The Philippines will have to ramp up its total investment spending to an equivalent of 30 percent of gross domestic product (GDP) to achieve its goal of becoming an upper middle-income economy by 2022 and a high-income one by 2040, the socioeconomic planning body said over the weekend.
As part of the target, the public share of investments must increase from 5.4 percent of GDP this year to 7 percent onward until 2022, Socioeconomic Planning Secretary Ernesto Pernia said in a statement.
The budget for public infrastructure alone beginning this year will be raised to 5.4 percent of GDP, which is equivalent to about P861 billion, while private investment is expected to contribute 18.6 percent of GDP, for a total investment equivalent to 24 percent of GDP, Pernia said.
“This is a significant improvement from historical lows, but this level will not be enough to help the country achieve its vision of eradicating poverty and becoming a high-income economy, where Malaysia is nearly right now, by 2040,” he said.
To achieve this vision, the country needs to bring total investments from 24 percent this year to 30 percent of GDP, of which 7 percent of GDP will be contributed by the public sector.
“Hence, an ambitious program focusing on infrastructure is necessary not only to raise the government’s contribution to investments, but also to fill the country’s massive infrastructure backlog that has been inherited from past governments,” Pernia said.
Boost infra budget to P1.9T by 2022
The government’s total infrastructure budget, both national and local, is projected to grow from P861 billion in 2017 to P1.898 trillion by 2022, or from 5.4 percent to about 7 percent of GDP, Budget and Management Secretary Benjamin Diokno has said.
“These record levels of spending will align our country with its more vibrant neighbors and put us on track to achieve our vision of eradicating extreme poverty and transforming our economy into a high-income one by 2040,” he said.
Diokno reiterated, however, that the unprecedented levels of public spending in the years ahead can happen only if the government generates much more revenue than currently collected, an effort that will require major reforms in tax policy and administration.
Tax reform vital to growth plan
With this, a tax reform program must be implemented to achieve this vision, according to the government’s economic managers.
Pernia, who is also director general of the National Economic and Development Authority (NEDA), said the government needs to implement broad and deep reforms in tax policy and administration in order to raise enough revenue to fund the government’s unprecedented public spending plan.
“Without the tax reform, we will not be able to fund the needed increase in infrastructure spending beginning 2018,” he said.
The first package of the Comprehensive Tax Reform Program crafted by the Department of Finance (DoF) was submitted to the Congress in September last year and remains pending to date. It proposes to lower personal income tax rates, broaden the value-added tax base, and adjust the excise taxes on automobiles and petroleum products.
Finance Secretary Carlos Dominguez 3rd also said that his department welcomes the recent statement of Rep. Dakila Carlo Cua, who chairs the House ways and means committee tackling tax reform, that the first package is likely to be approved by the panel this January.