FISCAL POLICY

ISSUES AND ARTICLES

Spending Resumes, Raising July Deficit

MANILA, Philippines The governments fiscal shortfall in July was higher than its first semester deficit of P17.231 billion after spending started picking up, the Department of Budget and Management (DBM) said. Budget and Management Secretary Florencio B. Abad said yesterday that the Aquino governments fiscal deficit last month was even more than P20 billion, exceeding the January to June shortfall. The July figure alone is more than P20 billion that indicates much improved spending, Abad said. He added that the governments accelerated spending will be the trend for the remaining months of the year. The Department of Finance is expected to release the governments July fiscal position today. Earlier, Finance Secretary Cesar V. Purisima said that the government will accelerate spending for infrastructure social services to catch up on lower than expected expenditures in the first semester

Purisima added the government will maintain the P300 billion budget deficit ceiling for the year, equivalent to 3 percent of the countrys economy, despite the way below fiscal gap in January to June period. This is actually a good problem, Purisima told reporters, referring to below program spending at end-June. But we need to make sure that we invest in the infrastructures and we spend on social services. Abad earlier said that the government would not allow this years budget deficit to go below P260 billion. From January to June, the government recorded a budget deficit of P17.231 billion - significantly lower than the programmed P152.1-billion deficit for the period. In June alone, the government recorded a deficit of P7.691 billion, narrower than the P34.6 billion recorded a year ago. By CHINO S. LEYCO

P187 Billion Tax Incentives to Corporations

The government dangled some P187.2 billion tax incentives to the largest foreign and local companies in the country in 2001. These incentives came in the form of income tax holidays and duty-free importation of raw materials from other countries. Companies, which benefited from such tax incentives were those registered at Board of Investments (BOI), Philippine Economic Zone Authority (PEZA) and other investment promotion agencies.

P147 Billion Budget Shortage

The country's fiscal deficit reached P147.03 billion (US$2.95 billion) or 4.1 percent of the gross domestic product (GDP) estimated at P3.6 trillion (US$72 billion) in 2001. While the government spent P710.8 billion, its total revenues amounted to only P563.73 billion. Public sector funding requirement (PSFR) reached P189 billion. Debt servicing or payments to interests of domestic and foreign borrowings reached P27.2 billion. To augment its budget requirements in 2001, the government sourced 87 percent of its total financing from domestic funds and 13 percent from foreign loans and aid. The government relied heavily on fixedrate Treasury bonds as it issued P208.42 billion worth of these short-term fixed-income securities. The situation was worse in 20002. The government said the budget deficit would climb to P223 billion or 5.6 percent of the GDP by the end of the year. The original target was only 4 percent.

The Philippine Fiscal Crisis and the NeoColonial State

The fiscal crisis that the Philippine government is presently undergoing is the worst ever in the history of the country, and is caused by its own doing. And yet the government would pass the burden of solving this crisis to the people, with increases in taxes and prices like those for electric power and petroleum. It has even put up a so-called Bayanihan Fund so that ordinary citizens can contribute their shares for the government to weather the storm. It must be emphasized, however, that the fiscal crisis that the government is experiencing was bound to happen based on its heavy indebtedness to foreign and domestic creditors, the latter also affiliated with foreign capital like Citibank and the Bank of America from which the government heavily borrows. The countrys external debt alone as of September 2003, already stood at P1.5 trillion, of which 51% are direct government debt from international financial institutions, like the IMF and World Bank, and bilateral creditors, and 49% are from foreign bonds. By January, 2004, total outstanding debts of the government already exceeded the P3 trillion mark, surging particularly in the second half of 2003. It is Gloria Macapagal Arroyo who has borrowed the most among all Philippine presidents, with her borrowing binge, mostly from the US, from 2001 to 2003 more than the combined borrowings of Presidents Ramos and Estrada for eight years, 1992 to 2000. The Arroyo administration has been accumulating debts to the tune of P1.2 billion daily. By:Dr. Edberto M. Villegas

