MANILA, Philippines – A robust domestic economy with a healthy foreign exchange (forex) buffer, a strong banking system and a young, educated work force are among the key factors that will sustain the Philippines’ high GDP growth of 6.5 to 7 percent in 2017, according to Finance Secretary Carlos Dominguez III.
Dominguez said that even global financial shocks, such as rising US interest rates and the possible surge of protectionist policies in certain countries that could affect trade, would not unduly threaten the economy, as the Philippines is not largely reliant on external trade as a growth driver.
“I’m quite confident that this coming year, we will achieve the growth rates that we have set for ourselves, and that we will be in pretty good shape,” Dominguez said.
Last week, Dominguez said the country’s Gross Domestic Product (GDP) expansion of 6.8 percent in 2016 pointed to a domestic economy in “pretty good shape” and well on its way to sustaining its growth momentum over the medium term, on the back of the Duterte administration’s bold initiatives to keep it on its upward trajectory despite global market volatility.
Dominguez said this gave the Department of Finance (DOF) all the more reason to aggressively engage in its proposed Comprehensive Tax Reform Program (CTRP)—and the Congress to swiftly act on it—so the Duterte government could raise enough funds for its unparalleled public spending program on infrastructure, human capital and social protection that would keep the Philippines among Asia’s fastest-growing economies in the years ahead.
“This is clear proof that no amount of counterproductive political chatter from certain quarters could undermine the upward trajectory of a domestic economy that is in pretty good shape under a Duterte presidency that is fully committed to sustaining its growth momentum,” Dominguez said.
Dominguez said the Philippines’ economic outlook remains highly positive, with the country having more than enough forex reserves to service its foreign debt.
“We have a very strong banking system. We have a population that is young, educated, healthy and very enthusiastic. So I think our domestic economy is well positioned to grow between 6.5 percent and 7 percent as most institutions have predicted,” Dominguez said.
The Asian Development Bank, for one, has projected country’s GDP growth at 6.8 percent for 2016 and 6.4 percent this year.
Moreover, Dominguez said the country has a president who believes in carrying out “fiscally conservative” policies to rev up the economy and keep the budget deficit within manageable levels.
“President Duterte was mayor for 22 years. As mayor, he was very fiscally conservative. Davao City has one of the most robust balance sheets in the country, and that’s because he is very conservative in his spending. He makes sure that the taxes due the local government are collected,” Dominguez said.
“And believe me, what he practiced in Davao as mayor, he will practice as President,” he added
Other private and multilateral institutions are similarly bullish on the Philippines and are confident that it can sustain its high growth of above 6 percent and its status as one of Asia’s fastest growing economies.
These include the International Monetary Fund, World Bank, BMI Research-Fitch Ratings, S&P Global Ratings, Nomura, First Metro Investment Corp. (FMIC), Colliers International, Nordic Business Council of the Philippines (NBCP), Philippine Chamber of Commerce and Industry (PCCI), Employers’ Confederation of the Philippines (ECOP), Goldman Sachs, Bank of the Philippine Islands (BPI), Standard Chartered Bank, Hong Kong and Shanghai Banking Corp. (HSBC), Sun Life Asset Management Co., AB Capital Securities, Lamudi PHL and the Management Association of the Philippines (MAP).
Dominguez said President Duterte’s 2016 poll campaign promise to move the country forward via high–and inclusive–growth can only be accomplished by instituting sweeping reforms in tax policy and administration.
To keep the economy on its high growth path and make its benefits felt by all Filipinos, Dominguez said the government needs to increase public investments in infrastructure and human capital as well as on social protection for the poor and other vulnerable sectors.
The Duterte administration needs to raise some P366 billion a year over the medium term, of which some P206.8 billion is expected to come from tax reform in the first full year of its implementation, for it to mount an unprecedented investment strategy that would finally put the Philippines on an “irreversible” path to high and inclusive growth.
It aims to raise such additional funds annually on the Duterte watch through Package One of the DOF-proposed Comprehensive Tax Reform Program (CTRP), which House ways and means committee chairperson Rep. Dakila Carl Cua two weeks ago introduced in the chamber under House Bill No. 4774.
The government target is to ramp up spending on infrastructure to P1.83 trillion, education and training to P1.27 trillion, health to P272 billion and social protection, welfare and job generation for the poorest of the poor to P509 billion by 2022, for a total amount of P2.2 trillion in unparalleled public investments over the next six years.
Dominguez said that “in the medium-term, the CTRP is expected to help reduce the poverty rate from 21.6 percent in 2015 to 14 percent in 2022, lifting some six million Filipinos out of poverty, and helping the country achieve upper middle-income country status where per capita gross national income increases from $3,550 in 2015 to at least $4,900 by 2022, close to where Thailand is today.”
Once this momentum is sustained, the country would be well on its way to becoming a high-income economy by 2040 with a per capita gross national income of a least $11,000, which is where Malaysia is right now, he added.
The House ways and means committee has started studying HB 4774, which covers the lowering of personal income tax (PIT) rates and a corresponding set of revenue-compensating measures.
It retains the DOF proposal of exempting from the income tax those with a net taxable income of P250,000 and below in order to increase the take-home pay of most Filipino taxpayers and make the system fairer and more equitable.
The P82,000 exemption for the 13th month and other bonuses will remain under HB 4774.
The revised package also includes lowering the rates for estate and donor’s taxes, expanding the value-added tax (VAT) base, but retaining the exemptions enjoyed by senior citizens and persons with disabilities, and adjusting automobile and fuel excise taxes.
Complementary reforms to this revised tax package include introducing a sugar-sweetened beverage tax, indexing the motor vehicle user’s charge to inflation, and granting an amnesty to past estate tax cases along with lowering the estate tax to a flat rate of 6 percent.
Moreover, HB 4774 also includes legislated administrative reforms in the Bureaus of Internal Revenue (BIR) and of Customs (BOC) such as the adoption of a fuel marking and monitoring system to prevent smuggling and not only to collect the correct taxes but also to ensure that only high-quality petroleum products are sold in the market; the use of e-receipts; the mandatory link of the point-of-sale (POS) systems of establishments directly to the BIR; and the relaxation of bank secrecy laws for investigating and combating tax fraud.
Ph’s Finance Secretary sees 2017 GDP growth of 6.5-7%
