Despite low tax take, Oct. gap beats target

By Ruben Hortelano

11/21/2007

State revenues in October widely missed its target but the budget deficit managed to settle to a below-target P1.5 billion mostly as a result of drastic cuts in spendings and higher dividends from state-owned firms.

Privatization proceeds in October amounted to P1.2 billion, while dividends from state-owned firms amounted to P6.1 billion.

Tax collections reached P83.7 billion in October, below a P92.28-billion target after Bureau of Internal Revenue (BIR) missed its goal for the third straight month.

Spending was also 11 percent less than the target P96.16 billion.

“It is really underspending that contributed more to the improvement,” Song Seng Wun, regional economist with CIMB-GK, said.

“This moderation in revenue growth, if it persists into the rest of the year, may be an indication that perhaps growth momentum may be moderating as we head into 2008,” Song said.

The deficit last month was P14.5 billion and P5.8 billion in October 2006.

For the 10 months to October, the deficit was P41.5 billion, narrower than the deficit of P56.3 billion in the same period last year.

“This shows that we are well on track to meeting the programmed deficit ceiling of P63 billion this year,” Finance Secretary Margarito Teves told reporters yesterday.

Teves said the October figure strengthens expectations the full year deficit should be lower than the P63-billion target.

He said expenditures were lower than target due to reduced interest payments, totaling in 10 months only P31.6 billion and P7.7 billion in October as a result of a low-interest rate regime.

Bureau of Customs collections also grew by a disappointing 4.3 percent during the period to P171.7 billion from last year’s P164.7 billion.

The Bureau of Treasury, which delivered P54.8 billion last year, collected P61.3 billion or 12 percent higher.

The government will try to sell today its stakeholdings in geothermal firm Philippine National Oil Co.-Energy Development Corp. which is expected to generate P36 billion in proceeds.

While the fiscal shortfall looks safely within target for the year, analysts were not impressed because of persistently poor tax collections.

The government is mainly relying on the sale of assets, proceeds from which amounted to P59 billion in the year to October, to meet the deficit target this year.

Economists said the sale of state assets can help meet the budget deficit target in the short term, but the government’s financial position will deteriorate once it runs out of things to sell.

“The government would have to sustain privatization revenues next year to meet an even more ambitious balanced budget target,” Frederic Neumann, economist at HSBC, said.

Teves said he expected to raise P30 billion next year from the sale of stakes in a number of companies, including utility firm Manila Electric Co.

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