DBCC weighs IRA ruling’s fiscal risks

4% budget deficit being considered

The inter-agency Development Budget Coordination Committee (DBCC), composed of President Rodrigo R. Duterte’s economic managers, will decide today on ways to prudently give away billions of pesos to local government units (LGUs) annually without incurring significant loads of debts.

Part of the DBCC agenda is to decide whether or not to allow the fiscal deficit, a closely watched economic indicator, to further accelerate, which may imperil the country’s investment grade credit ratings.

Calculations made by the Department of Finance (DOF) revealed that the national government’s budget deficit may exceed the ceiling by nearly one percentage point if the controversial Supreme Court ruling on internal revenue allotment (IRA) is prospectively implemented beginning next year.

Based on the official estimates obtained by Manila Bulletin, the national government’s fiscal gap could hit 4.0 percent of the economy, as measured by the country’s gross domestic product (GDP), once the LGUs start receiving additional budget allocation.

This is higher by 0.8 percentage point compared with the economic managers’ earlier assumption of 3.2 percent.

An alternative that the DBCC considers is to stick with the 3.2 percent deficit ratio by transferring some national government’s expenditures to the LGUs, a scenario that is in line with the DOF principle that expenditures should always follow revenues.

In nominal terms, the national government’s budget gap is seen to increase by 25 percent to 1782.9 billion in 2019 from an original assumption of 1624.4 billion.

Based on DOF calculations, the Supreme Court ruling, once becomes final and executory, would bring the national government’s total expenditures to 13.911 trillion, a two percent increase compared with the original 13.832 trillion.

The finance department also estimated that the high court’s order entails 1158.5 billion in additional spending requirement for the national government. For 2019, the Duterte administration already earmarked 1575.5 billion for IRA.

The Supreme Court earlier ruled that LGUs should get a share from all national revenues, including tariffs and duties collected by the Bureau of Customs.

The high tribunal pegged that LGUs gets a 40 percent share from Customs annual revenue take.

With that order, the DOF estimated that for 2019 alone, LGUs would receive extra 1115.1 billion from Customs’ value-added tax collection, another 123 billion from import duties, 118.1 billion from excise taxes and 12.4 billion from other fees.

Sought for comment, Budget Secretary Benjamin E. Diokno said that he just received last Friday the proposed fiscal assumptions based on the Supreme Court ruling.

“We’re reviewing the numbers based on the SC decision which we received [last Friday]. That will be the subject of a special DBCC meeting set on Monday. We’ll issue an official statement based on the results of the said meeting,” Diokno said in a mobile phone message.

Data from the DOF showed that the Duterte government needs to give more funds to the LGUs during the remaining years of its administration.

For 2020, the national government will be tasked to set-aside additional 1183.3 billion on top of LGUs’ yearly IRA, another 208.3 billion the following year and 1224.3 billion in 2022.

Likewise, the DBCC needs to adjust upward its yearly budget deficit program from 3.0 percent to 3.8 percent until the Duterte administration’s term ends.

The Department of Budget and Management (DBM) said last week that the Duterte administration will ask the high court to reconsider its ruling increasing LGUs’ IRA.

“The DBM, in coordination with the OSG (Office of the Solicitor General), will file a motion for reconsideration within 15 days from the receipt of the decision. As of yesterday [Wednesday last week], we have not received the decision,” Diokno said.

Based on the DBCC agenda dated July 26, the economic managers will also tackle the International Monetary Fund’s recommendation to keep the government’s fiscal gap at 2.4 percent for this year and 2.5 percent in 2019.

Rehearsal of the DBCC presentations before the House of Representatives tomorrow is also part of the agenda for today’s special meeting.