The Duterte administration is maintaining its “fighting target” for economic growth of 6 percent or above this year to keep on track President Duterte’s ultimate goals of lowering poverty incidence to 14 percent by 2022 and creating more opportunities for law-abiding Filipinos, Finance Secretary Carlos Dominguez III has said.
Dominguez said the swift congressional approval of the remaining packages of the comprehensive tax reform program (CTRP) and other economic reform bills meant to further open up the domestic economy to investments are crucial for the Duterte administration to achieve its goals of achieving high and inclusive growth, and transforming the country into an upper middle-income economy ahead of schedule.
On keeping the full-year economic expansion target of 6 percent or higher, Dominguez said a catch-up spending plan crafted for this year and the timely passage of the 2020 national budget will help the government achieve this growth target, as he expressed optimism that there wouldn’t be a repeat of the delay in the approval of the 2019 General Appropriations Act (GAA), in light of the much better working relations this time between the executive and legislative departments.
Economic growth settled at only 5.5 percent in the first half of 2019, which Dominguez said was not surprising, given the five-month delay in the enactment of the 2019 GAA. The delay forced Malacañang to operate on a reenacted 2018 budget and hold off on the implementation of new and continuing projects that would have boosted growth in the year’s first half.
To avoid a repeat of the 2019 budget delay, Dominguez said the leaders of both the Senate and the House of Representatives are meeting every month to monitor the progress on the budget and the 25 priority bills enumerated by President Duterte in his 4th State-of-the-Nation Address (SONA), which include the four remaining CTRP packages.
Dominguez said that at the halfway point of President Duterte’s term, the economic team is more than ready to pursue further reforms, starting with the remaining CTRP packages, to enable the Philippines to secure an “A” credit rating within his presidency and achieve his goal of financial inclusion.
“The passage of the remaining tax reform packages and other economic reforms will help us secure the A-minus credit rating within the next two years and achieve our 14 percent poverty target by 2022. There is reason to believe that the winds are in our favor and the stars all aligned, or as the naval prose goes, here we have fair winds and following seas,” Dominguez said in his meeting on Friday with congressional leaders, former finance officials and economists at the Department of Finance (DOF) office in Manila.
The lunch meeting was hosted by Dominguez to discuss the CTRP and the other proposed economic reforms of the Duterte administration.
Former Prime Minister Cesar Virata; Senator Pia Cayetano, the chairperson of the Senate ways and means committee; Albay Rep. Joey Salceda, the chairperson of the House ways and means committee; former Finance Secretary and Senator Alberto Romulo, who is now the chairman of the Development Bank of the Philippines; former Finance Secretary Margarito Teves; and former Finance Secretary Roberto De Ocampo, who is now chairman and CEO of Philippine Veterans Bank were present at the meeting.
Also at the meeting were former Finance Secretary Jose Isidro Camacho, who is now managing director in the Asia-Pacific division of Credit Suisse; former National and Economic Development Authority (NEDA) director general Cielito Habito; former NEDA director general Arsenio Balisacan, who is now chairman of the Philippine Competition Commission (PCC); and former Finance Undersecretary Romeo Bernardo were present at the meeting.
Eminent economists Fermin Adriano, former vice chancellor of the University of the Philippines-Los Banos (PLB) and board member of the Asian Development Bank Institute; and Filomeno Sta. Ana, coordinator of the Action for Economic Reforms were also present.
The rest of the CTRP packages comprise the a) lowering of the corporate income tax and rationalization of fiscal incentives under the Corporate Income Tax and Incentives Reform Act or CITIRA (Package 2); b) increase in the excise taxes on alcohol and e-cigarettes to safeguard public health and raise the additional funds needed to implement the Universal Health Care or UHC program (Package 2 Plus); c) reforms in property valuation, which seeks to put in place uniform valuation standards and help resolve right-of-way issues that have stalled infrastructure projects (Package 3); d) reforms in passive income and financial taxes to further simplify the tax system, support capital markets, and improve equity under the Passive Income and Financial Intermediaries Taxation Act or PIFITA(Package 4).
