President Duterte has met expectations and kept his campaign promise of real change halfway through his administration, armed with his “great political resolve” to carry out far-reaching reforms to fulfill his ultimate goal of not only sustaining high growth, but alleviating poverty and creating more opportunities for all law-abiding Filipinos, Finance Secretary Carlos Dominguez III said Monday.
Dominguez said that with rapid economic expansion in place and with the President continuing to enjoy broad and deep public support, the Philippine economy is expected to perform even better in the years ahead, powered by the rapid modernization of the country’s infrastructure base and further reforms in its policy architecture for inclusive growth.
The economy, he noted, grew an average of 6.5 percent during the first 11 quarters of the Duterte administration, overcoming increased global uncertainty, a weak agriculture sector, a spike in world oil prices and a brief episode of elevated inflation.
Dominguez said Filipinos are now reaping the rewards of this well-managed economy and the bold reforms implemented in the first three years of the Duterte administration, as shown by, among others, the latest unemployment figures averaging 5.5 percent from 2016 to 2018 and dipping further to 5.2 percent in April 2019—the lowest in 40 years; and the decline in poverty incidence from 27.6 percent in the first half of 2015 to 21 percent in the first half of 2018, which is confirmed by independent opinion surveys on self-rated poverty, reported at only 38 percent, the lowest number ever.
Dominguez also cited the Tax Reform for Acceleration and Inclusion (TRAIN) Act, which he described as “an achievement of this administration,” for providing majority of the country’s workers with tax savings equivalent to about a month’s extra take-home pay; removing the value-added tax (VAT) on medicines for diabetes, hypertension and high cholesterol; and lowering estate and donor taxes to a single rate of 6 percent to free up idle real properties for productive use.
“Over the past three years, the Duterte administration has shown great political resolve. Reforms across a broad spectrum were initiated. Robust economic growth continues to gain momentum. Massive investments in our economy’s competitiveness continue to be made. Ambitious programs have been instituted. Our fiscal position has been strong and is as strong as it has ever been,” said Dominguez, who reported on the economic gains made by the government during the first Pre-State of the Nation Address (Pre-SONA) forum held today at the Philippine International Convention Center (PICC) in Pasay City.
The Pre-SONA forum with the theme “Game-Changing Reforms for Sustainable Development,” featured the reports of the Cabinet’s Economic Development Cluster (EDC) led by Dominguez and its Infrastructure Cluster headed by Public Works Secretary Mark Villar.
“At midpoint, there is much to celebrate. But there are also larger goals that we yet have to accomplish. President Rodrigo Duterte enjoys broad and profound support from our people. They appreciate the sincerity, the hard work and the visionary strategy of this administration,” Dominguez said.
He said this strong support was again expressed by the people during the recently concluded midterm elections, as shown by the landslide victory of candidates endorsed by the President, “which translates into approval of the reforms he has launched from the start of his term.”
The international community also gave its strong vote of confidence in the Duterte administration’s reform agenda, as demonstrated by the recent decision by Standard and Poor’s (S&P)—one of the world’s most reputable credit rating agencies—to raise the Philippines’ long-term credit rating from “BBB” to “BBB+” with a “stable” outlook, the highest rating the country has ever received and just one notch away from the sterling “A” rating territory, Dominguez noted.
Dominguez also underscored the following reforms put in place in the first half of the Duterte presidency that will continue to generate far-reaching benefits for the people:
· TRAIN, which on top benefiting 99 percent of taxpayers, has also provided a steady revenue flow for the administration’s ambitious “Build, Build, Build” program, mandated a fuel marking program to curb oil smuggling, and imposed a tax on sugar-sweetened beverages (SSBs) as a health measure that Vietnam and Indonesia now plan to duplicate;
· The tobacco tax reform bill that substantially increased excise taxes on tobacco products to augment the massive funding required for the Universal Health Care (UHC) program, which aims to widen the access of low-income families to quality and affordable health care;
· The Rice Tariffication Law, which finally liberalized rice trading after 30 years of failed attempts by previous administrations. The law has made quality rice more affordable and accessible to Filipino consumers, thereby bringing down inflation. Rice retail prices are now cheaper by P5 to P10 per kilo compared to 2018 and farmers are assured of at least P10 billion in funds each year via the new Rice Competitiveness Enhancement Fund (RCEF) to modernize the agriculture sector;
· The increased use by the Department of Interior and Local Government (DILG) of modern digital technologies to streamline local government processes; and
· Project One of the Department of Trade and Industry (DTI), which seeks to improve the ease of doing business by setting up a One Central Business Portal that will be available online and through mobile phone, transforming the business registration experience into a convenient facility available 24 hours a day, 7 days a week, including Sundays and holidays.
