Gov’t will tighten belt, borrow more if tax reform revenue dips

LOWER-THAN-EXPECTED revenue from approved tax reform legislation will force the government to raise its fiscal deficit as well as trim the budgets of projects deemed to be lower-priority, Budget Secretary Benjamin E. Diokno said.

Mr. Diokno added that the government intends to fund the bigger deficit 50-50 from increased debt and from budget cuts, should revenue it was counting on from the Tax Reform for Acceleration and Inclusion (TRAIN) program be diluted.

“For example, the gap is P50 billion, I will increase the deficit by another P25 billion, and then the other P25 billion I will cut from lower-priority spending items,” he told reporters on Friday.

Latest preliminary estimates from the Finance department show that Senate Bill No. 1592 would yield P59.9 billion in the first year of implementation, against the P133.8 billion to be raised under House Bill No. 2636, which is programmed in the P3.767 trillion 2018 budget.

In the 2018 budget, the government expects a P523.6 billion budget deficit.

Despite this, Mr. Diokno said that the medium- term fiscal program should remain intact, as long as the total tax take in the next five years is as expected.

“I think you should look at it in the period of five years’ time. So for example the fuel tax, that has been staggered... knowing that year two, (any dilution) may be recovered,” Mr. Diokno said, referring to the various versions of the P6 per liter increase in petroleum taxes.

This approach means many projects can still go forward.

“In the past, our policy was to release funds slowly because they have not yet been collected. Which is why we have many unfinished projects. Now, as long as it’s in the budget, you can finish that project. It’s more important that you complete the project rather than leave things hanging,” Mr. Diokno added.

Still, Mr. Diokno said that he is confident that the eventual TRAIN legislation will provide revenue consistent with the government’s plan.

Finance Secretary Carlos G. Dominguez III added: “We have every confidence that the legislature will come up with revenue that will be suff icient to fund all the various projects of the president including both the social side, the educational side and the infrastructure,” he told reporters on Thursday.

Mr. Dominguez noted that he expects the bicameral conference committee to convene by mid-November, and hopes for tax measures close to what it originally planned for.

TRAIN features a reduction in personal income taxes, lower estate and donor taxes, the removal of value-added tax exemptions, increased petroleum and automobile excise taxes, a new tax on sugar-sweetened beverages, and some tax administration measures.

The Senate version has meanwhile introduced new taxes to compensate for its lower revenue outcome, such as a tax on cosmetic surgery, higher levies on coal, foreign currency deposits, dividends, and capital gains tax on securities not traded on the stock market. —