Carlos G. Dominguez
Secretary of Finance
His Excellency Jose Manuel Romualdez, Philippine Ambassador to the US; Mr. John Law, Chargé d’ Affaires of the US Embassy in the Philippines; Secretary of Energy Alfonso Cusi; Secretary of Transportation Arthur Tugade; Mr. David Marchick, Chief Operating Officer of the US International Development Finance Corporation; Ms. Gloria Steele, Acting Administrator of the US Agency for International Development; Ms. Enoh Ebong, Acting Director of the US Trade and Development Agency; Mr. Alexander Feldman, President and CEO of the US-ASEAN Business Council; Senior Executives of Philippine Companies in the US and American Companies in the Philippines; Friends in the Media.
First of all, I thank Ambassador Romualdez and his team for the effort put into organizing this virtual briefing.
This pandemic is a test of fiscal stamina and it was fortunate that when it hit us, the Philippines was financially ready.
The fact that the Philippines managed to maintain its solid financial footing over the past year confirmed the correctness of the reforms pursued by President Duterte since the beginning of his term in 2016.
Our series of tax reforms guaranteed us a reliable revenue flow despite the economic downturn. Our record of fiscal discipline eased access to urgent financing as we battled the pandemic.
Coming from a historic low debt-to-GDP ratio of 39.6 percent in 2019 from 42.7 percent when we took office, we had ample fiscal space to absorb the large financial shock induced by the pandemic. This allowed a temporary but controlled expansion of our deficit-to-GDP ratio to 7.6 percent last year.
Because of all the unplanned spending for the COVID-19 response and the drop in revenues due to our lockdowns, our debt-to-GDP ratio rose to 54.5 percent today. Nonetheless, this 15-percentage point increase in our debt level keeps us well within the prescribed bounds of fiscal viability and the experience of our rating peers. This gives us the advantage over economies that were already saddled by heavy debt prior to the crisis.
Clearly, the game-changing economic and fiscal reforms we had institutionalized over the last five years cemented our overall macroeconomic stability and allowed us to respond decisively to this health crisis.
Even with the ongoing pandemic, we also managed to stick to our zero-to-ten point socioeconomic agenda. We finally passed CREATE or the Corporate Recovery and Tax Incentives for Enterprises Act, which makes our comprehensive tax reform programnearly complete. Passing this measure was particularly hard during the pre-pandemic times, but pushing for its enactment at the height of a crisis was even more difficult.
The law provides an outright 10-percentage point cut, from 30 percent to 20 percent, in the corporate income tax rate for domestic enterprises with net taxable income equivalent to about 104 thousand US dollars per year and below. Those earning above it and foreign corporations are provided a five-percentage point reduction, from 30 percent to 25 percent.
With CREATE, we are leaving money in the private sector’s hands to revitalize their businesses. We trust that enterprises will re-invest their tax savings from CREATE back into the economy to spur domestic activity and create more jobs for our people.
In addition, the law provides for more flexibility in the grant of fiscal and non-fiscal incentives. This creates an enhanced incentives package that is performance-based, time-bound, targeted, and transparent.
Through CREATE, we see an opportunity to deepen our trade and investment partnership with the United States by incentivizing industries with higher value-added activities.
I would like to emphasize that the President did not just sign CREATE into law but he vetoed 9 items to ensure that it would serve its purpose as a tax relief measure and as an effective instrument in modernizing our fiscal incentives system. At this late stage, we have again demonstrated the administration’s commitment to make tax reform a real game-changer.
In this battle against COVID-19, we are committed to continue striking a delicate balance between providing substantial support to the economy and maintaining our policy of long-term debt sustainability.
We are not relying too much on stimulus programs. We believe that our economic recovery should be anchored after the growth policies our administration put forward from the beginning of our term. Hence, we are maintaining the pace of our Build, Build, Build program, which is President Duterte’s main strategy to help Filipinos lift themselves from poverty.
Before the pandemic hit us, the Duterte administration’s spending on infrastructure investments rose to an average of 5 percent of GDP. This is double our country’s average annual infrastructure spending-to-GDP ratio over the last 50 years.
Even with the ongoing crisis, we have maintained our budget for infrastructure investments and they are programmed to increase to more than 5 percent of our GDP until the end of the Duterte administration’s term. With its high multiplier effect, we are expecting the Build, Build, Build program to be the main driver in rebuilding the domestic economy.
While the recent spike of COVID-19 infections in the Philippines may look particularly accelerated, they are nowhere near the levels being experienced in other countries.
Moreover, our COVID-19 death rate is roughly 14 people per hundred thousand of our population. Other countries have over 150 deaths per one hundred thousand population. For instance, if the European Union had the same record as the Philippines has today, it would have lost around 62,000 people due to COVID-19, and not the over 650,000 deaths we are seeing so far.
The Philippines strongly supports the statement of Mr. David Malpass, former US Under Secretary of the Treasury for International Affairs and now the World Bank President, who underscored the importance of releasing COVID-19 vaccines from countries with excess supplies as soon as possible.
Despite the supply challenges, we are fully rolling out our vaccination program. Our target is to inoculate at least 70 million Filipinos or 100 percent of our adult population within the year. We have arranged for the delivery of more than 140 million doses of COVID-19 vaccines this year. About 15 percent will be delivered in the first half of this year and 85 percent in the second half.
The majority of the financing needed for the vaccination program was sourced through loans from the World Bank, the Asian Development Bank, and the Asian Infrastructure Investment Bank. We chose this financing strategy because we want to assure the public of two things: First, that the vaccines we are buying are internationally accepted, and have passed the stringent criteria for safety and effectiveness. Second, that the vaccine procurement is totally transparent.
I would also like to point out that the trilateral cooperation among the three multilateral banks in support of the Philippines’ vaccination program is a first in the ASEAN region.
Meanwhile, we have ample political will and capital that we will judiciously use until the end of the President’s term. We are looking forward to the passage of the remaining tax reform packages. Package 3 will make our property valuation system at par with international standards. Package 4 aims to simplify the taxation of passive income and financial services and transactions by reducing the number of combinations of tax bases and rates from 80 to about 40.
To fully liberalize the Philippine economy, we will continue to push for the amendments to the Foreign Investments Act, the Public Service Act, and the Retail Trade Liberalization Act. The President this week has certified these three bills as urgent. The move will help speed up the approval of these measures within the President’s term.
We will also continue the ongoing digital reforms in our revenue agencies to ensure that they match efficiencies in the best comparable institutions worldwide. In our digitalization efforts, we give primacy to our close collaboration with the private sector.
Our highly talented, tech-savvy, and young workforce is our key asset. We are investing heavily in training young Filipinos to be more competitive in the global economy.
In addition, we are staunchly committed to adhere to the targets set by the Paris Agreement on climate change action. We are pushing for a bill that would ban single-use plastics to make sure that every Filipino will do his or her part on a daily basis to help save the world’s environment. We also want to pursue investments in green technologies and clean energy. I am sure that there are many areas where we can cooperate on these initiatives.
We are fully determined to restore the vigor of the Philippine economy at the soonest possible time. Even with the unprecedented crisis, the Duterte administration will continue to work hard until the last minute of its term to undertake the reforms we had set out to do in our zero-to-ten-point socioeconomic agenda.
We will make sure that these measures will be irreversible and will form the foundation of an inclusive, sustainable, and investment-driven economy for the Filipino people.
Thank you.
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