The economic managers assured lawmakers Tuesday of the Duterte administration’s firm commitment to fiscal stability, which it aims to sustain through reforms in tax policy and administration, a manageable budget deficit and a prudent borrowing policy that favors domestic, peso-denominated sources.

Finance Secretary Carlos Dominguez III told the Committee on Appropriations of the House of Representatives that the country’s fiscal position is strong enough to enable the Philippines to lead Southeast Asia in growth over the next few years even as the government on the Duterte watch reshapes growth to make it more inclusive.

“This strong fiscal position emboldens us to aspire for a breakout from the present plane of economic growth to a higher one. The future bodes well for our people,” Dominguez said at the budget briefing of the Development Budget Coordination Committee (DBCC) ffor this committee chaired by Rep. Karlo Alexei Nograles.

Dominguez, along with Secretaries Ernesto Pernia of the National Economic and Development Authority (NEDA), and Benjamin Diokno of the Department of Budget and Management (DBM), and Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla Jr. were present at the briefing as members of the DBCC.

Among the other key officials present at the hearing were Deputy Executive Secretary for General Administration Michael Ong, National Treasurer Rosalia De Leon, BSP Deputy Governor Diwa Guinigundo, Finance Undersecretaries Gil Beltran and Karl Kendrick Chua, and BIR Deputy Commissioner Nestor Valeroso.

The finance chief said that from 2015 to 2016, revenue generation has improved as a result of the tax administration reforms put in place at the Bureaus of Internal Revenue (BIR) and of Customs (BOC).

Total revenues, he said, improved from P2.109 trillion in 2015 to P2.196 trillion in 2016, or an increase of 4.1 percent.

Dominguez said that over the same period, the BIR improved its collection from P1.433 trillion in 2015 to P1.567 trillion in 2016, representing a growth rate of 9.3 percent.

The BOC also raised its collections to P396 billion in 2016 from P367 billion in 2015, which means an improvement of 7.8 percent, while other revenue generating agencies have also made huge improvements in its collection by 14.8 percent.

Dominguez said that overall, the government’s revenue agencies achieved a strong tax revenue growth rate of 9.1 percent in 2016.

For 2017, total revenues grew 6.8 percent for the first half compared to the same period last year. Tax revenues for the first six months also improved by 8.8 percent.

“The key to fiscal stability is revenue generation,” Dominguez said.

“Our fiscal position is strong. That strength encourages us to be bold in projecting we will lead Southeast Asia in growth for the next few years even as we reshape our growth to be more inclusive,” he added.

At the briefing, Dominguez also highlighted the key features of the Duterte administration’s first tax reform package—the Tax Reform for Acceleration and Inclusion Act (TRAIN)-1that was approved by the House last May 31.

This version of the TRAIN as outlined in House Bill No. 5636 will yield a net gain of P134 billion for the government in the first year of its implementation, which is expected in 2018, Dominguez said.

It provides for, among others, the lowering of income taxes, which will result in a revenue loss of P141 billion. This loss will be offset by revenue-enhancing provisions that include broadening the value-added tax base and adjusting automobile and fuel excises, which will generate P169 billion; and a sugar-sweetened beverage tax, which will yield P47 billion, along with other complementary measures; and another P44 billion from improved tax administration in the BOC and BIR, Dominguez said.

“This first package will help keep the deficit in check although it will not produce enough revenues to fully fund the infrastructure and social services programs. Succeeding packages of the comprehensive tax reform program will be brought to Congress soon,” he said.

“We reiterate our commitment to continue implementing administrative reforms and revenue-enhancing measures to attain revenue targets and sustain collection growth,” Dominguez added.

He said that “between now and 2022, with tax reforms and continuing improvement in tax administration, we are looking to improving the ratio of revenues to GDP from the current 15 percent to 17.7 percent in 2022. Tax revenues-to-GDP will increase from 13.7 percent in 2016 to 17 percent by 2022. This will bring our tax effort to about the regional average.”

Dominguez likewise assured lawmakers that despite the Duterte administration’s aggressive spending plan to close the infrastructure gap and expand social services, the budget deficit will remain at an average of 3 percent of GDP between now and 2o22.

This is doable, Dominguez said, because the National Government (NG) aims to raise total revenues of P2.8 trillion, or 16.3 percent of GDP in 2018, which will include revenue measures of P133.8 billion.

With the yields from the revenue measures and the continued implementation of administrative reforms by revenue collecting agencies, the government expects revenues to grow by 17 percent in 2018, he noted.

The tax effort, meanwhile, will increase to 15.3 percent of GDP next year to be able to finance needed social expenditures.

“The consolidated public sector financial position estimated for this year and for 2018 shows a deficit well within 2 percent of GDP. It is not true that the ambitious infrastructure program will lead to reckless borrowing and undermine our fiscal stability,” Dominguez said.

He explained that even if the government needs to borrow to finance the deficit, it will commit, as a matter of policy, to an 80-20 borrowing mix in favor of locally sourced, peso-denominated debt to reduce foreign exchange risks and help utilize excess liquidity in the financial system.

“We benefited tremendously from the prudent fiscal management of the Arroyo administration and the Aquino administrations. Prudence paid off in the form of a decreasing (NG debt-to-GDP ratio. Even with the programmed increase in the deficit-to-GDP ratio to enable pump priming of the economy, we expect the NG debt-to-GDP ratio to become even more benign by 2022,” Dominguez said.

Compared to 2012 when the national debt was 51.5 percent of GDP, this year, the ratio has come down to 40.6 percent of GDP, he added. “We project that by 2022, the national debt should been reduced to only 37.7 percent of GDP. The national debt has become more manageable by the day.”

As a percentage of NG revenues, interest payments declined from a high of 36.9 percent in 2005 to only 13.8 percent in 2016, Dominguez said.

Interest payments as a portion of expenditures declined from a high of 31.1 percent in 2005 to only 12 percent in 2016.

“We expect this pattern to continue in the succeeding period — especially with the passage of the Comprehensive Tax Reform Package One,” Dominguez said.