The bright side of TRAIN

Achorus of local and international economic analysts made a unanimous forecast for 2018: economic growth is expected to be faster than the 6.7% expansion in 2017. As Finance Secretary Sonny Dominguez himself proclaimed, there is “unprecedented optimism” over the country’s economic prospects under the Duterte administration.

In addition to expectations of continued strong performance among the usual growth drivers, the increased optimism stems mostly from the recently passed Tax Reform for Acceleration and Inclusion (TRAIN) law, the first package of the Duterte administration’s tax reform program, and arguably, its most controversial legislation to date. After all, the Duterte government is embarking on the country’s first comprehensive tax program in two decades.

The government’s bold move to amend the tax code is commendable.

For years, the tax system has been widely criticized for being inefficient: the tax base is narrow and compliance cost is high, leading to low revenue collections despite having one of the highest tax rates in the region. While the timetable has been pushed back several times, the passage of TRAIN shows the government’s ability and willingness to leverage on the President’s popularity and political capital to advance its socioeconomic agenda.

The impacts of TRAIN are seen to fuel private consumption as consumers will then have more disposable income. Revenues collected from it would also strengthen the government’s ability to bankroll its development program, especially its aggressive infrastructure drive.

Despite the shortfall in revenues amounting to P67 billion from the original Department of Finance (DoF) proposal, the government has promised to roll out several flagship infrastructure projects within the year.

In a show of commitment towards this end, the infrastructure allocations accounted for a third of the total budget for 2018. The Department of Public Works and Highways (DPWH), for instance, received P637 billion for 2018, even surpassing the Department of Education’s ( DepEd) budget allocation.

By the government’s account, around 44 public infrastructure projects amounting to P1 trillion are already under construction, and 15 other projects are expected to be implemented in 2018.

The incremental revenues from TRAIN have become even more critical especially with the government’s shift in its preferred mode of infrastructure financing, from Public Private Partnerships to Official Development Assistance and local financing. In addition to the “Build, Build, Build” projects, the government is also set to implement smaller infrastructure projects included in the Three-year Rolling Infrastructure Plan (TRIP).

Given the passage of the TRAIN Law, the Duterte administration appears to understand the urgency to address the country’s infrastructure problems immediately.