Budget Gap and Debt Trap
Government justifies its heavy borrowing by pointing to the budget deficit, or the gap between its revenues and expenditures. To bridge this gap, government is forced to borrow. And just how big is this gap? As of November 2009, the budget deficit is pegged at P272.52 billion – already an all-time high in absolute terms (and the December figures have not yet been accounted for). It is also P22.52 billion higher than what government anticipated for the whole 2009.
From January to November last year, total revenues was at P1.02 trillion but total expenditures was bigger at P1.29 trillion. To finance the deficit, government raised P541.02 billion through borrowing during the period, mostly through the foreign and domestic bond markets. But if government’s deficit is only P272.52 billion, why did it borrow almost twice the amount? Because portion of the borrowings will cover not only interest payments (which is 20.1 percent of the reported expenditures) but also for principal amortization, which reached P332.91 billion during the 11-month period. In other words, government borrows not only to bridge the deficit gap but to settle as well its old and existing debts.
This cycle goes on and on, worsening in every turn.
What must be done?
One way is to raise revenues. But it does not necessarily mean new (such as the text tax) and higher taxes as the Arroyo administration repeatedly claims. There are numerous ways to raise public resources without subjecting the people to additional burden: curb corruption and bureaucratic wastage, reverse trade and investment liberalization, improve tax collection efficiency, collect proper taxes from the biggest foreign and local corporations instead of giving over generous fiscal incentives, to name a few.
As pointed out in a previous article: “Even without modifying our existing commitments with the World Trade Organization (WTO) and other free trade deals, the Philippines can hike tariffs across the board and raise billions of pesos in revenues. Note that due to continuing trade liberalization, total collections from tariffs on imported goods and services under Arroyo now only account for 2.8% of total revenues and gross domestic product (GDP), compared to around 4.5% for most of the 1990s. In the first half of 2009 alone, we are giving up almost ?117 million in potential revenues per month due to lower duties.”
In fact, even onerous taxes such as the 12 percent value added tax (VAT) especially on oil, power, and other essential goods and services can be scrapped and still government can raise needed revenues.
But raising revenues in a pro-people way is just one aspect of the urgent fiscal reforms that we need today. Unless we plug the largest fiscal hole that is debt servicing, our resources will continue to be drained. Thus, all presidentiables must also outline how they intend to address the country’s debt crisis that has been raging on for almost three decades now.
More concretely, what do candidates intend to do with Executive Order (EO) 292 or the Administrative Code of 1987 that provides for automatic debt servicing at the expense of social services? What do they intend to do with odious debts or those debts incurred by past and present administrations that were tainted with corruption and anomalies ala-NBN-ZTE? Or those that only caused death and destruction of livelihood for marginalized communities such as the San Roque Dam?
These are some of the most pressing questions that those who want to steer government in the next six years — if Arroyo’s Charter change scheme will not push through — will have to answer now. (Bulatlat.com)
