Speech before
The Rotary Club of Manila
July 5, 2018
Former Prime Minister Cesar Virata, my distinguished predecessor in the Department of Finance; Former House Speaker Jose de Venecia; Rotary Club of Manila President Susing Pineda; Ambassador Victor Garcia; my good friend Amading Valdez; Rotarian Art Lopez, of course; Rotarian Raffy Garcia — oh by the way, can I also greet my two other classmates who are here? Roy Soza and Jun Periquet. I think we are the largest class represented here today; District Governor Rudy Bediones, Rotarian Hermi Esguerra, Rotarian [Celso] Abastillas; fellow Rotarians.
I always seem to begin my important speeches by the words ‘fellow Rotarians.’
Thank you for this opportunity to brief you today on the state of the economy of the Philippines and the prospects we face.
A few months ago, Standard and Poor’s raised our credit rating from BBB Stable to BBB Positive. The upgrade recognizes that our policymaking settings support a track record of more sustainable public finances and balanced growth over the next 24 months.
Although customarily restrained, the credit rating agency affirms that we are doing all the right things and moving in the right direction.
In the first quarter of this year, the Philippine economy grew by 6.8 percent. That caps 77 consecutive quarters of expansion. In the last ten quarters, the growth rate was 6.5 percent or better.
This year, we are holding on to the target of growing the economy at 7 percent. Unless the trade war worsens, the price of oil goes through the roof or a serious calamity befalls the nation, we have a fighting chance of achieving that target.
Our economic strategy is anchored on two major programs: the comprehensive tax reform program and the ambitious Build, Build, Build infrastructure build-up already in place.
The first package of the tax reform passed before the close of last year, and it produced remarkable results. From January to May, revenue collections grew by 19 percent over the same period last year. The Bureau of Internal Revenue (BIR) improved its collection by a remarkable 15.5 percent growth over the same period in 2017. Not to be outdone, the Bureau of Customs (BOC) improved its collection by 31.2 percent.
This much-improved performance of our revenue agencies is, in part, due to the administrative reforms we have undertaken. The larger portion of the credit should go to making the tax system simpler, fairer and more efficient. Tax reform has become a powerful instrument for transforming our economy and making it more competitive. With the increased use of modern information technologies, we are confident that revenue generation will continue to grow to meet our needs as we build a more inclusive economy.
Having reduced the personal income tax rates of 99 percent of taxpayers, the tax reform program also seeks to modernize fiscal incentives extended to certain businesses, and lower corporate income tax rates to match the regional norms. This will empower our consumers and produce conditions more conducive to job-creating investments, especially in the provinces.
This year, we hope to improve further our revenue collections with a proposed tax amnesty program. The program will help clear the dockets as well as enable the transfer of stranded real properties so that they can be made economically useful. In particular,we propose an estate tax amnesty where government collects only 6 percent of the net undeclared estate tax for those who died prior to January 1, 2018. For your information, the previous estate tax was 20 percent.
We are likewise proposing a general tax amnesty on all unpaid internal revenue taxes excluding internal revenue taxes arising from importation and customs duties.
Thirdly, we are proposing an amnesty on tax delinquencies offering a rate of 50 percent on the basic tax only, excluding surcharges and interest charges. For those already facing criminal cases in court, we are proposing a rate of 80 percent of the basic tax only.
We are also proposing that VAT be treated as purely a consumption tax. As such, it will be collected at the point of consumption or sale, and it will be refunded when the consumption is done outside the Philippines. VAT exemptions should not be granted as investments incentives.
The tax reform program will assure us of sufficient revenues to fund the infrastructure modernization and expand social services. These are long-term investments in our people’s future.
Thirty percent of incremental revenues generated from the tax reform law will go to pay for social services. There will be larger allotments for improving public health, upgrading our educational system and providing conditional cash assistance for the poorest of the poor. This, after all, is what modern governments are about: looking after the welfare of its people and providing them effective protection. Meanwhile, about seventy percent of the revenues raised from the new law will be directed to infrastructure modernization.