On the fiscal front, Dominguez cited the following firsts that were accomplished on the watch of President Duterte:
· Government exceeded 5 percent of the gross domestic product (GDP) in infrastructure spending last year. This is double the average infra spending over the last 50 years and is expected to reach 7 percent by 2022;
· The 2018 tax effort rose to 14.7 percent of GDP, the highest level it has reached in over 20 years;
· In 2018, dividends remitted by government-owned and controlled corporations (GOCCs) amounted to P40 billion, the highest combined collection ever from state-run firms. In the first 6 months alone of 2019, dividends have already reached another record amount of P45 billion;
· The Department of Finance (DOF) made history in 2017 by collecting from a cigarette manufacturer (Mighty Corp.) more than P30 billion for non-payment of excise taxes and for use of counterfeit tax stamps. This is the biggest sum on record raised by the government from a tax settlement with a single corporate taxpayer.
“Incidentally, we are the only administration that actually cleaned up the cigarette industry and raised tobacco excise taxes twice. This has never happened in any past administration,” Dominguez said;
· The expenditure effort in 2018 reached 19.6 percent of GDP, the highest ever achieved in the past 28 years;
· The debt-to-GDP ratio fell to 41.9 percent in 2018 from a high of 74.4 percent in 2004, and is projected to continue its downward trend even as the government slightly raised the fiscal deficit ceiling to 3.2 percent this year;
· In 2017 and 2018, the Philippines received a record total of USD20 billion in foreign direct investments (FDIs). For two consecutive years, FDIs averaged US$10 billion a year, double the inflows in 2015, which is unprecedented.
· The commitment by Japan and China of US$9 billion each in official development assistance (ODA) and investments, and South Korea of another US$1 billion; and
· The signing of 17 highly concessional loan agreements for the big-ticket projects under the “Build, Build, Build” program, including the Metro Manila Subway that is the government’s most ambitious single infrastructure project yet.
On law enforcement, the Bureaus of Internal Revenue (BIR) and of Customs (BOC) have joined efforts to intensify the government’s campaign against smuggling and tax evasion, resulting in the destruction of 33 million packs of fake cigarette brands worth P1.2 billion, 152 smuggled luxury vehicles worth P96.3 million, and illegal drugs valued at P9.9 billion since 2016, Dominguez said.
“The Philippine development story has been at its most promising during the past three years. Later this year or early next year, we are expected to graduate to upper middle-income country status ahead of schedule,” Dominguez said. “This is proof that we can beat extreme poverty within a generation, if we stay on course and continue to invest in the right things.”
He said the approval of the remaining tax reform packages, which include the bill lowering the corporate income tax (CIT) rate and rationalizing fiscal incentives to create a level playing field for investments, is among the “right things” that the government should invest in, as this would help secure for the country an “A” credit rating within the next couple of years.
Dominguez said he and his fellow economic managers and the “Build, Build, Build team stand by their commitment to bring down poverty incidence from 21.6 percent in 2015 to just 14 percent by 2022, and they aim to accomplish this by continued massive investments in infrastructure and human capital development.
“Our people will always be our main asset in the journey towards full development of our country. We work hard at getting projects running at the soonest time possible for we know that the reward for all these work we do now is a better future for the next generation of Filipinos,” Dominguez said.
To make up for the slight hiccup in the country’s growth of a lower-than-expected 5.6 percent in the first quarter—as a result of the four-month delay in the approval of the 2019 national budget—the government will implement “a bold catch-up”’program, which involves targeting public works spending at a higher 5.2 percent of GDP, the fast-tracking of socioeconomic programs, raising agriculture’s growth to at least 2 percent, and working with the Congress to continue improving the ease of doing business and attracting more investments, Dominguez said.
Dominguez reiterated the Duterte administration’s commitment to fiscal discipline, which, he said, the President demonstrated by vetoing some bills in the 17th Congress that would have been detrimental to the country’s fiscal position.
He also said strong ODA inflows have allowed the government to shift to a “hybrid” Public-Private Partnership (PPP) model to implement projects, among the first of which is the state-of-the-art passenger terminal of the Clark International Airport.
This hybrid PPP mode, which takes into account that the people should benefit from projects at the soonest possible time, uses ODA or the government’s own funds to raise financing commercially during the initial stages of big-ticket projects.
“This enables us to use cheaper money and move more quickly to get the projects done,” Dominguez said.