The proposed tax reform package presented to Congress aims to raise enough revenues for programs meant to bridge the chronic income gap between Metro Manila and the other regions, as a way to cut the poverty rate from the current 26 percent to only 17 percent by the time President Duterte steps aside in 2022.
Department of Finance spokesperson Paola Alvarez said the additional funds to be raised by the government would not only offset the revenue erosion from the planned personal and corporate income tax cuts, but would also fund the government-set higher spending on infrastructure like roads and bridges; on human capital such as education and health care; and on social protection like subsidies for the poorest of the poor.
“As presented by the DBCC (Development Budget Coordination Council) to the House of Representatives, the comprehensive tax reform program of the Duterte Administration would allow us to generate funds that we can use to invest in areas where the per capita income is lowest in the country,” Alvarez said.
Alvarez compared, for instance, the per-capita Gross Regional Domestic Product (GRDP) for 2015 in the National Capital Region, which is highest at P398,985 and the Autonomous Region in Muslim Mindanao (ARMM), which is lowest at P26,757 in current prices.
The per capita GRDP for ARMM was a measly 7 percent of that of NCR’s, which is nearly three times the national average of P131,026 and 9 percent higher than in 2014 based on current prices.
Compared to Calabarzon (Cavite, Laguna, Batangas, Rizal and Quezon region), which has a per capita GRDP of P145,859 and the Cordillera Administrative Region (CAR) with P131,110, both in 2015, ARMM remains at the losing end.
“The government will do more to help the regions that are lagging behind in terms of development. We need to reinvigorate the economy in areas outside NCR by increasing spending in regional infrastructure and social protection programs,” Alvarez said.
Alvarez said that under the proposed P3.35 trillion “Budget for Real Change” of the Duterte administration, underspending, which has hampered the implementation of social protection programs for the poor, would be a “thing of the past.”
The new government, Alvarez noted, plans to cut personal and corporate income tax rates, but it also needs to generate more revenues to effectively implement its 10-point socioeconomic agenda to ensure that the benefits of economic growth would be felt by majority of Filipinos.
“Such revenues would be used to invest heavily in education, health, infrastructure, and in effectively implementing the Reproductive Health Law in areas outside Metro Manila. This administration will make the right investments to raise the skills of our labor force, create jobs, stimulate the economy and improve the quality of life of the poorest of the poor,” Alvarez said
Alvarez recalled that Finance Secretary Carlos Dominguez III had informed lawmakers that to help fund the massive infrastructure buildup and investments in human capital and social protection under the Duterte presidency, the government would raise the budget deficit to 3 percent of the GDP under the 2017 proposed budget, which will “substantially be offset by lower debt service.”
The country, Dominguez had pointed out, “is at a critical juncture. The next six years can either continue along the path of high economic growth but high socioeconomic inequality, or chart a different path towards shared prosperity that will uplift all. This is why it is so important to fund the 10-Point Socioeconomic Agenda.”
“The 10-Point Socioeconomic Agenda revolves around the need to maintain sound macroeconomic and fiscal policies, invest in the people, and address the binding constraints to investment and job creation. This is why we need tax reform,” he said.
On investing in human capital, Dominguez said the government would significantly increase the budgets for health and education, and come up with a program that would provide targeted subsidies for the poor.
“At the end of its term, this administration envisions a country at peace with its neighbors and free from the threat of armed rebels and organized crime. We envision a country where the poverty rate is brought down from 26% to 17% through investments that create meaningful jobs, along with an economic strategy that lifts lagging regions into the mainstream,” Dominguez said during the DBCC presentation.
Dominguez earlier pointed out that the Philippines has among the highest tax rates in the region and among the narrowest tax bases, a condition that the DOF tax reform program aims to reverse.
This tax reform plan, he noted, “aims to lower tax rates and broaden the tax base to align with the systems prevailing in neighboring economies.”
According to Dominguez, “as a general rule, the rich will have to pay more in taxes while the vulnerable sectors of society will be protected through highly targeted subsidies and the conditional cash transfer program. We will ensure that ordinary workers and the bottom 50 percent of households will be fully protected through social protection programs.”
The tax plan, he said, “will be more transparent, performance-based, highly targeted and, time-bound” to improve the equity of the whole system.
Dominguez said the country’s stable fiscal situation allows the Duterte administration to carry out these reforms.
