Philippines: Govt eyes cuts in non-infra spending in light of lower revenues from oil excise suspension

  • THE GOVERNMENT will cut spending on non-infrastructure items to weather the impact of billions of PHP in revenues to be foregone from the suspension of an oil excise tax hike scheduled in Jan 19 and to keep the fiscal gap in check, the Finance chief told reporters on 15 Oct 18.
  • “We will have to cancel some non-infra expenditures,” Finance Secretary Carlos G. Dominguez III said, while assuring that spending on social services will also be unaffected.
  • He said economic managers will identify items to sustain funding cuts during a Development Budget Coordination Committee (DBCC) meeting on 16 Oct 18.
  • The DBCC has programmed a deficit ceiling equivalent to 3% of GDP in 2019. In 2019 it will inch up to 3.2% amid a foreseen spike in infrastructure spending, then back to 3% in the succeeding years until 2022. These programs compare to the actual 2.2% recorded in 2017.
  • Mr. Dominguez also noted that since oil prices will go up further and the peso will likely continue depreciation, the revenue loss may be partly recouped from higher value-added tax collections on fuel imports.
  • “We don’t expect the full extent of forgone revenues to be at PHP41bn,” he said. He also noted that the DBCC will study whether the Pantawid Pasada program, a cash transfer for public utility jeepney service franchise holders affected by higher fuel taxes, will also be suspended along with the fuel excise hike.
  • Qualified parties received PHP5,000 in 2018 and PHP20,515 in 2019. Mr. Dominguez confirmed that economic managers and members of Congress had agreed on the need to suspend Jan 19 oil tax hike under Republic Act no. 10963 or the Tax Reform for Acceleration and Inclusion Act.
  • That law provides that the excise tax hike is automatically suspended should Dubai crude price average at least USD80 per barrel in 4Q18.
  • “The first two weeks of Oct 18 is already over USD80 and the forward market, the futures market at the end of 2018 as of last week was over USD80. So we might as well announce the suspension so that people will not speculate anymore,” the Finance chief said.
  • A Palace spokesman said on 15 Oct 18 that President Rodrigo R. Duterte has made up his mind to suspend the fuel excise tax hike scheduled in Jan 19, adding that Malacañang will issue a formal order on this matter.
  • Asked separately on the likely mechanism for the oil tax hike suspension even ahead of the January trigger period, Senator Juan Edgardo M. Angara, chairman of the Senate Ways and Means committee, replied in a mobile phone message: “To be sure, Congress can pass a joint resolution to that effect.”

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