July 31, 2018
House of Representatives
Appropriations Committee Chairman Karlo Nograles, Honorable Minority Floor Leader Danilo Suarez, members of the Committee on Appropriations, honorable legislators, members of the DBCC, fellow workers in government – good morning. Thank you for the opportunity to brief you on the Duterte Administration’s record-breaking fiscal performance, prudent debt management, and sustainable spending program.
The key to fiscal stability is revenue generation. I am happy to report that in 2017, the national government revenue collection grew by 12.6%–this is the highest revenue collection growth ever achieved since 2012.
Revenues to GDP rose by 0.4 percentage points while tax revenues to GDP rose by 0.5 percentage points. The tax to GDP ratio of 14.2 percent in 2017 is highest since 1998.
Over the same period, the Bureau of Internal Revenue (BIR) grew its collections by 13.1%. The Bureau of Customs (BOC) has also made improvements, raising its collection by 15.6%. Other revenue generating agencies’ collections increased by 20%.
Overall, we have achieved a strong tax revenue growth rate of 13.6% in 2017. This is due mainly to the more efficient tax collection as well as the administrative reforms carried out in our two main revenue agencies.
Meanwhile, non-tax revenues rose by 3.2% due to higher dividend collections and higher non-tax collections from other offices, which offset the lower collection of interest income resulted from the rationalization of the Bond Sinking Fund.
The fiscal deficit stood at 2.2% in 2017, slightly lower than the previous year but well within the 3% program set for the year. It is due to the effects of stronger revenue growth relative to the increase in government spending.
Higher sin tax collection continued to boost revenues as the imposition of a unitary excise tax took effect in 2017. Excise tax from alcohol and tobacco products, as a percentage of GDP, increased to 1.1% last year.
The first six months of 2018 also registered a strong fiscal performance as both revenues and expenditures surpassed respective targets, which resulted in a deficit of 193 billion pesos, or 27% lower than programmed.
From January to June of this year, total revenue collection reached 1.41 trillion pesos. This is 20% higher than the same period last year and exceeded the target by 8% or by 105.7 billion pesos.
Tax collections, which accounts for almost 90% of total revenues, grew by 17%. This is 3% above the target.
BIR achieved a 14% increase in collection, or 3% above the target set, mainly due to the impact of the TRAIN Law, which I thank you for passing, and continued improvement in tax administration.
BOC, on the other hand, grew its collections by 33% topping its target by 3% due to the combined effects of the weaker peso, higher oil price, higher import volumes, proper valuation, and tariff classification of goods, as well as strengthened campaign against illegal trade that has contributed to the sustained impressive performance of the Bureau.
Non-tax revenues likewise went up by 45% in the first half of 2018 compared to the same period last year. This is due to higher collections of dividend remittances on national government shares of stocks, guarantee fees, and share in the profit of the Philippine Amusement and Gaming Corporation or PAGCOR. Higher collections from other offices also contributed to the increase, which included the one-off transfer of 13.5 billion pesos in bond proceeds from the United Coconut Planters Bank or UCPB for the Coconut Industry Investment Fund. Excluding the transfer would still show improved collection from other offices.
The TRAIN Law, which you kindly passed, and which was implemented at the start of 2018, contributed 33.7 billion pesos in revenues for the first half of the year – surpassing our target by 3.6 billion pesos.
These are truly promising growth figures. Rest assured that our main revenue agencies are committed to maintain the momentum.
This administration is committed to long-term fiscal sustainability. Be assured we will continue to exercise fiscal responsibility and maintain sound fiscal policies to support higher and more inclusive growth. Fiscal strategy remains to be prudent, sustainable, and supportive of the government’s development objectives.
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% in 2017 to17.6% by 2022. Tax revenues-to-GDP will increase from 14.2% in 2017 to 16.9% 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% by 2022. The transition to cash-based budgeting is also expected to eradicate underspending and enhance the efficiency of national governments’ disbursements.
Fiscal deficit target which was adjusted to 3.2% of GDP in 2019 will revert to 3.0% until 2022.
In 2019, the national government aims to raise total revenues of 3.2 trillion pesos. This includes the revenue of 181.4 billion pesos to be generated from TRAIN and the proposed tax reform package 1B. This is equivalent to 16.5% of GDP, an improvement from the 15.6% achieved in 2017 and this year’s target of 16.2%.
We expect revenues to grow by 12.7% in 2019. Tax revenues will increase by 12.7% with BIR and BOC expected to post collection growth of 13.1% and 11.3%, respectively.
The fiscal deficit for 2019 is adjusted slightly to 3.2% of GDP from the previous 3% target to accelerate investments in countrywide infrastructure and human capital development.
In 2017, the total consolidated public sector financial position or CPSFP registered a deficit of 3.3 billion pesos or 0.02% of GDP due to higher government deficit offset by improved performance of other sectors.
Other public sectors registered a combined surplus of 311.4 billion pesos with the local government units or LGUs posting cash surplus of 217.4 billion pesos in 2017.
The CPSFP estimated for 2018 shows a deficit of 0.9% of GDP. For 2019, we expect a higher CPSFP equivalent to 1.1% of GDP.
With sustainable fiscal policy and prudent debt management, we expect the debt-to-GDP to continue its downward trajectory path in the medium-term from 42.1% in 2017 to 38.6% 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% in 2006 to 12.6% in 2017, while as a percentage of expenditures, interest payments are down from 29.7% in 2006 to 11% in 2017.
As of end-June 2018, both of these ratios continue to decline, now at 11.7% and 10.3%, 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 the Comprehensive Tax Reform Program (CTRP) to make the tax system simpler, fairer and more efficient for all.
The remaining four 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 each year.
A complementary reform to the TRAIN law is Package 1B, which covers tax amnesty and adjustments in the motor vehicle user charge (MVUC). Both are currently being deliberated by Congress.
Package 2 covers the lowering of the corporate income tax rate and broadening the tax base by modernizing tax incentives. The House has conducted 3 hearings as of July 24, and we expect Congress to heed the President’s call to have the bill signed into law by December 2018.
Package 2 plus, on the other hand, proposes to increase excise tax on tobacco and alcohol products and increase government share from mining. We have submitted our proposals to Congress.
Package 3 covers reforms in property taxation to make the valuation system more equitable, efficient, and transparent.
Finally, Package 4 proposes to rationalize capital income taxation to address the multiple rates and different tax treatments and exemptions on capital income and other financial instruments.
We have submitted our proposals for Package 3 and 4 to Congress.
Global trends are changing, but our prudent debt management and fiscal discipline have prepared us for such externalities. In fact, we have even exceeded growth expectations notwithstanding. Revenues are above target. The share of our debt in our economy has been in a constant downward trend. Higher government spending means more services delivered to our people. We have put more money in people’s pockets.
Clearly, our fiscal position is strong. That strength encourages us to be bold in projecting we will lead Southeast Asia in growth for the next few years even as we reshape our growth to be more inclusive.