MANILA - Philippine economic growth targets could be in peril due to the legislature's failure to pass the 2006 national budget, a senior economic official warned yesterday.

Higher levels of capital spending outlined in the proposed P1.05-trillion budget bill are designed to improve infrastructure and encourage economic activity, Economic Planning Secretary Augusto Santos said in a statement.

The Senate is continuing hearings on the budget bill this week after it failed to pass it last year. If the legislature fails to pass it, the government automatically spends the same amount as the previous year's budget, which was 14.7 percent lower than the proposed outlays.

"If the 2006 (budget) is enacted, GDP growth for the year would be between 5.7 to 6.3 percent but if the budget (is the same as last year's) for the first quarter, GDP growth will go down to around 5.6 percent; and for one semester, it will go down to 5.5 percent," Santos said.

"If the (2005) budget will be re-enacted for the whole year, GDP growth will further slide to 5.3 percent," he added.

Manila plans to partly finance the higher spending levels this year with an increased value-added tax, which goes up by two percentage points to 12 percent on February 1.

"The (tax) will have an inflationary effect in the short-term but it will have a tremendous beneficial effect in the long-run. The huge amount of money generated from the (tax) can be used for spending on very basic public investment needs of the country, like education, health, nutrition and infrastructure," Santos said.*AFP

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