State stimulus plan questioned

MANILA, Philippines - The P330-billion stimulus package of the government is "overstated" and "recycled" as it contains items being funded even before the onset of the global economic crisis, while delay in approving this year’s budget is putting the plan’s effectiveness increasingly in question, economists said Tuesday. In an economic forum Tuesday at the National Economic and Development Authority (NEDA) office in Makati City, former Budget Secretary and University of the Philippines economist Benjamin E. Diokno said details of the package are still sketchy. "The stimulus package is bloated, recycled and redundant. We have no details of the items to be funded, unlike in the United States where everything is listed. At this point, we are still guessing," he said. The stimulus package, dubbed the "Economic Resiliency Plan," consists of a P160-billion increase in spending under the P1.415- trillion national budget this year, the P100-billion infrastructure fund to be put up by government financial institutions and the private sector; P40 billion in foregone revenues due to the tax relief measure and reduction of the corporate income tax rate, which are expected to boost consumption, and P30 billion from temporary additional benefits from social security institutions. But Mr. Diokno said every component of the stimulus, except for part of the increments to the national budget, should be disregarded either because they are not new or do not spur economic activity. He said of the P160-billion budget increase for this year, only P75 billion can be considered as part of the package since the rest consist of salary increases for government employees and the increases in the funding of the Internal Revenue Allotment of local governments — both already provided by law. "The real [stimulus] amount is P75 billion if the increase in personal service or the salary and wages of state employees and increase in IRA are netted out," he said. This year’s pay hike for state workers is part of the third phase of the Salary Standardization Law while increases in IRA are mandated under the Local Government Code of 1991. Mr. Diokno also warned that delay in the enactment of the 2009 budget will make the government miss the summer months, which is the ideal time for infrastructure building. In a separate interview, Leonardo A. Lanzona, an economist at the Ateneo de Manila University, said delay in the passage of the budget is a key hurdle. "Eventually, it [growth] will be affected because, if it takes too long, a lot of opportunities will be missed," he said. As regards the P100-billion infrastructure fund by the private sector and government financial institutions, Mr. Diokno said nothing has been finalized, even if construction is supposed to start within the first half. He also asked how the government will ensure transparency and fiscal accountability in the use of funds, amid the recent spate of allegations of massive corruption in large-scale infrastructure projects. In a separate forum in Makati City Tuesday, Australian Agency for International Development Minister Counselor Titon Mitra cited the need to ensure such transparency. "It [stimulus] is necessary and has to be financed by running a budget deficit — a necessary evil in these particular circumstances. But this underlines the importance of a transparent budget. The taxpayer and citizen have the right to see clearly where the money goes and the output from that expenditure," he said. Funding sources for the P100-billion infrastructure program have not been completed as the government had refused to provide guarantees, a condition urged by the private sector. The Philippine Chamber of Commerce and Industry, which floated the proposal, has threatened to abandon the plan in case guarantees are not given and if the projects do not begin within the first half. On the other hand, the P40-billion foregone revenues from the lower corporate income tax rate and the tax relief measures "are not part of fiscal stimulus." "The lower corporate income tax rate is part of the [Reformed Value Added Tax] law passed in 2005. The tax relief was passed before the crisis," Mr. Diokno said. Lastly, he said the P30 billion from the condonation of penalties on loans from social security institutions will not stimulate economic activity "because it does not lead to a direct increase in the consumer income." Economist Alvin Ang of the University of Santo Tomas noted that the stimulus package provides only temporary employment, but not better jobs for retrenched skilled workers. Asked for comment, NEDA Director-General Augusto B. Santos said items to be funded by the stimulus package will put more money in the pockets of consumers, which in turn will boost domestic consumption. "The budget is the main fiscal stimulus. There is sizeable increase this year as against the one in 2008," he said in a phone interview, adding that the President may sign the 2009 budget into law this month. He admitted that the P100-billion infrastructure proposal has "no clear shape" for now but the government is not dropping it. "It is still being discussed. But the spending should start now," Mr. Santos said. "We are not giving up on it." - BusinessWorld