Insights from Duterte’s economic team
Lets be honest, some of the cabinet members were appointed not for their experience and capability but for repayment of political debt. They are not our best and brightest – far from it. This has caused many to worry.
Despite this, I take comfort in the fact that the economic cluster is solid. They are competent, and yes – among our best and brightest. Within the cluster are Secretaries Sonny Dominguez of Finance, Ernesto Pernia of NEDA, Ramon Lopez of DTI, Arthur Tugade of the DOTC and Benjamin Diokno of the Department of Budget and Management. These men have bodies of work that are testament to their capabilities and ability to think outside the square.
Even at this early stage they have proven their worth in the aptness and quality of this administration’s 10-point economic plan. I reckon it hits all the marks to move the economy forward.
I recently attended an economic forum where I had the chance to listen to Secs. Dominguez and Pernia expound further on this administration’s economic agenda. This is what I uncovered.
It is apparent that President Duterte’s impatience with long bureaucratic processes has seeped through the members of his economic team. There is a culture of urgency in this group which I find reassuring.
For infrastructure projects, the goal is to slash project development timeframes by a third. This means getting projects done in under 20 months from the present average of 29 months. To do this, they will ask congress to ease its tedious requirements of the Procurement Law. They will also simplify the process of obtaining permits and licenses for all infrastructure related projects.
The Finance secretary also revealed a plan to increase the absorptive capacities of implementing agencies (the DOTC, DPWH and PPP Center) to allow them to carry out multiple projects, simultaneously.
In the final analysis, acting with agility is at the heart of this administration’s mission. The simplicity and clarity of this mission is what makes it powerful.
On the fiscal side, Secretary Dominguez is committed to pursue the rationalization of corporate and income taxes. It is time our tax system evolve, the secretary said. While the present tax structure has enabled the economy to amass hefty monetary reserves, the time has come for us to make it competitive with the rest of the region.
As it stands, our corporate tax rate of 30 percent is substantially higher than Malaysia’s 25 percent, Thailand’s 20 percent and Singapore’s 17 percent. This is partly the reason why our share of foreign direct investments is among the lowest.
Truth is, our inordinately high tax system only compels businessmen to evade their tax obligations, asserts the secretary. Even if the BIR goes on an all-out offensive to shame and incarcerate tax evaders, records show that only 2.6 percent of BIR collections are derived from litigated cases. It is tedious and time consuming that only yields marginal results. It makes more sense to simply lower the tax threshold to encourage honest compliance.
Ease in compliance is another issue that will be addressed, said Dominguez. Our tax system is complicated, convoluted and complex – it requires multiple steps across multiple agencies. The plan is to bring the BIR to the digital age by enabling individuals and corporations to settle their tax obligations on-line.
But taxes is a zero sum game. The less taxes we collect, the less money there will be for government programs. This is something we cannot allow given our need to amp-up spending on infrastructure and other government projects, Dominguez stresses. Hence, in tandem with the rationalization of individual and corporate income taxes will be an increase in consumer taxes for “unhealthy” products like soft drinks, junk food, alcohol and cigarettes.
Moreover, tax holidays given to foreign and/or pioneering corporations will be rationalized according to their cost and benefits
The long overdue overhaul of the Bureau of Customs (BOC) is another component of the plan. The BOC operates with a flawed culture, says Dominguez. Even in today’s era of borderless trade, the BOC still operates as the police of importers and exporters. Their actions impede the free-flow of goods and disrupts supply chains. The BOC, today, makes trading across boarders difficult with its multiple (physical) inspections and redundant documentary requirements. The BOC maintains the use of complex systems since therein lies the opportunity for extortion and harassment of traders.
A total overhaul of BOC systems is in the works, disclosed Dominguez. Among the reforms to be implemented is the replacement of the tedious process of individual physical inspections with random audits. Those who passed them will be exempted from audit for the next three years. This, along with a package of other reforms will be tested in a port outside Manila. If proven effective, it will be implemented in all ports across the country. Not only will the simplification of Customs processes auger well for international trade, it will also limit the opportunities for corruption within the BOC.
Like Sec. Dominguez, the NEDA chief commits to more action and less paralysis by analysis.
Sec. Pernia gives credit to the past administration for putting the economy on solid ground by practising frugality, addressing corruption and adapting sound economic policies. The country is in good financial health, he says, and this allows the Duterte administration to ramp-up spending on infrastructure and other government programs. He further underscored the intention of the Duterte administration to carry-on with the responsible macroeconomic policies that President Aquino has started.
In keeping with President Duterte’s promise to fast-track the distribution of wealth to the poor and marginalized, NEDA will prioritize programs relating to countryside development. These include infrastructure projects and job generating initiatives in the provinces.
Pernia emphasizes this administration’s commitment to narrow the income gap between the rich and poor. Records show that in 1990, our poverty rate was at 33 percent. Today it is at 26 percent. A reduction of 7 percent over 26 years is unacceptable, says the NEDA chief, especially when you consider the robust growth of the economy over the last few years.
For years, the benchmark of economic “success” has always been GDP growth. This must change, asserts Pernia, as GDP growth alone does not paint an accurate picture of inclusive growth. Hence, the NEDA will soon adapt an index that will measure how much GDP growth has trickled down across income classes and across regions. Taken together, we will get a clearer picture of how effective we are in achieving inclusive growth.
The fighting target of the Duterte administration is to reduce poverty by one to 1.5 percent every year, for six years. The best case scenario is that poverty rates will drop to 17 percent by 2022.
Pernia is confident of achieving this target since President Duterte has the guts to defy the statutes of the non-tax paying catholic church. Fighting poverty will be a two prong approach – first by fostering economic growth and second by curbing population growth. Pernia stresses that if only we reduce the number of children of the bottom 40% of the population from six to three, we can expect a 4 percent reduction in poverty over six years.
The campaign against irresponsible parenting will extend to teen pregnancy. The problem is more acute than we realize, says Pernia. There are more than a million teen pregnancies every year and this causes a multiplier effect of socio-economic problems for families across the country.
Back to GDP growth, Pernia does not put a cap at our growth over the next six year – it could even peak at nine to 10 percent. This year, however, we are looking at growth of between 6.5 to 7.5 percent, expanding further to 7 to 8 percent in 2017.
Having heard Secretaries Dominguez and Pernia, I reckon we have reason to be optimistic in the economic future of the country notwithstanding their less than stellar colleagues in the cabinet.
Although not specifically mentioned, I am hoping Secretary Dominguez’s plan also includes expediting the long and tedious legal process of acquiring right of way for infrastructure projects.