Honorable Senator Sonny Angara, members of the Senate Committee on Finance and staff, representatives from the DOF bureaus and attached agencies, fellow workers in the government, good morning.
Thank you for the opportunity to brief the Senate on the DOF’s proposed budget for 2020.
2018 was a banner year for the Department of Finance. The DOF has been engaged in a broad range of reform efforts. Apart from modernizing our tax system and improving revenue flows, the Department has been involved in reducing red tape, broadening the base of our financial system, facilitating adoption of new technologies to modernize governance, reducing the volume of corruption, and negotiating official development assistance to support this administration’s Build, Build, Build infrastructure program.
Apart from these, in 2018, 56 GOCCs remitted dividends amounting to 51.24 billion pesos. This is the highest amount ever collected, representing a 41% increase from the 36.46 billion pesos collected in 2017. This includes cash and dividend contributions retained by government financial institutions to boost their capital requirements. The improved remittances speak much of the improvements in corporate governance among the GOCCs.
Tax effort in 2018 also 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 these game-changing measures.
This year, we see our strong fiscal performance continuing. In the first eight months of 2019, total revenue collections reached 2.09 trillion pesos. This is 9.5%, or 182.2 billion pesos, higher than the same period last year. 1.9 trillion pesos or 90% of the total revenue collection came from tax collections.
Tax collection registered a growth of 9.8% in the first eight months of 2019. BIR collections rose by 10.6%, translating into an additional 138.7 billion pesos in revenues over the same period last year. On the other hand, BOC collections grew by 7.2% or a 27.7 billion pesos increase from the same period of last year.
In the first semester of 2019, preliminary data show that TRAIN revenues reached 55.6 billion pesos. This is 65% higher than the same period last year. BIR and BOC exceeded their TRAIN targets by 1.8 billion pesos and 1.7 billion pesos, respectively.
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 7.4% in the first eight 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 August of this year alone.
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 eight months of 2019 amounted to 120.4 billion pesos. This is 57.3% lower than the fiscal 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 the year. We are speeding up the execution of key projects of the infrastructure modernization program.
We project expenditures for 2020 at 4.20 trillion pesos, equivalent to 20% of the GDP. For 2022, we estimate revenues to rise to 4.40 trillion pesos with disbursements increasing to 5.20 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.
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 management, we expect the debt-to-GDP ratio to continue its downward trajectory, settling at 39% by 2022.
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 the Universal Health Care program.
House Bill 304 or the bill on Passive Income and Financial Intermediary Taxation Act (PIFITA) has been approved on third and final reading in the House of Representatives. This complements the recently passed TRAIN Law by making passive income and financial intermediary taxes simpler, fairer, more efficient, and more regionally competitive.
House Bill No. 4157 or the Corporate Income Tax and Incentives Rationalization Act has been approved in the House of Representatives. This aims to lower the corporate income tax rate gradually from 30 percent to 20 percent to attract more investment, while broadening the tax base by making fiscal incentives more accountable. It also seeks to modernize the incentive system to make incentives performance-based, time-bound, targeted and transparent.
We are also grateful to the House of Representatives Committee on Ways and Means for approving our Package 3 or the Real Property Valuation Reform, which aims to promote the development of a just, equitable, and efficient real property valuation system.
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.
Let me now proceed to discussing the DOF’s proposed 2020 budget.
The Department’s 2020 budget amounts to 56billion pesos, including New General Appropriations, Automatic Appropriations, Unprogrammed Appropriations, and Budgetary Support to Government Corporations.
The proposed 2020 budget for General Appropriations of 17.29 billion pesos is 8% or 1.59 Billion pesos lower than last year’s approved budget.
The Automatic Appropriations, amounting to 1.4 billion pesos, is composed of the Retirement and Life Insurance Premium, and Special Accounts in the General Fund.
The Unprogrammed Appropriations of 211 million pesos is for the refund of the service development fee for the Nampedai property in Japan.
The Budgetary Support to GOCCs include the 36.4 billion pesos for the tax reform cash transfers, 97 million pesos for the implementation of the Specialized Tax Training and Education Management Program of the Philippine Tax Academy, and 500 million pesos subsidy for Trade and Investment Development Corporation of the Philippines or TIDCORP, which is now Philippine Guarantee Corporation, for capacity to cover additional guarantee volume committed to deliver in 2020.
The top agencies with the biggest reduction in the proposed 2020 budget are the Bureau of the Treasury and Bureau of Customs. The Bureau of Internal Revenue is the only agency with a budget increase in the proposed 2020 budget.
To further improve the tax administration and enforcement, we have allocated for BIR a total of 8.5 billion pesos. This makes this the largest allocation among the DOF-attached agencies. The increase in Personnel Services corresponds to the growth in filled-up positions from 10,671 in 2019 to 11,448 in 2020.
Next is the BTR with an allocation amounting to 4.77 billion pesos. This is 1.3 billion pesos or 21% lower than its 2019 budget. This is due to the final installment of the paid-in capital of the country to the Asian Infrastructure Investment Bank or AIIB under the Capital Outlay International Commitment Fund. The proposed budget also maintained the 2.0 Billion Insurance Premium for Government Assets against natural or human-induced calamities, epidemics, crises, and catastrophes as provided under R.A. No. 656.
For 2020, we have allocated 2.26 billion pesos to the BOC. This is 14% lower than last year’s budget because of its unapproved Medium-Term Information and Communications Technology Harmonization Initiative (MITHI) projects for fiscal year 2020 Modernization Program of BOC.
For the Office of the Secretary, the proposed budget for 2020 decreased by 1%. The increase in Personnel Services is due to the growth in filled positions, from 428 in 2019 to 484 in 2020. The decrease in maintenance and other operating expensesis mainly because of the reduction in the approved budget for the operational requirements of Philippine Extractive Industries Transparency Initiative (PH-EITI). The 24% decrease in capital outlays is due to the non-approval of some of the MITHI projects of the Department.
For the Securities and Exchange Commission or SEC, in view of the passage of RA 11232 also known as the “Revised Corporation Code of the Philippines”, it resolved that effective 2020 onwards, the Commission shall source from its retained funds all expenses for SEC modernization and other operational expenses. These expenses include but are not limited to, personnel services, maintenance and other operating expenses, capital outlay, increase in compensation and benefits comparable with prevailing rates in the private sector, employer’s contribution to provident fund, reasonable employee allowance, employee health care services, and other insurance, employee career advancement and professionalization, legal assistance, seminars, and other professional fees.
The remaining 5 attached agencies with a total proposed budget of 421 million pesos is only 2% of the General Appropriations of the proposed 2020 DOF budget.
To end, be assured that we will continue to build on our efforts to maintain fiscal stability and to improve our revenue collection performance to achieve inclusive economic growth for the country. Our fiscal objectives were honed to support the administration’s priority programs, such as the massive infrastructure program and public investments to improve the lives of our people. The timely approval of our proposed budget for 2020 will keep us on track in accomplishing these goals.
Thank you very much and good morning.
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