Rotary International District 3800 District Conference
District Governor Marilou Co and spouse, Past District Governor Antonio Co; Rotary International President Representative Jenn-Pan Horng; Rotary International Director and my classmate in college, Rafael Garcia III; Senior Assistant Governor for Mandaluyong Zone Irene Garcia, who is also the president and CEO of PSALM; past district governors, district officers and rotarians; Ms. Kara David, journalist and television host for GMA News; distinguished guests, ladies and gentlemen:
I always find that my most important speeches start with the phrase “my fellow Rotarians”. It is always a pleasure to be with Rotarians, whose club is dedicated to being a force for good in the community.
When I was asked to give an inspirational talk before you today, I accepted it immediately. To my mind, nothing could be more inspiring than the way our people have responded to the chance for progress. Over the last several years, we have posted a GDP growth rate of 6 percent or better, making us one of the fastest growing economies in this dynamic region.
Notwithstanding adverse global trends, a spike in oil prices and an elevated inflation rate, we closed 2018 with a growth rate of 6.2 percent. Clearly, the momentum for growth is there and our people sense it. Despite the problems we face with mass transit, the gnarled traffic that results from it, and avoidable grief such as the water shortage, they come to work each day determined to contribute to a better future.
We, who are in government today, cannot afford to betray the best hopes of our people. This is why we are trying our best to work as hard as possible, to push forward the necessary policy reforms and build an environment that will produce inclusive growth. We want an inclusive financial system, a broader tax system, an economy driven by investments to provide quality jobs, and high quality infrastructure that will both improve the quality of life for the Filipinos and make our economy competitive with those of our neighbors.
At the Department of Finance, we began putting together a comprehensive tax reform program from the first day we assumed office. This is the first time in our history that we are undertaking a tax reform program without being compelled to do so by a severe economic crisis. This allowed us the leisure to design an appropriate package of reforms that will assure government a robust revenue flow, make the system more equitable, simplify procedures to make things easier for taxpayers as well as to eliminate corruption, assure transparency for everyone, and help improve the ease of doing business in our economy.
In less than 90 days since we assumed office in July of 2016, the Department of Finance was able to introduce to Congress the first tax reform package known as the Tax Reform for Acceleration and Inclusion or TRAIN, which President Rodrigo Duterte signed into law on December 19, 2017.
The first full year of its implementation succeeded in accomplishing both its revenue and economic goals. The reduction in individual income tax rates in the TRAIN law put more money in the pockets of 99 percent of our wage earners. This reflects in the rising demand and improved profitability of our domestic enterprises across the board. At the same time, our tax reform law attained 108 percent of its revenue target and improved revenue flows to the government. Our tax effort, which reached 14.7 percent last year, is now significantly better than the regional benchmark. This is the highest tax effort we have ever achieved in the past 20 years.
Last year, we were able to complete and submit to Congress the succeeding packages of our tax reform program. We hope, after the mist of this electoral season clears, that our legislators will find the wisdom of completing the reform program. We are hoping Congress will enact later this year the subsequent tax reform packages. Among the measures we propose are the reduction of the corporate income tax rates to be closer to the regional average and the rationalization of the fiscal incentives regime to create an even playing field, especially for new businesses bringing in investments to help power the economy.
There is no secret about the high growth strategy we are pursuing. At the core of this strategy are: the sustained fiscal discipline that ensures financial strength for our economy and a massive infrastructure program that will provide a strong stimulus for domestic economic activity.
Our infrastructure modernization program would not have been possible without the fiscal space created by many years of revenue and spending discipline. We have worked down our debt and worked up our international reserves. We have achieved a strong financial sector.
Note that we are also the first country in the region that first embarked upon a tax reform program before moving deliberately on our massive Build, Build, Build infrastructure program. With the tax reform program creating a robust and recurrent flow of revenues, we now have the means to invest in public goods. With our credible fiscal position, we have attracted strong support from our development partners and foreign governments.
The Build, Build, Build program is the centerpiece initiative of the Duterte administration, which involves 75 highly strategic infrastructure projects as well as thousands of infrastructure and logistics improvements all over the country that will raise productivity dramatically. For our flagship projects, we are planning to invest about 8 trillion pesos over the next few years.
