Thank you very much. Good evening.
First of all, I’m glad that neither Stella nor Armin nor Mike was asked to give the introduction because I am sure they have many stories that I don’t want you young people to know about. Horrifying stories that I don’t want any of you young people to know about since now, I have to be a bit more serious in my job. You know, my previous job in government was actually more fun because we could do a lot of crazy things. ‘Di ba, Stella? ‘Di ba, Armin? So we have to be very serious.
Deputy Governor Espenilla; Deputy Governor Guinigundo; Mr. Moncupa; my friends here:
Let me begin by congratulating the incoming officers of EJAP. You follow in the footsteps of illustrious predecessors who kept the highest standards in economic and financial reporting.
I can mention here Mr. Raul Locsin, mentor to many of you. He was certainly a very colorful personality. And I’d like to remember him because he trained a lot of you, if I’m not mistaken, beginning with you Mike, Armin, Stella of course, and…who else is from the old Business Day? You know, the young kids are surprised that you’re all still alive.
The Association helps in ensuring that, being principally a guild of economic writers constantly reflecting on the times.
Economic journalism plays a magnified role in emerging economies such as ours. Our people rely on you not only to report the facts straight but also to widen the base of economic and financial literacy among our people.
In advanced economies such as Singapore, for instance, it is usual to find cab drivers scanning the stocks pages of the newspapers, analyzing the performance of listed companies while waiting for fare. That is because these cabbies are actually invested in the stock market. In these advanced economies, the capital markets are as deep-rooted as the economy is inclusive. Regardless of what their day jobs are, ordinary citizens help drive up the savings and investment rate by participating in financial products. The man-on-the-street is involved in market decisions that make the economy what it is.
We have a long way to go before we find cab drivers sharing information on stocks. That is testimony to our economy being exclusive rather than inclusive. Market information is kept from ordinary citizens and exchanged only within a narrow section of the population. Even fewer people pay taxes, producing a poor tax effort and narrow tax base. It has constantly concerned me that the BIR’s Large Taxpayers Service registers less than 3,000 individuals and companies. Economic decisions here are made from the top.
This situation cannot persist for too long. Unless our economy becomes truly inclusive, with ordinary folk making market decisions and shaping economic development, we cannot sustain a high-growth momentum.
The reforms of the current administration are meant to widen the base of economic decision-making. We aspire for a 7% growth rate into the medium term to bring down extreme poverty to a more tolerable 14% of our population. Government seeks to make large investments in our people to make them more competitive and in infrastructure to make our production more competitive as well. We intend not only to become a high-growth but a high-income society as well.
Closing the infra gap and raising the capacity of human capital requires a stronger revenue base for government. We need to invest over a trillion pesos in new infrastructure over the medium term. We need to upgrade our educational and health systems. We need programs that will produce well over a million new jobs a year to absorb the many young workers soon entering the workforce. Either we do all these or we end up with millions of alienated and discontented young Filipinos kept disenfranchised by mediocre economic performance.
It is the task of the Department of Finance to build a stronger revenue base that will enable the government to invest in the young and in the future. Taxation,as we all know, is never a popular thing. Spending is. But if we spend without raising revenues, we will bring the country to the quagmire of another debt crisis.
A stronger revenue base improves government’s ability to deal decisively with chronic poverty. We urgently need, for instance, to dramatically modernize our country’s logistics backbone to attract investment flows and grow competitive industries such as tourism. We urgently need to modernize our agricultural systems whose many weaknesses drags down our ability to grow rapidly.
The DOF has put together a tax reform package that will raise the purchasing power of wage-earners by bringing down income tax rates and increasing the tax-free portion of their incomes to P250,000. Lower corporate taxation will bring us closer to the regional average and make our economy more attractive to investors. Lower income tax rates ought not to shrink our revenue base. It will be a disaster if that happens.
For many decades, for instance, our neighbors invested 5% of their GDP on infra. Hobbled by poor revenue systems and, for a while, a heavy debt service load, we invested only half the regional average. We see the consequences of that in our dilapidated ports and airports, congested road systems and the pitiful state of mass transport. This is no way to grow a modern economy.
The tax reform package looks to a simpler, fairer and more efficient tax system that broadens the base of taxpayers and helps improve tax administration. While bringing down income tax rates to make the system fairer, we will introduce new revenue instruments to broaden participation in financing national growth.
The tax reform package will be submitted to Congress in several tranches. We will lower income tax rates while closing loopholes in the VAT system. The legislative mill is legendary for grinding slowly, especially when it comes to introducing new revenue measures. The entire tax package we hope will be passed in about three years. That is the track record for earlier efforts to remedy our historically complex, arcane and inefficient tax system.
Populist opposition is to be expected. That happens all the time. But the appeal of populist resistance to a modern tax system rests on low economic and financial literacy.
This is where I will need your valuable help. As economic journalists, you are best positioned to understand the issues here and explain them to our people. Unless we are able to build public support for reforming our tax policies, the rest of the economic strategy will be disabled.
You, the economic journalists, are the evangelists of modern economic thinking. We can only push the reforms only as far as our citizens grasp the strategic significance of what we are trying to do. I look forward to your ability to communicate, to explain in comprehensible terms what might otherwise be confusing jargon.
I look forward to working closely with you in the coming weeks and months. Ours is a common crusade to build the economic literacy of our public. That lays the real foundation for inclusive economic growth.
Thank you for your support and for the opportunity to discuss the issues with this most competent section of our journalistic community.
Thank you very much. I wish you were congressmen.