Secretary of Finance
September 4, 2024
Officers and members of the Foundation for Economic Freedom; distinguished guests; ladies and gentlemen: A pleasant evening to all of you.
It is an honor to speak before the brightest minds in business, economics, and public finance –– some of whom are my illustrious predecessors in DOF.
So let me begin by tipping my hat to this Foundation for its tireless devotion to making the Philippines a better place for our people.
Maraming maraming salamat po sa inyong walang sawang serbisyo sa ating mga kababayan.
I am sure that there is nothing I can impart to this room tonight that you all don’t already know.
So instead, I hope to share some insights into our policies as a conversation starter.
And by the end of it, I would be more than happy to hear your take on them.
For I am a believer in the value of critique that is based on facts. Especially of the opinions and shared experiences of those who have been in this field for a much longer time.
Because you can polish the rough edges that may hurt the many stakeholders who are impacted by what we do.
When I took on the job as Secretary of Finance, I felt privileged to inherit a stable, recovering economy.
Yet, I knew I was signing up for a grueling journey. That I have been sentenced to a very hard labor.
Because aside from coming out of the pandemic that gave us the deepest economic scar since post-World War II, we are now sailing through an ocean of geopolitical tensions.
Two hot wars, a trade war, and a looming cold war––just like every other country, we feel the weight of these global pressures.
Thus, I deemed it necessary to recalibrate our Medium-Term Fiscal Program to ensure that it remains in touch with realities and adaptable to external shocks.
Our refined program follows a growth-enhancing fiscal consolidation path.
It reduces our deficit and debt gradually in a realistic manner; while creating more jobs, increasing incomes, and decreasing poverty in the process.
As it stands, the DOF faces a 5.77 trillion peso national budget to fund this year, but only 4.27 trillion pesos are supportable by revenues.
This means that the DOF has to collect 11.71 billion pesos a day in revenues to support our average daily spending of 15.80 billion pesos.
This leaves a 4.10 billion-peso hole a day that must be plugged by debt. In a relatively high interest rate environment, this debt has also become more costly to refinance.
This is our daily fiscal conundrum.
So against the herculean task of funding a gargantuan budget, we needed to scout for more resources.
The temptation to impose additional taxes is there. But in the face of high inflation in the last two years, we chose other means of revenue generation that will not unduly burden ordinary Filipinos.
That is why this year, we hiked GOCCs’ dividend rates to 75 percent from 50 percent. And we are strategically disposing of non-performing and idle government assets. These are now among our major sources of non-tax revenues.
And the good news is that against the non-tax revenue target of about 400 billion pesos, we already collected 368.80 billion pesos from January to July of this year. This is 44.5% higher than the same period last year.
The BIR and BOC have also stepped up with higher collection performances through their BRAVE digitalization strategies and the balikatan with allied agencies.
We are adapting our tax system to capture the e-commerce market. This will ensure that the BIR will be able to collect rightful revenues from new business models.
In addition, we have been inculcating tax obedience by promoting ease of payment not just through digitalization, but by showing that taxes that are efficiently collected are effectively spent.
As a result, tax collection grew by 11% in the first seven months of the year, reaching 2.24 trillion pesos.
This brought total revenue collections to grow by 14.8% to 2.61 trillion pesos, putting us on track to meet our fiscal targets for the year.
While no new taxes are on the table, we have recalibrated the DOF’s priority revenue measures to avoid placing undue burdens on our people.
For our goal is to maximize gains, minimize pain, and ensure fairness and fiscal consolidation.
For example, the refined Package 4 front-loads the implementation of revenue-increasing provisions in 2025 while delaying some revenue-eroding provisions until our fiscal situation improves.
Because these challenging times demand that we have to protect our revenue base and collect what is already on the table.
This is a prime example of how we aim to handle realities on the ground with foresight, prudence, and consideration of the larger picture.
Because that is our job at the DOF – to raise money for the government in the most cost-effective manner and make sure that it is most judiciously used and spent.
This leads me now to address the most controversial issue of the day that I know has sparked diverse opinions among members of this group.
In line with the said principles, the DOF heeded Congress’ directives under the 2024 GAA to collect GOCCs’ hibernating funds in order to support imposed appropriations that exceed the executive branch’s proposal.
It was a mandate we faithfully complied with based on the merit of our cost-benefit analysis and the legal railguards spelled out in legal opinions by the OGCC, GCG, and COA.
