Speech before the Manila Times Business Forum
His Excellency Jan Christensen, ambassador of the Royal Danish Embassy, His Excellency Harald Fries, ambassador of the Embassy of Sweden, His Excellency Vasin Ruangprateepsaeng, ambassador of the Royal Thai Embassy, Mr. Dante A. Ang II, president and CEO of The Manila Times, BSP Deputy Governor Chuchi Fonacier, distinguished guests, ladies and gentlemen:
Just to show you how old I am, I remember the original Manila Times from the 1950’s. And believe me, that was an icon of the Philippines then. I used to love to read their comics section. Now, I’m glad Mr. Ang has brought the newspaper to greater heights. I don’t read the comics section anymore but I read their editorials and the news they put out. So thank you, Mr. Ang, for bringing a cultural icon back to where it should be, and thank you also for the opportunity to address this prestigious business forum. Over the past few years, under the leadership of Dr. Dante Ang, the Manila Times has emerged as an important node for honest discussion about our nation’s journey to a preferred future.
Last year was a challenging one for the country. Adverse international developments threatened to stymie our economy’s remarkable emergence. A spike in international crude prices added to the inflationary pressures at home. The looming trade war between the US and China created much apprehension in the investment community.
Despite the challenges, the Philippine economy continued on its path of comparatively high growth.
Over the past two years, we have set up the conditions for much higher and more inclusive growth. At the end of 2017, we were able to pass the first package of the comprehensive tax reform program. The TRAIN law achieved what might seem to be contrary goals. 99 percent of individual taxpayers now enjoy reductions in their personal income tax rates. At the same time, it improved revenue flows to government, enabling us to invest in an ambitious infrastructure program and expand social services. The reduction in personal income tax rates reflected in the robust double-digit growth in sales and the high-profit margins for many domestic companies ranging from food to retail to property development.
Through 2018, we saw the passage of several reform measures. These include the Ease of doing Business Act, the National ID System, and the Personal Property Security Act. In the first months of this year, President Duterte signed several laws including an act upgrading our Corporation Code, an act strengthening the Bangko Sentral ng Pilipinas, a law providing for universal health care, and a law shifting rice trading to a tariff regime. All of these pieces of legislation add up to reinforce our market-enhancing institutions.
The Rice Tariffication Law is a game-changer. It promotes food security by lowering the price of rice for every Filipino family, thereby further easing inflation. Farmers also get to benefit from lower rice prices because they are also net consumers of the staple. Unlike in the past when quantitative restrictions failed to assist farmers in improving their productivity, the new law now ensures that they get the benefit directly from import tariffs by earmarking 100 percent of collections to the Rice Competitiveness Enhancement Fund. This fund will be used to finance programs for farmer education and farm mechanization to improve productivity.
The law also promotes competition by opening up the rice market to both imports and domestic production. It mandates the National Food Authority (NFA) to source emergency buffer stock solely from local farmers. Moreover, the rice tariffication law is the most important weapon against smuggling. The incentive to smuggle would almost be nil because anyone can now import rice legally so long as they comply with the minimal requirements.
Later this year, we hope to see enacted into law the remaining packages of the comprehensive tax reform program. By 2020, we are confident that all tax reform packages will be in place, especially Package 2 which includes the reduction of corporate income tax rates and the rationalization of fiscal incentives. The tax reform packages will bring us a more modern tax system conducive to investments. It will raise revenues to fund our infrastructure and social development programs. It will bring our tax effort to levels comparablewith the most dynamic economies of the region.
Note that this is the first time in our economic history that government is undertaking a tax reform program absent a pressing crisis. Because of this, we have the luxury of thinking through every component of the tax reform program and situate in the context of a rapidly emerging national economy.
The Build, Build, Build infrastructure program is unabashedly ambitious. We intend to invest over 8 trillion pesos over the next few years on 75 strategic projects that will improve the efficiency of the domestic economy and enhance its ability to compete with our neighbors.
