WASHINGTON DC—The Duterte administration is stepping up its already accelerated spending on President Duterte’s signature “Build, Build’ Build” program and on human capital development as the linchpin of a strategy to keep the Philippines’ high-growth momentum in the face of a global economic slowdown, Finance Secretary Carlos Dominguez III said.
Dominguez told American business leaders and state executives here that these unprecedented public investments, which will provide the highest returns both in the short run and long term, are complemented by game-changing reforms and strong macroeconomic fundamentals bolstered by prudent fiscal management and a stable monetary policy.
The Philippine government is banking on this three-fold strategy to counter the external headwinds that now threaten its efforts to keep the domestic economy among the fastest-growing ones in the world, Dominguez said.
“Forecasts for global growth have been cut successively over the recent months. The slowdown presents headwinds on our own efforts to grow our economy. But the Philippines continues to demonstrate strength, stability and resilience in adverse conditions. We hope to sustain our growth, relying on strong domestic demand to offset the general international uncertainty,” said Dominguez during a roundtable lunch meeting with representatives from the United States government, various industries and sectors, economic think-tanks and the private sector.
The lunch meeting, which was held at the residence of Philippine Ambassador to the US Jose Manuel Romualdez, served as a Philippine Economic Briefing (PEB) to share before participants the country’s growth narrative and exchange views on how to further strengthen economic ties between the Philippines and US.
Dominguez said he is looking forward to hosting American business delegations looking for investment opportunities in the Philippines’ rapidly growing economy.
“Our alliance of long-standing should be strengthened even more by forward-looking business partnerships,” Dominguez said during the forum.
He observed that while the American investors have expressed interest in participating in the “Build, Build’ Build” infrastructure modernization program on several occasions, “no serious offer has come” from them.
One area where US businesses might be interested serves as the centerpiece of the Philippines’ “Build, Build’ Build” program—the New Clark City (NCC) in Central Luzon, Dominguez said.
The NCC, which is being developed as the country’s first smart, green metropolis, along with the rapid transformation of the growth corridor between the Subic and Clark freeports—which used to be the sites of American military bases–should be of particular interest to US businesses, he added.
After raising the Philippines’ infrastructure budget for the first time ever to over 5 percent of gross domestic product (GDP) last year, Dominguez said the government will further ramp up spending on this sector to 7 percent of GDP by the time President Duterte leaves office in 2022.
He said improved revenues as a result of the implementation of the first package of the Duterte administration’s comprehensive tax reform program (CTRP)—the Tax Reform for Acceleration and Inclusion (TRAIN) Law—are helping the government fund its ambitious infrastructure modernization and human capital development programs.
Dominguez said he is confident that with improved revenue collections, alongside the strong support of the Philippines’ development partners such as Japan, China and Korea, “the infrastructure program will help our economy weather the headwinds created by the projected global slowdown.”
“Game-changing reforms will ensure that the continuous growth we achieve is funded equitably by the Filipino people. Our CTRP will modernize policies toward a simpler, fairer tax system while ensuring robust and recurrent revenues for the government,” Dominguez said.
TRAIN, which is the CTRP’s first package, has reduced personal income tax (PIT) rates for 99 percent of Filipino taxpayers, which, in turn, has boosted consumer demand while discouraging the consumption of unhealthy products such as sweetened beverages, alcohol and tobacco.
Tax administration has also vastly improved, Dominguez said, as proven by the government’s feat of cleaning up the cigarette business one year after President Duterte took office.
He cited the closure of a tax-dodging cigarette firm and the collection of the highest amount of tax settlement from this erring company totaling USD600 million.
The rest of the CTRP packages are the Corporate Income Tax and Incentive Rationalization Act (CITIRA), which covers the gradual reduction of the corporate income tax (CIT) rate from 30 percent to 20 percent and the modernization of the incentives system to make them performance-based, time-bound, targeted, and transparent; increase of excise taxes on alcohol products as well as heated tobacco and nicotine vapor products; reforms in real property valuation; simplification of the tax system on passive income, financial services and transactions (PIFITA); adjustments to the Motor Vehicle User Charge (MVUC); and a general amnesty that should incorporate the lifting of bank secrecy laws plus the automatic exchange of information.
Dominguez also underscored the passage of new laws cutting bureaucratic red tape, simplifying government procedures, and improving the efficiency of the Philippines’ financial system; along with the enactment of the Rice Tariffication Law (RTL), which has brought down rice prices, lowered the inflation rate, eased the pressure on businesses to raise wages and cleared the way to farm modernization.
Steps are also being taken to further expand sectors and industries open for foreign investment, he added.
He also cited the Philippines’ recent credit rating upgrade from “BBB” to “BBB+” by Standard & Poor’s; a manageable debt-to-GDP ratio of 41.9 percent in 2018 from 52.4 percent in 2010; the expected elevation of the Philippines to upper-middle income economy status next year; the country’s robust foreign direct investment (FDI) inflows; a 40-year low unemployment rate; declining poverty incidence of 21 percent in the first half of 2018 from 27.6 percent in the first half of 2015, and which is expected to drop further to 14 percent by 2022; and a young, skilled workforce that has earned for the country a “demographic sweet spot.”
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