Gov't pump-priming plan gets boost

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30% OF VAT PROCEEDS TO GO TO INFRA PROJECTS
Gov't pump-priming plan gets boost
Posted: 2:48 AM Jan. 23, 2006
Michelle V. Remo
Inquirer

(Published on Page B1 of the January 23, 2006 issue of the Philippine Daily Inquirer)

THE DEPARTMENT OF FINANCE SAID THE government's better-than-expected fiscal position last year would allow it to undertake a major economic pump-priming program for 2006 without sacrificing its deficit-reduction goal.

President Macapagal-Arroyo earlier directed the Department of Budget and Management to allot P35 billion this year for pump-priming activities largely related to infrastructure development.

The plan to boost spending on infrastructure raised doubts on the government's commitment to continue reducing its budget deficit until it reaches zero by 2008.

But in a discussion paper on budget-related issues, the DOF said the government would not abandon the target of slashing the deficit to only P125 billion this year. It said the pump-priming could very well be absorbed by the government's improving fiscal condition.

Higher-than-programmed revenue collections last year coupled with belt-tightening measures allowed the government to register a budget deficit of less than P160 billion, or much better than the official deficit ceiling of P180 billion set for 2005.

Official budget deficit data for 2005 will be released today.

Malacañang earlier said the P35 billion to be used for economic pump-priming this year would be taken from the savings arising from the lower-than-programmed deficit last year. The "savings" referred to by the Palace was not in the form of actual cash but only an elbow room for additional expenditures because the deficit was lower than programmed.

The DOF noted that of the P81.4 billion in additional revenues to be generated this year from the newly implemented VAT Reform Law, 30 percent has already been officially programmed for pump-priming activities.

This means that the P125-billion target deficit for 2006 already factored in the planned additional spending for infrastructure and other basic services.

"The pump-priming will involve increasing expenditures in the first semester to take advantage of the dry season and realize the impact on growth within the year," the DOF said.

Now that the budget deficit is narrowing, the government is focusing on improving the country's infrastructure, whose poor state has been largely blamed for discouraging the entry of foreign investments.

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