Meanwhile, the P100 billion ($2.09 billion) of which a portion would be bankrolled by government financial institutions and social security institutions is facing serious uncertainty. A counterpart fund is supposed to come from private investors to raise the amount needed to fund large infrastructure projects. But as of this writing, administration officials have yet to clinch a definite commitment from private business. They have been negotiating with the Philippine Chamber of Commerce and Industries (PCCI) but the said group threatened to back out in February if they will not get guarantees from government and if the projects will not start in the first half of the year. A portion of the P100 billion ($2.09 billion) will be also sourced from the Social Security System (SSS), which proposed to shell out P12.5 billion ($26 million) for the ERP. However, it is facing uncertainty as well due to strong resistance from SSS members and some lawmakers.
The P40 billion ($839 million) in tax cuts under the ERP are of course not fresh funds provided by government. They represent the estimated additional savings for low- and middle-income earners and corporations accruing from the Reformed Value Added Tax (RVAT) Law enacted in 2005. Finally, the P30 billion ($629 million) in additional benefits to members of social security institutions like the SSS and Government Service Insurance System (GSIS) are also unsure. They will depend on the viability of the said institutions’ investments. Arroyo’s own economic adviser, Albay Governor Joey Salceda, doubted such viability and pointed to the “paper losses” of the SSS and GSIS in their stock market investments, a consequence of the global economic turmoil.
More debts, more onerous taxes
Aggravating these funding problems is the perennial shortfall in government revenues to support its expenditures. The budget deficit this year is expected to jump to P177.2 billion ($3.71 billion) up to as much as P257 billion ($5.39 billion), which some analysts predicted as not even the worst case scenario. Such high budget deficit is not entirely due to government’s pump priming efforts, which as already discussed, could not even be considered real pump priming. Revenues will surely fall this year as corporate incomes drop and the number of wage earners decline because of the global crisis, adding to the already significant number of businesses that have been folding up and displacing workers even before the recession of the world economy. Already, the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) have both lowered their collection targets for this year by P44.4 billion ($923 million) and P39.8 billion ($834 million), respectively.
The Arroyo administration then will have to further increase its borrowing. This year, it plans to increase its foreign debt by $500 million and its domestic debt by P55.45 billion ($1.16 billion). But borrowing from domestic banks will further worsen the situation for local businesses scrambling for much needed capital as they will need to compete with government for loans and raise interest rates in the process. Government thus would have to turn more to foreign creditors. But the question is will the foreign loans be available? According to the Institute of International Finance (IIF), net bank lending to emerging economies this year will see a negative swing of $227 billion (i.e. more outflows than inflows) as investors become more risk averse amid the deepening global crisis. With a tight supply of credit from foreign sources, government would be forced to accept even more onerous terms, including more burdensome conditionalities such as liberalization, deregulation and privatization, tied to these foreign loans.
To fund these debts, government is pushing for more onerous taxes on consumers already heavily burdened by the regressive VAT. Proposals to impose a tax on text messaging have been revived in Congress aside from plans to enforce new taxes on so-called sin products, soft drinks, and other consumer items. These additional taxes on ordinary consumers amid massive displacements become more outrageous considering that at the same time, proposals to provide new tax perks for big business are also being pushed in Congress while fresh liberalization commitments – reducing or eliminating tariffs on imports – through free trade deals are in the offing.
They include House Bill (HB) 6073 of Speaker Prospero Nograles which intends to attract more agribusiness firms in the country by giving them a host of tax incentives, implementation of new liberalization commitments under the ASEAN Free Trade Area (AFTA) and the Japan-Philippines Economic Partnership Agreement (JPEPA), as well as negotiations for new deals such as the Partnership Cooperation Agreement (PCA) with the European Union (EU). All these will deprive the country of billions of pesos in potential revenues, which the Arroyo administration plans to compensate as usual by burdening consumers and ordinary income earners with more taxes.
Pingback: Why Gloria’s P330-B “Stimulus Package” Will Fail (Part 1) « A Radical's Nut