The Department of Finance (DOF) remains optimistic that the economy will grow faster in the year’s second half on the back of larger investment inflows and exports, higher infrastructure expenditures, and an improved revenue effort which posted a first-semester performance in 2018 that is the highest ever in the country’s tax history.
According to Finance Secretary Carlos Dominguez III, the economic numbers for the second semester of 2018 remain “very promising” and that the year’s second quarter GDP growth of 6.0 percent was a mere “exception that does not indicate a medium-term trend.”
Dominguez said at a weekly news forum that the inflation rate, which reached 5.7 percent in July but actually eased to 0.5 percent on a month-on-month basis, is expected to go down to the original forecast range of 4.0 to 4.5 percent (based on Development Budget Coordination Committee projections) by the end of the year.
“Domestic demand remains robust. Investment flows grew in the first half of this year. Our exports of goods and services recovered to a double-digit growth of 13 percent in the second quarter from 6.5 percent in the previous quarter,” Dominguez said at the Kapihan sa Manila Bay held on Wednesday at the Café Adriatico in Malate, Manila.
In terms of expenditure, the government’s effort improved to 19.47 percent, which is the highest first semester expenditure effort since 2003, he noted.
Dominguez said in the first half of the year, the government’s revenue effort also improved by 1.47 percentage points to 17.12 percent, which is the highest first semester revenue effort ever achieved since 1946.
The tax effort of 15.23 percent is also the country’s highest first semester tax effort, said Dominguez in pointing out that this accomplishment is the result of the Tax Reform for Acceleration and Inclusion Act (TRAIN) and tax administration improvements in the Bureaus of Internal Revenue (BIR) and of Customs (BOC).
“Our tax effort is now at par with the best-managed economies in the region. It is a tax effort we can very well sustain, especially with the subsequent packages of the comprehensive tax reform program (CTRP) now being deliberated [by the Congress],” Dominguez said.
These tax reform packages are the following:
· Package 1B, which covers tax amnesty and adjustments in the motor vehicle user charge (MVUC);
· Package 2, which seeks to reduce corporate income tax rates closer to the regional averages and modernize the fiscal incentives regime to attract the industries of the future and benefit micro, small and medium enterprises (MSMEs);
· Package 2 plus, which contains additional excise taxes on tobacco and alcohol products as well as an increase in the government’s share from mining;
· Package 3, which covers reforms in property valuation to make the system more equitable, efficient and transparent; and
· Package 4, which aims to rationalize capital income taxation to address the multiple rates and different tax treatments and exemptions on capital income and other financial instruments.
“The President has stressed the urgency of passing the rest of his tax reform program in his State-of-the-Nation Address and we hope that Congress would heed his call for the swift approval of the remaining packages,” Dominguez said.
In seeking public support for the rest of the CTRP packages, Dominguez said that “once completed,” they “will ensure a healthy revenue flow, a more efficient investments-led economy, and a more inclusive growth process.”
“We will finally have a modern revenue system fit to support a strong emergent economy,” he said.
Further stimulating the economy in the second half is the Duterte administration’s “Build, Build, Build” infrastructure program, which accounted for government spending of P352 billion in the first six months of 2018, representing an increase of 41.6 percent over the same period last year and 4.3 percent above the disbursement target.
“The massive infrastructure program will drastically alter the Philippine economic landscape. It will create over a million jobs per year. It will bring our logistics backbone up to par with a region celebrated for dynamic growth,” Dominguez said.
The international business community shares this positive outlook on the economy, Dominguez said, as shown by the Philippines’ successful return to the Samurai bond market last week after an eight-year break.
The multi-tranche Samurai bond issue raised 154.2 billion yen or the equivalent of $1.39 billion, yielding a weighted average spread of 34.7 basis points above benchmark.
“With overwhelming demand from both onshore and offshore investors, the Philippines was able to secure the largest issuance size of a senior Samurai bond for the year. Our bonds also priced tighter than Indonesia and Mexico,” he said.
This strong response to the Philippines’ Samurai float followed a similarly successful offering of Panda bonds in China.