Finance Secretary Carlos Dominguez III urged senators Wednesday to help guarantee the Philippines’ “strong economic rebound” from the lingering pandemic by swiftly approving the Duterte administration’s remaining economic reform measures aimed at attracting more foreign direct investments (FDIs), deepening the capital markets and further making the tax system simpler, fairer and more efficient.

“In the remaining period of the President’s term, we will rapidly modernize governance, continue our public investments, and pursue market-friendly reforms to achieve a strong economic rebound,” Dominguez told the Senate finance committee in a 2022 budget briefing by the Development Budget Coordination Committee (DBCC).

These reforms include the amendatory bills to the Foreign Investments Act (FIA) and Public Service Act (PSA) to enable the economy to attract more FDIs and ensure long-term growth.

Dominguez also pushed the approval of the Real Property Valuation Reform Act and the Passive Income and Financial Intermediary Taxation Act (PIFITA), which are the remaining Packages 3 and 4, respectively, of the Duterte administration’s Comprehensive Tax Reform Program (CTRP).

He said these legislative measures will help achieve a “strong economic rebound” from the pandemic, along with the congressional passage of the Capital Market Development Act (CMDA) of 2021 to further deepen the domestic capital markets by building a sustainable and portable corporate pension system for the Filipino people.

Another investment-friendly measure endorsed earlier by the Finance Secretary and Malacanang–the proposed amendments to the Retail Trade Liberalization Act (RTLA)—has already been passed on third and final reading by both the Senate and the House of Representatives. The RTLA is pending in the bicameral conference committee.

The House has likewise passed the bills proposing amendments to the PSA and FIA; Packages 3 and 4 of the CTRP, and the CDMA. These bills are pending in the Senate.

The Senate finance committee chaired by Senator Juan Edgardo Angara began its deliberations on the proposed P5.024-trilllion national budget for 2022 this morning with a budget briefing by the DBCC, of which Dominguez is a member.

Dominguez said the government will also maintain the spending for the “Build, Build, Build” infrastructure program at above 5 percent of gross domestic product (GDP) to generate multiplier effects for the economy, such as creating more jobs and business opportunities.

He said the Duterte administration will also invest heavily in the country’s young, talented workforce—its strongest asset and instrument in recovering strongly from the pandemic—to sustain demand and create wealth for the economy.

To avert severe spikes in the COVID-19 infection rate in the coming period, Dominguez said the government will step up its vaccination drive, continue building up the public health care system and improve its tracking, tracing and treatment methods.

The running total of vaccine supply to date has reached 52.8 million doses, with 36.2million vaccine shots successfully administered as of September 6. These consist of 20.9million for the first dose and 15.3 million for the second shot, Dominguez said.

He said that in the remaining months of the year, the government is expecting the arrival of about 142 million more doses to complete the goal of inoculating all Filipino adults by the end of this year.

Timely legislative measures helped prepare us for the pandemic

Dominguez said that in the face of the unprecedented crisis brought about by the pandemic, the Duterte administration will continue to work hard until the very last minute of its term to “ensure a legacy of a dynamic and market-driven economy for the Filipino people.”

He thanked legislators for passing the Duterte administration’s bold tax reforms, which have become effective tools in better preparing the country for the economic shock resulting from the pandemic; and for swiftly approving the Bayanihan 1 and 2 laws to enable the government to effectively respond to this global emergency without imposing a heavy debt burden on the next generation.

“The two (Bayanihan) measures exemplify the fiscal responsibility we need to guide our economy back to health,” Dominguez said.

He also cited the Congress’ approval of the Financial Institutions Strategic Transfer (FIST) Law, which would enable the banking system to withstand the pressures of a major economic contraction and maintain its viability, and of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law, which is the country’s biggest ever stimulus package for businesses, including micro, small and medium enterprises (MSMEs).

Fiscal responsibility is a ‘must’

From 2022 onwards, Dominguez told senators the government expects the budget deficit to get narrower as revenue collections exceed the growth in expenditures; and public borrowings, which remain within sustainable levels, to go down significantly starting in 2023.

Dominguez made it clear, though, that to maintain these reasonable debt and deficit levels, the government must continue to exercise fiscal responsibility, as what the Duterte administration has consistently done, and which resulted to the country being able to meet the coronavirus-induced crisis with strength on the fiscal front.

Both the Executive Branch and the Congress should work together in keeping the country’s long-held strong fiscal standing “in great shape” for the next administration and future generations of Filipinos, he noted.

Fiscal discipline remains as the guiding policy of the Duterte administration to ensure that the government will continue to have ample financial resources to fight the long battle against the pandemic, Dominguez said.

2021 fiscal performance will help restart growth

Dominguez said the GDP’s expansion by 11.8 percent in the second quarter underscores the strong capacity of the economy to return to the path of rapid expansion, as reflected in higher revenue collections.

