DESPITE the blame heaped on it for being an inflation trigger, the Tax Reform for Acceleration and Inclusion (TRAIN) law, along with an improved tax administration, got credit for expanding the country’s fiscal space, which the Department of Finance (DOF) said had enabled the government to boost investments and growth in the first semester of the year.
Based on the latest DOF economic bulletin on the government’s revenue performance, national government (NG) revenues rose by 19.9 percent to P1.410 trillion in the first semester of 2018 as the first phase of TRAIN took effect. Revenue for the first half of 2017 was recorded at P1.176 trillion.
“Fiscal space expanded by TRAIN 1 and tax administration enabled the government to boost investments and growth in the first semester. In the first semester of 2018, NG capital outlays expanded by 42.4 percent in nominal terms, boosting GDP growth by almost a percentage point, while the government current expenditures rose 26.6 percent, contributing incremental 1.16 percentage points to growth,” the DOF said.
Tax revenues grew by 17.4 percent to P1.254 trillion from P1.069 trillion, in the same period for 2017.
Bureau of Internal Revenue (BIR) collections rose by 13.7 percent to reach P964 billion, and Bureau of Customs (BOC) collections also increased by 32.9 percent at P279.4 billion, with both agencies exceeding the 9.6-percent nominal GDP growth.
Nontax revenues rose by 45.1 percent, amounting to P155.7 billion, due to higher collections of dividend remittances on NG shares of stocks, guarantee fees, and share in the profit of the Philippine Amusement and Gaming Corp. (Pagcor). Nontax revenues for the first half of 2017 reached P107.3 billion.
Higher collections from other offices also contributed to the increase, notably the one-off transfer of P13.5 billion in bond proceeds from the United Coconut Planters Bank (UCPB) for the Coconut Industry Investment Fund. Excluding the transfer, this would still show improved collection from other offices.
Expenditures grew by 20.5 percent, reaching P1.603 trillion from P1.330 trillion in 2017, also outstripping the 9.6-percent nominal GDP growth due to the 42.4-percent increase in capital outlays.
Revenue effort rose by 1.47 percentage points to 17.12 percent from 15.6 percent, the highest ever achieved during the first semester, according to the DOF.
Tax effort also rose by 1.01 percentage points, from 14.22 percent to 15.23 percent, similarly the highest first-semester tax effort ever achieved.
“Almost half or 0.4 percentage point is due to TRAIN and the rest or 0.61 percentage points to tax administration improvements,” the DOF added.
Expenditure effort rose by 1.77 percentage point to 19.47 percent, from 17.7 percent last year, the highest first-semester expenditure effort since 2003, thus boosting its contribution to GDP growth.
“Strong macroeconomic fundamentals backed by tax reforms and the ‘Build, Build, Build’ program will continue to boost economic growth as the competitiveness of the economy rises and more jobs are created,” the DOF said.
The NG deficit settled at 2.34 percent of GDP in the first half of the year, lower than the target as well as that of last year’s deficit of 2.05 percent in the same period.
Last week the country registered a GDP of 6 percent for the second quarter of the year, lower than the 6.6 percent recorded in the first quarter of the year as well as that of the 6.7 percent recorded in second quarter of 2017, based on data from the Philippine Statistics Authority (PSA).
“The government is keeping its eye on the bigger picture, that is, that growth, if it is to remain sustainably high, should be driven by investment. Public construction has accelerated to 22.1 percent in the first semester of 2018, more than double the 2017 first half growth of 9.3 percent. Private construction is also picking up,” the DOF said in a separate economic bulletin on the country’s second quarter GDP issued on Friday.
The DOF pointed out that the economy took a breather in the second quarter as real GDP growth decelerated to 6 percent, from 6.6 percent in the first quarter, with the main drivers for the contraction being a slowdown in manufacturing to 5.6 percent, from 7.6 percent in the first quarter; as well as in agriculture to 0.2 percent, from 1.1 percent in the first quarter.
“The government should keep its focus on enhancing the country’s long-term prospects by increasing the economy’s productive capacity through infrastructure and social services while maintaining macroeconomic stability. While CPI [consumer price index] inflation has remained elevated, the broader GDP deflator-based inflation shows a 3.1-percent price increase for all consumer and investment goods,” the DOF added.