Budget gap exceeds ceiling in 2025

By Justine Irish D. Tabile, Senior Reporter

THE NATIONAL Government’s (NG) budget deficit breached its 2025 ceiling after the main tax agencies missed their collection targets and state spending slowed amid a corruption scandal, the Bureau of the Treasury (BTr) said.

Data from the Treasury released on Tuesday showed that the budget deficit widened by 4.68% or P70.5 billion to P1.58 trillion in 2025 from P1.51 trillion in 2024.

It exceeded the P1.56-trillion deficit ceiling set by the Development Budget Coordination Committee for 2025 or by P15.1 billion.

“The deficit only slightly exceeded the 2025 target by 0.97% as the 1.48% shortfall in revenue collections was partly offset by spending restraint, with actual disbursements kept below the programmed level by 0.85%,” the Treasury said.

As of end-2025, the deficit as a share of gross domestic product (GDP) settled at 5.63%, reflecting an improvement from the 5.7% in 2024 but slightly higher than the 5.5% target.

BTr data showed revenue collection inched up by 0.78% to P4.45 trillion, higher than the P4.42 trillion collected in 2024.

“The revenue uptake fell short of the revised fiscal year 2025 program of P4.52 trillion by P67 billion, as the P69.8-billion overperformance in nontax revenues was not enough to offset the P136.8-billion shortfall in tax collections,” it said.

Tax revenues, which accounted for 91.55% of the total revenues, jumped by 7.27% to P4.08 trillion in 2025, but 3.25% below the P4.52-trillion program.

Broken down, collections by the Bureau of the Internal Revenue (BIR) increased by 9.06% year on year to P3.11 trillion from P2.85 trillion collected in 2024.

“This growth was driven by stronger collections from corporate income tax, personal income tax, value-added tax (VAT), documentary stamp tax, and excise tax on tobacco,” the Treasury said.

However, BIR collections were 3.41% lower than the P3.22-trillion target for the year due to a pause in payments for infrastructure-related government contracts amid investigations into flood control projects and the temporary suspension of audit operations.

On the other hand, the Bureau of Customs’ (BoC) revenues inched up by 1.75% to P932.7 billion in 2025 from the P916.7 billion collected a year prior, amid strengthened enforcement measures and better monitoring of import declarations.

“VAT remained the principal driver of growth among the import taxes, with excise collection likewise posting year-on-year gains, effectively mitigating the significant effect of the decline in collections from import duties,” it said.

However, BoC collections were 2.72% short of its P958.7-billion target for the year due to “weaker import volumes, the suspension of rice importation, and lower global oil and commodity prices.”

Meanwhile, nontax revenues, which accounted for 8.45% of the total receipts, slumped by 39.15% to P376.3 billion in 2025 from P618.3 billion in 2024. However, it exceeded the full-year target of P306.5 billion by 22.77%.

“This drop was mainly due to the expected absence of one-time remittances received in 2024,” the BTr said. “However, full-year nontax collections surpassed the revised target… largely due to above-target performance of BTr income, particularly from its operations and dividend collections.”

The Treasury’s income declined by 17.7% to P233.2 billion last year, due to the base effect of non-recurring windfall receipts and the impact of interest rate cuts on income from investments and deposit earnings.

Despite the decline, BTr’s income still surpassed the P179.2-billion target for 2025 by 30.11% amid stronger dividend remittances, income from managed funds, higher interest income on government deposits, and guarantee fee collections.

The BTr also attributed this to the NG share from the profits of Philippine Amusement and Gaming Corp. and the Manila International Airport Authority’s terminal fees.

Revenue from other offices declined by 57.29% to P143.1 billion in 2025 but exceeded its P127.2-billion program by 12.43%.

SPENDING SLOWDOWN
Meanwhile, government expenditures edged up by 1.77% to P6.03 trillion in 2025 from P5.93 trillion a year prior. This was 0.85% below the P6.08-trillion annual program.

“The increase in spending was primarily driven by higher allocations for the National Tax Allotment to local government units, interest payments, and personnel services expenditures due to the implementation of the second tranche of salary adjustment of qualified civilian government employees,” the BTr said.

However, it said that the lower-than-program-level disbursements resulted from “proactive fiscal management, including stricter oversight on infrastructure projects linked to corruption scandals.”

Primary spending — which refers to total expenditures minus interest payments — was flat at P5.166 trillion last year from P5.162 trillion a year prior. It was also 1.3% short of the programmed P5.23 trillion.

Interest payments jumped by 13.21% to P864.1 billion in 2025 due to the “additional debt incurred to support the deficit program and the repricing of matured pandemic debt at higher prevailing rates.” This is 1.9% higher than the programmed P848 billion for 2025.

The full-year expenditure was 21.53% of GDP, slightly above the 21.45% target for 2025, but lower than the 22.41% seen in 2024.

DECEMBER DEFICIT
In December alone, the NG’s budget deficit narrowed by 4.96% to P313.2 billion from P329.5 billion in the same month in 2024.

Revenue collection declined by 3.31% to P304.3 billion in December as nontax revenues plunged by 59.31% to P25.7 billion.

This is as Treasury’s revenues fell 64.42% to P18 billion, and other offices’ revenues dropped by 38.47% to P7.6 billion.

However, tax revenues jumped by 10.73% in December to P278.6 billion as BIR collections went up by 11.08% to P204.2 billion, while Customs collections rose by 9.75% to P73.2 billion.

On the other hand, government spending slid by 4.15% to P617.4 billion in December, even as interest payments rose by 9.75% to P63.6 billion. Primary spending contracted by 5.53% to P553.8 billion.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that last year’s budget deficit could have been wider if not for government underspending on infrastructure.

“Going forward, geopolitical risks, especially in the Middle East, could lead to higher inflation that could bloat government spending,” he said in a Viber message.

He said the government’s catch-up spending plan, particularly for infrastructure, could also lead to a wider budget deficit.

Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said that the National Government’s slightly higher budget deficit in 2025 “was driven mainly by weaker‑than‑expected tax collections, even as spending remained below program.” 

“Despite these pressures, disbursements were kept 0.85% below the full-year program due to tighter project oversight, indicating that the deficit expansion was rooted in revenue underperformance rather than overspending,” Mr. Asuncion said in a Viber message.

“Looking ahead to 2026, the fiscal position is expected to improve modestly, supported by recovering tax operations as administrative disruptions ease and by continued fiscal consolidation efforts, although elevated interest payments — which rose 13.21% in 2025 — will remain a structural constraint,” he added.