The steadily growing budget deficit highlights the flaws of Arroyo’s so-called economic reforms, particularly the implementation of the reformed value-added tax and its continued adherence to liberalization policies, according to independent think-tank IBON Foundation.

The Department of Finance recently reported that the government had incurred a P41 billion budget deficit in the first half of the year, representing 65% of the P63 billion ceiling set by Finance officials for the entire year. The above-target deficit was attributed to lower than expected tax revenues.

The worsening fiscal situation underlines how revenue losses from trade liberalization, corporate tax evasion and intractable corruption have outpaced revenues from the RVAT, said IBON research head Sonny Africa.

He pointed out that as a result of government’s tariff reduction program, import duties as a share of total public revenues have fallen to 19% in 2006 from 36% in 1993. The RVAT generated P76.9 billion in revenues in 2006 and P18.7 billion in the first quarter of the year.

Africa added that a study by the National Tax Research Center showed that between 1998 and 2002, corporate tax evasion resulted in an average of P54 billion in unpaid taxes during the period studied. Further, the United Nations estimated that in 2001 corrupt officials pocketed 13% of the national budget, or some P100 billion. If this percentage was applied to the 2007 budget, then as much as P146 billion could have been lost to corruption. This means that at least P200 billion may have been lost that could have been channelled towards vital social services such as health and education.

More than the mentioned losses due to liberalization is the debt payments policy. In fact, the Arroyo government is making the most debt payments of any government in the country’s history. Total debt service for 2006 was P854 billion even as the national government debt hit P3.9 trillion as of March 2007.

Africa said that contrary to government claims, the growing deficit is not just due to inefficiencies in tax collection but a manifestation of the Arroyo administration’s policy failures, which have made the economy vulnerable, caused incomes and livelihoods to collapse, undermined domestic productive sectors and created the conditions for financial crisis.


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