The Duterte administration has carried out a slew of sweeping economic reforms over the past two years that previous political leaderships had failed to do and whose benefits are now being truly felt by the Filipino majority by way of lower poverty and hunger levels, more jobs and livelihood opportunities, and an economy that is among the fastest-growing in the world, according to Finance Undersecretary Karl Kendrick Chua.
Chua said that under President Duterte’s leadership, the economic team has been making a “careful balancing” of short-term benefits for the people with the long-term public welfare, and allocating resources in such a way that the net benefit would be for the greater good of the greater number of Filipinos.
The infusion of P33 billion per month into the economy as a result of the additional spending power of Filipinos, coming mainly from the sizable cuts in personal income tax (PIT) rates under the Tax Reform for Acceleration and Inclusion Act (TRAIN) has temporarily driven up inflation, but in a “good and productive” way, Chua said.
According to Chua, this additional P33 billion comes from the following: P12 billion from lower PIT rates, P2 billion from the Unconditional Cash Transfers (UCTs) for poor families, P3.5 billion from money saved from the free tuition in State Universities and Colleges (SUCs), and P15 billion from wages from new infrastructure projects under the “Build, Build, Build” program.
“This government has accomplished important economic reforms that previous administrations lack. In just 2 years, it passed a landmark tax reform. It passed a national ID law to help improve financial inclusion and social protection. It passed the ease of doing business (EODB) law,” Chua said.
The TRAIN and EODB were signed into law by the President in December and in May, respectively, while the National ID bill has already been submitted by the Congress to Malacañang Palace for President Duterte’s signature.
The government is also “opening up more and more sectors of the economy to both foreign and local competition” and is “raising infrastructure investment to above 5 percent of GDP (gross domestic product) for the first time, and “pursuing 4 more tax reform packages to make the tax system fairer, simpler, and more efficient,” Chua said.
Chua said the peso depreciation, wider trade gap and temporary elevated inflation are signs of a continuously strong domestic economy that benefits the country in general.
He pointed out that the Philippines is net beneficiary of the weaker peso as it spells higher incomes for over 10 million overseas Filipino workers (OFWs) who send money to an estimated 22 million households back home as well as for the business process outsourcing (BPO) and export sectors that are among the country’s leading sources of jobs, he said.
“In fact, the BPO and export sectors have clamored in the past for some manipulation of the peso to make it weaker and more competitive,” Chua said. “When put in this context, then some will realize that it is not rich investors that we are serving, who make money from a stronger peso, but the vast majority of working class Filipinos who stand to benefit from a more competitive exchange rate as more jobs and opportunities come to them.”
He said the moderate current account deficit means the country is investing more, which also means the government is finally addressing years of underinvestment that has hobbled the country’s quest for inclusive growth despite the investment ratings upgrades in the past that have transformed the Philippines into one of Asia’s economic stars.
Chua said proof of deepening investor confidence under Duterte presidency is the dramatic rise in foreign direct investment (FDI) net inflows that posted a 43.5 percent increase to US$2.2 billion in the year’s first quarter alone.
“For decades, our FDI lagged at around 1 to 2 billion dollars per year compared to 10 billion dollars in 2017, and 44 percent growth in the first quarter of 2018,” Chua said.
On inflation, Chua said the first five months, when averaged, would reach 4.1 percent, or just 0.1 percentage point higher than the full-year target of 2 to 4 percent.
Critics have failed to mention or are unaware that besides rising domestic demand, the reasons for the elevated inflation rate in April and May are better tobacco tax compliance, which raised tobacco products by 28 percent, and the “poor rice policy” that led to buffer stock shortages, he said.
As for the increase in fuel pump prices, Chua made it clear that only P2.80 to P3 out of the P12 per liter increase in gasoline and diesel prices was a result of tax reform.
“We know this because the tax reform law says so. What caused the other 75 percent is rightly attributed to higher world oil price and peso depreciation,” he said.
“The peso is weaker but is overall positive for the economy due to the remittance, BPO, and export effect. A moderate current account balance means that we are investing more than we are saving, and this is just right, as we have underinvested for many decades. And investing more is key to long-term inclusive and sustainable growth,” Chua said.
Aside from economic reforms, Chua also cited the progress made by the government in providing a safe environment for businesses. “Safe communities are essential for any investment and job creation to happen. Perhaps some big firms can hire security to safeguard their investment, but for the majority of micro, small and medium enterprises (MSMEs), they rely on broad peace and order to contribute better to the economy.”
Chua said these broad reforms set in place by the Duterte administration are now being felt by the people, as shown by the lower unemployment rate, lower self-rated poverty and hunger levels in the first quarter of 2018 despite higher inflation, and strong economic growth at above 6 percent.
The First Quarter 2018 Social Weather Report of the Social Weather Stations (SWS) showed that from 32 percent in December 2017, the number of self-rated food poor families dropped to 29 percent in March 2018.
Meanwhile, the number of families experiencing involuntary hunger declined from 15.9 percent in December 2017 to 9.9 percent in March 2018 as shown by the same SWS survey.
The Philippine Statistics Authority (PSA) reported that unemployment dropped to 5.5 percent as of April this year, with 625,000 new jobs created. This unemployment figure is down by 0.2 percent from the same period last year.