Slower

Nearly every multilateral financial institution and bank forecasters have marked down their growth forecasts for the Philippines. This is actually the second time this year that our growth forecasts are being trimmed.

On the average, Philippine GDP growth forecast now stands at 6 percent. That is down from about 6.4 percent at the beginning of the year and 6.2 percent after the first semester.

The major factor influencing the markdown is the measly 5.7 percent growth posted at the end of the first quarter. At another time or in another place, a 5.7 percent growth rate would have been impressive. But not now and not here.

The Philippine economy has been gathering momentum over the past several years. Since 2015, we have been posting growth rates of 6 percent or better each quarter. Because of that, we heard our economy described as “Asia’s newest miracle economy” or as a “growth leader” in this over-performing part of the world.

Expectations have been high. But those expectations were not met by stronger investment inflows. The old demons that bedeviled Philippine development – red tape, corruption and poor infrastructure – continue to haunt us despite government’s best efforts.

We have established an Anti-Red Tape Authority as a signal we are determined to reduce bureaucratic congestion. Every effort has been exerted to expedite permitting procedures and digitalize as much of our processes as possible. The crackdown on corruption has been unremitting.

But the demons continue to haunt investors. They need to be impressed some more.

President Duterte, thankfully, vetoed the Security of Tenure bill proposed by populist politicians. That would have made our labor regime too rigid and driven away even those investors already here. Signing that bill into law would have been a death knell on our competitiveness. It would have given our famously ideological trade unions the run of the place. It would have brought up unemployment and poverty rates, undermining all gains in bringing down those rates.

Vetoing the Security of Tenure bill is a most courageous act on the part of the President. No piece of legislation is ultimately as anti-poor as this one, crudely packaged as a “pro-poor” measure. It is testament to the dire need to educate our legislators on how economies work.

 The single-biggest factor influencing the markdown of our growth performance is the lower-than-expected growth performance in the first quarter. The single-biggest factor explaining that is the delay in the passage of the 2019 budget. The delay resulted in failure to spend P2 billion per day in economic investments through the first quarter. That was a major let down, as we now know from hindsight.

The failure to pass the national budget in a timely manner aroused old fears about the efficiency of our political system in supporting economic achievement. Many investors fear we do not have the competent political class necessary to provide our economy modern governance.

We will recall the budget process was delayed due to squabbling between the Senate and the House. The root of that squabbling is an old affliction: the propensity of our legislators to reshape national budgeting to serve their pork-barrel interests.

For decades, strategic national projects were carved up and subdivided according to the districts. That was important for our politicians to get reelected. That caused the huge infrastructure backlog that now hampers our economic growth.

We are now trying very hard to move forward the “Build, Build, Build” program of strategic infrastructure. But to invest the huge amounts needed to catch up with the quality infra of our neighbors, we need to produce more robust revenue flows. Otherwise, we will fail the standards of fiscal discipline.

In order to achieve more robust and recurrent revenue flows, we need to drastically modernize our tax system. But that can be done only by legislation.

Politicians, we know, are allergic to tax measures. That allergy is heightened by the propensity of populist groups to take to the streets and wrongly label every tax modernization effort as “anti-people.” These groups are wrongly labeled “progressive.” That is the misleading description they prefer.

As the Senate was being organized, no senator wanted to take the chair of the committee that will champion the tax reform proposals. Sen. Pia Cayetano, a returning senator, was eventually cajoled into accepting the responsibility.

Our politicians are reluctant to support modernization of our tax system mainly because they fail in explaining its long-term virtues to our citizens. The TRAIN Law, much maligned by the myopic protest groups, is a brilliant piece of legislation. It raised take-home pay for 99 percent of our workers through adjustment of the personal income tax rates while, at the same instance, improving revenue flows to government through a broadening of the tax base.

In its first year of implementation, TRAIN allowed us to match the regional tax effort average. This is the first time this happens since the Ramos year.

For the first time ever, this administration is undertaking a comprehensive tax reform program without being compelled to do so by a pressing economic crisis. We have the leisure to study the reform measures well and calculate their economic effects fully.

Yet our politicians, failing to exercise the economic statesmanship required, are reluctant to act on the remaining tax reform packages.

President Duterte, in his last SONA, again asked Congress to pass the remaining packages of the comprehensive tax reform program. The Department of Finance, principal advocate of tax modernization, sounds confident we will see them passed soon.

We will see if our political system could deliver on a package of measures guaranteeing the sustainability of our growth.