Finance Secretary Carlos Dominguez III said the country’s Gross Domestic Product (GDP) expansion of 6.8 percent in 2016 points to a domestic economy in “pretty good shape” and well on its way to sustaining its growth momentum over the medium term, on the back of the Duterte administration’s bold initiatives to keep it on its upward trajectory despite global market volatility.
Dominguez said this gives all the more reason for the Department of Finance (DOF) to aggressively engage in its proposed Comprehensive Tax Reform Program (CTRP)—and the Congress to swiftly act on it—so the Duterte government could raise enough funds for its unparalleled public spending program on infrastructure, human capital and social protection that would keep the Philippines among Asia’s fastest-growing economies in the years ahead.
“This is clear proof that no amount of counterproductive political chatter from certain quarters could undermine the upward trajectory of a domestic economy that is in pretty good shape under a Duterte presidency that is fully committed to sustaining its growth momentum,” Dominguez said.
He said the economy is well positioned to grow between 6.5 percent to 7 percent this year—as projected by most international and local financial institutions and experts—given “the government’s resolve to further strengthen its macroeconomic fundamentals and maintain solid buffers to cushion the effects of global unknowns like the coming US Federal Reserve hikes and inward-looking or protectionist policies by certain countries that could undermine international trade.”
Dominguez said the Philippine economy is founded on, among others, record dollar reserves, strong revenues from the business process outsourcing (BPO) sector and remittances from migrant Filipinos, high domestic consumption, declining debt, low inflation and solid credit ratings.
He said the continued strong performance of the local economy in the first six months of the Duterte presidency—7.0 percent over the July-September period and 6.6 percent in the fourth quarter—underlines “the strong confidence of the business community in the Duterte presidency’s commitment to sound fiscal management and further reforms to sharpen the economy’s global competitiveness, attack poverty and achieve economic inclusion.”
“The fast GDP expansion has buoyed government expectations of meeting its growth targets in 2017 and, with the hoped-for timely congressional approval of the first package of the CTRP, of sustaining its ambitious inclusive-growth agenda to attract more investments, create enough jobs, reduce the poverty incidence by almost half, and transform the Philippines into an upper middle-income country by 2022,” Dominguez said.
Dominguez issued this statement after the Philippine Statistics Authority (PSA) reported on Thursday morning that the GDP grew 6.8 percent in 2016 from 2015’s 5.9 percent and 6.6 percent year-on-year in the fourth quarter from 2015’s 6.5 percent.
In a report, the PSA said that the manufacturing, trade, and real estate, renting and business activities were the main drivers of growth in 2016’s fourth quarter.
Dominguez said the strong GDP growth in 2016’s second semester is a strong incentive for the Duterte administration to go ahead on further reforms, such as improving the ease of doing business and lifting constitutional and regulatory barriers to foreign direct investments (FDIs), that would attract more private capital and spur even faster economic expansion.
He said the CTRP, the first phase of which is now under study by the House committee on ways and means, is integral to the new government’s high—and inclusive—growth strategy because “it needs to raise an extra P1.07 trillion till 2022 to close the infrastructure gap that has for long dulled the country’s competitiveness as an investment destination; spend more on education, health and skills training to improve living standards and widen access to high-paying quality jobs; and on social protection to cushion the initial impact of reforms on the poor and other vulnerable sectors.”
According to Undersecretary Gil Beltran, while the outlook for the Philippines remains robust, more investments in both physical and social capital have to be mobilized to support and sustain the growth, make growth more inclusive, and eradicate poverty. Poverty rate was brought down from 25.2 percent in 2012 to 21.3 percent in 2015.
Beltran, the DOF’s chief economist, said reforms to support growth include, among others, fiscal reforms in general and tax policy and administrative reforms in particular.
“The proposed tax reform seeks to flatten and make simpler the structure (thereby making tax administration simpler) and broaden the tax base (increasing revenue intake), he said in the DOF’s latest economic bulletin. “The increased efficiency in domestic resource mobilization will help bankroll inclusive development programs, an avenue for greater economic enfranchisement especially for the underprivileged. Furthermore, strong macro-economic fundamentals have to be maintained to foster stability and enhance investor confidence in the country.”
The CTRP’s Package One—as contained in House Bill No. 4774 authored by House ways and means committee chairperson Rep. Dakila Carlo Cua—provides for personal income tax (PIT) cuts plus revenue measures to make up for the foregone earnings from the would-be lower PIT rates.
HB 4774 aims to haul in an annual incremental increase of P366 billion in annual revenues from this initial CTRP package to help fund the massive investment strategy.