Washington DC — Finance Secretary Carlos Dominguez III said Thursday (Manila time) here that securing a credit rating upgrade is only secondary to the Duterte administration’s “paramount concern” of pursuing its 10-point socioeconomic agenda that aims to “rapidly” reduce poverty incidence from 26 percent to 17 percent over the next six years.
In his remarks before a meeting with credit rating agencies at the sidelines of the WB-IMF Group Annual Fall meeting, Dominguez said President Duterte’s electoral mandate is to make all Filipinos feel the benefits of sustained high growth, hence his 10-point agenda that is meant to accelerate spending on pro-poor and growth-friendly programs to sustain the economy’s upward trajectory and ensure inclusive growth.
“While we greatly value a ratings upgrade to full investment grade, recognizing the hard work we have put in to achieve fiscal consolidation, this is only of secondary importance. In the economic plans we lay down, rapidly reducing poverty rates rank first priority,” Dominguez said.
“Our people expect this. Our government fully intends to meet that expectation. We do not plan on failing the poorest of the poor,” he added.
Dominguez said the Duterte administration “commits 40 percent of public spending to poverty alleviation.”
“Over the next six years, our goal is to reduce the poverty rate from the current 26 percent to just 17 percent,” he added.
“This goal cannot be accomplished without sustained economic growth. Over the next six years, driven by investments and targeted public spending, we expect to sustain GDP growth at 7 percent or more. By 2040, we expect the Philippines achieving high middle income emerging economy status,” he said.
Dominguez said postponed investments have to be attended to right away — as demanded by the electorate — which is why the Philippine government will raise its deficit spending, to make way for unparalleled investments in infrastructure, human capital and social protection for the most vulnerable sectors.
He said the government plans to relax its self-imposed deficit limits from 2 percent to 3 percent of its Gross Domestic Product (GDP) over the next six years.
“We intend to make our economic growth more inclusive. We will achieve this by investing more in our human capital, closing the infrastructure gap that raises the costs of production and trade, and transforming our agriculture so that it becomes a driver of growth rather than the poverty trap it has been,” Dominguez said.
Infrastructure spending would be increased to 5 percent of the GDP, as a way to help correct uneven economic progress in the Philippines, Dominguez said.
“The sustainability of our economic expansion makes [these] economic investments necessary,” he added.
Dominguez said that to help raise needed funds, the Department of Finance (DOF) is pursuing reforms in tax policy and administration that will discourage evasion and avoidance, broaden the tax system’s narrow base and make it more equitable.
“We have likewise proposed reforms in tax administration intending to make it simpler, fairer and more effective. By doing so, we expect to broaden the tax base and actually produce more revenues than before,” Dominguez said.
The DOF last month submitted to the House of Representatives the first package of its proposed Tax Reform Roadmap for Acceleration and Inclusion Act in keeping with the Duterte administration’s 10-point socioeconomic agenda.
Dominguez said the DOF tax bill was completed after the Department consulted with members of the Cabinet, legislators, former Secretaries of Finance, prominent economists, stakeholder and business groups, and with various foreign embassies, global financial institutions and joint foreign chambers signifying their support for the tax reform proposal.
This Package One of the DOF’s proposed comprehensive tax reform program includes lowering “oppressive” individual tax rates. Package Two, which will be submitted to the Congress soon enough, will include cuts in corporate income taxes, which are now among the highest in the region.
“The high rates only encouraged evasion and avoidance, narrowing rather than broadening the tax base,” Dominguez said.
Besides lowering income tax rates, the first package of the DOF tax package also includes offsetting measures such as expanding the value-added tax (VAT) base by limiting its exemptions, adjusting the excise taxes on petroleum products, and restructuring the excise tax on automobiles, with the exception of trucks, buses, cargo vans, jeepneys, jeep substitutes and special purpose vehicles.
In implementing these proposals, Dominguez assured the international community that the Philippines will maintain its macroeconomic policies that have helped sustain high growth, provide investors a business-friendly environment, cut red tape, eliminate corruption, and shift from consumption-driven to investment-led growth.
“The Philippines will maintain fiscal discipline as a paramount concern. It took us three decades since the debt crisis of the mid-eighties to finally put our fiscal house in order. Those were three long decades when, under several structural adjustment programs, we cut spending on public services and new infrastructure,” Dominguez said.
He said “a benign convergence of factors: a low interest and inflation rate regime, a low fuel price situation and a firm and deeply committed political leadership” would help realize the government’s priority goals of “inclusive economic growth, social peace, and a society where the rule of law ensures a secure public order.”