Impact of the Tax Reform

Macroeconomic fundamentals are good thanks to prudent macro fiscal management by the current and previous administrations. With the tax reform, we can further strengthen our macroeconomic position to create an environment more conducive to high growth and investment, good job creation, and faster poverty reduction.

The vision for the Philippines

By 2022, we aim to reduce the poverty rate from 21.6% to 13-15%. This means that 6 million Filipinos will be uplifted from poverty. 23 years after or one generation from now, we aim to eradicate extreme poverty.

The increase in Gross National Income (GNI) will reach 5,000 USD from 3,500. The Philippines will achieve upper-middle income status just like where Thailand and China are today. Likewise, this will increase up to 11,000 USD and the Philippines will achieve high income status where Malaysia and South Korea are today.

How do we achieve this vision?

To achieve this, we have to sustain economic growth of at least 7% every year for one generation, shift the source of growth from consumption to investment, and massively invest in the people to become globally competitive and infrastructure to raise productivity.

We also have to focus our investments in health, education, life-long training, social protection, infrastructure, and research and development.

Dramatic fiscal turnaround, but much more needed to move from stability to prosperity.

Impact on the Economy

If we only pass the popular reforms, we risk our current macroeconomic stability. Rating agencies have warned against the stalling of the tax reform and a possible downgrade. Tax reform will allow the government to invest in the people through infrastructure, education, health, housing, and social protection.

Fears of spikes in inflation are unfounded. Inflation will still be within the 2-4% target of the Bangko Sentral ng Pilipinas, and monetary policy tools can be used to target inflation.

Growth in the Economy

The package 1 will help the economy grow by 1.3% by 2022. The GDP will be boosted as a result of higher household consumption due to lower income tax and the cash transfers. The increased economic activity is buoyed by increased household consumption and increased investments.

Effect in Inflation

Increase in inflation is low and within the BSP’s target range. The increase in excise taxes will raise inflation by .42% in 2018, but will quickly dissipate in succeeding years.

Employment Generation

The package 1 will create about half a million jobs over the next half-decade and could lift up to 250,000 Filipinos out of poverty over the same period.

Package 1 can generate PHP 134 billion. If at least half of that is invested in infrastructure, 67,000 jobs can be directly generated in construction, and almost 70,000 jobs can be created in the rest of the economy, for a total of 137,000 jobs. Packages 1-5, meanwhile, can generate PHP 309 billion. This implies that a total of 315,000 jobs can be created in the economy. The tax reform will also enable to Build Build Build program to be realized. The program, which is estimated to cost PHP 8.4 trillion, can create around 17 million jobs over the implementation period. Even at only 50 percent implementation, the program can create more than 8 million jobs over its life.