‘Lowering income taxes for the middle class is good because it frees up money to be spent on essentials which will also be sourced locally. Passing the tax burden to other sectors without driving inflation will require careful planning.’
PUNDITS have spoken long and hard about how well or unwell the economy has been performing a year after President Duterte. Harking back to June 2016, many of them stood worried that he would not appoint a good economic team to continue our high growth clip. Markets had their usual jitters as a new President takes office and the rest is history.
With markets at their best, inflation within managed bands and our currency exchange rates stable, the fear of the Philippines becoming Venezuela did not happen.
A year since the Duterte election, our economy remains humming, even surpassing certain benchmarks such as Foreign Direct Investment figures and a robust stock market.
The following is a set of descriptions that can shed light on our economy’s performance, and the changes that are taking place in the way by which our economic managers have held our economic growth, kept largely intact and growing, beating expectations.
- Markets are stable
The economic team led by secretaries Sonny Dominguez of the Department of Finance and Ernie Pernia of NEDA worked well to placate market concerns, and got to work involving economic stakeholders to build a ten point socioeconomic agenda that enabled stakeholders to participate in crafting a program they could claim as their own- and keep adverse opinions and market sentiment within safe territory.
- Creating Equity
At the end of the last President’s term, the worry advanced by many experts and multilateral banks was that despite high growth, inequality remained, even intensified as unemployment and poverty rated stayed the same. This would breed many externalities, such as traffic in the cities, and conflict in the countrysides. Inequality heightens enmity and creates strife.
The fear was that without creating equity and empowering poorer sectors, growth cannot be sustained. it would be paper growth that would only feed an economic bubble that burst similar to the late 1990s financial crisis.
- Reducing poverty to 15%
Reducing inequality and spreading the wealth will build strong markets that will sustain growth. This by itself, is a theoretical departure from the neoliberal policies of the past, where small government and privatized public services, utilities were preferred. Privatizing may have ensured the survival of these services, but was unable to increase the access of more Filipinos to these essentials.
- Build Build Build
As the government promises to spend some P8 trillion over a five-year period to fill in the infrastructure gap, hundreds of thousands of jobs and a multitude of new investments, not to mention millions more tourists are expected to arrive. The infrastructure renaissance that helped push Thailand and Malaysia to cut poverty and experience sustained growth promises dividends for us.
- Grow and Grow
Grow the food through free irrigation and intensified support for agriculture. As the Quantitative restriction regime under GATT ends in 2017, we are simply tasked to produce more of our own food to create not only self sufficiency and perhaps lower food costs especially for the poor.
The Big Hand
The 10-point socioeconomic program includes deliberate programs to create the inclusive economy where past regimes failed. Departing from the hands-off policies of the past, expect pump priming and direct resources to create opportunity.
In all of these, the radical departure from the past government is that it is putting its hand is pushing activities to create growth, putting its own money where its mouth is, to create the economy it needs to sustain peace and development, particularly in reducing income inequality.
Government intervention is needed since the market is not always efficient to include the vulnerable and excluded, or the poor, of which a fourth is still the Philippines. Sustaining growth means including them.
Tax reforms are needed for the big hand to work
This is the particular challenge of the big hand- it requires locally generated resources, and should avoid external borrowings since they are foreign currency denominated and expose financing to external shocks. The proposed 80-20 mix in favor of local sources is a step in this direction. It allays the fears of many of a debt crisis, as local borrowings are easier to manage than dollar denominated loans.
This is why tax reforms are a must if the big hand is to work. Government must be able to generate the needed revenue from local sources without over burdening certain sectors like the middle class which have been the old bedrock of our tax effort.
‘Lowering income taxes for the middle class is good because it frees up money to be spent on essentials which will also be sourced locally. Passing the tax burden to other sectors without driving inflation will require careful planning.’