Through an exhaustive review of the financial standings of all GOCCs, we have identified unused and excess funds amounting to 89.9 billion pesos from PhilHealth and 108.9 billion pesos from the PDIC. The return of these excess funds was approved by their respective boards.
Now, there are several salient points on this matter, particularly PhilHealth, that are worth reiterating.
First, its 89.9 billion pesos excess funds are not part of its reserve fund nor income that is being restricted by the Universal Health Care Act to be used by the national government as a general fund.
This puts to rest any claims that the remittance violates the law. I should know because I was the principal author of the UHC Act.
Second, not a single centavo of that excess funds came from member contributions. Therefore, it does not affect the viability of PhilHealth. It does not impair the delivery of its services.
Because the funds are all government subsidies — unused, excess, and dormant in PhilHealth while taxpayers pay interest on them without anyone benefitting. In our world, this is a cardinal sin.
On top of this, PhilHealth retains around 550 billion pesos in its benefit chest fund, more than sufficient to cover multi-year claims and ensure uninterrupted operations for years to come.
In fact, it has increased its benefit package by 30 percent across the board this year, in line with the President’s directives. And it will also continue to receive subsidies from the government.
Third, we know exactly where these excess funds will be used. It is transparent and fully accessible to the public.
The law is clear: every peso will be exclusively used for the projects identified under the Unprogrammed Appropriations of the 2024 GAA.
In fact, the initial PhilHealth remittance is what enabled the government to release 27.7 billion pesos to pay the 5.04 million unpaid claims of COVID-19 pandemic service allowances of our front liners.
The excess funds will also finance projects in health, nutrition, education, social services, and infrastructure that serve the public, grow the economy, and cut poverty.
Most of them are foreign-assisted projects, under which we are committed to honor our financing obligations, or failing to do so, pay commitment fees and interests on the loans. More importantly, the inability to finance these projects will delay their implementation.
While these projects have been shelved aside in the Unprogrammed Appropriations column, these are vital projects that have to be funded. These are not just the President’s projects, but the people’s projects as well.
Two scenarios lie before us: we either finance these projects using excess public money lying around or withhold funding out of fear of scrutiny.
For scenario one, our cost-benefit analysis shows that the projects to be funded by the Unprogrammed Appropriations will increase real GDP growth by 0.7%, hike an additional 23 to 24.4 billion pesos in revenues, and create hundreds of thousands of jobs.
The flip side is that if we deny these projects of funding, the implementation is delayed, and we rack up opportunity costs that will be borne by the public deprived of the conveniences such projects bring.
One might argue that a third option exists: more debts.
If we fund them by borrowings, it would drive up the country’s deficit-to-GDP ratio from 5.6% to 6.4% in 2024, and increase the debt-to-GDP ratio from 60.6% to 61.4% this year.
This means that we will have to pay an additional 12.7 billion pesos in interest payments every year.
In effect, we will fail to hit our Medium-Term Fiscal Program and put at risk our hard-earned investment grade ratings, just when we have recently achieved a credit rating upgrade of A minus.
It seems as if we took one step forward to our Road to A agenda only to take three steps back.
If downgraded, this will increase our borrowing rates by around one full percentage point, translating to additional interest payments of at least 15 billion pesos annually.
A downgrade will also generate significant uncertainties that may destabilize our macroeconomic environment and jeopardize the Philippines’ recovery efforts from the pandemic.
Of all people, you know all too well that no responsible Finance Secretary would ever allow this to happen.
In a very real sense, standing idly by as funds like these sleep on would be a complete disservice to the nation – both for our people today and the next generation.
But to be clear, I fully understand the plight of the medical community. In fact, I believe that public health deserves the full support of the government.
This is a position that I have maintained in my three decades in Congress. My track record speaks for itself.
But I also want to make it clear that I never opposed any recommendations to reduce PhilHealth member contributions.
And I reiterate that whatever measures by the government to source financing for its programs are always undertaken consistent with the belief that its capacity to address the primary needs of our people—including health—is not compromised.
As the country’s economic freedom fighters, I call on you to continue fighting on the frontlines with us for the nation’s highest good.
You are all in the best possible position to shed unbiased light on this issue. I therefore ask you to rally with us under the banner of fiscal prudence and truth.
My hope is that, in the future, we will look back on this moment with confidence, knowing that we pursued rational and upright decisions.
And as promised, I will end by proclaiming that our conversation has only begun. I am eager to hear your insights and gain wisdom from all of you tonight.
Thank you very much.
