1. Getting Out of the Fiscal Bind
Presentation by
Romulo L. Neri
Director General
Congressional Planning
and Budget Department
Getting Out of the Fiscal Bind

2. NG is back to its perennial deficit position

3. To Keep 2002 Deficit at P 130b…..

4. If current tax collections will not improve, deficit will be at P160b

5. As a consequence of the deficit, NG borrowing increased significantly.

6. Deficit financing bloats outstanding debt
In billion pesos
In percent

7. Deficit financing leads to higher debt service burden.

8. The continuing deficit and increasing debt raise the issue of sustainability.
in Percent

9. As of July 3, 2002
Source:Bloomberg L.P.

11. Rising interest payments crowd out important government expenditures

12. Huge budget allocation also goes to personal services
NG EXPENDITURES BY OBJECT
(SHARE OF TOTAL BUDGET)
in Percent

13. in Percent

14. Compared with ASEAN, the Phil. spent less on capital expenditures

15. NG Revenue Performance
In Percent

16. Tax Effort by Source

17. The country’s revenue performance has consistently lagged behind its ASEAN neighbors
Source: Asian Development Outlook 2002

18. Summary of Revenues Waived from Various Fiscal Incentives Provisions, 1998-2000 (in billion pesos)

19. VAT evasion is estimated at 60% of potential

20. 40% of corporate income tax is not collected
In billion pesos
In percent

21. Leakage in individual income tax is around 60%

22. Analysis NG of Fiscal Position, January-August 2002
(Amounts in Billion Pesos)

23. National Government Revenue
January-August, 2001 vs. 2002

24. Large Regular Taxpayers by Sector January to May 2002

25. In percent

27. In percent

28. What Congress Needs to do
Approve the Procurement Reform Bill
Estimated loss due to corruption in public procurement ranges from P15b to P22b per year. Shift in electronic procurement will result in annual savings of up to 40%

29. What Congress Needs to do
Approve the Reengineering of BIR
Transform the agency into an autonomous, performance-based agency, i.e. governed by a Revenue Board and headed by a CEO who is under time bound performance contract with the Board.

30. What Congress Needs to do
Conduct Oversight of BIR
Convene the Joint Congressional Committee as mandated in the Tax Code. Also, require BIR to submit to COA revenue audit.

31. What Congress Needs to do
Rationalize Fiscal Incentives
Fiscal incentives granted under various laws have resulted not only in huge revenue losses but have also made tax administration very unwieldy, thus, opening avenues for graft and corruption.

32. What Congress Needs to do
Restructure Excise Tax
Existing specific tax rates should be adjusted to its 1997 levels. Automatic indexation should also be provided to capture changes in price.

33. What Congress Needs to do
Reformulate the IRA
New IRA formula should consider the disparities in expenditure needs and revenue generating capacities of LGUs. Criteria for distribution may include poverty indicators and HDI, assessed property values and average family income.

34. ECONOMIC FACTORS IN COMPETITIVENESS
Low
Agricultural
Spending
Low
Agricultural
Productivity
High
Agricultural
Protection
High Food
Cost
High
Wages
- Poor Infrastructure
Limited
Budget
- Inefficient Shipping
- Port Monopolies
Poor
Tax
Collection
Unemployment
Low Income
Low Labor
Productivity
Graft &
Corruption
LOW
INVESTMENT
Poor Education
Poor Health
POVERTY