THE Department of Finance (DOF) expects the country’s ranking in line with the Index of Economic Freedom (IEF) for economies of the Heritage Foundation to improve in 2020, coming from the 70th spot among 186 economies in 2019.
In the DOF’s latest economic bulletin from Finance Under-secretary Gil S. Beltran, the department said it expects the Philippines’s ranking to rise in 2020, as reforms will be put in place by the government to boost development.
This year it bore an overall score of 63.8.
“For index year 2020, the country’s score is expected to improve significantly,” the DOF said.
Measures seen to enhance the country’s economic stance include: the signing of the Personal Property Security Act, which is seen to improve the score on property rights; and the signing of the rice tariffication bill, which will also reduce the penalty for nontariff barriers in the computation of the trade freedom index.
Furthermore, the DOF said full implementation of the TradeNet.ph, which aims to cut red tape in the processing of trade-related documents by 76 trade regulatory agencies, will strengthen private- sector participation in the economy.
For index year 2019, the Heritage Foundation ranks the Philippines 70th which is nine notches down from the rank in index year 2018 of 61.
The Heritage Foundation is a think tank based in Washington, D.C., in the United States. The IEF is weighed equally by 12 quantitative and qualitative factors grouped into four broad categories: rule of law, government size, regulatory efficiency and open markets.
It defines economic freedom as the fundamental right of any person to control his or her own labor and property such that individuals are fee to work, produce, consume and invest in any way they please and that governments allow labor, capital, and goods to move freely and refrain from constraining liberty.
Factors that posted a growth in the indices include: the Philippines’s property rights, which was given a score of 48.7 in 2019 coming from 45 in 2018; and labor freedom with 57.9 from 57.6 in 2018.
“As in any measure, the IEF leaves out important details. For example, the Foundation puts a premium on small government without regard for the economy’s developmental stage; thus, there is a penalty for increasing government spending whether an economy is industrialized or developing. But a developing economy may require greater government involvement in the economy as in the provision of infrastructure and social services such as basic education, health and social protection,” the DOF said.
Those that posted a decrease include: the country’s government integrity, which was scored 30.9 from 34.4 in 2018; judicial effectiveness at 36.4 coming from 38.2; tax burden at 76.9 from 78.9; government spending with 88.7 from 89.3; fiscal health with a score of 97.1 from 97.7; business freedom at 61.3 from 62.6; monetary freedom at 69.6 from 76.3; and trade freedom to 78.2 from 80.7 in 2018.
“Conversely, improving tax administration, which results in a higher tax effort, can mean a lower tax burden score. The Foundation also does not take into account equity issues of progressive tax system. Since the IEF simply takes the highest marginal tax rate in the computation of the index, the score of the Philippines was reduced because the highest marginal personal income-tax rate was increased from 32 percent to 35 percent. However, the IEF did not take into account the correction made for bracket creep, which benefited millions of ordinary salary workers,” it added.
The indices on investment freedom and financial freedom were each given a score of 60 this year, the same as last year’s scores.
“TRAIN [Tax Reform for Acceleration and Inclusion law] is precisely a fiscal reform to finance developmental goals, among others. It is not lost on TRAIN that there is no such thing as free lunch. Put another way, economic freedom does not come free,” the DOF said.