A three-pronged strategy anchored on game-changing reforms and sound fiscal policies will keep the Philippines among the ranks of the world’s best-performing economies despite headwinds weighing heavily on near-term global growth, Finance Secretary Carlos Dominguez III said.
Dominguez said this three-pronged strategy consists of 1) bolstering the Philippines’ macroeconomic strength through prudent fiscal management and stable monetary policy, 2) accelerating spending on infrastructure modernization and human capital development, and 3) implementing the remaining packages of the Comprehensive Tax Reform Program (CTRP) and other bold reforms that will benefit all law-abiding Filipinos and businesses.
“We are doing the things we need to do. We are optimistic in the growth momentum will be sustained beyond the medium term. We seek to make our market more competitive and our economy more inclusive,” Dominguez told asset managers and investment managers attending The Asset’s 14th Philippine Forum on Tuesday at the Grand Hyatt Manila in Bonifacio Global City, Taguig City.
He urged them to examine the policy and administrative reforms that the Duterte administration has achieved so far and seize the many opportunities for investors to participate in the Philippines’ “blossoming economy.”
Dominguez said the trade tensions between the United States and China, a potentially chaotic Brexit, and the recent attacks on two important Saudi oil refineries have all contributed to the uncertainties plaguing economies across the globe.
“The Philippine economy has been challenged by slower global growth. The Asian Development Bank (ADB) recently cut our 2019 growth forecast to 6 percent from 6.2 percent. But despite these headwinds, the Philippines’ economy will still be among the fastest-growing in the world,” Dominguez said.
Dominguez pointed to the following key indicators of the country’s strong macroeconomic performance:
· Standard and Poor’s recent upgrade of the Philippines’ long-term credit rating from “BBB ” to “BBB+,” which captures the Duterte administration’s efforts to maintain fiscal discipline, contain inflation, build a business-friendly market, and achieve the highest international reserves ever of $85.6 billion by end- August 2019.
This amount is equivalent of seven-and-a-half months’ worth of imports, is significantly above the benchmark, and will keep the Philippine peso stable;
· Strong consumer demand sustained by strong remittance inflows from overseas Filipino workers (OFWs) and the additional spending generated by hefty income tax cuts under the Tax Reform for Acceleration and Inclusion Act (TRAIN).
With the economy driven by domestic consumption and less by external trade, it has become partially insulated from factors that have led to the global economic slowdown, he said;
· By next year, the Philippines is expected to achieve upper middle-income country status, which is indicative of the capacity of its domestic market to support more enterprises;
· Rising foreign direct investments as shown by inflows averaging $10 billion a year over the past 2 years;
· An unemployment rate at its lowest in 40 years and poverty incidence declining from 27.6 percent in the first half of 2015 to 21 percent in the first half of 2018.
Additional investments in education, training, and Universal Health Care (UHC) will help bring the rate down to 14 percent by 2022;
· Infrastructure investments breached 5 percent of gross domestic product (GDP) for the first time last year, as a result of the roll-out of President Duterte’s “Build, Build, Build” program.
This is double the average spending over the last 50 years, which the Duterte administration expects to ramp up further to 7 percent of GDP by 2022; and
· Better tax compliance and a broader tax base under TRAIN that has led to beyond-target revenues.
Latest numbers show that in the first half of 2019, TRAIN revenues reached P55.6 billion, or 65 percent higher than the collection in the same period last year.
“We will do our utmost to continue on this positive path via a three-fold strategy. First, we will continue to bolster our macroeconomic strength through prudent fiscal management and stable monetary policy. Second, we will focus our accelerated spending program on infrastructure and our people–two investment areas that will provide the highest returns in the short-run and well into the future. Third, our approach is further powered by game-changing reforms that will benefit all law-abiding Filipinos and businesses,” the Finance chief added.
Among these reforms are the remaining CTRP packages on lowering the corporate income tax (CIT) rate to bring the Philippines closer to the Association of Southeast Asian Nations (ASEAN) average and rationalizing fiscal incentives to make these performance-based, time-bound, targeted and transparent; adjusting excise taxes on alcohol products as well as heated tobacco products (HTPs) and nicotine vapor products (vaping); reforming the real property valuation system; simplifying the tax system on passive income, financial services, and transactions; increasing the Motor Vehicle User Charge (MVUC); and a general amnesty that includes the lifting of bank secrecy laws plus the automatic exchange of tax information.
In underscoring the urgent need to rationalize fiscal incentives, Dominguez pointed out the irony of the Commission on Audit (COA) reviewing even small expenditures spent by state agencies, while the government cannot even determine if the P504 billion (around $9.7 billion) it gave away in the form of incentives to a favored group of companies ultimately benefitted the Filipino people.
“In addition to tax reform, we have new laws that will cut red tape, simplify government procedures, improve the efficiency of our financial system, and we are taking steps to further expand sectors and industries for foreign investment. We are increasing our own investments in social services, especially in public health and education. Our young work force will have competitive skills to support rapid industrialization,” Dominguez said.
Dominguez also took note that it was the Duterte administration that succeeded in implementing a Rice Tariffication Law (RTL), which has proven to be beneficial to all segments of society.
“It has brought down the price of our country’s staple food for more than 100 million Filipinos, and has slowed down the inflation rate, which, in turn, eased the pressure on businesses to raise wages. We expect this key measure to be the main driver in modernizing our farm systems and bringing down rural poverty,” he said.
TRAIN, on the other hand, “has worked wonders for the economy,” Dominguez said.
He noted that TRAIN effectively increased the take-home pay of most taxpayers because of the income tax cuts, while allowing the government to raise more revenues to support its investments in infrastructure and the country’s people, and discourage consumption of unhealthy products through excise taxes on sweetened beverages, alcohol and tobacco.
Dominguez said “the reforms and initiatives we have pursued all have a tangible effect on the lives of every Filipino. Our economic reforms have clearly resulted in more money in the pockets of our people, while reducing inflation, and creating more jobs.”
The Asset, a multimedia company that organizes the annual Philippine Forum, has for this year’s event theme “Seizing the Opportunity.”
The whole-day forum discussed how best to fast-forward the reforms necessary for the Philippines to sustain its high growth rate and attract investments, the role of the capital market, and the banking sector and how it could improve access to finance.