DOF assures that 2023 budget supports faster economic growth

Finance Secretary Benjamin Diokno assured senators that the proposed 2023 National Budget will support strong and accelerated economic expansion.

“Allow me to assure you, the honorable members of this chamber, that the President’s proposed 2023 budget is supportive of the country’s bid for a strong recovery and accelerated growth,” said Secretary Diokno during the Development Budget Coordination Committee (DBCC) briefing on the 2023 National Expenditure Program for the Senate Committee on Finance on September 14, 2022.

Secretary Diokno updated senators on the state of the economy.

He said that the economy grew by 7.8 percent for the first half of the year. The growth rate is already above the DBCC’s full-year target of 6.5 to 7.5 percent for 2022.

He said that the expansion in the second quarter of the year was broad-based, with positive contributions from all three major sectors – agriculture, industry, and services.

He also cited rising investor confidence with the Philippines’ foreign direct investment (FDI) inflows reaching a record USD10.5 billion in 2021. For the first half of 2022, FDI inflows rose by 3.1 percent year-on-year to USD4.6 billion.

With the successful reopening of the economy and robust economic activity, the unemployment rate in July was recorded at 5.2 percent – the lowest since the pandemic hit.

The labor force participation rate, employment rate, and average weekly hours worked were all higher in July compared to the previous month.

Secretary Diokno also provided updates on the government’s fiscal performance and borrowing efforts.

He said that government revenues are on a steady surge, with January to July 2022 collections reaching P2.04 trillion, equivalent to a double-digit growth of 17 percent compared to the same period in 2021.

Revenue collections in the period exceeded the DBCC-approved program of P1.9 trillion pesos by 6 percent and was driven by the double-digit growth of both tax and non-tax revenues at 16 percent and 24 percent, respectively.

“Our stellar collection performance is steered by increased economic activity due to the full reopening of the economy, complemented by the digitalization of our revenue agencies,” said Secretary Diokno.

The government expects revenue collections in 2022 to reach P3.3 trillion, which is 10 percent higher than the collections in 2021.

Meanwhile, Secretary Diokno underscored the government’s commitment to stabilizing national debt in the medium-term.

“Our objective is to reduce the deficit, starting at 6.1 percent of GDP next year down to 3.0 percent of GDP in 2028,” Secretary Diokno said.

He further explained that the targets will be achieved through improved spending efficiency and alignment of budget priorities with the administration’s socioeconomic priorities.

From January to July 2022, the country’s gross borrowings reached P1.25 trillion. Domestic borrowings comprised 73 percent or P909 billion of total borrowings, while the remaining 27 percent or P336.5 billion were drawn from external sources through global bond offerings and official development assistance.

“In pursuit of prudent debt management and domestic capital market development, around 75 percent of our borrowings will come from domestic sources. This strategy will minimize the country’s foreign exchange risk resulting from ongoing global uncertainties,” Secretary Diokno explained.

The government expects the national debt to settle at 62.0 percent of GDP by the end of 2022.

Secretary Diokno presented the government’s Medium-Term Fiscal Framework and the legislative priorities of the Department of Finance (DOF).

The Medium-Term Fiscal Framework proposes measures that seek to improve tax administration, make the tax system fairer and more efficient, and promote environmental sustainability.

“And we are committed to pursuing the remaining tax reform packages of the previous administration,” Secretary Diokno added, citing the Duterte administration’s proposed reforms on real property valuation and assessment, and passive income and financial intermediaries taxation.

Other measures under the Framework include the imposition of value-added tax on digital goods and services, rationalization of the mining fiscal regime, and imposition of an excise tax on single-use plastics.

Secretary Diokno also presented the DOF’s proposed reforms that aim to help local government units (LGUs) attain fiscal sustainability. The reforms seek to regularize the review of LGU income classification thresholds, institutionalize a property insurance scheme for LGU assets, and rationalize local tax rates.

“The [DOF] will also support the passage of the Military and Uniformed Personnel Pension Reform Bill; the Capital Market Development Bill; the Livestock Development and Competitiveness Bill; and amendments to the Land Bank and the Philippine Crop Insurance Corporation [charters],” Secretary Diokno added.