Philippines Budget gap grows

President Gloria Arroyo’s successor needs a "Plan B" to address a growing Philippine budget gap that a pledged crackdown on corruption might not solve, Finance Secretary Margarito Teves said Tuesday.

As Congress began an official count of the May 10 presidential election that should confirm Benigno Aquino as winner, Teves sketched a scenario that he said could push Manila’s finances to the brink and hinted tax rises might be necessary.

"We don’t want to go by way of Greece, Portugal and Italy. So they should look at the situation hard if (revenues) do not improve purely through tax administration efficiency and curbing smuggling," Teves told reporters.

Aquino, who is thought to have scored a landslide win, has pledged not to raise taxes unless absolutely necessary and vowed to improve government finances by tackling corruption and inefficiency. Arroyo is to hand over power to her elected successor on June 30.

Teves said the Arroyo government was confident the 2010 budget deficit could be kept at 293 billion pesos (6.25 billion dollars), or 3.3 percent of gross domestic product (GDP), this year, down from 3.6 percent of GDP last year.

However new treaty obligations will see tariffs on key imports, including on oil products, slashed, reducing revenues by as much as four billion pesos a year from 2011, Teves said.

With the next president likely to be wary of increased debt, "the direction would really have to be improved tax administration, collection efficiency and curbing smuggling," he said.

"That’s the prerogative of the president, but they may want to consider the need for a sort of a Plan B or timeline.

"If ever they exhaust, given the limited time, the collection efficiency, the choice would be either to raise new taxes or to borrow. We know that we may have problems if we continue to borrow," he said, citing the European crisis.

Teves has previously urged Aquino to raise a 12 percent sales tax to boost revenues but Aquino has dismissed the proposal.

Without these measures, Teves said the 2011 budget deficit would grow to 4.4 percent of GDP.