October 22, 2018
Senate of the Philippines
Honorable Senator Loren Legarda, the DOF family, fellow workers in government, good morning. Thank you for this opportunity to brief the Senate on the DOF’s proposed budget for 2019.
Year 2017 was a very productive year for the Department of Finance. The DOF was engaged in a broad range of reform efforts. Apart from modernizing our tax system and improving revenue flows, the Department was 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, the DOF also made history in 2017 by collecting from a cigarette manufacturer a total of P30 billion for its non-payment of excise taxes and use of counterfeit stamps on its cigarette packs. This is the biggest sum on record raised by the government from a tax settlement. This was the result of a heightened joint campaign by our revenue agencies against tax cheats. At present, this has increased our collection of excise taxes on cigarettes by an average of around P2.5 billion a month.
All our achievements are capped by the passage of the Tax Reform for Acceleration and Inclusion (TRAIN) Law in December last year. We have invested much effort in seeing this through the legislative process. Those efforts were all worth it. We thank congress for its support to this crucial reform program.
The passage of the first package of our comprehensive tax reform program bore fruit almost immediately. In the first half of this year, our revenue effort rose to 17.12 percent of GDP. This is the highest first semester revenue effort ever achieved.
Our tax effort also improved from 14.22 percent to 15.23 percent. This is similarly the highest first semester tax effort ever achieved. Nearly half of the increase is attributable to the new tax reform law.
Our tax effort is now at par with the best-managed economies in the region. It is a tax effort we can very well sustain, especially with the subsequent packages of the comprehensive tax reform program now being deliberated by the legislature.
To give you the latest figures, from January to August of this year, total revenue collection reached P1.91 trillion. This is 19 percent higher than the same period last year and makes up 67 percent of the total full year collection program.
Tax collections, which account for almost 90 percent of total revenues, grew by 18 percent. The Bureau of Internal Revenue (BIR) achieved a 13.5 percent increase in tax collection mainly due to the impact of the TRAIN Law and continued improvements in tax administration. The Bureau of Customs (BOC), on the other hand, grew its collections by 35 percent. Its consistent double-digit growth for the year is attributable to the Bureau’s strong enforcement and revenue-enhancing measures.
Non-tax revenues likewise went up by 35 percent compared to the level of the same period last year.
Meanwhile, government spending outpaced revenue growth for the first eight months of the year climbing to P2.2 trillion, 23 percent higher than last year. This drove the cumulative fiscal deficit to P282 billion, a 60 percent hike compared to last year’s deficit level of P176.2 billion as the government continued to finance its infrastructure program meant to boost economic growth.
The TRAIN Law, which was implemented at the start of 2018, contributed P26.6 billion in revenues for the first seven months of the year, part of which is the loss from personal income tax reduction totaling P70.8 billion. This means we were able to fulfill our commitment of putting more money into people’s pockets.
The DBCC in its previous meeting revised the fiscal program due to the adjusted timelines of certain measures. For 2018, the revenue target was lowered by P26.6 billion to account for the delay in the implementation of e-receipts and fuel marking programs. For 2019, the revenue target was also lowered by P40 billion due to the possible suspension of the oil excise tax increase, and by P8 billion more still due to the e-receipts program. These will partially be offset by the additional VAT of about P14 billion to be collected from elevated oil import prices. The targets for 2021 and 2022 were adjusted to account for the implementation of package 2 or the corporate income tax reform.
Between now and 2022, with tax reforms and continuing improvement in tax administration, we are looking to improving the ratio of revenues to GDP from 15.6 percent in 2017 to 17.6 percent by 2022. Tax revenues-to-GDP will increase from 14.2 percent in 2017 to 16.9 percent by 2022. This will bring our tax effort to about the regional average.
Government spending will also continue to be a growth driver for the economy through public infrastructure investments and human capital development. We expect expenditures to reach 20.7 percent by 2022. The transition to cash-based budgeting is also expected to eradicate underspending and enhance the efficiency of national government’s disbursements.
Fiscal deficit target which was adjusted to 3.2 percent of GDP in 2019 will revert to 3.0 percent until 2022 to allow enough fiscal space to fund our economic investments.