The Build, Build, Build program is well on its way. Thirty-five of the 75 strategic infrastructure projects have passed all the approvals required. All of them will be ready to commence soon.
Last year, public spending for infrastructure rose to 5.4 percent of GDP — slightly above regional average. This is more than twice the share of GDP invested in our infrastructure over the last three decades.
In the first five months of this year, national government spending on infrastructure reached P281 billion. This is an increase of 42 percent over the same period of last year. These numbers are on top of private sector construction and public sector projects financed through Public-private partnerships (PPPs). We expect infrastructure spending to reach 6.3 percent of GDP this year. By 2022, the share of GDP going to infrastructure investments will rise to 7.3 percent.
The Build, Build, Build program will close the infrastructure gap with the most dynamic economies of the region. It will make movements of people and goods more efficient across the expanse of our archipelago.
A package of infrastructure projects including irrigation systems, extensive road networks, construction and rehabilitation of key regional airports, railways and long-span bridges will help dramatically enhance our regional connectivity. While we plan to invest more outside of Mega Manila, we will address the congestion here through projects such as the Mega Manila Subway, almost a dozen bridges more across Pasig River, and the development of New Clark City which will soon become the next big “smart and green” metropolis.
The infrastructure program will also provide a strong stimulus to our rapid economic expansion. It will create numerous jobs and open new economic opportunities. As of April this year, the Philippines’ unemployment rate has dropped to 5.5 percent, down by 0.2 percent from the same period last year. 625,000 jobs were created. Of this number, 605,000 Filipinos were employed in manufacturing and construction. This is a testimony to the great multiplier effects of our infrastructure investments.
Between 8 and 9 trillion pesos over the medium term will be invested in the Build, Build, Build program. We are working against the clock. The beneficial conditions we enjoy today will not be always available. The world is quickly moving out of the low-interest rate regime that characterized the expansionary policies pursued after the financial crisis of 2008.
Because we are working against the clock, we are pushing the infrastructure program forward using innovative financing schemes. A large part of the first package of projects will be financed mainly from official development assistance (ODA). The concessional financing offered will lower costs and allow projects to be completed at a shorter time.
Both Japan and China committed $9 billion each worth of investments and development assistance to the Philippines. These are among the largest amounts of pledges announced by the two economic powerhouses for a single country. Meanwhile, South Korea has pledged up to $1 billion in ODA under President Rodrigo Duterte’s term. This is the result of President Duterte’s foreign policy rebalancing geared towards accelerated integration with the country’s ASEAN neighbors and East Asian trading partners.
Our infrastructure program also benefits from a revived interest in infrastructure investments among multilateral institutions such as the Asian Development Bank (ADB), World Bank (WB) and Asian Infrastructure Investment Bank (AIIB). These institutions have evolved a keen sense of the importance of infrastructure-based intervention to assist in our economic emergence.
With expanded ODA inflows and with the possibility of floating bonds at investment-grade rates, we also decided to shift to hybrid public-private partnership models that will enable us to execute the projects quickly, reduce completion risks to the private sector and deliver the economic benefits as soon as possible.
Both the tax reform and the ambitious infrastructure program will produce a revolution in our economic development. Their combined effect on our economic expansion will be breathtaking and irreversible. These two programs will help elevate our per capita national income to the level of high middle-income economies in the medium term.
In the end, there is one target we aspire to meet. By 2022, at the end of President Duterte’s term, we are looking at bringing down poverty incidence to only 14 percent from the 21.6 percent we inherited in 2016. This will be a dramatic achievement. It will be a sea change. As soon as we are able to reduce poverty to that level, the task of completely liberating our people from misery becomes a lot easier.
To this end, all our development efforts become meaningful only if we manage to liberate our people from the clutches of poverty. 14 percent, therefore, is the number that matters most to us. We intend to take a giant stride in that direction during our watch. That will be the most important benchmark of our success or failure.
Thank you and good day.
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