Global shocks overwhelm market

For the second pillar, an expanded medical resource to fight COVID-19 was eyed as well as ensuring the safety of frontliners through health insurance coverage, special risk allowance and personal protective equipment among others

It is without doubt that the progression of the dreaded coronavirus disease (COVID-19) into a full scale pandemic is hurting the global economy amid supply shocks that disrupt the market.

While the Philippines has been recognized by various international entities to be robust and able to withstand the impact of the health crisis, the virus’ damage to the economy appeared as early as the first quarter.

Data from the Philippine Statistics Authority (PSA) show that the country’s local output, measured in gross domestic product (GDP) contracted by 0.2 percent, an unexpected outcome.

As such, the Duterte administration has been quick to craft and implement reforms and measures to contain COVID-19 while helping the most affected to get back on their feet and get going.

The four-pillar program

Following the legislators’ okay to allow President Rodrigo Duterte to reallocate the 2020 national budget for the proposed COVID-19 response program, the country’s top economic managers bared a four-pillar program for recovery with equity and solidarity or the PH-PROGRESO.

The first pillar aims to provide support for vulnerable groups and individuals, which was now estimated to reach P596.6 billion with the inclusion of additional programs from the Department of Labor and Employment and Department of Agriculture.

For the second pillar, an expanded medical resource to fight COVID-19 was eyed as well as ensuring the safety of frontliners through health insurance coverage, special risk allowance and personal protective equipment among others. This pillar will cost P58.6 billion, P80.6 million higher than the initial estimate given the updated World Bank financing for COVID-19 response programs.

The third pillar will then undertake fiscal and monetary actions to finance emergency initiatives and keep the economy afloat. This pillar was increased to P1.1 trillion with the increased projection in official development assistance financing from multilateral and bilateral sources in addition to the P119.4 billion global bonds sold by the Bureau of Treasury.

The last pillar will be funded by the third pillar and aims to lay out an economic recovery plan to create jobs and sustain economic growth.

Based on the Department of Finance’s website, the four-pillar strategy has a grand total of P1.7 trillion, translating to 9.1 percent of the country’s GDP.

Funding the program

Aside from increasing the government’s borrowings, which was allowed by the country’s prudent debt levels, additional fiscal sources were sought through the implementation of reforms such as the repackaged Corporate Recovery and Tax Incentives for Enterprises Act (CREATE).

CREATE, which is still pending in the Senate was considered to serve as fiscal stimulus once passed into law, as among its key features was to reduce the current corporate income tax (CIT) rate from 30 percent to just 20 percent over a phased period while rationalizing the government’s incentive scheme for corporations and businesses.

As such, former Cabinet officials, economists, state bankers and industrialists along with business groups backed the proposed bill as they believed in its passage to restore market confidence and attract more investments to the country.

Also, the bill intends to impose an immediate reduction to the CIT to just 25 percent, providing firms enough fiscal legroom to maintain their employees and/or expand their business.

Department of Finance (DoF) Secretary Carlos Dominguez III earlier explained that the estimated P42 billion revenue losses from the CIT reduction for 2020 could be offset by increasing the government’s loan from multilateral and bilateral partners.

“We are not looking at increasing taxes but bridging the drop in revenues by increasing our borrowings in the moment. We have enough reserves, we have enough borrowing capacity, so we are using that,” Dominguez said.

Online tax

The government is also on the move to regulate digital services, prioritizing online sales first by slapping it with value-added tax (VAT).

According to the DoF chief, the rationale to their action was simple. It was done in other countries and not taxing sales through online platforms would be unfair to land-based merchants.

Commenting on this government action, the World Bank senior economist Rong Qian said that it won’t be a “deterrent” for businesses to go digital as well as to those who are already on the platform.

“I think it’s not necessarily a deterrent...and I also want to emphasize that the digital tax convention globally, is to tax the consumer, not to tax the business. So I think we need to make this distinction that the government is not thinking to tax the business per se, but the VAT, that is what other countries are doing,” Qian explained.

Invest in gov’t bonds

Still, the Cabinet official urged the public to invest in governmentissued debt instruments to help cover the deficit in their funding and prepare the economy for recovery.

“Investments in government bonds...will help us cover our deficit brought about by the COVID-19 emergency and prepare our economy for recovery. Because of the fiscal discipline we have exercised over the past few years, the Philippine government found financial strength in the midst of a global health and now economic crisis,” Dominguez said.

The Bureau of Treasury recently announced the first and second quarter winners for their Premyo Bond, the prizes for which include P1 million and a house and lot.

The DoF chief then encouraged the winners to reinvest their rewards to government bonds and to start a small business, the latter of which could help create new jobs to replace those that were lost during the economic fallout.

“Investments that will lead to employment opportunities will be the key drivers in our economic recovery. Let me assure you that this government is doing its best and its utmost to protect our people’s health while at the same time preparing our economy for a strong rebound,” he explained.

The first pillar aims to provide support for vulnerable groups and individuals, which was now estimated to reach P596.6 billion