[OPINION] Can We Spend, Spend, Spend?
October 18, 2017 at 14:21
Can We Spend, Spend, Spend?
Thinking Beyond Politics By Weslene Uy | October 18, 2017
After a lengthy legislative exercise, the Senate released a Committee Report last month that consolidated 31 different bills on the Tax Reform for Acceleration and Inclusion (TRAIN).
Despite having taken that step, lengthy deliberations on the 2018 budget meant that the Senate ran out of time to pass the TRAIN bill on final reading before Congress adjourned from session last week.
Once session resumes in November, the Senate has to pass its version of the bill and both chambers must resolve their differences during the Bicameral Conference Committee. Nevertheless, the President is expected to sign the bill into law by Dec. 15, in time for the first package’s implementation in 2018.
The TRAIN bill’s passage has been a highly polarized battle since the proposal was lodged in Congress last year.
While there was a generally homogenous support for lower personal income taxes, the revenue-generating measures of the bill, such as the excise taxes on petroleum and sugar-sweetened beverages, were met with intense skepticism. Imposing new taxes is always unpopular, and so skeptics argue that the administration should focus on improving tax efficiency and collection performance instead.
This is an important point to consider, as the country’s regularly misses its revenue targets and has a tax efficiency of only 35% for VAT, 11.7% for Corporate Income Tax, and 6.2% for Personal Income Tax, all among the lowest figures in ASEAN. These statistics do not even reflect the other anomalies that beleaguer our collection agencies, such as the recent scandal that befell the Bureau of Customs. Faithful taxpayers are more interested in seeing the administration plug the serious leaks in our tax system than seeing their government raise taxes or impose new ones.
To some extent, the TRAIN bill addresses the current tax system’s deficiencies by including tax administration provisions and by making the processes simpler.
However, the government rationalizes that even with improved tax administration and fiscal prudence, around P366 billion in additional revenues (around P2.2 trillion in total by 2022) is needed annually to catch up on much-needed public investments. Half of the prospective new revenue is allotted for infrastructure investments under the administration’s Build, Build, Build campaign. As it is, even if prospective TRAIN revenues are maximized in line with the DoF’s plan, these revenues will barely cover half of the what the government sees as required investments.
Unfortunately for the Finance department, the Senate’s TRAIN bill version is expected to generate net revenues of P59.9 billion, representing only half of the P133.8 billion in expected revenues from the House of Representatives proposal, and a little over a third of the DoF proposal. Several pundits have sounded the alarm on the Senate’s heavily diluted version of the TRAIN bill. They argue that the ambitious government spending program should be matched by new revenues, otherwise, the country risks a ballooning public debt, putting our investment grade credit rating in jeopardy.
Missing in all of this noise is one pressing question: even if the necessary revenues are collected, does the government have the absorptive capacity to deliver on its promises?
When asked about the government’s spending performance, Budget Secretary Benjamin Diokno declared that underspending was “a thing of the past,” noting that for the first half of 2017, disbursements were almost “on the dot” for the programmed budget, with a shortfall of only P6 billion. This was a marked improvement from the previous administration although, notably, the Duterte government has backloaded its spending targets to the second half of the year.
A closer look at figures, however, show a less optimistic picture.
Growth in infrastructure and capital outlay disbursements has fallen by 29 percentage points year on year in the first 8 months of 2017. Moreover, the two agencies primarily tasked to implement infrastructure projects — the Department of Public Works and Highways (DPWH) and the Department of Transportation (DoTr) — have widely disparate budget utilization rates. DoTr has only utilized 7.3% of its capital outlay allotment, which makes up around 62% of its budget.
For the first half of the year, DoTr’s budget utilization rate was at 18%, well below the national government agencies’ average of 45.1%. DPWH fared better at 60.6%. Unsurprisingly, DoTr has revised several project completion dates.
During the Dutertenomics launch in April, for instance, DoTr said it targeted completing several airports in 2018 (i.e. Bicol International and Mactan-Cebu International); the completion dates have since been pushed back by at least a year. The agency’s budget performance is particularly alarming since 15 out of the 23 NEDA Board-approved flagship projects, amounting to roughly P1 trillion, will be implemented by DoTr. The government will need to work double time to avoid falling into the same trap as its predecessor.
The government’s absorptive capacity is one issue; there are a host of other concerns on the administration’s infrastructure buildup, including the feasibility of the projects, delays from right-of-way issues, and the constrained capacity of construction companies. If the government manages to raise enough revenues to fund its infrastructure drive, can it ensure that money will be spent efficiently?
Otherwise, and to borrow Sec. Diokno’s words, it would be “near criminal” for an administration to downplay its inefficiencies, raise more funds from taxpayers, and yet not even spend its appropriations. This would be another missed opportunity.
