Uncertain times

Much has been said about the difficult period that marked the second year of President Duterte’s term. It wouldn’t be surprising that in the third State of the Nation Address (SONA) next week, the chief of state would give less, or even no attention to all these unfortunate events.

Looking ahead, it is of paramount importance to find our bearings to determine a suitable course of action that will help the country brace for even challenging times in the next few years, chiefly caused by global and local pressures.

The country’s GDP figures may still be rosy, but a threatening all-out trade war between China and the US should be a key concern when determining a Plan B – just to reduce any downward stress on the Philippines’ economic growth path.

We have a lot at stake right now in the face of much uncertainty. Here are some thoughts to seriously consider:

Scale down BBB

The current administration’s ambitious Build Build Build (BBB) program has just started, and the foreboding of higher prices of imported materials to be used in the 75 flagship projects could easily escalate higher than the planned P8 trillion.

There’s no point in overburdening the economy with higher taxes to cover up for the increased bills of BBB. It’s better to keep borrowings at more comfortable levels, at least until the threatening global storm of a trade war blows over.

At the very least, the BBB vision could be stretched by several more years. If the feasibility studies, as well as commitments for funding are secured within Duterte’s six-year term, the next administration will have little excuse not to continue them.

Go slow on TRAIN

The passage of the first cut of the Tax Reform for Acceleration and Inclusion (TRAIN) law has come at a most inconvenient time when crude oil prices have risen by more than 50 percent this year. No matter if the timing is off, what’s done is done.

The next packages of TRAIN are now going through the mill. House Bill 7105, or package 1-B, proposes a general and estate tax amnesty, as well as the relaxation of our Bank Secrecy Law. This is regarded as a one-time revenue-raising move.

The corporate tax reform bill contained in Package 2, on the other hand, will reduce government revenues, but is expected to improve the competitiveness of businesses operating in the Philippines, that is, if done soonest before other competing countries in the region reduce their rates further.

To offset losses from the corporate tax reform bill, a reform on the existing value added tax law is being pushed by the Department of Finance (DOF). This is where the debate is now centered on.

Already, investors in export processing zones are talking about relocating to “friendlier” countries with the DOF continuing to push for a reform that will make VAT solely a consumption tax rather than an investment incentive.

Reforming the VAT law and reducing leakages from abused exemption clauses is necessary, but should not be at the expense of lost investments that provide for jobs and contribute to economic growth.

If the VAT reform is really necessary, let’s come up with alternative incentives that would keep investors here while even attracting others.

Make friends with everyone

In times of uncertainties, in the face of a trade war, exercising caution in foreign affairs is prudent. Fortunately, we have a President who can publicly change his mind on policy issues without batting an eyelash, and still not lose face.

The President has made so many overtures in recent months, preferring non-traditional allies like China and Russia; it was a time when the U.S. was going through one of its most difficult times since its founding three and a half centuries ago.

But you never know how the cookie will crumble; things can go either way. Both China and the U.S. are important to us. Let’s keep it that way.

Delay the move to federalism

There is a growing consensus among thought leaders now about the uncertainties that the proposed shift to a federal government would bring.

If we’re already crying out loud because of surging inflation these last few months, a possible scenario of hyperinflation with double-, even triple-digit inflation arising from a federal system as painted by University of Asia and the Pacific professor Victor Abola would likely bring us to the streets.

Even the well-respected economist, Bernardo Villegas, who – perhaps for the very first time in his life – has departed from his optimistic declarations about the Philippine economy, has this to say about federalism: “It’s going to be a disaster.”

Given the capacity of the current government to ride roughshod over any opinions against its plans, such a move towards a new type of government during these times when empowerment at the local level is already emerging could be regressive.

There is value to autocracy and a strong-man government, but there are limitations to it, too.

Cleaning up the house

In the meantime, there’s a lot of work that needs to be done in other areas. Graft and corruption is still a major issue in governance. We need a government, both in local and national levels, that is truly responsive to the needs of its citizens.

Detailed attention should be given to improving the growth of more businesses to make them become major contributors to the Philippine economy.

We can dream big, but let’s make sure to take the right steps to bring us there.

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