10 facts about revenue leakage and PhilHealth funds

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It is the Christmas season, vacation and spending season as households and companies keep a surplus; income and revenues are larger than spending in the first 10 to 11 months of the year. December comes and that surplus is spent on vacations, parties and reunions, with some savings kept for the new year.

Here are 10 facts about Philippine public finance that characterize many administrations.

One, the government is always in budget deficit; expenditures are always larger than revenues, with or without a crisis. Before the lockdown, the Philippines’ budget deficit was P481 billion a year from 2016-2019, then jumped to P1.535 trillion a year from 2020-2024. In January-October 2025, it was already P1.106 trillion. The level of government spending went on steroids from 2020 to the present.

We experienced rare budget surpluses from 1994 to 1997 because of high revenues from privatization – the Fort Bonifacio privatization in 1994 with revenues spilling until 1996 and the MWSS privatization in 1997.

Two, all sources of tax revenues were rising except excise tax: income and profits tax, sales tax and licenses, documentary stamp tax and other domestic taxes. Excise tax peak revenue of P318 billion in 2021 declined to P312 billion in 2022, P293 billion in 2023, P304 billion in 2024 and P194 billion in January-October 2025.

Three, within excise tax collection, leakage happened only in tobacco tax. From a peak of P176 billion in 2021, it declined to P160 billion in 2022, P135 billion in 2023 and P134 billion in 2024. In January-July 2025, it was P194 billion. Revenues from alcohol kept rising from P90 billion in 2021 to P116 billion in 2024; tax from sugar-sweetened beverages rose from P33 billion in 2021 to P38 billion in 2024.

Four, the main reason for declining tobacco tax revenues is the fast increase in the tax rate – from P50/pack in 2021 to P55/pack in 2022, P60/pack in 2023, P63/pack in 2024 and P66.20/pack in 2025. The price differential between legal and illegal tobacco increased; in 2024, illicit cigarettes were sold for only P40/pack in sari-sari stores or by ambulant vendors while the cheapest legal cigarettes were priced at P90-P100/pack.

During the Senate committee on finance public hearings on amending the tobacco and vape tax from January to May 2025, Sen. Sherwin Gatchalian asked his staff to buy illicit cigarettes in Quiapo. Within an hour, the staff returned with many brands of illicit tobacco, which Sen. Gatchalian displayed during the public hearing. These illicit products were easy to buy, openly displayed, not hidden and cheap.

Five, tax leakage happens when many smokers shift from buying legal to illegal tobacco and the government, instead of collecting P63/pack, collects zero when smokers buy illicit products. The twin goal of raising more revenues while reducing smoking incidence via higher tobacco tax did not happen. The opposite happened: the government collected less revenue and smoking incidence either flatlined or increased as smokers shifted to illicit products.

Six, of the P60 billion in PhilHealth funds transferred to the national treasury in 2024, that money did not come from members’ contributions. Subsidies to PhilHealth and portions of the DOH budget come from taxes paid by smokers, vapers and drinkers of alcohol and sugar-sweetened beverages. Non-contributors to PhilHealth, such as indigents, are in effect indebted to smokers and drinkers of legal products.

Seven, of the P60 billion PhilHealth fund, P46.7 billion or 78 percent went to universal health care (UHC)-related spending that should have been released in 2022-2023. These included P27.5 billion for Public Health Emergency Benefits and Allowances for health and non-health workers during the lockdown, P10 billion for Medical Assistance to Indigent and Financially Incapacitated Patients, P4.1 billion for the procurement of various medical equipment for DOH and LGU hospitals, P3.4 billion for the construction of three DOH health facilities and P1.7 billion for the Health Facilities Enhancement Program.

The other P13 billion or 22 percent funded government counterpart financing for foreign-assisted social and physical infrastructure projects. Claims by certain sectors that the P60 billion were stolen or used to fund flood control projects are based on emotion, not reason.

Eight, the architects and brains behind the fund transfer were Congress – both the House and Senate – via Special Provision 1(d), Chapter XLIII of the General Appropriations Act (GAA) 2024. It was not former Finance Secretary Ralph Recto; he merely issued DOF Circular 003-2024 implementing the fund transfer as stated in the GAA Special Provision.

Nine, the transfer of P60 billion to fund these projects in 2024 enabled the government to (a) avoid new loans of P60 billion and (b) avoid interest payments of about P3.8 billion a year, computed as (P60 billion) × (6.3 percent), the average interest rate in 2024.

Ten, revenue leakage also occurs in many government-owned and -controlled corporations (GOCCs) that are supposed to contribute revenues to the government but instead receive endless subsidies, such as the National Irrigation Administration, which received an average of P40 billion a year from 2017-2024 and P39.7 billion in January-November 2025, and the National Food Authority, which received P8 billion a year and P13.6 billion respectively over the same period.

In contrast, the Land Bank of the Philippines (LBP) has been sending dividends to the National Treasury – P32 billion in 2024 and P33 billion in 2025. This is on top of the P50 billion it contributed to the Maharlika Investment Corp. in 2023. LBP is the single largest GOCC sender of “Noche Buena” to the national treasury.

In 2026 and beyond, there is hope for plugging revenue leakages and curbing wasteful, corrupt spending – and for an increase in GOCCs that bring in more dividends instead of relying on subsidies from the national treasury.

Merry Christmas, dear readers.