By Justine Irish D. Tabile, Senior Reporter

The Philippines' National Government (NG) budget deficit widened by 9.39% year on year in June, as expenditure growth outpaced the increase in revenue collection, Bureau of the Treasury (BTr) data showed. However, the first-half fiscal gap remained broadly in line with the government's program.

The country is in the midst of a multi-year fiscal consolidation aimed at bringing the deficit-to-GDP ratio back toward pre-pandemic levels, after elevated borrowing and spending during COVID-19 pushed national debt to multi-year highs. The June data illustrates the ongoing tension between that consolidation effort and the government's push to sustain economic momentum through infrastructure investment and social spending.

In a statement on Thursday, the Treasury reported that the budget gap ballooned to P264.3 billion in June, up from P241.6 billion in the same month a year earlier. Month on month, the deficit also widened from the P198.5-billion shortfall recorded in May.

"The 9.39% (or P22.7-billion) increase in the fiscal gap was underpinned by a 5.51% year-over-year growth in expenditures outpacing the 2.46% increase in revenue collection," the BTr said.

Expenditures

Government expenditures rose by 5.51% to P578.7 billion in June from P548.5 billion a year prior. The BTr attributed the faster spending to local government units' higher share of the National Tax Allotment, as well as subsidy releases to government-owned and -controlled corporations (GOCCs) such as Food Terminal, Inc. for the implementation of the Rice-for-All Program.

The National Tax Allotment — formerly called the Internal Revenue Allotment — was expanded following the Supreme Court's 2018 Mandanas-Garcia ruling, which broadened the revenue base used to calculate LGU shares of national taxes. The ruling has structurally increased the amount of national tax collections flowing to local governments each year.

The Treasury also cited direct payments made by development partners to suppliers and contractors of various foreign-assisted rail transport projects under the Department of Transportation as a contributing factor.

Primary expenditure, which excludes interest payments, increased by 5.14% to P516.3 billion, accounting for 89.22% of total disbursements. Interest payments climbed by 8.73% to P62.4 billion from P57.4 billion a year earlier, growing at a faster pace than revenue collection in June — a dynamic that underscores the rising cost of servicing the national debt relative to income generation. Consequently, the NG recorded a primary deficit of P201.9 billion in June, widening by 9.59% from the P184.2-billion gap posted in the same month last year.

Revenue Collection

Total revenue collection grew by 2.46% to P314.5 billion from P306.9 billion a year ago, as higher tax revenues were insufficient to offset a 43.53% plunge in nontax revenues.

Tax revenues, comprising 95.2% of total collections, rose by 6.86% to P299.3 billion from P280.1 billion. The Bureau of Internal Revenue (BIR) collected P210.7 billion, up 5.07% from P200.5 billion, while Bureau of Customs (BoC) collections jumped by 11.88% to P86.2 billion from P77 billion.

The Treasury attributed the stronger BIR performance to "intensified tax administration and enforcement efforts, ongoing modernization initiatives, and improved taxpayer compliance."

Nontax revenues, however, plummeted to P15.1 billion from P26.8 billion. The Treasury's own revenues slumped by 58.45% to P6.7 billion, while revenues from other offices declined by 21.17% to P8.5 billion. The BTr attributed the drop to the earlier remittance of dividends this year.

First-Half Fiscal Performance

For the January-to-June period, the fiscal gap widened by 2.79% to P786.8 billion from P765.5 billion a year earlier. This represented 47.4% of the upwardly revised P1.66-trillion program approved by the Development Budget Coordination Committee (DBCC), broadly proportional to the halfway mark of the year and suggesting the full-year deficit ceiling remains within reach if spending and collection trends hold.

Total revenue collections for the six-month period increased by 5.67% to P2.39 trillion from P2.26 trillion, equivalent to 49.68% of the P4.81-trillion annual program.

Tax revenues grew by 5.38% to P2.14 trillion, with BIR collections rising by 4.96% to P1.63 trillion and Customs collections climbing by 7.21% to P491.9 billion.

"The year-to-date improvement in (BIR) collections was driven by higher collections from corporate income tax, personal income tax, value-added tax (VAT), other percentage taxes, and miscellaneous taxes," the Treasury said.

The BTr attributed the increase in BoC collections to a 10.34% rise in VAT collection, primarily driven by higher oil prices. "These gains effectively offset the 2.73% drop in excise collections, partly due to the decline in the volume of oil imports and the temporary suspension of excise tax on LPG and kerosene," it added.

Nontax revenues increased by 8.26% to P246.5 billion as of end-June, as a 25.79% surge in BTr income to P182.7 billion offset the 22.63% decline in other offices' revenues to P63.8 billion.

Expenditures for the first half rose by 4.94% to P3.18 trillion from P3.03 trillion, already representing 49.1% of the DBCC's P6.47-trillion disbursement program. The primary budget deficit for the period narrowed by 13.56% to P303.1 billion from P350.7 billion a year earlier.

Officials Express Confidence

Finance Secretary Frederick D. Go said he remains confident that the fiscal position will stay within target for the second half of the year.

"We are always confident," he told reporters on Thursday. "The DoF is confident about the abilities of our revenue-generating agencies to be able to meet their targets for the second half of the year."

According to the BTr, the first-half deficit was P1.4 billion, or 0.17%, narrower than the government's P788.2-billion program. Total revenue collections missed the P2.388.5-trillion target by just 0.01%, while tax revenues fell short of the P2.16-trillion program by 0.77%. Nontax revenues exceeded the first-half program of P230.2 billion by 7.09%. First-half expenditures were 0.05% lower than the P3.176-trillion program, while the primary deficit was 2.16% higher than the P296.7-billion gap under the program.

"Looking ahead, we believe the government still has room to continue pump-priming the economy in the second half of the year while remaining within its fiscal targets," China Banking Corp. Chief Economist Domini S. Velasquez said in a Viber message.

However, she cautioned that the NG's fiscal space is becoming increasingly constrained. "As such, we expect public spending to be focused on high-multiplier investments, particularly infrastructure and labor-generating projects, which are likely to provide the greatest boost to growth while preserving fiscal sustainability," she added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the war in the Middle East contributed to weaker economic growth, which in turn slowed government revenues.

"Reform measures to further improve the NG's fiscal performance and debt management, as well as priority reform measures… would help increase government revenues and reduce government expenditures," he said in a Viber message.

However, Mr. Ricafort noted that the expected acceleration in second-half spending "would fundamentally widen the budget deficit in the coming months."