Chairperson Sonny Angara, members of the Senate Committee on Finance, the DOF family, fellow workers in government – good morning.
Thank you for this opportunity to brief the Senate on the national government’s fiscal performance, policy reforms and debt management. Our fiscal objectives were honed to support President Duterte’s priority programs, such as the massive infrastructure program and public investments in our human capital to improve the lives of our people.
2018 was a banner year for the Department of Finance.
Last year, the total revenue collection reached 2.85 trillion pesos. This is 15.2% higher than the 2017 level. Tax collections, which account for 90% of total revenues, registered a 14% growth. Both the Bureaus of Internal Revenue and Customs achieved a double-digit collection growth of 10.1% and 29.4%, respectively.
In 2018, revenues attributable to the TRAIN Law amounted to 68.4 billion, exceeding the target by 8.1%.
The 2018 tax effort rose to 14.7% of GDP. This is the highest rate in two decades and closely matches the regional average. The passage of the TRAIN Law and continuing administrative reforms in our revenue agencies brought about this record performance. We thank the Congress for passing this game-changing reform measure.
Last year, dividend remittances by Government-Owned and Controlled Corporations or GOCCs was at its highest at 51.2 billion pesos. The improved remittances speak much of the improvements in corporate governance among the GOCCs.
In addition to improved revenue flows, the DOF sealed highly concessional funding support in 2018 for big-ticket projects under the Duterte administration’s Build, Build, Build program, including its most ambitious and biggest single infrastructure project yet–the first phase of the Metro Manila Subway.
The DOF also continues to spearhead programs on cutting red tape and improving the ease of doing business by modernizing our processes and tax system. Alongside with this, the DOF, together with the BIR and BOC, have been intensifying our relentless campaign against tax evasion and smuggling.
We see the strong revenue performance continuing. In the first seven months of 2019, total revenue collections reached 1.8 trillion pesos. This is 9.6% or 159.3 billion pesos higher than the same period last year. 1.6 trillion pesos or 89.3% of the total revenue collection came from tax collections.
Tax collection registered a growth of 9.9% in the first seven months of 2019. BIR collections rose by 10.5%, translating into an additional 118.2 billion pesos in revenues over the same period last year. On the other hand, BOC collections grew by 7.9% or a 26.2 billion peso increase from the same period of last year.
We are confident this growth will be sustained in the coming period through continuing administrative reforms and the completion of the comprehensive tax reform program that will make our tax system simpler, fairer and more efficient. In both revenue agencies, we are automating processes and strengthening control measures against slippages.
Meanwhile, non-tax revenues rose by 7.7% in the first seven months of 2019. This is due to the higher collections of cash dividends remitted by the GOCCs, which reached another record amount of 61.3 billion pesos as of July.
The delay in the passage of the national budget for 2019 constrained government from implementing new programs and projects. The cumulative budget deficit for the first seven months of 2019 amounted to 117.9 billion pesos. This is 57.8% lower than the deficit level for the same period last year.
With the catch-up spending plan we are now executing, we expect the budget deficit to widen in the remaining months of this year. We are speeding up the execution of key projects of the infrastructure modernization program.
For 2020, we project revenue collections to reach 3.5 trillion pesos. Revenues attributable to the comprehensive tax reform program are projected to contribute an additional 187.1 billion pesos next year. This includes: 153.8 billion pesos from the TRAIN Law, 15.5 billion pesos from the recently enacted RA 11346 that raised excise taxes on tobacco products, and 17.8 billion pesos to be collected from Package 2+ increasing excise taxes on alcohol and e-cigarette products. While Package 2 and 4, which make tax incentives and corporate income, passive income, and financial intermediary taxes simpler, fairer, more efficient and regionally competitive, are revenue neutral.
We project expenditures for 2020 at 4.2 trillion pesos. This represents 19.9% of the GDP. We have set a deficit target of 677.6 billion pesos, equivalent to 3.2% of GDP for next year. This is well within the norm for deficit spending.
For 2022, we estimate revenues to rise to 4.4 trillion pesos with disbursements increasing to 5.2 trillion pesos.
Given the revenue and disbursement program adopted by the DBCC, the deficit target will be maintained at 3.2% of GDP from 2019 to 2022 to sustain the government’s investments on infrastructure and human capital development.
We expect the public sector deficit to grow marginally to about 1.3% of GDP by 2020 due to government’s expanded spending to support the Build, Build, Build program.
Meanwhile, we continue to manage our debt according to the best standards of fiscal discipline. At end-2018, debt as a percentage of GDP stood at 41.8% from 42.1% in 2017. With a sustainable fiscal policy and prudent debt spending, we expect the debt-to-GDP ratio to continue its downward trajectory, settling at 39% by 2022.
As a matter of prudence, government will continue to borrow predominantly in the local currency to meet funding requirements. The reason for this is to minimize our exposure to foreign currency volatility. Borrowing locally also supports the long-term objective of developing our domestic capital markets.
As of June 2019, the financing mix is at 73:27 ratio, favoring domestic borrowings. This is an improvement over the end-2018 financing mix of 66:34. We will continue to favor domestic borrowings, following a 75:25 mix in 2020 to 2022.
As a percentage of revenues, interest payments are down from 31.7% in 2006 to just 12.3% in 2018. As a percentage of expenditures, interest payments are down from 29.7% in 2006 to just 10.2% in 2018.
As of end-June 2019, interest payments comprised 11.6% of revenues and 11.3% of expenditures. We are effectively outgrowing our debt. We are spending more on social services as a result of the declining debt-to-GDP ratio.
We will continue to implement the administrative reforms and revenue-enhancing programs to meet our revenue collection targets and sustain the country’s growth.
We are grateful to Congress for the passage of RA 11346 or the tobacco tax reform law. The substantially higher excise taxes on tobacco products are earmarked to augment the huge funding needed for the Universal Health Care program that would especially benefit low-income households.
House Bill 1026 or the bill on higher excise taxes on alcohol products and electronic cigarettes has also been approved on third reading in the House of Representatives. This will help us close the funding gap challenging the full implementation of universal health care.
The executive branch will continue to be engaged with the legislature in passing the remaining tax reform packages that will generate additional revenue streams for government to fund social amelioration programs.
As Standard & Poor’s mentioned in their assessment of the Philippines, the ambitious tax reform agenda was a key factor in their credit rating upgrade from BBB to BBB plus. This is one notch away from the sterling A rating territory. This higher investment grade rating means upgrading everyone’s life. With our more reliable credit standing, we will be able to secure even cheaper loans and save money that we can invest in education, social programs, and other priority projects for our people.
The passage of the remaining tax reform packages and other economic reforms can surely help bring us to A rating territory within the next couple of years. Completing the reform measures will guarantee the revenue flow and the equitable sharing of the contributions to underwrite our social and infrastructure programs. It will also ensure fiscal stability long into the future.
More importantly, passing the reforms will help us ensure faster GDP growth, lower poverty rates, and open more opportunities to all law-abiding Filipinos. They will also complete the President’s promise in the zero-to-ten-point socioeconomic agenda.
Please be assured that we will continue to improve on our fiscal position in the coming period. I am sure Congress shares our vision of building a strong and inclusive economy for the Filipinos today and in the years to come.