Get real
Philippine Daily Inquirer, 17 February 2018


“The Philippines will continue to be the fastest-growing economy in the Association of Southeast Asian Nations despite some stabilization of investment growth.”

That’s from the World Bank’s Global Economic Prospects (GEP) which came out last month. The Philippines, according to World Bank forecasts, will grow by 6.7 percent in 2018, by another 6.7 percent in 2019, and finally, by 6.5 percent in 2020—faster than the world average, faster than the advanced economies average, faster than the emerging market developing economies average, as well as the Asean average, for that period. And yes, faster than China.

Is this something to be delirious about? The answer is NO, not if we take our Philippine Development Plan 2017-2022 seriously. There are two things wrong with this picture. First, according to the Plan, we should be averaging 7-8 percent annually until 2022 if we are to achieve our development targets. Growing as forecast (6.7 percent, 6.7 percent, and 6.5 percent in 2018-20), we will then have to grow at 7.7 percent for the next two years (2021-22) to attain a 7-percent average, and a whopping 10.7 percent if we are to hit the 8-percent upper end of the Plan target. We have never grown as fast before since the early postwar period.

Which leads us to the second thing wrong with the picture painted by the GEP, and that is the hiccup at the end of the forecast period—a downturn to 6.5 percent in 2020. The publication talks about a further slowing down of the potential growth of emerging market developing economies, not just the Philippines.

Potential output is what the economy can produce if all its resources are employed. And the growth of that output depends on the economy’s getting more resources (factor accumulation) and increasing the efficiency of those resources (total factor productivity).

In other words, the growth constraints are not immutable. If the Philippines can increase and improve the efficiency of its capital and its labor resources, we can increase GDP growth. Which is where the TRAIN Law comes in.

The Department of Finance has just put out a 136-page presentation online of why tax reform is needed and what it can accomplish—which is to improve human capital and increase investments in physical capital.

Only consider: The DOF has a slide showing how much additional funds are needed in the period 2017-2022 to improve our human capital (education, skills training, health, social protection) and our physical infrastructure and thereby achieve the Plan targets. That amount is P2.2 trillion, or P366 billion a year.

Already, there has been a delay in raising those funds, which was to have started in 2017 but has been pushed to 2018. The amounts can be raised by tax policy reform (TRAIN), tax administration reforms (in the Bureaus of Internal Revenue and of Customs) and budget reforms. No disagreement there.

But look at what happened to TRAIN: It originally was foreseen to raise P147 billion, then the House brought it down to P119 billion, then the Senate further brought it down to P60 billion. This was brought up by the bicameral committee to P80 billion, and President Duterte, by vetoing five provisions, brought it up finally to P90 billion. Will you blame me, Reader, for saying that the TRAIN, and therefore whatever additional investments could have been provided to attain Plan targets, lost P57 billion (147–90) through politics? And would you not say that the tax reform has been diluted?

The DOF then says, “If no or diluted tax reform, there are only two choices that will lead to the same outcome”: Continue the projected spending with less revenues (breach the deficit) or lower spending to match revenues. What is the outcome for both? “Poverty, malnutrition, traffic.” I kid you not, Reader. Traffic is included.

Let me summarize: The way we’re going, there is no way of achieving the Philippine Development Plan 2017-22 or President Duterte’s 10-point socioeconomic agenda. Reason: lack of funds. Why? Politics.

And that is exactly what the GEP says in its foreword: What is constraining investment in human and physical capital is POLITICS.

Do our politicians care? Look at them, concentrating on Charter change and federalism and impeachment. These are not the problems, fellows. YOU ARE.