The Duterte administration’s ambitious program to ramp up investments in infrastructure is meant not only to improve connectivity and boost economic productivity in the countryside, but also to develop the country’s emergency response system and better protect its communities most vulnerable to natural disasters.
Department of Public Works and Highways (DPWH) Secretary Mark Villar said infrastructure plays a key role in mitigating the effects of natural disasters and man-made conflicts as shown by the lessons learned during the onslaught of super typhoon Yolanda and the Zamboanga City siege in 2013.
“In these separate cases, the presence of alternative gateways to city centers, which require intermodal transport systems could have saved more lives and mitigated the effects of these crises on the affected communities,” Villar said.
Infrastructure is also indispensable to a robust economy in the regions, especially those farthest from Metro Manila. Villar pointed out, for instance, the need to build a direct road link between the Caraga region and Bukidnon to enhance trade in Mindanao.
“Improving connectivity in the regions through physical infrastructure is necessary not only to realize the government’s goal of inclusive growth, but also to boost our emergency response systems and reduce our vulnerability to disasters, whether natural or man-made,” Villar said.
“Moreover, gaps in infrastructure that deliver basic services exist and need to be funded. For instance, in the area of solid waste management, only 30 percent of the 42,028 barangays nationwide have materials recovery facilities,” Villar noted.
The Development Budget Coordination Committee (DBCC) has also stressed the need to improve the country’s disaster preparedness to avoid “hindrances” to the economy’s continuous high growth rate.
According to a statement released by the DBCC following its yearend meeting last December, “government revenues are expected to reach P2.913 trillion in 2018 once the tax reform package (submitted by the Department of Finance to the Congress) is passed.”
“The projected proceeds of the tax reform package – around P206.8 billion under Package 1– will fund the government’s big-ticket development projects, particularly the infrastructure program,” read the DBCC statement.
The DBCC statement also said that to sustain high growth, National Economic and Development Authority (NEDA) Secretary Ernesto Pernia advised that the government remain vigilant of external risks such as Japan’s fragile expansion, the slowdown of China’s economy, and a possible revival of protectionist policies in the United States and Europe.
On the domestic front, “the country must intensify its disaster preparedness measures as well as the logistics and infrastructure project coordination to avoid hindrances,” Pernia said.
According to Budget and Management Secretary Benjamin Diokno, projects that, the total infrastructure budget–both national and local—will grow from P861 billion in 2017 to P1.898 trillion by 2022, or from 5.4 to around 7.0 percent of GDP.
“These record levels of spending will align our country with its more vibrant neighbors and put us on track to achieve our vision of eradicating extreme poverty and transforming our economy into a high-income one by 2040,” Diokno said.
Diokno said, though, that this unprecedented infrastructure spending can happen only if the government were to raise a lot more revenues to ensure the financial viability of such an ambitious program.
“This can only be done by implementing broad and deep reforms in tax policy and administration through the enactment of the Department of Finance (DOF)-proposed Comprehensive Tax Reform Program (CTRP) now pending in the Congress,” Diokno noted.
The first package of the CTRP was submitted by the DOF to the Congress lastSept. 26.
Finance Secretary Carlos Dominguez III said the DOF welcomes the recent statement of Rep. Dakila Carlo Cua, who chairs the House ways and means committee tackling tax reform, that the first package would be approved by his panel in January this year.
In the medium-term, Dominguez said tax reform is expected to help reduce the poverty rate from 21.6 percent in 2015 to 14 percent in 2022, lifting some six million Filipinos out of poverty, and helping the country achieve upper middle income country status where per capita gross national income increases from $3,550 in 2015 to at least $4,100 by 2022, which is where China and Thailand are today.
If this momentum is sustained, the country would be well on its way to becoming a high-income economy by 2040 with a per capita gross national income of a least $12,000, or where Malaysia and Korea are right now, he added.
Package One of the CTRP proposes to lower personal income tax rates, broaden the Value Added Tax (VAT) base, and increase the excise taxes on oil products and automobiles.
The lowering of personal income tax rates, a promise that President Duterte made during the 2016 poll campaign, will increase the take-home pay of workers and make our tax rates more competitive, Dominguez said.
A broader VAT base will level the playing field and reduce massive leakages, while higher excise taxes on oil products and automobiles will improve the progressivity of the tax system as richer households consume far more of these products, he said.
“For instance, the top 10 percent of households consume around 50 percent of oil products (per 2015 FIES). Higher excise taxes can also help address traffic congestion and pollution,” Dominguez noted.
“Meanwhile, to protect the poor and vulnerable sectors, highly targeted transfers and subsidies will be provided as part of the ramp up of social spending from 37.3 percent of the 2016 budget to 40.1 percent of the 2017 budget,” he said.
According to a report quoting BMI Research, sustaining the country’s high growth path is dependent on the Duterte administration’s ability to roll out big-ticket infrastructure projects.
“Economic growth performance will largely depend on the Duterte administration’s ability to cut through red tape and get infrastructure and investment projects going, as well as to reassure investors of the government’s commitment to maintain and improve the public-private partnership program,” read the report of BMI Research published in the January edition of its Asia Monitor.
Also, the Oxford Business Group has cited a November report of ratings agency Standard & Poor’s that said the Philippines was a top performer in Southeast Asia in 2016 partly because of an expansionary fiscal policy that emphasizes public infrastructure.
Other institutions have also said the Philippines can sustain its high growth of above 6 percent and its status as one of Asia’s fastest growing economies, provided that the Duterte administration delivers on its commitment to accelerate spending on infrastructure.
These private and multilateral institutions include the International Monetary Fund, World Bank, Asian Development Bank, Fitch Ratings, S&P Global Ratings, Nomura, First Metro Investment Corp. (FMIC), Colliers International, Nordic Business Council of the Philippines (NBCP), Philippine Chamber of Commerce and Industry (PCCI), Employers’ Confederation of the Philippines (ECOP), Goldman Sachs, Bank of the Philippine Islands (BPI), Standard Chartered Bank, Hong Kong and Shanghai Banking Corp. (HSBC), Sun Life Asset Management Co., AB Capital Securities, Lamudi PHL and the Management Association of the Philippines.