Good afternoon Executive Secretary [Salvador Medialdea], fellow workers in government, ladies and gentlemen.
This forum seeks to provide a comprehensive overview of the economic program of the Duterte administration. This program needs wider public discussion and a broader base of support.
The 10-point program of the Duterte administration takes into account the large trends defining our economic opportunities. These economic opportunities bear real fruit only if they are undertaken by audacious policymaking.
On one hand, the Philippine economy enjoys what might be called a “Cinderella moment.” It took us years to rebuild from both the debt crisis of the mid-eighties and the Asian financial crisis of the late nineties. Those years required us to undertake austerity measures. These measures, in turn, led us to under-invest in infrastructure. During that difficult period, our neighbors in the region spent about twice what we did in modernizing their infrastructure.
We have completed our fiscal consolidation, which was started under the presidency of Gloria Arroyo. Our credit ratings attest to that. The debt burden is no longer a drag on our economic growth. We can now reshape our economic development so that it is investment-led. This, in turn, will open the door to a truly inclusive economy. An investment-led growth pattern creates jobs and opens more economic opportunities for our people. We are now actively seeking investments not only to rebuild our depleted manufacturing sector but also to capitalize our agriculture to make it more efficient.
On the other hand, the Philippines now looks forward to what has been called a “demographic sweet spot.” As the populations of some of the more mature economies in Asia begin to age, we are looking forward to the entry of millions of young Filipinos into the workforce. We must invest in them and make them globally competitive. We must prepare the economy to provide meaningful jobs for them or else risk building an alienated and discontented generation.
The “demographic sweet spot” is both a challenge and an opportunity. It is a test of our ability to govern and chart the nation’s future. Seizing the opportunities offered by this demographic advantage requires reshaping our country’s economic development beginning at this time. We must build a truly inclusive economy. To do so, our economy should be investment-led, creating new jobs and opening opportunities for all.
In the decades when we neglected our infra while our neighbors rapidly built up theirs, we lost out on competitiveness. For an archipelagic country, poor infrastructure is debilitating. It raises the costs of transporting goods between islands. That is the reason our food price regime is high. Our congested roads and ports discouraged investors who need to operate on just-on-time deliveries. Our high power costs and unstable supply discouraged investments in manufacturing.
If we examine all the reasons why the Philippines fell behind the other economies of this dynamic region, it has much to do with poor infrastructure. It is here where we should begin rebuilding our competitiveness.
There are a number of other reasons as well. Our personal and income tax rates are higher than the rest of the region. We cannot expect companies to set up shop here if we tax them more than our neighbors do. Realigning our income tax rates is a measure intended not only to increase the disposable income of our workers but also to raise our economy’s competitiveness.
Our program of infrastructure build-up will entail trillions in economic investments. We need to undertake these investments for the sake of the next generation of Filipinos — or else they will remain in the same poverty trap that we found ourselves in. Later in today’s program, we will outline the specific infra projects in the pipeline, to be presented by DOTr, DPWH and BCDA.
Realigning income tax rates, however, will bring down revenues even as we improve tax administration and broaden the tax base. This means we have to introduce new revenue measures that will not only compensate for lower tax rates but also fund the massive infra program that commences now.
The comprehensive tax reform program, therefore, is the key link in the grand effort to break out from the cycle of low growth and build a dynamic and inclusive economy for our people. The tax reform package will support investments in our human capital, upgrading the educational system and providing quality health care. It is a pro-active and pro-poor measure that supports the expansionary fiscal posture of the present administration.
In a word, the comprehensive tax reform package is an indispensable component of the Duterte administration’s economic strategy. It is an audacious strategy that seeks to lift our country to upper middle-income status by 2022 and high-income status by 2040.
We do not intend to fail in meeting the challenges of this time. We may no longer enjoy the happy conjuncture of low interest rates, market liquidity, a benign oil price regime, the strong support of countries like China and Japan, an investment-grade credit rating and a young and vigorous labor force. This is the time to move decisively.
Fortunately, we have a leader capable of much audacity. We have a leader of vision and intense love of country. All the favorable factors are present. It is time now for a breakout.
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