Finance Secretary Carlos Dominguez III said Thursday the swift approval of the 2020 General Appropriations Act (GAA) and the extended validity of certain portions of last year’s national budget law until yearend will provide the government a “double-barreled boost” to sustain the economy’s high growth trajectory this year.
Dominguez said public optimism is high on the Philippines’ growth prospects at the start of the year, notwithstanding the fresh challenges brought about by the eruption of Taal Volcano and the global spread of the novel coronavirus (nCoV).
The government’s bold catch-up spending plan in the second half of 2019, which was designed to deliver more infrastructure projects and social services and at a faster pace, helped the economy recover from its weak performance in the first semester, Dominguez said.
The delay in the congressional approval of the 2019 national budget and the ban on new infrastructure during the election period that year resulted in the economy’s anemic growth in the first half of 2019.
“Clearly, a budget delayed is development delayed. The challenge at hand is to maintain the momentum of rapid growth that we were able to recover,” said Dominguez before members of the Foreign Correspondents Association of the Philippines (FOCAP) during its ‘Prospect for the Philippines 2020’ Forum held Tuesday morning at the Peninsula Manila Hotel in Makati City.
Dominguez said the significant impact made by the aggressive state spending plan can be seen from the growth numbers in the second semester of 2019, when the economy expanded by 6.0 and 6.4 percent, respectively, in the third and fourth quarters.
The country remains to be one of the growth leaders in the region with a full-year gross domestic product (GDP) growth of 5.9 percent last year, he said.
Citing estimates by the National Economic and Development Authority (NEDA), Dominguez said the 5-month delay in the enactment of last year’s national budget shaved off nearly a full percentage point from the country’s economic expansion rate.
Had the 2019 national budget been passed on schedule, thereby allowing the government to accelerate spending on infrastructure and social services in the first half of 2019, the Philippines’ full-year GDP growth last year should have been around 6.8 percent, the Finance chief said.
On the economic front, Dominguez said the year began with good news owing to the timely enactment of the 2020 national budget and the Congress’ approval of the validity of certain aspects of the 2019 budget until Dec. 31, 2020.
“This provides us a double-barreled boost–enough to sustain our high growth trajectory,” Dominguez said.
“Surely, the public spending side of the growth equation will spur economic activity over the next few months. We see the economy firing on all cylinders this year with substantially higher government spending on infrastructure and social services, stronger domestic consumption responding to benign inflation, and a revitalized agricultural sector,” he added.
Moreover, the full-year inflation rate last year of 2.5 percent–close to the lower end of the government’s target range of 2 to 4 percent—will provide enough headroom for economic stimulus measures by monetary authorities, Dominguez said.
He said the policy reforms carried out thus far by the Duterte administration have had the most beneficial impact on low-income households, as official statistics reveal that the highest increase in the mean per-capita income from 2015 to 2018 was in the lowest 30 percent of the population.
Per-capita income among the lowest 30 percent, which represents the country’s poorest households, grew by an average of 32 percent, outpacing the 20.9 percent growth in per-capita income for all deciles, Dominguez noted.
The richest 20 percent of the population grew their per capita income by only 18 percent during the same period, he added.
As a result, poverty incidence went down to 16.6 percent in 2018 from 23.3 percent in 2015 during the first three years of the Duterte administration, which means a total of 5.9 million Filipinos lifted themselves from poverty.
Dominguez said the government is on track to achieving its goal of reducing poverty incidence to just 14 percent or even lower by the end of President Duterte’s term in 2022.
“It should not be surprising that President Duterte still enjoys unprecedented performance approval ratings during the second half of his term. The virtuous cycle of decisive leadership, broad public support and bold policy reforms continues on its upward spiral,” Dominguez said.
“These explain why there is so much optimism in the air. We hope you will share in this optimism held by most Filipinos in the capacity of our economy to grow rapidly and more inclusively,” he told FOCAP members and guests at the forum.
On top of implementing reforms, Dominguez said the Duterte administration is also undertaking a continuing review of government contracts to protect taxpayers and ordinary citizens from possible onerous provisions.
“The review of government contracts, we hope, will deliver a clear message that while the government is interested in inviting businesses to our economy, we are also telling the investment community that the interests of the whole nation should be a primary consideration,” Dominguez said.
Dominguez said that among the reforms undertaken by the Duterte administration with the most impact on the people are the following:
· The passage and implementation of the Rice Tariffication Law (RTL) after about 3 decades of failed attempts by previous administrations. The law brought down rice prices by an average of P9 per kilo, which is beneficial to consumers, particularly low-income households who spend 20 percent of their budgets on rice alone, and also to the corporate sector, as this has eased pressure on businesses to raise wages;
· The expansion of social protection programs, such as the unconditional cash transfers (UCTs), Pantawid Pamilyang Pilipino Program (4Ps) subsidies, social pensions, and Pantawid Pasada subsidies for jeepney drivers as provided under the Tax Reform for Acceleration and Inclusion Act (TRAIN);
· Substantial reductions in personal income tax (PIT) rates under TRAIN, which put more money in the pockets of most Filipino taxpayers, equivalent to about a month’s take-home pay; and
· The 54-percent improvement in tax collection in 2019, as compared from 2015, which enabled the government to dramatically increase infrastructure spending by 42 percent.
Preliminary data show the tax effort improved to 15.1 percent of GDP in 2019 from 13.6 percent in 2015. This is the best that the government has achieved in 22 years.
“We expect the tax effort to be further reinforced this year from better tax administration and the intensified anti-smuggling drive of the government; the passage of the remaining packages under the Comprehensive Tax Reform Program (CTRP); the increasing amounts of dividend remittances from our government-owned and controlled corporations (GOCCs); and the sustained campaign to crack down on errant Philippine Offshore Gaming Operators or POGOs and their service providers,” Dominguez said.
Tax collections from POGOs amounted to P6.42 billion in 2019, which is a 169-percent improvement from the 2018 numbers. “We expect to collect significantly more this year as we properly document and audit the operations of these service providers,” he said.
The government will also raise additional revenues from the enactment of laws last year that raised excise taxes on tobacco products twice under the same administration, which is a historic first; and a new law raising taxes on e-cigarettes and alcohol.
These ‘sin’ tax laws aim to discourage smoking, vaping and binge drinking, while augmenting the funds needed for the Universal Health Care (UHC) program that will primarily benefit low-income families with greater access to quality medical services.
Dominguez said the passage of the remaining CTRP packages, which include the proposed Corporate Income Tax and Incentive Rationalization Act (CITIRA), will further improve the inclusiveness of the country’s economic growth, help produce a more business-friendly environment for investors, and empower about one million micro, small and medium enterprises (MSMEs) that compose the bulk of local businesses that employ the majority of the labor force.
He further said the following developments will further sustain growth and boost investor confidence in the economy:
· Improvements in the ease of doing business and adoption of best practices in the use of digital technologies in facilitating transactions;
· The release of the amended rules and regulations of the 11-year old Real Estate Investment Trust (REIT) law, which will boost investments in property development in the country as well as democratize wealth by opening access to thousands of small investors wanting to be shareholders in secure and profitable real estate projects;
· The Philippines’ unprecedented credit rating upgrade to “BBB plus” last year;
· The success of the first-time sale of Premyo Bonds, which enabled the government to raise P4.96 billion or over 65 percent more than the initial issue size of P3 billion; and
· The overwhelming response to the Philippines’ first-ever zero-coupon Euro Global Bond issuance of 1.2 billion Euros in the international capital markets, which, Dominguez said, underscores the international investor community’s deepening confidence in the Philippine economy on the Duterte watch.