The government will maintain current fiscal and monetary policies, increase infrastructure spending, create more jobs and cut income taxes to boost economic growth in the next six years, President Duterte said in his first State of the Nation Address (Sona) on Monday.
“We will continue macroeconomic policies and even do better. We will achieve it through prudent fiscal and monetary policies, which will translate to high growth, job creation and poverty reduction. I hope to hand over an economy characterized by solid growth, stable inflation, more dollar reserves and a robust fiscal position,” Mr. Duterte said.
At the first meeting of the Development Budget Coordinating Committee (DBCC) earlier this month, the GDP growth targets for 2016 is at a range of 6 percent to 7 percent, which will go up to a range of 6.5 percent to 7.5 percent in 2017, then finally to a range of 7 percent to 8 percent for 2018 to 2022.
The fiscal and debt management of the previous Aquino administration will be maintained, one of the main features of which is the dependence on domestic sources of funding, as opposed to foreign sources to save on foreign- exchange costs.
The Duterte administration intends to have a debt mix of 80 percent from domestic creditors and 20 percent from foreign creditors.
Infrastructure spending
The Duterte administration will spend more on infrastructure at a rate of more than 5 percent of GDP, and will prevent underspending by the government, due to the lack of absorptive capacity or inefficient project implementation.
Budget Secretary Benjamin E. Diokno announced that for 2017, the budget proposal of the Duterte administration will include infrastructure spending of at least P890 billion. Mr. Duterte identified the infrastructure projects planned by his administration during the next six years.
“We will accelerate infrastructure spending. We will create the Mindanao Logistics Infrastructure Network and other road network master plans, interisland linkage projects, structural mitigation to address flooding in Metro Manila,” Mr. Duterte said.
He said the government will also work to increase the country’s road network and use the resulting bigger road network to promote more tourist areas throughout the country.
Traffic congestion
As a consequence of higher infrastructure spending, Mr. Duterte said the government would also be able to solve traffic congestion in Metro Manila.
He said the government is looking to increase the number of trains and increase the train speeds of the existing railway systems in Metro Manila and rehabilitate these railway systems to allow for the operation of more trains at higher speeds.
President Duterte said the procurement of these additional trains will be addressed at the soonest, for which he appealed to be given emergency powers to be able to purchase the trains right away.
However, for immediate relief from the traffic congestion in Metro Manila, he said the revival of the Pasig River ferry system is a “very viable” option to provide an alternative for commuters to travel around Metro Manila.
To ease traffic congestion at the airports, Mr. Duterte said he wants to develop the Clark International Airport to handle some local and international flights, but a bullet-train system from Manila to Clark should be installed first to ferry passengers.
Tax reforms
To further stimulate the economy, Mr. Duterte said the government will lower individual and corporate income-tax rates.
“We will initiate tax reforms towards a simpler and more equitable tax system. We will lower personal and corporate income tax and relax the bank-secrecy law. There must be sufficient income for all Filipinos,” he said.
We shall continue inviting more investments to create more jobs and will undertake reforms to ensure competitiveness. Measures to promote ease of doing business shall be mandatory,” President Duterte added.
The Tax Management Association of the Philippines (TMAP) has welcomed this declaration from the President in recognition of his earlier promise to make the tax brackets more equitable and reflective of the inflation that has set in since the last amendment in 1997.
However, the TMAP cautioned against increasing the value-added tax (VAT) rates as a means to recover the expected foregone revenues in the lowering of income taxes, which was also a campaign promise of Mr. Duterte.
President Duterte did not mention a possible increase in the VAT rates, as pushed by some members of his economic team and only endorsed the lifting of the bank-secrecy law as a means for the Bureau of Internal Revenue (BIR) to increase its tax collection by looking into the hidden assets and income of suspected tax evaders.
Environmental concerns President Duterte said the government will also prioritize efforts to mitigate the effects of climate change, but reiterated that restrictions on the use of energy sources should not stymie the industrialization of the Philippines.
He was referring to the Paris Agreement on Climate Change in 2015, which advocates the use of green energy. However, Mr. Duterte said he would repudiate this if the restrictions on the use of energy sources, such as coal will prevent the economic development of the Philippines because of the high cost of “cleaner” sources of energy.
As for mining, Mr. Duterte directed the Environment Secretary Regina Paz L. Lopez to review all mining permits and, if necessary, amend or revoke these permits. He said the military will be tapped to prevent the proliferation of illegal mining operations.
“There is already a law allowing mining, but they should follow the law. They should follow the government standards and pay the correct taxes,” he said.
He said the illegal occupation of influential people over large tracts of land and water resources at the Laguna Lake should also be checked, as fishermen in the area are now only left with a very little area to make a living.
Federal system
Mr. Duterte urged Congress to fast-track the country’s shift to a federal system of government, which he suggested to be a parliamentary form of government but with a President who will be elected at large by the people, but will only have some ceremonial powers.
To allay fears that a parliamentary form of government, would allow him to perpetuate himself in power, President Duterte said he would gladly step down even with two or three years left in his term if the shift to a federal system of government can be completed in three or four years.
“About the federal system, my advice to you is to maintain a federal system, a parliament, but be sure to have a president. I can commit today that if you hurry up the federal system, and you can submit to the Filipino people by the fourth or fifth year, you call for a referendum and after that call for a presidential election. Then, I will go,” he said.
“Copy the system in France, not the pure parliament, because it’s dangerous. It takes time to have something like that in England. You must have a president, just limit his powers. Then, even if there’s still two years or three years, I will go,” he said.
South China Sea
On the territorial dispute with China over parts of the South China Sea, Mr. Duterte said the Philippines will continue to honor the verdict in its favor in the arbitration case decided by the United Nations’ Permanent Court of Arbitration (PCA).
“We strongly affirm and respect the outcome of the case before the PCA as an important contribution to the ongoing efforts to pursue a peaceful resolution and management of our disputes,” Mr. Duterte said.
This is in apparent rejection of the suggestion of former President Fidel V. Ramos to set aside the PCA ruling as suggested by China when Manila initiates bilateral talks with Beijing over joint exploration and exploitation of natural resources in the disputed territories.
Ramos had already accepted Mr. Duterte’s offer for him to lead the backchannel negotiations with China on economic rights over the disputed areas in the South China Sea.
Image credits: AP