Pernia: No 'build, build, build' without tax reform bill

MANILA, Philippines — The envisioned golden age of infrastructure under the Duterte administration may end up becoming a bronze age or even a dark age if Congress does not pass the proposed tax reform bill, an official warned Tuesday.

 

Socioeconomic Planning Secretary Ernesto Pernia said the non-passage of the tax reform measure, which has been certified as urgent by President Rodrigo Duterte, could limit the government’s capability to roll out key infrastructure projects.

 

“It’s not going to be the golden age of infrastructure. It will be the Bronze Age maybe of infrastructure, or maybe dark age of infrastructure. So that is how terrible, that is how unwelcome the non-passage of the CTRP (comprehensive tax reform program) is going to be,” Pernia said in a press conference in Malacañang.

 

“There’s a problem, then we will be unable to fund the build, build, build. It will be small build, small build, small build… Maybe no build, no build, no build,” he added.

 

The government is planning to spend more than P8 trillion for various infrastructure projects to usher in what it called a “golden age of infrastructure.” It has also vowed to undertake massive spending on human capital and social protection for the most vulnerable sectors to address poverty and reduce inequality.

 

To finance these projects, the Duterte administration is pushing for a comprehensive tax reform package that involves sizable cuts in personal income tax rates, the expansion of the value added tax (VAT) base, and adjustments to excise taxes on oil, automobiles and other products.

 

Economic managers are hopeful that Congress will pass the measure before it goes on a break this week.

 

The Finance department has warned that without the tax reform measure, the government would have to raise deficit spending by three percent of the gross domestic product, a move that it said could lead to an “unstable fiscal position.”

 

Such move could also result in a credit rating downgrade that would cost the government an extra P30 billion in annual debt servicing and P100 billion more in higher borrowing costs.

According to the National Economic and Development Authority, the country’s real gross domestic product (GDP) level will be higher by between 0.6 percent and 1.1 percent by 2022 if the tax reform measure is in place. Without the bill, which is formally called Tax Reform Acceleration and Inclusion (TRAIN), the GDP level will be lower by 0.5 percent and 1.1 percent by 2022. The GDP is the sum total of all goods and services produced in an economy.

 

Some lawmakers are opposed to a number of provisions in the executive department’s proposal including the lifting of VAT exemptions enjoyed by cooperatives.

 

The version of the House of Representatives is expected to generate P82 billion in additional revenues, lower by almost half than the P164 billion projected revenue gains from the Finance department’s proposal.

 

Pernia is hopeful that Congress will pass the executive department’s version in its entirety.

 

“They should realize that we in the economic team, our interest is really just the country’s development, the improvement of society. We have no personal agenda at all. And we are trained to do economic analysis, tax analysis, as we know what is best, what is optimal,” he said.

 

Finance department spokesperson Paola Alvarez admitted that the final version of their proposal could be watered down because of concerns raised by some lawmakers.

 

“Until now we’re still encouraging our members if they can still consider the original provisions but of course that’s up to the legislators. We’re still trying to convince them to retain some of those provisions,” Alvarez said.

 

To make up for the foregone revenues, the government is planning to improve tax collection efforts and intensify efforts against leakages, she added.  

 

In the same press briefing, Pernia said he expects the second quarter GDP growth to be “better” but did not provide specifics. 

 

The Philippines’ GDP grew by 6.4 percent in the first quarter and by 7 percent in the second quarter of 2016.