Teves: Global crisis eroded economic gains

MANILA, Philippines – Outgoing Finance Secretary Margarito Teves said the economy could have performed better and trimmed fiscal deficit were it not for the impact of the global financial crisis.

Teves, who is stepping down on June 30, said that despite criticisms, the government tried, and came up with a manageable deficit.

Joining Arroyo administration in July 2005, Teves said the Department of Finance’s main responsibility then was to see how the level of debt can be reduced in relation to the economy or the GDP.

“At that time, it was 78%, by end of 2009, it went to 57%. We would have wanted it lower, but we were faced with the global crisis. That slowed us down in accelerating the reduction (of the debt level), while deficit as a percent of GDP was 3.9%.,” Teves said in an interview with ANC’s Rundown.

He said the government almost balanced the budget in 2007, with a deficit equivalent to 0.2% of GDP, but then the financial crisis hit the country, as it had other countries.

“The crisis affected us in 2008 and became more severe in 2009. So what government decided – as what most governments do in a crisis, was to provide fiscal and economic stimulus, which is why the deficit to GDP ratio rose to 3.9%. We wanted to go back to the trajectory of balancing the budget again, we consider 2009 as an aberration. These things confronted us, and of course Congress approved a number of tax relief and tax-eroding measures.”

Revenue measures

Teves said he hoped that Congress would help the government in recovering the lost revenue.

Aside from pushing through with the privatization of big-ticket assets in the second half of the year, Teves said the incoming administration of President Benigno Aquino III, should consider revenue enhancing measures.

These measures include restructuring excise taxes on tobacco and alcohol products, rationalizing fiscal incentives and find a way to better tax the self-employed.

“Raising sin taxes is something accepted all over the world. We also would like to give incentives to those industries that need it, and whatever savings we have, to put it in infrastructure facilities. (Also) right now, fixed income employees pay more in relation to their income compared to those who are self-empployed,” said Teves.

He also suggested widening the tax base, and a more controversial measure, would be to gradually increase the value added tax, said Teves, adding that at the same time, the government can reduce income taxes.

“What we need to do is to make sure the poor won’t be affected, there could be exemptions and improvement on conditional cash transfers.”

Teves said that while the finance department was unable to privatize on time the Food Terminal Inc., the Fujimi property in Japan, and the PNOC-EC stake in the Malampaya natural gas, the main tax collection agencies, the Bureau of Internal Revenue and the Bureau of Customs performed better than expected.

“Tax collections were better than target and was P26 billion more than programmed in May despite an increase in expenditure. What we’re saying is even if the projected deficit for the first half is about P33 billion more than programmed, the collection almost matches what we couldn’t do for privatization.”

“The new administration can actually make use of this if they decide to do so, and I think this is important for them to do because their preference is not to impose new taxes.”

Poor governance is real culprit, not the global crisis

Also on Rundown,  Roberto de Ocampo, the finance secretary during the administration of President Fidel Ramos, said poor governance, not the global crisis, led to a swollen budget deficit.

“It’s a question of efficiency of governance, the deficit is not a direct result of the global crisis.”

Ocampo said the tax collection efforts were inadequate, while smuggling, along with graft and corruption prevented the government from raising revenue.

“Tax collection effort is the culprit, smuggling has an impact of P65 billion of which P32 billion is oil smuggling. Throw in corruption and so forth. So we are not getting the sort of revenue which we should be getting, and that’s got nothing to do with financial crisis.”

Ocampo urged Aquino not to raise taxes, at least in his first year in office, in keeping with a campaign pledge.

“He has to establish credidibility. It would be good to look at non-revenue measures and ammend existing measures in order to close the budget gap.”

Vic Abola, an economist at the University of Asia and the Pacific, however, differed with Ocampo, and said a more pragmatic approach is required by the Aquino administration in approaching the growing budgetary shortfall.

“I do think that while the basic premise is solid that we should rely on better administration, that is not gonna happen overnight. I don’t think we can expect miracles overnight despite the goodwill of people and their competence.”

Abola said Aquino can raise sin taxes.

“Nobody is going to object to that. The Philippines has one of the lowest sin taxes in the region. It should be done.It’s been there but there were a lot of objections in Congress, but normally a new president has the goodwill of a new Congress. I don’t want him to lose that opportunity.” – Rocel Felix, abs-cbnNews.com