More investment needed to reach affluent society goal — NEDA

By E.J.C. Tubayan, Jan. 16, 2017

THE PHILIPPINES needs to attract more investment from both domestic and foreign sources to achieve the goal of becoming a high-income economy by 2040.

National Economic and Development Authority (NEDA) Secretary, Ernesto M. Pernia said that total investment levels need to rise to 30% of gross domestic product (GDP), from the current 24% target for 2022, before the Philippines can become a high-income economy.

This year, the private sector is expected to bring in investment amounting to 18.6% of GDP, while the government is programmed to spend 5.4% of GDP this year in public infrastructure, bringing the portfolio to a 24% total investment to GDP ratio.

“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,” Mr. Pernia was quoted saying in a statement.

The government is planning to hike its infrastructure spending to 7% of GDP by 2022. However, this increase will only contribute so much to Mr. Pernia’s 30% target.

Asked if the government will attain the 30% target before its term ends, Mr. Pernia did not respond.

The NEDA chief said in the same statement that the tax reform is vital to attaining the targeted level of infrastructure spending.

“In order to raise enough revenue to fund the government’s unmatched public spending plan, it needs to implement broad and deep reforms in tax policy and administration. Without the tax reform, we will not be able to fund the needed increase in infrastructure spending beginning 2018,” said Mr. Pernia.

However, according to the Department of Finance (DoF), the first package of the proposed tax reform program will bring in P206.8 billion, accounting for only 1% of GDP in its first year.

The DoF also said recently that the infrastructure projects for 2018 will be dependent on the passage of the first tax package, as it will use funds from the revenue generated by the tax reform.

However, the tax reform program still has a long way to go, with committee level approval pending in the House.

Budget Secretary Benjamin E. Diokno said that the government will raise its total infrastructure budget to P1.898 trillion by 2022, from the P861 billion programmed for this year.

“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,” said Mr. Diokno in the same statement.

Mr. Diokno said that the increase in infrastructure spending, together with the tax reform will have a multiplier effect on the economy, attracting more private investment.

“A tax system that taxes income (personal and corporate) less, and taxes consumption more encourages investment. Higher spending in public infrastructure, in general, encourages private investment. For example, new highways or light rail transit lines that open up new communities, bring up new investment in housing facilities and new businesses,” Mr. Diokno said in a text message to BusinessWorld yesterday.

The government plans to reduce the poverty rate from 21.6% in 2015, to 14% in 2022, which will lift 6 million Filipinos out of poverty, and ultimately eradicating it by 2040.

The government also aims to increase the per capita gross national income from $3,550 in 2015 to $4,900 in 2040, eventually hitting $11,000 by 2040.