Press Release
September 12, 2010


Congress cannot pass new appropriation measures or so-called revenue-eroding legislation without identifying first the source of funding if Senator Franklin Drilon's Fiscal Responsibility Measure is passed into law.

Drilon, chairman of the Senate Finance Committee, has filed Senate Bill 2480 in a bid to promote responsible fiscal management and attain a sustainable economic growth, as the government scrambles to cap a ballooning budget shortfall.

Under the proposed legislation, any mandatory spending legislation or any tax legislation that increases the deficit or reduces revenues must be accompanied by a countervailing measure that offsets the increase in deficit or slash in revenue.

"These deficit-neutral rules will be the key tool to somewhat limit deficit spending and to ensure compliance with the annual fiscal targets..." Drilon said.

Drilon added that establishing deficit-neutral rules on both the Executive and Legislative branches of the government "is much needed in order to institute these control mechanisms or cost-offsetting measures on spending."

Official estimates indicate that the Philippines, Asia's largest sovereign issuer of foreign debt, is expected to post a budget deficit of P325 billion by year-end or equivalent to 3.9% of Gross Domestic Product (GDP), despite institutional efforts to raise tax take and legislative measures being pushed to shore up revenues. First half (January-June) deficit was recorded at P196.7 billion, P51.6 billion higher than the government's targeted forecast of P145.2 billion.

Budget shortfall for 2011, meanwhile, is expected to decrease to P290 billion or 3.2% of GDP.

Apparently, Congress had passed several laws with negative revenue features that in effect minimized state profits, such as a law exempting minimum wage earners from income tax, incentives under the Tourism Code, law abolishing documentary stamp tax on secondary trading of stocks, among others, amid much prodding by the country's finance managers to shelve such pieces of legislation.

Finance department data indicate that the government stand to lose as much as P95 billion due to these so-called revenue-eroding laws.

The measure also provides that the grant of tax incentives under certain bills--such as tax break, tax exemption, tax privilege, tariff reduction, preferential tax treatment, deferred tax or broadening of an existing tax incentive or benefit--shall be mandated by the issuance of a certification from the Finance department that the proposal is in compliance with annual fiscal targets and the tax cuts have been considered in the government's revenue program for the current year.

Except for debt service and cost of living adjustments for government employees, all increases in state expenditures especially those mandating the creation of recurrent expenditures must be offset by a permanent increase in revenue or permanent reduction in other expenditures.

As such, all measures proposing an increase in public expenditures must be conditioned by an estimate by the Budget department of its revenue impact for three years and an offsetting revenue-generating or expenditure-reduction measure.

Existing incentives granted to certain sectors by virtue of various laws and executive issuances shall be immediately reviewed within two years, a move that would rationalize the current tax incentives system and eliminate unnecessary and costly tax grants.

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