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The next president will inherit significant economic reforms

CROSSROADS TOWARD PHILIPPINE ECONOMIC AND SOCIAL PROGRESS - Gerardo P. Sicat - The Philippine Star

Significant economic reforms that Rodrigo Duterte’s administration achieved during his term will stand to benefit the country’s next president if the latter understands the good fortune brought in his/her way, and does not negate the intent of the reforms by contrary actions.

Duterte’s economic reform achievements. During much of his term of office, popular support for President Duterte was high. Despite the fact that his main programs were more focused on issues of peace and order, the war against drugs, and other political issues, his accomplishments on economic reform legislation surpasses those that recent leaders have been able to accomplish.

Upon assumption in office, President Duterte pushed the focus on strengthening the infrastructure building program by speeding up the decision-making procedures and by increasing the available project choices in the Build Build Build program.

To strengthen the fiscal base, a program of tax reform accomplished with great speed the revenue-raising reforms that permitted higher budgetary public spending. Unlike in the past when budgetary politics was a cause of major delays in funding government programs, the yearly national budget under Duterte’s government was swiftly passed and without undue delays by Congress.

Quicker decision-making that involved the infrastructure and social programs undertaken by the government was matched by the accomplishments in economic reform legislation.

Significant legislation covered major areas: (1) Tax reform. (2) Investment incentives reforms. (3) Food security issue, especially with import policy and, (4) amendments to liberalize the attraction of foreign direct investments into the country, specifically in regard to, namely, the retail trade law; the public service act, and the foreign investment law.

The economic reforms were not easy. These legislative reforms were not achieved at the same speed in becoming laws of the land. There was great resistance to their passage. Strong interests blocked progress, especially in the Senate. Progress in the legislation was achieved only at the cost of compromise. Only the tax reform to improve revenues was undertaken with remarkable speed in passing Congress. The legislation on food security (or the Rice Tariffication Law, which abolished the NFA importation monopoly on rice) became law only by the fourth year of the Duterte administration, also, with great resistance.

These two major reforms, however, have already shown significant beneficial impact. The tax reform or (1) has substantially raised the level of government finances. It involved the reduction of high individual income tax rates and the increase of excise taxes on energy and on “sin” taxes, which were mainly on tobacco, e-cigarettes and alcohol.

The tax reform helped to expand government spending capacity, both for ordinary needs of the government and to generate support of the public investment programs. It has enabled contributing substantially to the financing of the Build Build Build program.

The reform on food security or (3), has helped to stabilize the domestic price of rice at retail by steadying the nation’s rice supplies through competition among by importing private traders. Before, the government’s sporadic and periodic decisions on rice imports only created artificial scarcities that bred undeserved rents and profits for those favored by the regulations of the government agency (NFA) and the loss of government revenues while precipitating instability of the retail price of rice, the nation’s principal food staple.

We face the presidential elections this May with rice prices being much more stable and secure for 110 million Filipinos.

With the abolition of the government import monopoly, the government now collects tariff revenues on the imported rice (at 30 percent ad valorem). A major part of the revenues collected go back as support to the domestic rice industry to improve its productivity, including help to poor farmers.

The other economic reforms will find major implementation of their provisions only as the next president of the country reaps the benefits that can come from them.

The reform of investment incentives or (2), took three years of material time to pass Congress. Inevitably, the reform of investment incentives is integral to the comprehensive tax reform program. The objective of the reform was to rationalize the numerous investment incentives and to make them more accountable and transparent in promoting new investments. The fiscal investment incentives are mainly, but not entirely, taken against the corporate income tax by incentive-receiving business entity. They are an aspect of tax reform.

As finally enacted, the corporate income tax rate was reduced from the 30 percent effectively to 25 percent for most businesses. However, further incentives granted to small and medium enterprises reduces the effective tax to 20 percent. The net effect of this reform is to improve the country’s corporate tax rate to be more competitive with the lower prevailing tax rate in the ASEAN by reducing the gap in rates.

The fourth and final set of reforms have to do with easing the barriers to entry of foreign direct investments in the country. They are designed to reduce the restrictive and protective policies on foreign investments that have contributed in making the Philippines a laggard in this economic area.

In the last legislative session having to do with his presidency, the two houses of Congress have finally agreed to enact the three important pieces of legislation that President Duterte had recommended as urgent.

The amendment to the Retail Trade Law has just recently been signed. The amendment to the Public Service Act and to the Foreign Investment Incentives Law are shortly to be signed by the president into law.

In short, the main responsibility for implementing the new laws easing the entry of FDIs into the country will be on the lap of the next president.

The next president will still be challenged. Not all is golden, however, for the next president. Even though the reforms are battles won through legislation, the chance that opponents to some provisions of law, especially in the case of the Public Service Act, will raise the issue of constitutionality. This is the old game of delay and destruct.

The next president, therefore, will have to be fortified with good leadership qualities to overcome such challenges.

 

 

For archives of previous Crossroads essays, go to: https://www.philstar.com/authors/1336383/gerardo-p-sicat. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/

RODRIGO DUTERTE

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