ibon- budget 2010 (notes) 0909-17(2)
TRANSCRIPT
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2010 NG Budget: ConfirmingGMAs Legacy of Fiscal Decay
IBON Foundation
September 17, 2009
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Intro (1)
Budget objectives (for a socially responsiblegovt): raise revenues & spend in ways thatpromote peoples well-being
Public spending is a key instrument fordevelopment Providing social services
Subsidizing consumption
Subsidizing agriculture & domestic industry Building infrastructure
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Intro (2)
Minimizing public spending & deficitsare not automatically best way topromote peoples welfare although IMF, WB and intl finance
markets (ex. credit rating agencies)prefer balanced budgets as better
ensuring continued debt payments
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GMAs fiscal record (1)
1. Anti-developmental spending Overall spending compression Absolute priority to debt service
(interest & principal) always at expense of social services (poor
education, health & housing services delivery) Unproductive military spending spawning HRVs Unhindered corruption (standard leakages,
items subject to GMA discretion & patronage) Note: Arroyo admin greatest payer of debts in
countrys history (in both absolute & relativeterms)
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GMAs fiscal record (2)
1. Regressive revenue-raising& debt-dependence Stress on consumption/indirect taxes that
unfairly burdens low income families (ex. RVAT)
Avoids direct taxation (ex. corporations, high-income individuals)
Preserves tax breaks & subsidies forcorporations and foreign capital
Aggravated by trade liberalization/tariff cuts &
corruption Steadily rising NG debt Note: Arroyo admin most indebted in countrys
history (in both absolute & relative terms)
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GMAs fiscal record (3)
(indirect impact) NG budget supporting& reflecting implementation ofbackward economic policies
Policies resulting in record joblessness & forcedmigration, falling incomes, and rising poverty(despite economic growth)
Even upon onset of global crisis, policieskeeping economy dependent on debt & onexternal sources of growth
Economic services & social services for whom?
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Anti-developmentalspending
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Note: mainly overallquantitative analysis, notyet looking into sectoraldetail or quality ofspending
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General decline in govt budget,even amidst crisis
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General increase in debt service,even amidst crisis
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Only slight nominal increase in 2010,continues overall trend of budgetcompression
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Real decrease in non-debt NGspending in 2010
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Debt service given priority over socialservices, especially under Arroyoadministration
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Average spending in nationalbudget per admin (% of GDP)
10.16.66.88.9
Debt service(interest &principal)
0.91.11.31.3Defense
0.10.20.10.0Housing
0.30.50.50.7Health2.73.73.12.7Education
Arroyo
Estrada
Ramos
Aquino
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Arroyo admin paying the mostout of revenues to debt
Debt service as share of total revenue, 1987-2010e
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009e
2010e
Year
%o
ftotalreve
nue
59.8
36.2
40.9
65.2
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Average sectoral allocation innational budget per admin (%)
25.219.225.340.0Debt service
(interest only)
5.05.66.76.1Defense
0.40.80.60.1Housing
1.82.42.63.1Health15.118.715.512.3Education
Arroyo
Estrada
Ramos
Aquino
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Debt service always atexpense of social services (1)
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Debt service always atexpense of social services (2)
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Regressive revenue-raising& debt-dependence
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Declining revenue & tax effortsince 1990s: Arroyo admin worstrevenue effort since 1986
15.53
18.82
16.27
15.50
12.8
16.2
14.613.4
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despite unprecedentedprivatization
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Declining revenues dueto trade liberalization
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W i d b d d
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Worsening debt-dependence:Arroyo admin most indebted incountrys history
49.8
57.760.1
65.8
1972-85 ave.: only18.8 %
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Budget supportingbackward economic policies
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Increasingly jobless growthPhilippines Real GDP Growth and Unemployment
by Administration, 1986-2009e (%)
(2.0)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Year
%
Real GDP growth
Unemployment rate
3.9%
3.8%2.4%
4.9%
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Looming fiscal crisis
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Debt service single biggestfactor driving fiscal troubles
D bt id f b f th b i
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Debt paid for by further borrowing:Arroyo admin biggest borrower incountrys history
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Fiscal deficits reflecting burdensome debtservice & leading to more debt: Arroyo adminhas worst deficits in countrys history
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Note: Rising debt not just due to deficits
National govt debt increases due to:1. NG deficit2. Off-book items (ex. GOCC contingent
liabilities)3. Non-budgetary accounts (ex. other
assumed GOCC debt)4. Peso depreciation5. Increase in cash
Moreover National govt debt + GOCC, GFI, BSP, LGU
debt = Total public debt
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Non-solutions, temporary:Privatization/oil price windfall
(211.3)
(103.1)(119.4)
(297.9)
(12.4)?(68.1)?
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Roots of fiscal troubles remain
1. Fundamentally, backward economy & loweconomic activity (doesnt generatesubstantial resources)
2. Vicious cycle of debt-dependence & debtservice
3. Revenues lost/uncollected/foregone dueto:
i. Corruption (tax evasion)
ii. Trade liberalization (tariff cuts)
iii. Investment liberalization (tax breaks, subsidies& incentives)
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Soaring debt service, social servicecuts, new taxes
2002-06 fiscal crisis resulted in:1. P3.0 trillion in debt service2. Regressive RVAT (Nov-05)
every Filipino 15 years old and over paidan extra P5,059 in taxes over 2006-2008
1. Falling budget shares, 2000-06: Education 17.1% 13.8% Health 2.1% 1.5% Housing 1.2% 0.6%
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again in period to come?
2009-?? fiscal crisis:1. Trillions more in debt service2. New taxes
? sin taxes (P19-20 B) ? telcos metering device (?6 B)/text tax ? gasoline taxes ? rationalization of tax incentives (P10 B) ? simplification of net income tax (P6 B)
1. New round of cutbacks in social services
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Final notes
Revenue prospects poorer than asprojected in budget 2009 revenue performance: 3.0% growth
projected but -4.1 so far (Jan-Jul) 2009 tax performance: 3.2% projected but -5.4
so far (Jan-Jul) ? Projected 2010: 7.8% revenue growth, 10.5%
tax growth
IMF-WB has long been pushing for newtaxes (esp. Article IV Consultation andPost-Program Monitoring Discussions)
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Addressing the fiscal crisis
Debt cancellation, repeal law on automaticappropriation
Real crackdown on corruption Overhaul tariff & investment incentive
policies Cut unproductive/wasteful spending (ex.
military, non-essentials) Strategic development of agriculture &
industry (Oppose new burdensome taxes &
regressive tax system)
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Salamat po