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According to Finance Secretary Carlos Dominguez III, the Department of Finance (DOF) is evaluating the feasibility of pursuing a fiscal consolidation plan that will minimize any long-term economic scarring that may result from the coronavirus-induced crisis, as well as the budgetary implications of the Supreme Court’s (SC) 2018 ruling that expands the share of local government units (LGUs) on national government taxes.

The increased National Tax Allotment (NTA), formerly known as the Internal Revenue Allotment (IRA) for LGUs, will take effect next year, according to the Supreme Court order.

“The next administration’s economic team must adequately address tax revenue losses from the pandemic-induced economic slump, the rise in debt to fund our Covid-19 (coronavirus disease 2019) 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,” Dominguez said in a statement Tuesday.

According to preliminary DOF estimates, the national government (NG) will lose PHP785.64 billion in tax revenue in 2020 as a result of the pandemic, accounting for 4.4 percent of GDP.

Tax revenues were predicted to rise 16.2 percent in 2020 when Covid-19 struck at the start of last year.

The impact of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) and Financial Institutions Strategic Transfer (FIST), which are both critical to a quick economic recovery, is expected to be even greater in the coming years.

Because of tax revenue losses from the pandemic and foregone revenues from CREATE and FIST, revenue losses are expected to average PHP1 trillion each year from 2021 to 2024.

The government’s financing costs have increased as a result of Covid-19-related loans for pandemic response and budgetary support to cover the deficit.

The overall cost of Covid-19-related debts has already reached US$28.91 billion, or PHP1.47 trillion.

The outstanding balance, or principal value, of the loans, is US$22.58 billion (PHP1.15 trillion), with interest payments totalling US$6.32 billion (PHP320.85 billion) until maturity. Between 2024 and 2060, these loans will come due.

The High Tribunal’s judgment in 2018 to declare that the LGUs’ “fair share” of revenues includes all national government taxes, rather than being confined to BIR collections, will have an impact on the country’s economic growth when it takes effect in 2022.

This Supreme Court decision, which arose from a complaint filed by then-Governors Hermilando Mandanas of Batangas and Enrique Garcia of Bataan, expanded the base for computing the NTA, which is used to determine the annual allocation for local governments.

“According to our projections, the Supreme Court’s 2018 verdict would result in reduced economic development because local governments will spend less efficiently,” stated Dominguez.

The proportion of productive spending to total spending is referred to as spending efficiency.

Spending that returns to the economy, has multiplier effects, creates jobs, increases demand, and improves the quality of life is referred to as productive spending.

According to DOF projections, implementing the High Tribunal’s 2018 ruling will result in a 3% reduction in economic growth since the increased LGU allocation will be susceptible to decreased spending efficiency.

The efficiency of NG spending is more than twice that of local government spending in general.

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