Deficit Talk
Deficit talk
Updated 11:51pm (Mla time) Aug 29, 2004
Inquirer News Service
Editor's Note: Published on page A14 of the August 30, 2004 issue of the Philippine Daily Inquirer.
LOST in the exchange of press releases over the cutting of the pork barrel is the size of next year's budget deficit. One would think that, given all this hand-wringing over the alleged or actual fiscal crisis, Malacanang will submit a national budget shaped by a sense of urgency. One would think that, given the President's Inauguration Day promise to balance the budget by the time she leaves office, the first year of her full term would be funded by a much-reduced budget deficit.
It makes sense, doesn't it? To reach that point-a mere six years down the road-where government spending will match government income, the government must already begin to substantially narrow the gap between expenditure and revenue.
But last week Malacanang proposed a P907.6-billion budget for 2005. To fund this, the government recommends incurring a deficit of P185 billion.
This amount is only P13 billion, or some 6.5 percent, less than this year's projected deficit of P198 billion. And if this administration's track record is anything to go by, we can expect the gap between what the government will spend next year and the income it will generate to widen before 2005 is up.
So what gives? Are we truly on the brink of a fiscal crisis? The General Appropriations bill presented on Wednesday says we aren't. Are we on our way to a balanced budget? The bill says we aren't particularly serious about reaching that destination either.
To be sure, deficit spending is not necessarily a bad thing. To keep an economy from falling into a recession, for instance, a government may temporarily spend more than it earns. But the issue is whether the proposed budget reflects the reality, the fiscal crisis, we face.
Speaker Jose de Venecia once again displayed his distinctive brand of glass-is-half-full optimism when he described the proposed budget as "prudent, spartan, and reformist."
But the same budget can also be described as timid, pyrrhic, and traditional. It is traditional because it does not envision, say, a major reduction in the government workforce. It is timid because it funds social-sector initiatives that can best be described as token or as watered-down versions of the President's campaign promises. It is pyrrhic because its cost-cutting here and there allows government officials a false sense of accomplishment. In fact, not enough costs were cut.
The total budget is some 5.3 percent, or P46 billion, higher than this year's. Many business-minded Filipinos would dismiss the increase as merely keeping pace with inflation. But if the national government were a business enterprise, it would be hard put to justify any increase. If (to translate the numbers into dollars) a business firm spent $3.3 billion more than it earned in one year, keeping up with inflation would be the last thing on its managers' mind. The issue would be sheer survival.
So the question arises: If we are truly in the midst of a fiscal crisis, as the President said, why do we even provide for an increase in the national budget?
At least a third of the budget goes to pay for part of the principal and much of the interest of the various debts the government has accumulated over the years, since the Marcos dictatorship. Because many of these debts are denominated in foreign currencies, the amount for payment can increase in the next year through foreign exchange fluctuations alone. But-the counter-argument goes-if we don't increase the budget by a few billions, the money left over after paying for debt service would be that much smaller. There would be less money for the repair of bridges, the construction of farm-to-market roads, the publication of math and science textbooks, and so on ad nauseam.
To which the only answer can be: But that, in part, is what a fiscal crisis means. The already tough task of allocating scarce resources becomes even more difficult. Touch choices must be taken, beginning with the decision to bake a smaller pie.
Of course, even if the P46 billion increase were to be factored out, the proposed budget would still incur a deficit of P139 billion. Not exactly loose change, but a reduction in the deficit of almost 30 percent is a step in the right direction.
Updated 11:51pm (Mla time) Aug 29, 2004
Inquirer News Service
Editor's Note: Published on page A14 of the August 30, 2004 issue of the Philippine Daily Inquirer.
LOST in the exchange of press releases over the cutting of the pork barrel is the size of next year's budget deficit. One would think that, given all this hand-wringing over the alleged or actual fiscal crisis, Malacanang will submit a national budget shaped by a sense of urgency. One would think that, given the President's Inauguration Day promise to balance the budget by the time she leaves office, the first year of her full term would be funded by a much-reduced budget deficit.
It makes sense, doesn't it? To reach that point-a mere six years down the road-where government spending will match government income, the government must already begin to substantially narrow the gap between expenditure and revenue.
But last week Malacanang proposed a P907.6-billion budget for 2005. To fund this, the government recommends incurring a deficit of P185 billion.
This amount is only P13 billion, or some 6.5 percent, less than this year's projected deficit of P198 billion. And if this administration's track record is anything to go by, we can expect the gap between what the government will spend next year and the income it will generate to widen before 2005 is up.
So what gives? Are we truly on the brink of a fiscal crisis? The General Appropriations bill presented on Wednesday says we aren't. Are we on our way to a balanced budget? The bill says we aren't particularly serious about reaching that destination either.
To be sure, deficit spending is not necessarily a bad thing. To keep an economy from falling into a recession, for instance, a government may temporarily spend more than it earns. But the issue is whether the proposed budget reflects the reality, the fiscal crisis, we face.
Speaker Jose de Venecia once again displayed his distinctive brand of glass-is-half-full optimism when he described the proposed budget as "prudent, spartan, and reformist."
But the same budget can also be described as timid, pyrrhic, and traditional. It is traditional because it does not envision, say, a major reduction in the government workforce. It is timid because it funds social-sector initiatives that can best be described as token or as watered-down versions of the President's campaign promises. It is pyrrhic because its cost-cutting here and there allows government officials a false sense of accomplishment. In fact, not enough costs were cut.
The total budget is some 5.3 percent, or P46 billion, higher than this year's. Many business-minded Filipinos would dismiss the increase as merely keeping pace with inflation. But if the national government were a business enterprise, it would be hard put to justify any increase. If (to translate the numbers into dollars) a business firm spent $3.3 billion more than it earned in one year, keeping up with inflation would be the last thing on its managers' mind. The issue would be sheer survival.
So the question arises: If we are truly in the midst of a fiscal crisis, as the President said, why do we even provide for an increase in the national budget?
At least a third of the budget goes to pay for part of the principal and much of the interest of the various debts the government has accumulated over the years, since the Marcos dictatorship. Because many of these debts are denominated in foreign currencies, the amount for payment can increase in the next year through foreign exchange fluctuations alone. But-the counter-argument goes-if we don't increase the budget by a few billions, the money left over after paying for debt service would be that much smaller. There would be less money for the repair of bridges, the construction of farm-to-market roads, the publication of math and science textbooks, and so on ad nauseam.
To which the only answer can be: But that, in part, is what a fiscal crisis means. The already tough task of allocating scarce resources becomes even more difficult. Touch choices must be taken, beginning with the decision to bake a smaller pie.
Of course, even if the P46 billion increase were to be factored out, the proposed budget would still incur a deficit of P139 billion. Not exactly loose change, but a reduction in the deficit of almost 30 percent is a step in the right direction.
posted by Dante at 12:05 PM
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