Banks resources up to P7.07T

The resources of the countrys banking sector grew further in May, bolstered mainly by rising deposits that mirrored the improving savings capacity of Filipino households and enterprises. According to the central bank, the combined resources of universal, commercial, thrift and rural banks in the country amounted to P7.07 trillion as of the end of May this year, rising by nearly 7 percent from P6.61 trillion a year ago. The Bangko Sentral ng Pilipinas said individuals and corporations were placing more deposits in banks, mainly due to rising income and confidence of the public in the banking sector. The bulk of the resources were owned by universal and commercial banks. These amounted to P6.32 trillion, up by 7.7 percent from P5.87 trillion a year ago. With their growing resources, universal and commercial banks were urged by the government to help the economy grow by funding big-ticket, public infrastructure projects being pushed by the government under the Public-Private Partnership (PPP) framework. Under the PPP, the government invites private corporations to invest in the projects and the banks to provide the financing.

The thrift banking sub-sector accounted for P580 billion of the total resources as of endMay. This was higher by 3.9 percent from P558 billion in the same period last year. Lastly, the rural banking group registered P178.21 billion in resources, about the same as the level a year ago. Earlier, the Bankers Association of the Philippines (BAP), the umbrella organization of universal and commercial banks, said there was strong interest among its members in lending more to individual borrowers and enterprises. BAP president Aurelio Montinola III had said the banking sector had a favorable outlook on its financial performance and ability to expand credit largely because of a generally well-behaved economy.

The central bank earlier reported that the outstanding loans of universal and commercial banks in the country amounted to P2.54 trillion as of end-May, up by 18.8 percent from P2.14 trillion as of the same period a year ago.

Customs refers Shell tax case to energy officials

One of the tax issues involving Pilipinas Shell Petroleum Corp.where it has been accused of importing questionable petroleum materials for which it reportedly owes the government some P1.6 billion in taxeshas been passed from one government agency to another. According to Customs Commissioner Angelito A. Alvarez, the Bureau of Customs (BoC) has decided to refer the matter to the Department of Energy for guidance, pending the outcome of the BoCs investigation. The case involves the importation of alkylate, which the Customs agency regards as a finished product, classifying it as gasoline and thus subject to excise tax and value-added tax. But Shell insists it is merely an input and not a finished product. Although third-party tests had been conducted, the results of which supported Shells claim, Alvarez said his agency would continue with its case against the oil giant. The BoC, under its Run After the Smugglers (RATS) initiative, filed with the Department of Justice several smuggling cases against Shell. The agency accused Shell of intentional misclassification and misdeclaration of various petroleum importations between August 2005 and May 2009. Later, the BoC and Shell agreed to engage SGS Philippines to test a sample of alkylate taken from a Shell cargo and analyze the material whether it is gasoline or an intermediate product. The only way (to settle the matter is) through a third party, an independent body that can provide credible and irrefutable certification on the true nature of alkylate, Alvarez said in a statement. But Alvarez said SGS had issued a testing certificate which stated that, based on the countrys product standard, alkylate is not gasoline. Citing SGS findings, the customs chief said that the sample did not pass the 10-percent volume recovered distillation test for premium plus, premium and regular gasoline as well as the octane number test for premium plus gasoline provided under the Philippine National Standard.

...continuation
And it does not help that [the Bureau of Internal Revenue] had effectively recognized alkylate as raw material not subject to excise tax when it issued an individual authority to release imported goods (ATRIG) for all the alkylate importations involved in the subject claim, Alvarez added. Alvarez acknowledged that these developments did not seem to support the P1.6-billion claim recommended by the Batangas Collection District against Pilipinas Shell. Rest assured that the course of action we will take on this matter will depend on the preponderance of evidence for or against the P1.6-billion claim, Alvarez said.
By: Ronnel W. Domingo