Duterte Administration’s First Month: July Government Revenues Tumbles by NEGATIVE 4.6% as Deficit Swell by 57%!

The Bureau of Treasury updated its fiscal data to include the July—the first month of new administration.

 

Though I expected some boost to the data, given the inaugural month for the new administration, this just didn’t happen.

July collections for the Treasury (BIR, BOC and Non tax income) yoy fell by a substantial 4.6%! Since expenditures popped by +4.86% yoy, deficit ballooned by +57.36% to Php 50.667 billion over the same period!

 

Instead of using my excel, here is the Bureau of Treasury’s own chart depicting the current balances of the government.

Ok since this represents the first month then this could partly be about 'birth pangs' or transitional challenges.

But the downturn in revenues is unlikely to improve, because this has been a trend. As I wrote earlier: “That’s because falling tax collections have been a trend. The rate of growth of tax collections has been in downtrend since Q1 of 2015, or even from a longer period or from Q4 of 2012. 

Growth contraction appeared in FOUR out of the last 8 months!

For the 7 months of 2016, government collections were essentially flat (up only by a measly .6%) over the same period!

And even worse, the data reveals of a progressing divergence: A smoke and mirror between government collection and published GDP performance: “What a paradox: NGDP has been climbing since the low of Q1 2015 even as tax collections growth has been plunging to reach to its recent low (1Q 2016)!"

 

Amidst the much ballyhooed GDP,  government nominal revenues has been plateauing or flattening! Yes fact versus statistics!

In short, diminishing returns of the bubble economy have become apparent even in government collections.

Of course, part of this should signify the administrative component in term of collections efficiency or leakages. But in general, government revenues are likely to reflect on the real conditions of the economy

Additionally, the new government’s massive campaign on the war on drugs, where the economic effects of"crowding out" have already appeared even in government funding earmarks, PLUS the proposed freewheeling spending programs as declared in the SONA ensures that expenditures will zoom.

This comes even as massive curbs on businesses/enterprises activities (war on mining, oligarchy, endo, colorum, transport network vehicle services as uber and grab, vendors and more) underwrite the scenario of lesser economic activities for the private sector—thereby reduced tax collections.

Moreover, since government expansion comes in the face of reduced domestic production, imports will surge—as current conditions have presented.

 

This is will hardly be about G-R-O-W-T-H, but about substitution. Higher cost of doing business entails for import substitution.

With trade and fiscal balances in the red, which eventually may spillover to the current account, those derivatives enhanced GIRs will come under pressure. Strains from embedded dollar shorts will come out of hiding.

External liabilities will continue to bulge, as it has been during the past 9 months through June (Bureau of Treasury data here).

So instead of transitional challenges, July’s red numbers are likely to signify the baptism of fire—the onset of the deepening trend of red inks for government's fiscal balances.

Of course, this is not to discount interim monthly bounces.

Think of what this means to the peso, interest rates, bond prices and ultimately earnings, the real economy and stock prices!

And a last prediction, because of the penchant for the superhero effect, the government will most likely pursue HIGHER taxes (aside from debt and inflationism) to finance the growing financial gaps. This runs contrary to what has been said about the lowering of corporate taxes. They may lower corporate taxes (by a token amount) but significantly boost consumption related taxes.