MY TWO CENTS’: LOOKS LIKE THE TRAIN LAW DELIVERED AFTER ALL

My Two Cents by John Tria

Two things have to be said about taxes. 

For one they are needed to sustain government services and pursue important reforms and most importantly, the infrastructure we need. That is clear to most people, when they say “this is where your taxes go.”

Second, the ability to impose and collect the right amount of taxes from those who need to pay more of it strengthens our ability to pay loans, and thus, increases our credit ratings as they have with the recent Standard and Poor’s upgrade. 

Note that lenders lend money better to those who can pay back. Interest rates are also lower to those with a good credit standing. When government is able to collect from those that bankers feel can pay better, then the credit standings improve.

At the same time, a tax system needs to be structured in a manner that allows people to spend money wisely. 

Unhealthy or counterproductive expenditures such as alcohol and cigarettes need to be taxed more heavily to dissuade them from such endeavors, while those that spur consumption give the economy a boost and need to be encouraged.

Achieving this necessary balance between taxes and consumption will push growth for any developing economy like the Philippines, where government expenditures matter a lot to boosting the economy.

Such a balance was theoretically achieved when the TRAIN law was enacted last year. After more than a year of implemntation, can the numbers show if the TRAIN Law achieved the balance that was designed? Looks like it.

In a statement given last week, the Department of Finance (DOF), through its strategy, economics and results group (SERG) reported that the TRAIN law’s net revenues last year amounted P68.4 billion, higher than the P63.3-billion goal. 

Thats money for projects.

On tope of that, the reduced it income taxes availed by wage earners earning less than 250,000 a year allowed them  P111.7 billion pesos, which was spent and earned almost 25 billion pesos in additional VAT. 

Higher consumption among the middle classes that no longer pay these taxes 

brought more money, and opportunity into the economy, spurring economic activity and driving employment down to 5% according to the governent, and reducing joblessness and hunger as the Social Weather Stations has reported recently. 

These, in particular, can be seen in the countryside, where consumption encourages activity such as local travel, buying more goods such as food and paying for services that spur employment and livelihoods. 

The recent gross regional doestic growth rates in Mindanao are particularly encouraging. Except for CARAGA, thay all exceeded the nations GDP. 

These figures may even be higher next year now that government budgets have been approved

In hindsight, the criticisms over inflation allegedly caused by its imposition of excise taxes on diesel were unfounded after inflation has fallen to 3% this month despite the continued imposition of the said tax, showing that the real culprit for high prices were global fuel costs and high rice prices which have been tempered. 

The excise tax had, therefore, little real effect on inflation.  

Moving forward, the challenge is to use additional revenues wisely for projects that spur more growth, while encouraging loser food prices to keep inflation within the 2-4% allowable rate.

 If that is achieved, middle income status  for the country is within sight.