DOF, PIDS at odds over TRAIN impact

MANILA, Philippines — The Department of Finance (DOF) hit the Philippine Institute for Development Studies (PIDS) for “downplaying” the positive impact of the Tax Reform for Acceleration and Inclusion (TRAIN) law by ignoring two of its key components in two papers it released.

The government think tank earlier released a paper which concluded the TRAIN as regressive, having a higher negative effect on low-income Filipinos. Another PIDS paper claimed that the  excise taxes on coal and petroleum products under TRAIN resulted in a slight increase in poverty incidence.

Finance Undersecretary Karl Kendrick Chua raised questions over these TRAIN analyses – made by economists Rosario Manasan and Philip Tuaño, with his team – claiming that they were partial and incomplete.

“Their conclusions are partial and media reports on these papers are misleading because the two papers committed sins of omission. The tax reform has always been a package, and any analysis of the impact of the tax package must look at the entire reform, from the tax rates to the social mitigating measures and earmarked spending on infrastructure and social services, not just selected provisions,” Chua said.

Reacting on Manasan’s paper, Chua noted that the analysis explicitly left out the Unconditional Cash Transfer Program, which he said is ”a key TRAIN provision” that supports the poor and vulnerable.

“How can the Manasan paper claim to account for the overall impact of TRAIN, when it ignores the effects of the UCT program and other mitigating measures? Although distribution was initially delayed, the government took steps to alleviate the impact by distributing the entire cash grant as a lump sum, initially to the Pantawid Pamilyang Pilipino Program (4Ps) beneficiaries so that mothers and children, the most vulnerable, will be protected,” Chua said.

Meanwhile, Chua said the Tuaño, et al paper failed to consider higher government spending on infrastructure, which grew by over 40 percent and accounted for over five percent of the gross domestic product (GDP) in 2018.

“This omission is crucial, because it means that the analysis underestimates the multiplier effect of increased government spending. The multiplier is around two, meaning, for everyone peso of infrastructure spending, another one peso is spent because more jobs are created,” Chua said.

The DOF official said that while the impact of TRAIN should be felt over time, 2018 figures already challenge the conclusions of both PIDS papers.

“Among others, we can cite the consistently strong GDP growth at 6.2 percent last year despite higher inflation, a more than 40 percent increase in government infrastructure spending, and the decline in the unemployment and underemployment rates,” Chua said.

“We appreciate the effort of various researchers to assess the potential impact of the tax policy reforms. However, these efforts should have included in their respective analyses the impact of TRAIN as a package that includes social mitigating measures and spending on infrastructure and social services, as they are not just afterthoughts of the reform, but intrinsically at the heart of the design of TRAIN.” he added.

According to DOF data, additional revenues generated by TRAIN reached P68.4 billion in 2018, higher than the target of P63.3 billion, even as it gave away P117 billion in personal income tax cuts to individual taxpayers.