Development goals threatened by ‘inconsistency’

FISCAL CAUTION — as reflected in the government’s use of both economic growth assumptions and targets — could lead to development goals being missed, the House of Representatives think tank said.

“A higher budgetary support is required to achieve a higher growth target,” the Congressional Policy and Budget Research Department (CPBRD) said in a report released yesterday.

It warned that continuing the tack — adopted last year — of setting lower gross domestic product growth (GDP) assumptions along with the official goal of 7-8% had “serious implications,” noting that Congress does not have the power to increase outlays submitted by the Executive.

State underspending and underinvestment, the CPBRD said, already point to growth falling below the 5-6% growth assumption used in this year’s P1.645-trillion budget. With the first half result at just 4%, it forecast 2011 growth of 4.3-4.8%.

The think tank said it was “sanguine” with regard to 2012, offering a GDP growth forecast of 4.8-5.9% — the upper end of which falls within the 5.5-6.5% assumption used in the P1.816-trillion budget. Still, it said there was “inconsistency” in continuing to target 7-8% growth based on a budget using a lower assumption.

Economic managers were not immediately available for comment. The interagency Development Budget Coordination Committee, which sets the country’s macroeconomic goals, is expected to soon meet following the lower-than-expected first half result.

The CPBRD, in its report, said: “There would be a greater probability of achieving the growth targets if there were more funds available to support the productivity-enhancing and employment-generating programs of the government.”

The impact on disbursement levels between a budget based on 5.5% and 7% GDP growth, the CPBRD said, would be P59.5 billion. While the amount may be relatively small, “it is nearly equivalent to the combined budget of the Department of Health and the Department of Environment and Natural Resources”.

Delays in achieving the annual 7-8% growth target, it said, mean more pressure in succeeding years. If growth were to hit 5% this year and 6% next year, for example, the expansion would have to be at least 7.8% in the next four years to be able to hit the low end of the 7-8% target.

“As uncertainties in the global economy remain, the role of government is crucial in stimulating the economy,” the CPBRD said, adding that “resources and goals must be in sync.”

The think tank, in another report released yesterday, called on the government to further reduce its debt and identify tax measures that will bring in needed revenues.

To support this year’s P1.816-trillion national budget, it said reforms should be considered in five areas:

• excise tax value distortions, particularly with respect to rates levied on so-called sin (alcohol and tobacco) products;

• the unequal tax burden between compensation earners and the self-employed/professionals;

• high tax leakage from value-added tax payments;

• rationalization of fiscal incentives; and

• a fiscal responsibility law.

Congress, it noted, has already passed the fiscal incentives bill. Eleven proposals are pending with regard to “sin” taxes and a bill limiting income tax deduction is up for second reading approval.

“Raising taxes and government revenues is always easier said than done,” the CPBRD said. “However, the present administration enjoys the trust and confidence of the majority of the Filipino people that gives it enough leverage to do difficult but necessary steps to widen the fiscal space.” –Businessworld