MB BUSINESS SPECIAL REPORT Duterte sets ambitious goal by end-term

he Duterte administration has set an ambitious goal by the end of its term, that is to transform the Philippines into an upper middle-income economy through higher investments in infrastructure particular in areas outside Metro Manila.

President Duterte, who immediately professed his non-interest in economics after winning last year’s elections, has a tough job in maintaining the expansion pace of the nation regarded as one of the fastest growing economies in the world.

The country’s gross domestic product (GDP) grew by 7.1 percent during Duterte’s first three months in office, a surprising figure from a feisty foul-mouthed leader known globally for his war against drugs.

Duterte entrusted the country’s economy to his childhood friend Carlos G. Dominguez III, 71, a highly regarded businessman, but no stranger to the Cabinet after serving as agriculture secretary during former President Corazon C. Aquino’s term.

Dominguez, the president’s chief economic manager who sits at the helm of the Department of Finance (DOF), had unveiled the administration’s 10-point socioeconomic agenda focused on building new infrastructure that should spell the start of a long-term economic boom.

Under the National Economic and Development Authority’s (NEDA) program, Duterte’s shortterm vision is to transform the nation into an upper middle-income economy by 2022 and close to becoming a high-income one by 2040.

While Duterte promised to keep the economic policies of former President Benigno S. Aquino III, Dominguez along with Socioeconomic Planing Secretary Ernerto Pernia and Budget Secretary Benjamin Diokno vowed that they can even do better this time.

Among the priorities endorsed by the new government in its bid to attract more foreign investment include relaxation of economic restrictions and to make it easier to do business in the country.

Duterte also promised to lower personal and corporate income taxes as well as introduce policies aimed at boosting economic growth that ultimately create jobs and help lift people out of poverty.

The Philippine chief executive, who is considered among the “new generation” of world leaders who claimed victory for their populist politics, is now under pressure due to complex problems he promised had simple solutions.

Dominguez led in January his Finance team to submit the administration’s first comprehensive tax reform measure meant to reduce income tax that Duterte promised during his election campaign. However, the bill also consisted of unpopular provisions that ire lawmakers.

House Bill 4774, a revised version of the DOFbacked proposal that did not progress in Congress last year, seeks to gener- ate a net revenue of R162.5 billion by raising the levies on fuel, cars and remove certain value-added tax (VAT) privileges, exempt for seniors and disabled.

The proposed bill also included tax administrative measures for the Bureau of Internal Revenue (BIR) and Bureau of Customs that could potential yield about R44.1 billion in fresh revenues.

Among the legislated tax administration reforms are fuel marking to prevent smuggling, the use of e-receipts, the mandatory connection of the point-of-sale system to the BIR, and the relaxation of bank secrecy laws for investigating and combating tax fraud.

Dominguez wanted HB 4774 to passed into law by June this year, warning the Philippines may lose its investment grade status from international credit rating agencies if Congress failed to pass these tax measures needed to fund higher public spending.

According to the finance chief, Duterte, with his 84 percent public approval rating, would not hesitate to use his political power to ensure the passage of HB 4774 including all unpopular revenueraising measures.

The Duterte administration is now hard-pressed to pass tax reform plan to raise the needed R206.8 billion budget for the government’s big-ticket development projects, particularly the infrastructure program.

The government targets to ramp spending on infrastructure to R1.83 trillion, education and training to R1.27 trillion, health to R272 billion and social protection, welfare and job generation for the poorest of the poor to R509 billion by 2022.

This would mean an estimated additional investment of R1.07 trillion for infrastructure, R718 billion for education, R139 billion for health, and R267 billion for social protection each year over the next six years.

In the medium-term, tax reform once passed into law is expected to reduce the poverty rate from 21.6 percent in 2015 to 14 percent in 2022, and lift some six million Filipinos out of poverty.

The tax reform will also help the country achieve upper middle-income country status where per capita gross national income increases from $3,550 in 2015 to at least $4,900 by 2022, close to where Thailand is today.

But once the Philippine economic momentum is sustained, the country would be well on its way to becoming a high-income economy by 2040 with a per capita gross national income of a least $11,000, which is where Malaysia is right now. (Leyco covers the Department of Finance and the National Economic and Development Authority.)