BY REGINA BENGCO

PRESIDENT Arroyo yesterday approved in principle a proposal of Albay Gov. Jose Salceda for government to spend P75 billion to stimulate the economy and shield it against a US economic slowdown.

Salceda, one of the President’s economic advisers, said the President ordered Finance Secretary Margarito Teves to find the funding source for the stimulus package.

However, he said government has not given up its target of having a balanced budget by 2008, instead of postponing it to 2009 as he originally suggested.

Budget Secretary Rolando Andaya Jr. said what was approved was the concept of stimulating the economy to enable it to withstand a US recession but the economic managers were not sold on incurring a deficit of 1 percent of GDP.

He said the economic managers would meet on Thursday to see how the package could fit in the government’s fiscal policy. The meeting is slated at the Manila Golf and Country Club at 8 a.m.

"This is a one-shot package designed as a proportional response to the US recession. It is on the aggregate, set at 1 percent of nominal GDP," Salceda said.

He said it would be the third time that government would stimulate the economy as a form of defense against a recession. He said the first time was in 1999 when the Estrada administration tried to fortify the economy against the Asian financial crisis through a P40 billion package, and in 2001 when the Arroyo government pump-primed the economy with a P60 billion package in view of a US recession.

He said the whole package would be funded by a supplemental budget and could be in place by March.

Its components:

• Income tax relief to middle-class working families, P16 billion.

• Reduction in electricity rates to households consuming 200 kilowatt hours monthly, P8 billion.

• Agricultural production/productivity logistic distribution (such as post-harvest facilities, upland development, bagsakan, and Tindahan Natin outlets), P15 billion.

• Food-for-School program, P6 billion.

• College scholarships and technical and vocational training, P6 billion.

• PhilHealth increase to 7 million beneficiaries, P4 million.

• NHA core housing, P4 billion.

• Infrastructure (rural connectivity and urban decongestion/upgrading), P16 billion.

Salceda said the P8-billion power discount or P1.50 per kilowatt hour could be funded by proceeds from Malampaya royalties. He said the additional spending on agriculture could be funded by the sale of the Food Terminal Inc., which would amount to P15 billion.

He said shares from the San Miguel Inc. and other stakes elsewhere could be tapped as additional funding sources.

He said the "problematic" part is the P16 billion tax relief for middle-class working families, which involves a 20 percent rebate for all withheld income taxes in 2007. He said there may be legal issues involved because of a Supreme Court ruling that taxes are an obligation of citizens.

He said President Arroyo proposed the use of conditional cash transfers which would be coursed through the social welfare department enabling the poor to pay tuition, food and other expenses. He said the rebate could amount to P7,000 each

He said Malacañang would have to explain the economic stimulus package to credit rating agencies and assure them that government is not tinkering with the tax structure.

He said government would use new privatization proceeds and other "creative" means to fund the economic stimulus package.

Andaya said the economic team is wary that incurring the deficit would erase all the economic gains and credit upgrades that government achieved in the past years and that it would result in a deficit that is actually higher than the target.

"Kailangan at the very least ma-involve ang DOF sa punto ng usapan na ito... Madaling sabihin na 1 percent ng GDP pero pag nasundan mo iyan baka hindi lang 1 percent ang lumabas. Mas malaki pa," he said.

He said when the economic stimulus was used in 1999 and 2001, the actual deficits were a lot higher than the targets, about 50 percent higher.

He said they would also have to look at the absorptive capacities of the government agencies, adding that the system was not able to absorb all the funds released to pump-prime the economy.

He also said the economic team has already put in P45 billion in the 2008 budget to stimulate the economy.

"We’re willing to add more to these funds but kung gagawin natin yan, yung P75 billion ay talagang P75 billion. We don’t want to see it having blown up in front of our faces na mas malaki ito sa P75 billion," he added.

Andaya said government actually did a fiscal stimulus last year "without so much fanfare" and the result is proven by the numbers.

Arroyo, in her arrival statement from her trip to Switzerland and the United Arab Emirates, said government is cautious about the state of the world economy although it is confident about the long-term prospects of the Philippine economy.

"We assured everyone we met abroad and we say to our people here at home, we are not complacent. We remain vigilant in pursuing economic reform and maintaining our fiscal discipline as we are working hard at home to mitigate the impact of any economic slowdown on our people," she said.