This infrastructure is well on its way. We have broken all records in sealing financial support for approved projects. We are confident, as more and more projects become shovel-ready, the immense multiplier effects of infrastructure investments will provide a strong stimulus to our economic expansion.
By 2020, more flagship infrastructure projects will be completed and ready. These include the Clark International Airport Expansion Project which we are undertaking not only to decongest the Manila airport, but also to anticipate the surge in business and tourist activities that is expected to be created by the continuing increase in public and private investments in Central Luzon.
In terms of expanding market linkages to the provinces, this year, travel time between Tarlac City and Rosario, La Union will be reduced from the current 4 hours to 1 hour with the completion of the Tarlac-Pangasinan-La Union Expressway. Meanwhile, by 2020, travel time from CAVITEX to SLEX will be reduced from the current 2 hours to 45 minutes with the opening of the Cavite-Laguna Expressway.
In Metro Manila, the completion of the Bonifacio Global City to Ortigas Center Road Link Project in 2020 will reduce travel time between Bonifacio Global City and the Ortigas Central Business District to 12 minutes from the current one hour.
The completion of the LRT Line 2 Masinag Extension in 2020 will reduce travel time from Recto in Manila to Masinag in Antipolo City to 40 minutes compared to the usual travel of up to 3 hours along the same route by bus or jeepney. By this year, the comprehensive rehabilitation of the MRT-3 will also be in full swing—thanks to the generous funding support extended by the Japanese government.
These projects will be a boon for commuters who have to endure the daily carmageddon in Metro Manila’s major thoroughfares.
Our aggressive spending on infrastructure demonstrates that our lead agencies in the Build, Build, Build program are moving faster than expected. The old problem of absorptive capacity has been overcome.
By the end of the Duterte administration, spending on infrastructure is expected to be equivalent to 7 percent of GDP. By then, we would be able to close the country’s infrastructure gap.
We are also maintaining our fighting target of 7 percent or better GDP growth rate this year. The stimulus effect of our infrastructure investments will become palpable only in the second half of this year.
To support this economic strategy, we are slightly raising our fiscal deficit to 3.2 percent of GDP this year. This will help us sustain the accelerated pace of investments in both hard infrastructure and the cultivation of our human capital. We expect to revert to a 3 percent fiscal deficit for the years 2020 to 2022.
The promise of high but inclusive economic growth is made even brighter by the expected deceleration of our inflation rate to the very disciplined 2 to 4 percent. This will bring us even closer to our most important target: the reduction of poverty incidence to only 14 percent by 2022 from the rate of 21.6 percent in 2015.
You may have noticed the sense of urgency in moving our infrastructure projects and pushing our reform policies. This is because the opportunity to move our economy to a higher growth plane could diminish if we do not take advantage of the opportunities offered by the present configuration of factors.
With our massive infrastructure program in place, we could defy the adverse trends in the global economy this year. The large trends indicate a slowdown in the growth of the global economy. We intend to defy that larger trend by pulling up our economy by its bootstraps, by using economic investments as leverage to continue raising domestic demand. So far, the increased investment flow over the past year strengthens our faith that we have the right economic strategy for this time.
The key to increasing the growth momentum is the increased revenue we expect from the comprehensive tax reform program. We hope our legislators see the great importance of pushing ahead with the remaining packages of this program. This will be the best signal we can send to the investment community and to our development partners.
2019 is the year to complete the policy and tax reforms. 2020 will be the year our people start feeling what it means to be an upper middle-income economy. We will be the growth leader for the region and an inspiring study for the emerging economies. Already, the Philippines is being described as Asia’s new economic powerhouse.
Through this brief description of our economic outlook, I hope to infect you with the enthusiasm that keeps us working hard each day. More important, I hope to inspire you to move your enterprises at the pace we imagine our economy to be moving in the coming period.
We see this as the breakthrough moment for our people. The next generations of Filipinos will be better off because of what we accomplish today. Every piece of good economic news helps bring us closer to that historic goal.
Thank you and good day.