not an Achievement – Ibon

Government's announcement that it has recorded a budget deficit for 2005 that is well below preliminary estimates may seem a significant achievement. But it actually fails to address the root problem of huge public debt which brings about the deficit.

BY IBON FOUNDATION
Posted by Bulatlat

Government's announcement that it has recorded a budget deficit for 2005 that is well below preliminary estimates may seem a significant achievement. But it actually fails to address the root problem of huge public debt which brings about the deficit, according to independent think-tank Ibon Foundation.

Last year's national government (NG) budget deficit was P146.5 billion, substantially less than the P187.1 billion recorded in 2004 and the original deficit program of P180 billion for 2005.

Government attributed the lower deficit to a combination of higher revenues and lower expenses. Revenues in 2005 grew 13.7% from the previous year while expenses rose by only 6.2% over the same period.

But according to Ibon research head Sonny Africa, 85% of government revenues in 2005 went to debt service payments for principal and interest. This means that government still had to keep on borrowing in order to pay its current expenses. According to the Bureau of Treasury the total outstanding debt of the NG by September 2005 was P4.02 trillion or a 5.5% increase from the end-2004 level of P3.8 trillion.

Hence, government's main objective in reducing the deficit is still to be able to continue paying all public debt and maintaining the country's creditworthiness. In order to do this, it has levied higher taxes and fees while sacrificing social services for the people.

The most notorious of government's new revenue measures is the restructured value-added tax (R-VAT) which was implemented in November 2005. It is expected to raise P97-P105 billion in additional revenues in 2006 by removing exemptions on sectors such as electricity and petroleum, and raising the VAT rate to 12% starting in February. This is widely seen to result in higher prices of basic commodities and services, and a bigger burden for most Filipinos.

Other measures included the "sin tax" law which raised P15 billion more in taxes in 2005; Napocor's electricity rate adjustment in April last year which raised P112 billion; and higher government fees and charges which raised an additional P16.8 billion.

Meanwhile, government's austerity program has taken a serious toll on state spending on social services, on which most of the poor rely. Real spending on health in 2005, for instance, fell 18% from 2001 levels, and spending on education by 5% over the same period. But total payments for debt service nearly doubted between 2004 and 2005.

This means that government spending per person on health fell from P164.46 in 2001 to P119.89 in 2005 and on education from P1,491.72 to P1,285.06. But public spending on total debt payments per person skyrocketed from P3,496.05 in 2001 to P6,332.53 last year.

Thus, government has passed on the cost of servicing the high public debt to the people. But the debt is bloated by onerous and illegitimate debts, and the government has failed to address this issue. The most notorious case is the Bataan Nuclear Power Plant, which has cost the people $1.8 billion in interest payments alone since 1991. But despite the patent illegitimacy of the foreign debts contracted for the BNPP, government has still committed to pay them.

Instead of proclaiming this as an achievement, government should instead examine its debt portfolio and policy. According to Africa, "With the debt service burden eating up a bulk of government resources, it is doubly worrisome that the administration is pursuing the R-VAT and other anti-people revenue raising measures imposed by the International Monetary Fund to ensure debt payments."  Posted by Bulatlat

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