Government posts deficit again in May

MANILA, Philippines – The Philippine government posted a fiscal deficit in May after recording a P42.7 billion surplus in April, as public spending increased amid rising inflation and a high interest rate environment.

The surplus in April was attributed to a seasonal increase in revenues during the income tax filing month.

Data released by the Department of Finance on Thursday showed that the Marcos administration’s budget deficit reached 174.9 billion pesos in May, up 43.10% from the same period last year.

In the first five months of this year, the budget deficit widened to P404.8 billion, up 24.06% from P326.3 billion in the same period last year.

A budget deficit occurs when government spending exceeds revenue.

read: Government returns to surplus in April

Specifically, tax revenues from the Bureau of Internal Revenue (BIR), which historically accounts for 80% of state revenues, rose 2.79% to P219.2 billion in May, driven by increases in value-added tax, net income and profit tax, and miscellaneous taxes.

The Bureau of Revenue has raised P1.2 trillion since the beginning of the year, a 12.81 percent increase.

read: BIR, customs revenues increase in April

Meanwhile, the Bureau of Customs collected P81.3 billion in taxes from imports. This figure increased by 4.33%. So far this year, the figure has increased by 6% to P380.9 billion.

Government spending in May reached P557 billion, up 22.24%, mainly due to grants for government agency projects and budget support for local government units and state-owned enterprises. In the first five months, spending reached P2.3 trillion, up 17.65%.

In May, primary expenditures (total expenditures minus interest payments) rose 40.71% to P113.8 billion.

Government spending accelerates

Michael Ricafort, an economist at Rizal Commercial Bank, said in a Viber message that the wider budget deficit this month and so far this year is due to faster growth in government spending, inflation in spending due to rising prices and higher borrowing costs due to higher interest rates.

Ricafort added that if inflation eases further at some point, tax increases might be needed, with new taxes being considered a last resort.

Looking back, Finance Secretary Ralph Recto said no new taxes will be imposed during the remainder of the Marcos administration, instead the government will continue to increase taxes.

read: No new taxes, just higher standards – Recto

Inflation rose slightly to 3.9% in May from 3.8% in April, driven by higher food and transport prices.

At the same time, India’s Monetary Board maintained its benchmark interest rate at 6.5%, the highest level in 17 years. Previously, the Monetary Board had raised the interest rate by 450 basis points to reduce inflation.

The Marcos administration increased its borrowing plan to P630 billion in the third quarter from P585 billion in the previous quarter to raise funds to finance budget deficits and projects.

This year, the government has set a budget deficit ceiling of 1.48 trillion pesos, or 5.6% of gross domestic product (GDP), and aims to reduce the deficit to 3.7% of GDP by 2028.