National government to cure ‘scarring’ from Covid, Mandanas


THE national government is considering crafting a fiscal consolidation plan to prevent further economic scarring from the pandemic and the impact of the Mandanas ruling, according to the Department of Finance (DOF).

Finance Secretary Carlos Dominguez III said the country’s Covid-19-related loans have reached US$28.91 billion or P1.47 trillion while foregone revenues due to the pandemic are expected to reach P1 trillion  annually between 2021 and 2024.

Moreover, Dominguez said the implementation of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) and Financial Institutions Strategic Transfer (FIST) will cost the country P1 trillion annually between 2021 and 2024.

“Tax revenue losses from the pandemic-induced economic slump, the rise in debt to fund our Covid-19 response, the looming revenue impact of our economic recovery measures, and lower spending efficiency as a result of the Supreme Court decision to expand the share of LGUs from the NTA (National Tax Allotment) must be adequately addressed by the next administration’s economic team,” Dominguez said.

DOF said the country’s outstanding balance or the principal value of the loans is $22.58 billion or P1.15 trillion; while the interest payments until maturity will amount to $6.32 billion or P320.85 billion. These loans will mature between 2024 and 2060.

Meanwhile, tax revenue losses as a result of the pandemic, DOF said, have reached P785.64 billion or 4.4 percent of gross domestic product (GDP) in 2020.

DOF noted that before Covid-19 struck early last year, tax revenues were expected to increase by 16.2 percent in 2020.

“Covid-19-related loans for the pandemic response and budgetary support to finance the deficit have also translated into increased financing costs for the government,” the DOF said.

Mandanas ruling

Meanwhile, DOF said the Mandanas ruling that will take effect in January 2022 will also have implications on economic growth.

DOF estimates found that implementing the High Tribunal’s 2018 decision will result in 3 percent lower economic growth, because the higher LGU allocation will be subject to a lower spending efficiency.

It noted that in general, National Government spending is more than twice as efficient as that of local governments. Spending efficiency is defined as the share of productive spending to total spending.

The DOF said productive spending is expenditure that goes back to the economy, generates multiplier effects, creates jobs, stimulates demand and improves the quality of life.

“Based on our estimates, the implementation of the Supreme Court’s 2018 ruling will yield lower economic growth because local governments spend less efficiently,” Dominguez said.

In 2018, the Supreme Court affirmed that the LGUs’ “just share” of revenues includes all national government taxes, instead of just those collected by the Bureau of Internal Revenue (BIR).

This SC ruling refers to the expanded NTA—formerly known as the Internal Revenue Allotment (IRA)—for LGUs.

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