In the first seven months of this year, total revenue collections reached P1.7 trillion, which is 4 percent higher compared to the amount collected in the same period in 2020.

Tax collections grew by 10 percent to P1.6 trillion from January to July compared to the same period last year.

The deficit, however, widened to P837 billion from January to July, which is 20 percent more than last year’s level, owing to the higher public health bill, Dominguez said.

To cover this budget gap, the government resorted to borrowing from domestic and external sources with better interest rates and terms that it was able to acquire because of the country’s high credit ratings, Dominguez said.

In the first half of 2021, the country’s gross borrowings amounted to P1.9 trillion. Of this total amount, P1.6 trillion came from domestic sources, while the remaining P285 billion came from external sources through global bond offerings and official development assistance (ODA).

The government’s external borrowings include around P60 billion contracted from multilateral partners for the procurement of COVID-19 vaccines, Dominguez said.

Dominguez said the government’s strong fiscal position before the pandemic struck last year was the result of the reforms initiated by the Duterte administration, which include bringing down personal income tax rates through the Tax Reform for Acceleration and Inclusion (TRAIN) Act, imposing new “sin” taxes, implementing the Tax Amnesty Act, improving tax administration, and collecting higher dividend remittances from government-owned and controlled corporations (GOCCs).

Thus, he said, the government was able to: 1) collect P347 billion more revenues from 2018 to 202o as a result of TRAIN, the tax amnesty and the new “sin” tax laws; 2) raise the revenue effort to 15.9 percent of GDP, with a two-decade high of 16.1 percent in 2019, from an average of 14 percent of GDP in the previous administration; 3) collect P317.5 billion in dividend contributions from GOCCs, which is almost double the collection level of the past administration; and 4) increase infrastructure spending to 5.4 percent of GDP in 2019, from a measly 2.9 percent in 2015, while maintaining it at 4.8 percent in 2020 despite the pandemic.

2022 and onwards show promising prospects for strong recovery

Revenue and tax collections

With improving collections mainly through the Duterte administration’s digitalization initiatives, Dominguez said revenues are expected to return to their pre-pandemic revenue levels in 2022.

Dominguez said the Department of Finance (DOF) projects the government to collect P3.3 trillion next year, which is equivalent to 15 percent of GDP, and 14 percent higher than the 2021 revenue collection program of P2.9 trillion (14.5 percent of GDP).

The DOF expects tax haul to reach P3.1 trillion next year, equivalent to 14.2 percent of GDP, and significantly higher than the programmed P2.7 trillion for 2021 (13.7 percent of GDP).

Dominguez said revenues will continue to grow from 2022 onwards, reaching P4 trillion in 2024, while tax collection will be on an upward trend starting next year, reaching P3.83 trillion by 2024.

Budget deficit

The DOF estimates the budget deficit to decrease to 7.5 percent of GDP next year, from the 9.3 percent of GDP projected for 2021.

Dominguez said the medium-term fiscal program will follow a declining-deficit path so that by 2024, the deficit-to-GDP ratio will go down to 4.9 percent.

Debt

Total gross borrowings for 2022 are programmed to decline to P2.5 trillion from about P3 trillion expected this year.

Dominguez said these borrowings, which will come primarily from domestic sources, will support both the government’s public health response and economic investments needed to spur growth.

He made it clear that while the country incurred additional debt to meet the health emergency spawned by COVID-19, public borrowings remain well within sustainable levels.

The national government’s debt-to-GDP ratio is projected to slightly increase to 60 percent in 2022 from the programmed 59 percent ratio in 2021, but will start to drop from 2023 onwards.

Dominguez pointed out that the increase in the national government’s debt level is only temporary.

“It did not stem from profligate public spending, but rather resulted from a universal shock that deteriorated the financial positions of almost all countries around the world. The principal contributors to the increase in our debt are the weakening of the economy and lower revenue collections due to the lockdowns–both of which are expected to recover quickly as soon as the infections are contained,” he said.

Because of the higher spending to support both health and economic requirements, the pandemic resulted to the global trend of higher government debt-to-GDP ratios last year, Dominguez noted.

“What sets the Philippines apart, however, is that we entered 2020 with a historic low debt-to-GDP ratio of 39.6 percent. This means that we could better absorb additional borrowings than other countries whose debt ratios were already at 60 percent before the pandemic,” Dominguez said.

Hence, the 15-percentage point increase in the Philippines’ debt-to-GDP ratio in 2020 was still within the prescribed bounds of fiscal viability and the experience of the Philippines’ neighbors and rating peers globally, he said.

Dominguez likewise pointed out that more of the country’s fiscal resources are being directed towards productive spending rather than debt servicing, with the ratio of debt interest payment to expenditure dropping from 13.9 percent in 2015 to only 9 percent in 2020.

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