MANILA—Finance Secretary Carlos Dominguez III said a massive infrastructure buildup, complemented by heavy investments in human capital formation and social protection for the poorest families, is the only way to shield the next generation of Filipinos from economic stagnation and preclude them from suffering the consequence of the huge infrastructure gap and insufficient spending on anti-poverty programs.
Such accelerated spending alone, which will require sweeping reforms in the country’s tax system via the Comprehensive Tax Reform Program (CTRP), will enable the Duterte administration to meet its target of making the Philippines an upper-middle income country by 2022 and a high-income economy in one generation or by 2040, Dominguez said.
Given the positive indicators of benign inflation, excess market liquidity and brisk Gross Domestic Product (GDP) growth—the economy expanded 6.8 percent in 2016—now is the best time, he said, for the government to implement the CTRP so it can spend big on infrastructure, human capital and social protection.
“It is a matter of taking it and seizing the moment and making the hard decisions at this point in time. If we don’t do it, we will miss the boat,” Dominguez said at a recent forum.
Unless urgent pro-growth and anti-poverty programs are carried out right away, the Philippines’ “demographic sweet spot will have passed” and its citizens “will have become an aging population unable to maintain high inclusive growth rates,” he said.
“With the dramatic change in our demographics, the probability is high that the Philippines will never become a rich economy with a negligible poverty rate. This will be a calamity inflicted by failure to govern well,” he added.
Package One of the DOF’s Comprehensive Tax Reform Program (CTRP) is contained in House Bill No. 4774, which was authored by Quirino Rep. Dakila Carlo Cua, who chairs the House ways and means committee.
The Cua-chaired panel voted in its 8th public hearing on the CTRP to “approve in principle” tax reform as a package and not on a piecemeal basis, subject to the creation of a Technical Working Group (TWG) that would draw up a substitute bill consolidating the proposed reforms by the Department of Finance (DOF) with other tax-related proposals by the lawmakers.
Dominguez has welcomed this move by Cua’s committee to “approve in principle” the first phase of the CTRP before the Lenten break of the Congress.
He said the decision of the committee to pass tax reforms as a package rather than on a piecemeal basis is a step closer for the Congress to help the Duterte administration fund its ambitious agenda to sustain the high-growth momentum, dramatically cut poverty and transform the country into a high middle-income economy by 2022.
Dominguez expressed the hope that the other members of the House of the Representatives as well as the senators would similarly see the urgency of passing this tax reform package in full “to set the economy on its irreversible path to high—and inclusive—growth under the Duterte presidency.
According to Dominguez, the government would have to spend some $ 180 billion or about P8 trillion between now and 2022 to close the immense infrastructure gap, which would, in turn, help ensure that the poorest communities in the country have fair access to quality goods and services as well as business opportunities, thus realizing the Duterte administration’s ultimate goal of making growth inclusive for every Filipino.
But to carry out this massive infrastructure buildup, the government cannot continue making do with low revenue collections, brought about by a complicated, unfair and inefficient tax system, he said.
“If we all agree that we have an infrastructure gap, you have to ask yourself, how are we going to finance them? Can we go continuously under a system where we have a low tax rate, low revenue collection, and still close that infrastructure gap?” Dominguez said.
“Our society needs to invest in infrastructure if we are going to take that next big step to bring ourselves to middle-income status and finally to high-income status,” he added.
Dominguez said that when the DOF was studying ways to improve revenue collections, one thing that stuck out was that excise taxes on petroleum products have not been adjusted to account for inflation for almost 20 years now, despite the low prices.
“You look at the situation now: you have generally a low inflation rate, you have generally a low interest rate, you have a stable currency, you have a low price of fuel. If you do not take advantage of that situation to change your tax structure, you are being very irresponsible. So with all these favorable factors, we think that now is the time to adjust the taxes on fuel to reflect the erosion in the value of money,” Dominguez said.
He pointed out that increasing the excise tax on fuel would translate into a retail price that is still below what it was two and a half years go.
Also, a study done by the DOF showed that the top 2 million households, or the richest 10 percent account for almost 60 percent of fuel consumption, while the richest 1 percent, or about 200,000 households, consume 20 percent of petroleum products, he said.
To cushion the impact of the increase in fuel excises on the country’s poor and other vulnerable sectors, he said the DOF will put in place various social protection programs, such as conditional and unconditional cash transfers, expanded PhilHealth coverage and cash cards for operators and drivers of public utility vehicles.