Government doubles infra spending to 5.5% of GDP in 2018

With a steady revenue stream from bold tax reform program, President Rodrigo Duterte’s administration reversed the Philippine government’s long-standing habitual under budget on infrastructure, which averaged only 2.8 percent of the country’s Gross Domestic Product (GDP) for the past 50 years, by doubling it to 5.5 percent in 2018.

Finance Undersecretary and Department of Finance chief economist Gil Beltran said “with additional proceeds from the comprehensive tax reform program (CTRP), the government intends to increase infrastructure spending further to 7 percent by 2022, completing one of two sources—capital accumulation that the World Bank has cited to sustain the economy’s long-term high growth.”

Usec. Beltran said the Philippines’ level of public infrastructure spending of 2.8 percent of GDP for the past 50 years is minimal compared with 5 percent for the rest of the Association of Southeast Asian Nations (ASEAN) 5, which includes Indonesia, Thailand, Malaysia, and Singapore.

Beltran said the government is also putting in place several measures to secure total factor productivity, which is the other source of long-term growth cited by the World Bank.

Among these are the provisions under the Tax Reform for Acceleration and Inclusion (TRAIN) Act that simplifies tax administration; the shift to an electronic invoicing system by 2022; and the full implementation and connection to the ASEAN Single Window (ASW) of TradeNet, the government’s online trade facilitation portal.

“Fiscal policy has been the Achilles’ heel of the Philippine economy, at least as regards macroeconomic stability. Our past tax measures were largely passed to stave off brewing fiscal imbalances. Now that our fiscal position is in a much better footing, it is time to turn our gaze towards growth and equity,” Beltran said during the membership meeting of the European Chamber of Commerce in the Philippines (ECCP) held recently in Taguig City.

Beltran said this “is precisely the reason why we have embarked on a comprehensive tax reform program to sustain the economy’s higher growth rate and translate this growth rate into inclusive development.”

“Accordingly, where other economies have either one or the other, the Philippines is among the very few economies that have both of the two sources of long-term growth for easy picking: total factor productivity and capital accumulation,” Beltran said.

“To enhance productivity, the DOF will push for the approval of the remaining packages of the CTRP, which, among others, provides for the reduction of the corporate income tax (CIT) and rationalization of fiscal incentives,” Beltran said.

“The business community is especially interested in the second package of the CTRP. For the 18th Congress, we are going to file again the bill to rationalize fiscal incentives and lower the corporate income tax. We are advocating that the granting of fiscal incentives be targeted and time-bound,” Beltran said.

Package 2 and the other remaining tranches of the CTRP are “largely efficiency-enhancing” measures, Beltran said.

These are Package 3, which seeks to adopt global standards in the property valuation system to enable local government units (LGUs) to generate more revenues without raising the tax rates, and Package 4, which aims to simplify capital income taxation, he said.

Beltran said these reforms are being laid down by the Duterte administration to encourage the private sector to play a key role in development and provide it an environment conducive to investments.

Beltran said “prudent fiscal policy and efficient tax administration” play important roles in enhancing the country’s business-friendly environment.

“Before, the government tried to do and be involved in everything, which is why we fell into instabilities and anemic growth,” Beltran said.

“The current strategic approach towards development is one where the private sector plays a leading role with the government providing the business environment in the form of infrastructure and social services, macro-economic stability, regulations, and good governance,” Beltran said.