On top of these CTRP packages, the Duterte administration is also seeking the approval of the amendments to the Public Service Act (PSA), the Foreign Investments Act (FIA), and the Retail Trade Act (RTA), Dominguez said, to ease restrictions on foreign participation in local businesses.
“These reforms will further open up the economy to foreign investments and create more and better jobs. Overall, the reforms will also lower prices and improve the quality of products and services in the market,” he said.
Dominguez thanked Cayetano and Salceda for their continued support behind the game-changing reforms of the Duterte administration, especially the CTRP, which was swiftly acted upon by Salceda’s panel and promptly tackled by Cayetano’s committee.
He also thanked his predecessors at the Department of Finance (DOF) and the eminent economists present for their strong support every year to the reform measures being pushed by the Duterte administration.
“As I often tell the DOF team and the public, we build on the good work that you have done. The reforms we are pushing today are easier because you have secured the fundamentals for us,” Dominguez said.
Dominguez said that to sustain high growth, the government will also continue to accelerate the implementation of the “Build, Build, Build” program, which has the highest multiplier effect on the economy–the first of which is job creation.
“Our estimate is that infrastructure spending contributed around three million jobs in 2018,” Dominguez said.
While keeping the welfare of small farmers in mind and fast-tracking the implementation of measures to help them become competitive, the government will push through with the full implementation of the Rice Tariffication Law, he said.
“This Rice Tariffication Law has already made the country’s staple cheaper for more than 100 million Filipinos, particularly the low-income households who spend about 20 percent of their budget on rice,” Dominguez said.
He said that with rice tariff revenue expected to already exceed P10 billion, the government can provide more support to farmers, including the distribution of individual titles to land reform beneficiaries, and improve the productivity of the agriculture sector as a whole.
“The executive and legislative branches of government have never been as united in vision and strategy,” he said. “The decades of work started and sustained by the individuals in this room inspire us to continue to do what needs to be done.”
He cited, for instance, Package 2 or CITIRA, which includes rationalizing fiscal incentives that was initiated 24 years ago by former Finance Secretary De Ocampo and pursued by his successors.
“This story spans 24 years and eight Congresses already. Let us bring this saga to a successful conclusion in this 18th Congress. Please help us make CITIRA the final season, like the 8th and final season of ‘Game of Thrones,'” Dominguez said.
He said the passage of CITIRA will encourage “even more meaningful foreign direct investments,” create more jobs, promote the development of the local industry, and lead to the expansion of micro, small and medium enterprises (MSMEs).
In his 4th SONA last July, President Duterte called on the Congress to pass the rest of the CTRP packages, particularly the CITIRA bill, which, he said, would benefit MSMEs.
The DOF is pushing reforms in corporate taxation because under the current convoluted system, an elite group of 3,150 corporations–including some on the list of Top 1,000corporations–enjoy tax discounts equivalent to income tax rates of just 6-13 percent while micro, small and medium-sized companies (MSMEs), which employ a majority of Filipino workers, pay the regular CIT rate of 30 percent, which is the highest in the region.
“The gradual lowering of the corporate income tax (CIT) rate from 30 to 20 percent will be the best incentive we can give almost a million MSMEs, which are working hard and contributing a lot to the country by employing a majority of our workers,” Dominguez said.
He pointed out that over the past three years, the administration has shown great political resolve in pursuing sweeping reforms that the President committed in his Zero-to-Ten-Point Socio-economic Agenda, while investing heavily in infrastructure, maintaining fiscal discipline, and ensuring that the economy grows “in a truly inclusive manner.”
“President Duterte enjoys broad support from our people. I think they appreciate the sincerity, the hard work, and the visionary strategy of this administration. That strong support was expressed in the midterm elections,” Dominguez said.