Finance Secretary Carlos Dominguez III has said that higher state spending on infrastructure and social services, supported by a low inflation rate and an expansionary monetary policy, will allow the government to “dramatically increase” the pace of economic growth this year, despite the trio of challenges arising at the onset of 2020 from the Taal Volcano eruption, the African Swine Fever (ASF) and the coronavirus disease (COVID-19).
Dominguez said these unexpected challenges may dampen growth, but would not be significant enough to alter economic targets for this year, more so now that the 2020 national budget has been passed on time and a special law has been enacted allowing the government to continue using the unexpended project funds under the 2019 budget.
These resources will provide the government the tools it needs to accelerate public spending to offset the effects of the fresh challenges to the domestic economy, Dominguez said.
Positive developments in the Philippine economy, such as the government’s much-improved tax effort and the implementation of game-changing reforms, will be amplified by the hoped-for passage into law this year of the remaining packages of the Comprehensive Tax Reform Program (CTRP), which, in turn, will help modernize taxation and produce a more business-friendly environment for investors, the Finance chief said.
“The key reforms already in place, and the ones forthcoming, have produced a pro-people economy and tangibly improved the quality of life at the grassroots. We will pursue the socioeconomic reform program of the President with a decisiveness that this administration proved it can deliver,” Dominguez said at the Wallace Business Forum held at the Shangri-La Hotel in Makati City over the weekend.
Dominguez said that had the passage of the 2019 budget not been delayed last year, the economy would have expanded at a faster clip at 6.8 percent, rather than 5.9 percent in 2019.
He noted that while 2020 began with the “unexpected challenges” of the ASF, the Taal volcano eruption and COVID-19, the government has been on top of the situation and has acted decisively on them.
The ASF has been contained through the strict enforcement of biosecurity measures, an intensified anti-smuggling campaign and heightened meat inspection efforts.
Meanwhile, concerned government agencies and local government units are fast-tracking the release of production support, livelihood and financial assistance to affected farmers and fishers, and the implementation of recovery and rehabilitation plans for areas affected by the Taal volcano eruption last month.
As for COVID-19, Dominguez said the government responded to this public concern decisively and continues to implement proactive measures to keep our people safe.
COVID-19 would most like have a significant impact on the tourism sector, given the various levels of travel bans imposed by national governments and of voluntary decisions of airlines to cut flights to and from China.
The country’s exports to, and imports from, China might likewise be briefly affected owing to the temporary closures of factories in Chinese cities, which has been under lockdown in a bid by Chinese authorities to contain the virus, Dominguez added.
“While these developments may dampen our growth somewhat, these threats are not enough to force a dramatic reduction in our growth estimates. The 2020 budget has been passed on time. A special law allows us to use the unexpended project funds from 2019. Greater public spending in infrastructure and social services, supported by an expansionary monetary policy and a benign inflation rate, should allow us to dramatically increase our pace of growth this year,” Dominguez said.
Dominguez reiterated that he hopes Package 2 of the Comprehensive Tax Reform Program (CTRP)–the Corporate Income Tax and Incentives Rationalization Act or CITIRA–would be finally passed into law by March.
CITIRA aims to bring down the corporate income tax (CIT) rate to the Association of Southeast Asian Nations (ASEAN) average and replace the badly tangled incentives regime with a targeted, transparent, performance-based and time-bound system. The old tax incentives scheme entrenched old businesses while discouraging new enterprises from competing in the market.
Dominguez said he also expects the rest of the CTRP packages to be passed this year.
These are the proposed Passive Income and Financial Intermediary Taxation Act (PIFITA), which is seen to make the country more attractive for long-term investments through reforms in the financial sector; and the real property valuation reform bill, which aims to adopt globally benchmarked standards and inculcate a higher degree of professionalism in property valuation.
“While we await the passage into law of these remaining tax reform packages, we continue to implement measures that will reinvigorate our capital markets, boost investor confidence, and enhance financial inclusion,” Dominguez said.
These include the following:
· The release of the amended set of regulations that will allow the Real Estate Investment Trust (REIT) to finally take off. “This will democratize wealth by opening access to thousands of small investors wanting to be shareholders in secure and profitable real estate projects. “In turn, this will allow big players in real estate to raise up more capital to further invest in our country, a win-win situation for all,” Dominguez said;
· The issuance of the Philippines’ lowest and first ever zero-coupon Euro Global Bond in the international capital markets. The overwhelming response from the market for the 3- and 9-year global bond issuance worth 1.2 billion Euros underscores the international investor community’s deepening confidence in the Philippine economy, he said;
· The first-time sale of the Premyo Bonds last year, enabling the Treasury to raise P4.96 billion or over 65 percent more than the initial issue size of P3 billion. Access to the bonds were made easy and convenient through the use of online purchasing platforms. These bonds opened yet another channel for ordinary Filipinos to be included in the financial mainstream; and
· The continuing review of government contracts to protect taxpayers and ordinary citizens from onerous provisions. “This review sends a clear message that the government is determined to create a pro-business environment in the country. But while the government is interested in inviting businesses to our economy, the interests of the whole nation should be a primary consideration,” Dominguez said.