With sustainable fiscal policy and prudent debt management, we expect the debt-to-GDP ratio to continue its downward trajectory path in the medium-term from 42.1 percent in 2017 to 38.6 percent in 2022. This will be supported by a financing program that will continue to favor domestic borrowings, following a 65:35 mix in 2018 and a 75:25 mix from 2019 to 2022.
Our proactive liability management agenda has decreased the burden of debt on our budget, creating more fiscal space to fund social commitments.
As a percentage of revenues, interest payments are down from 31.7 percent in 2006 to 12.6 percent in 2017, while as a percentage of expenditures, interest payments are down from 29.7 percent in 2006 to 11 percent in 2017. As of end-August 2018, both of these ratios continue to decline, now at 12.5 percent and 10.9 percent, respectively.
We will continue implementing the administrative reforms and revenue-enhancing programs and measures to meet our targets and sustain collection growth.
The government is pushing for the passage of the remaining packages of our tax reform program. The remaining packages will generate additional revenue streams which will be used to invest more in our massive infrastructure build-up and human capital through expanded social amelioration programs. The tax reform will bring about growth with equity and heightened productivity that will help us attain our aspiration to be a high-middle-income country by 2022, lifting one million Filipinos from poverty in a year.
Let me now proceed to discussing the DOF’s proposed 2019 budget.
The Department’s 2019 budget totals P56.8 billion, including New General Appropriations, Automatic Appropriations, Unprogrammed Appropriations, and Budgetary Support to Government Corporations. The Automatic Appropriations worth P1.3 billion is composed of the Retirement and Life Insurance Premium and Special Accounts in the General Fund. The Unprogrammed Appropriations of P210 million is for the refund of the service development fee for the Nampedai property in Japan. The Budgetary Support to GOCCs include the P36 billion for the tax reform cash transfers and P114 million for the operationalization of the Philippine Tax Academy.
The proposed 2019 budget is 3 percent lower than the previous year’s obligation-based budget. However, if compared to its cash-based budget equivalent, the Department’s 2019 budget actually increased by 7 percent. For the purpose of this presentation, we will focus on the comparison of the 2019 budget with its cash-based equivalent in 2018.
To further improve the tax administration and enforcement, we have allocated for the BIR a total of P8.1 billion, which makes this the largest allocation among the DOF-attached agencies. The increase in Personnel Services or PS corresponds to the increase in filled-up positions from 10,044 in 2018 to 10,671 in 2019, as well as the increase in compensation under the Salary Standardization Law or SSL. The decrease in Maintenance and Other Operating Expenses or MOOE was due to the non-provision of funds for certain projects, such as the printing of new BIR tax forms and conducting information dissemination for the TRAIN Law. The increase in Financial Expenses corresponds to the proposed building programs of the Bureau.
For 2019, we have allocated P6 billion to the Bureau of the Treasury, an increase of 50 percent from its cash-based equivalent in 2018. The increase in PS is due to the implementation of the fourth tranche of SSL. The 505-percent increase in MOOE is due to the establishment of the Insurance Premium to protect government assets against natural or human-induced hazards as provided under Republic Act No. 656.
Next is BOC, the agency with the third highest budget for 2019 with an allocation amounting to P2.6 billion, a decrease of 19 percent from the previous year. The increase in PS is due to implementation of SSL. The 65-percent decrease in Capital Outlay is due to the limited provision of funds for the Bureau’s procurement of information and communication equipment and the implementation of the Customs Automation Project.
The OSEC’s proposed budget will be decreased by 31 percent in 2019. Bulk of the decrease is due to the ongoing renovation projects of the Department that will be completed by end of the 2018.
For the Securities and Exchange Commission, the proposed 2019 budget will be decreased by only 2 percent due to SSL and increase in filled positions from 423 in 2018 to 436 in 2019. The 9-percent decrease in MOOE is due to the DBM’s recommendation based on SEC’s absorptive capacity in 2017. The same is true for other DOF agencies.
The remaining five attached agencies with a total cash-based budget of P438.8 million is 2.35 percent of the total 2019 DOF proposed budget.
To end, let me emphasize that this Administration and the DOF are committed to maintaining fiscal stability, achieving revenue targets, and driving strong economic growth – all for the benefit of the Filipino people. We hope this body will enable us to deliver on this commitment by approving this Department’s proposed 2019 budget.
Thank you.
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