The government needs to ramp up its investment activities to equal more or less 30 percent of local output, or the GDP, consistent with the self-imposed goal of joining the ranks of middle-income countries by 2040.
This was the agreement reached by the country’s economic managers who were dissatisfied by the state of things, where public-sector investments, at present, equal only 24 percent of GDP.
According to the Department of Finance (DOF), the share of public-sector investments should lift from 5.4 percent of GDP this year to 7 percent next year and onward to 2022.
Socioeconomic Planning Secretary and National Economic and Development Authority (Neda) Director General Ernesto M. Pernia said beginning this year, the budget for public infrastructure will equal 5.4 percent of GDP, or P861 billion, from estimated infrastructure spending of only P760 billion in 2016. Private-sector investments were to contribute the equivalent of 18.6 percent of GDP.
“This is a significant improvement from historical lows. But this level will not be enough to help the country achieve its vision of eradicating poverty and becoming a high-income economy, where Malaysia is nearly right now, by 2040,” according to Pernia.
He explained the country needed to bring total investments from 24 percent to 30 percent of GDP, of which 7 percent of GDP will be contributed by the public sector, to attain the goal.
“In order to raise enough revenues to fund the government’s unmatched public-spending plan, it needs to implement broad and deep reforms in tax policy and administration. Without the tax reform, we will not be able to fund the needed increase in infrastructure spending beginning 2018,” he added.
Budget Secretary Benjamin E. Diokno also explained the total infrastructure budget at the national and local level was projected to grow from P861 billion this year to P1.898 trillion by 2022. Such would equal 5.4 percent to 7 percent of the GDP.
“These record levels of spending will align our country with its more vibrant neighbors and put us on track to achieve our vision of eradicating extreme poverty and transforming our economy into a high-income one by 2040,” Diokno said.
Diokno also pointed out the unprecedented levels of public spending in the years ahead can only happen if the government were to raise more revenues, which will require major reforms in tax policy and administration.
The first package of the Comprehensive Tax Reform Program (CTRP) crafted by the DOF was submitted to Congress last September. Package One of the CTRP proposes to lower the personal income-tax rate, broaden the value-added tax (VAT) base, and adjust the excise on automobiles and petroleum products.
Finance Secretary Carlos G. Dominguez III said the DOF welcomes the recent statement of Rep. Dakila Carlo E. Cua of the Lone District of Quirino, who chairs the Ways and Means Committee of the House of Representatives, that the first package would likely be approved within the month.
“In the medium term, tax reform is expected to help reduce the poverty rate from 21.6 percent in 2015 to 14 percent in 2022, lifting some 6 million Filipinos out of poverty, and helping 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,” Dominguez said.