Lower income tax enough to counter inflation — DOF

The Tax Reform for Acceleration and Inclusion Act (TRAIN) has increased the incomes or spending power of Filipino consumers to more than make up for the rise in inflation, the Department of Finance (DOF) said.

In a statement, Finance Assistant Secretary Paola Alvarez explained that one positive effect of high economic growth is a rise in domestic demand or consumption, which, however, leads to a temporary spike in consumer prices.

“The good thing, though, is the higher revenues generated by the TRAIN has enabled the government to put in place various measures, such as personal income tax (PIT) cuts, unconditional cash transfers (UCTs) and transport subsidies,” Alvarez said.

The DOF official said these measures have put more money into the hands of consumers to more than cover for the slight increase in consumer prices.

After an “initial and temporary” spike, inflation will eventually go down and stabilize as the pressure on supply eases and production costs drop because of the massive infrastructure development under the “Build, Build, Build” program, Alvarez said.

“This infrastructure buildup program anchored on 75 flagship projects will, in turn, further supercharge the economy and create more jobs, hence all the more putting extra money into the hands of Filipinos, especially of the poor plus low- and middle-income consumers,” Alvarez said.

She said that for poor and low-income households, the government has carried out measures made possible by TRAIN to address the temporary uptick in inflation, such as the UCTs for the 10 million poorest families and indigent senior citizens across the country.

TRAIN earmarks 70 percent of the incremental revenues generated under the law for infrastructure, and 30 percent for social services, such as improvements in health care and education, UCTs, fuel vouchers for public utility vehicles (PUVs) and other social protection measures.

“The current spike in inflation is only temporary. TRAIN, which has made possible the ‘Build, Build, Build’ program and the increased spending on social services is a long-term solution to prevent prices from further rising in the future,” Alvarez said.

Inflation registered at 5.2 percent in June, with year-to-date inflation averaging 4.3 percent as a result primarily of the higher annual rate posted in the heavilyweighted food and non-alcoholic beverages index, according to the Philippine Statistics Authority (PSA). The PSA said this means the higher-than-expected price hikes in June was driven by a surge in prices of alcohol and tobacco (20.8 percent), transport (7.1 percent) and food (6.1 percent).

“These factors that drove up inflation, save for the increase in the prices of tobacco, would be present even without TRAIN,” Alvarez said.

“In fact, the impact of elevated inflation on a fast-growing economy would have been greater on ordinary Filipinos had the government failed to implement social mitigation measures made possible by the TRAIN,” she added.