This massive infrastructure program will create jobs and open business opportunities. It will bring down logistics costs, improve the efficiency of our economy and enable better-distributed growth to happen. This will be a powerful stimulus driving our economic growth.
We have received generous grants and negotiated highly concessional loans to fund the Build, Build, Build program. Strong official development assistance or ODA inflows enable us to build the strategic projects our economy needs to be fully competitive. We ask the few who understand complex ODA terms to help us battle malicious efforts to confuse and misinform the public.
We have been warned about the so-called debt trap owing to the massive infrastructure spending and loans from China under this administration. Let me assure you that the Philippines will not fall into a debt trap to any country as we expand our infrastructure spending with ODAs. We draw lessons from our own history as well as that of other countries and are ensuring that we manage our debts prudently. No infrastructure project is financed unless it goes through a very rigorous system and approved by the Cabinet and the President; and the government will only fund projects that are economically viable and that benefit our people. Our borrowing program is very conservative in the sense that we only borrow to invest in projects that will generate economic gains which are greater than the borrowing cost.
We are also very careful about our debt structure as we do not want to borrow without putting in our own capital as well. Significant portion of our financing is sourced from the local debt market to minimize exposure from external developments.
As of 2018, our total project debt exposure to China is only 0.66 percent of our total debt exposure. Comparatively, our total project debt to Japan is 9 percent of our total debt exposure. By 2022, when most of the financing for the Build, Build, Build program should have been accessed, our project debt to China will constitute around 4.5 percent of the total debt. While the project debt to Japan will be around twice as large at 9.5 percent of total debt. There is no danger of us being drowned in Chinese debt. While we appreciate people warning us about the so-called debt trap, we certainly know how to avoid it.
I would also like to note that in conformity with the Constitution and laws of the Philippines, none of the pipeline projects allow for the appropriation or takeover of domestic assets in the event of failure to pay which hollows out our sovereignty.
The key to the success of this ambitious program is rapid execution. For decades, we have underinvested in infrastructure. This caused us to lag behind our neighbors in cost and efficiency. Better infrastructure will translate into improved economic dynamism in time for our demographic sweet spot: that surge in the number of young, better-trained Filipinos entering the workforce.
Over the next few years, despite forecasts of slower global growth, we anticipate a high growth rate for our economy. We intend to defy that larger trend by pulling our economy up by its bootstraps, using economic investments as leverage to continue raising domestic demand. So far, the increased investment flow over the past few years strengthens our faith that we have the right economic strategy for this time.
The government has passed numerous reform laws to make doing business easier, eliminate red tape, enable freer trade and raise efficiencies in all sections of the economy. These include the Ease of doing Business Act of 2018 and the creation of the National ID System. Earlier this year, President Duterte signed several laws including an act upgrading our Corporation Code, an act strengthening the Central Bank of the Philippines, 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.
In particular, the Rice Tariffication Law is a game-changer. It promotes food security for all Filipinos by lowering the price of rice, especially for lower income families that spend around 20 percent of their budgets on the staple. This will also further ease inflation. Moreover, all tariff revenues or about 10 billion pesos per year, whichever is higher, are earmarked for improving the productivity and competitiveness of our rice farmers through mechanization, better seeds, access to credit, and training. The law also promotes competition by opening up the rice market to both imports and domestic production.
Clearly, we have built a strong momentum through pump priming activities. But the delay in the passage of the national budget has already meant costs for the national economy. Based on our estimates, in the first two months of this year, we have lost the opportunity to spend around 43.7 billion pesos or around 740 million pesos a day. This would have been spent to roll out projects to build new roads and bridges, pay our newly hired public school teachers or upgrade state health facilities nationwide. This is a clear example of how politicking could harm our people.
While we rank as among the best performing economies in this dynamic part of the world, growth is not the final goal of all our efforts. We seek a more dynamic and competitive economy to bring down poverty rates and create more opportunities for our people. The economic team stands by its goal of bringing down poverty incidence from 21.6 percent in 2015 to just 14 percent by the end of President Duterte’s term.
We have to seize the opportunities offered to us at this time. This is why we work hard at getting projects running at the soonest possible time. The reward for all the work we do now is a better future for the next generation of the Philippines.
There can be no more compelling reason for us to get up and work everyday.
Thank you and good day.