The fiscal thrust of President Rodrigo Duterte’s administration which it plans to implement in the coming years—like aggressive infrastructure and emergency powers to remedy the traffic problem—and which was applauded initially is now being seen by some fiscal experts as something to be alarmed about.
For instance, Emilio Neri, Jr., who is head economist at the Bank of the Philippine Islands, notes: “Their methods mark an innovation, but a little bit complex.”
Rosario Manasan, research fellow at the Philippine Institute for Development Studies, on the other hand said “it will all be a matter of projects to be prioritized,” but contractor Ibarra Paulino foresaw how implementation will be “crucial.”
The three then concluded that there are three major challenges facing Duterte’s fiscal plan, namely:
- Government projects aren’t ready.
“You can increase the budget as much as you want, but if agencies cannot absorb it or spend it because projects are not ready, it will be useless,” Manasan said in a phone interview with PhilStar.
Without ready and well-planned projects and yet at the receiving end of a bulk of funds, “Agencies are being choked with funds. They are not used to having so much money to spend,” Manasan observed. She attributed this to how the fund allocations of the former administration were not used up completely and whatever deficits happened were more due to of low revenues rather than high spending.
Manasan also noted how Duterte, under the proposed bill of Rep. Gloria Arroyo Macapagal on granting presidential emergency powers, will be allowed to transact negotiated contracts dealing with critical infrastructure, facilities and projects though subject to certain conditions.
“That will help, but as far as public spending is concerned, the bottleneck is not really in the procurement side but on the agencies,” Manasan explained.
Neri, for his part, was concerned about fast-tracking spending. He said that it is always welcome, but such step should not be done at the expense of public funds being misused, which, some experts say has often been the case in the past.
“If special powers are used to the extent of resorting to bending the rules, that’s a sign of wanting to take short cuts and that’s not good,” Neri warned.
His statement was similar to what Melissa Yan, Government Procurement Policy Board executive director, said on how laws on procurement, no matter how dreary, are made primarily as “an anti-corruption measure.”
But Finance Secretary Carlos Dominguez assured everyone. “We will make sure that projects will undergo scrutiny.”
- Budget gap
All the planned government spending is seen to widen the budget gap to three percent of what the economy produces from just a 0.9 percent spending last year.
Where will this money come from?
Budget Secretary Benjamin Diokno assured that the figure is sustainable, although Manasan cautioned how everything would hang on the fact about where deficits would be coming from. She asked: “What is the context of increased deficit?”
“They have plans to have tax reform and reduce income taxes. It remains to be seen if they can offset that, but I don’t think tweaking VAT exemptions would do it,” Manasan said doubtfully.
Instead, she suggested how “They should be careful because we might go back to a situation where we lack money,” hinting on how the present budget availability was the result of government savings from the Aquino administration.
However, Duterte’s tax reform measures lacked details, although some sources say former Finance Secretary Cesar Purisima left a tax package said to give government some P77 billion during the first year. But Dominguez allegedly said he won’t use it. Instead, he would start tax measures that are similar to what Purisima had, like filing smuggling and tax evasion cases, reviewing fiscal incentives, changes in the bank secrecy law, and especially making tax evasion a step closer to money laundering.
“The impact would really depend on the timing when these measures are rolled out. If they come in later than lowering income taxes, that could be revenue eroding,” Neri warned.
- Problems in the private sector
Paulino, Philippine Constructors Association executive director, said another major challenge is if contractors would be able to cope with the heavy burden. He said non-stop, round-the-clock construction of major infrastructures, first in Metro Manila, is welcome.
But the question is, Paulino said, how many construction firms are willing and able to do it, especially contractors from Mindanao?
“There are not much qualified contractors who would want to go to Mindanao because of the peace and order situation there. Most of them are here (in Manila) and Cebu,” Paulino disclosed by phone.
Meanwhile, Cosette Canilao, Public-Private Partnership (PPP) Center former executive director, warned how projects should also be carefully scrutinized, particularly those from the private sector.
Unsolicited PPPs—like the Metro Rail Transit 3 and even the Ninoy Aquino International Airport Terminal 3—are particularly susceptible to corruption, although good consultants may help lower that risk as they to assess the projects and improve Swiss challenges.
“The challenge process should be clear. The challenge period should also be increased, but that can only be done via amendment of the BOT (build-operate-transfer) law,” Canilao stated in an e-mail.
However, Neri said this would have to wait for the moment.
“What (the Duterte administration) is doing is contrary to institutional reforms,” Neri warned. “We have not seen that yet,” he noted.
“I think they are trying to put out fires first. Focus on very urgent matters that need attention. Hopefully after, they would go on long-term reform, which is much more important,” Neri added.