REVIEWING tax reforms and its multibillion-peso infrastructure initiative should be top of mind for the outgoing administration in order to boost the country’s recovery efforts, according to a study released by the Ateneo de Manila University.
In an Ateneo School of Government (ASOG) working paper, titled “Review of the Philippine economic situation and analysis of the State of the Nation in 2021,” ADMU Department of Economics Professor Philip Arnold P. Tuaño underscored the need for the Duterte administration to address its shortcomings in its last year in office.
Tuaño said the government should also focus on strengthening fiscal spending and ensuring that policies accommodate small and medium enterprises.
“At the start of its term, the Duterte administration reaped the benefits of the Philippines’s momentum of economic growth and poverty reduction; the country’s GDP continued to expand at above 6 percent during the 2016 to 2019 period while poverty incidence significantly declined to 16 percent in 2018,” Tuaño explained.
“However, the Covid-19 pandemic shock in 2020 has dented this trajectory and impaired the short-run prospects of the country; at the same time, the lack of a robust fiscal response to the social and economic impacts of the pandemic may have further diminished the ability of the country to immediately continue its prepandemic growth trajectory,” he said.
Tuaño said Covid-19 eroded the economic gains in the past decade. The impact of the pandemic plunged the economy to its lowest in the postwar period in the second quarter of last year.
Millions of jobs were lost and consumption spending plummeted. Even government spending was not enough to keep the economy afloat.
Tuaño said that with this, poverty increased. Citing previous studies, he said, the “borderline poor” increased to 36 percent in December 2020, 13 percentage points higher than the rate recorded in November 2019.
Further, these studies stated that more than half of households saw a drop in income while around three quarters had reduced access to markets; more than a third suffered from reduced meals.
Foremost in government’s efforts to recover is the vaccination program. However, supply constraints have prevented the smooth administration of vaccines.
“The lack of a robust response to the pandemic has also affected the growth momentum in the country; the government has now downgraded its growth projections for 2021 while private analysts are even expecting that we can only recover our 2019 output in 2022 or beyond,” Tuaño said.
In order to address these challenges, Tuaño recommended that a review of the tax reforms and the Build, Build, Build program is necessary. By revisiting these, Tuaño said, the government can better respond to the crisis.
He said that, for one, economists have expressed their criticism of the tax reform, particularly the Corporate Recovery and Tax Incentives for Enterprise Act (CREATE).Tuaño said the tax relief provided under CREATE only benefited “large incorporated firms” already receiving credit assistance from the Central Bank.
Uncertainty
He also stressed that the reform creates uncertainties among investors in export processing zones because of the limitations on the use of their incentives.
“While there seems to be less wiggle room that the administration has given [now] that the country is close to the election period, the government might still press on to undertake the other parts of the tax reform, given a large part of the broader package—mining tax, real property valuation, passive income tax,” Tuaño said.
In terms of the BBB, Tuaño said only 11 of the 75 flagship projects were under way during the first half of President Duterte’s administration in 2019.
This prompted the administration to modify the list of BBB projects by dropping big and unattainable projects for smaller and more feasible ones.
He also pointed out that issues also hounded the developmental assistance or loans the Philippines planned to get from China amid the territorial dispute in the West Philippine Sea.
“Given the constraints in the movement of workers during the pandemic period, the number of infrastructure programs may further fall. One of the areas where the government may be able to invest in would be in strengthening human development,” Tuaño said.
He recommended that the Duterte administration prioritize, in its final year, strengthening the Internet backbone as more and more laborers, especially professionals, as well as those in online retail and services, will continue to work from home. This will raise demand for Internet services, e-commerce, ICT products and logistics.
Tuaño also cited a need to improve the quality of public transportation systems to bring them to their places of work and the security and safety in the use of digital money and banking transactions, as these will dominate in the coming years.
The government, he said, should also strengthen local value chains, including urban agriculture and home food production; and provide greater opportunities for more distance education, online learning.
He also flagged a need to address climate vulnerabilities of the country and their effects on business and employment and the issues of sustainability in the country.