Finance Secretary Carlos Dominguez 3rd emphasized on Friday the importance of fiscal sustainability and a solid financial system to the Philippines’ economic recovery from the coronavirus pandemic.
During The Manila Times Economic Forum 2021: Rising from the ashes: From pan-Asian to pan-Global, Dominguez said that while the government expected the economy to rebound strongly and grow between 6.5 and 7.5 percent this year, it knew it would take more years
for domestic output to bounce back to pre-pandemic levels.
Gross domestic product (GDP) shrank by 9.5 percent in 2020 on the lockdowns and other restrictions the Duterte administration imposed to try contain Covid-19, compared to 2019’s 5.9-percent growth. The figure was the lowest since the government began collecting GDP data in 1946 and kept the country in a recession.
“A sustainable fiscal position and a strong financial system are the platforms on which we launch our economic recovery,” Dominguez told the virtual forum.
To sustain a healthy fiscal position, the Finance chief said the state needed to collect more taxes. He expressed optimism that as the government’s tax-gathering agencies, the Bureaus of Internal Revenue (BIR) and of Customs (BoC), embark on full digitalization, its P2.88-trillion revenue target this year would be reached.
The BIR and BoC collected P1.95 trillion and P537.7 billion, respectively, last year, down 10.32 percent and 14 percent from P2.17 trillion and P630.3 billion in 2019.
Dominguez also said Build, Build, Build would be the “cornerstone” of economic recovery, as a large part of the government’s P4.50-trillion national budget for 2021 was earmarked for projects under the flagship infrastructure program.
“Our enhanced revenue collection this year will help us sustainably fund the wider rollout of the infrastructure modernization program,” he added.
A strong private sector is also key to the government’s rebound strategy, the secretary said, as “the more sustainable path to recovery is to foster the revival of our enterprises and the restoration of consumer activity.”
With this, he lauded the ratification of the proposed Corporate Recovery and Tax Incentives for Enterprises Act (Create), tagging it as the government’s “biggest stimulus ever for businesses.”
The latest version of the second package of the government’s Comprehensive Tax Reform Program, Create seeks to cut the country’s corporate income tax rate from 30 percent to 25 percent for large corporations and to 20 percent for small businesses.
It also aims to modernize fiscal incentives by making them performance-based, targeted, time-bound and transparent.
Congress ratified the measure on February 3. It now awaits President Rodrigo Duterte’s signature.
“With Create, we are leaving the money in the private sector’s hands to revitalize their businesses,” Dominguez said.
“We trust that enterprises will reinvest their tax savings from Create back into the economy to spur domestic activity and create more jobs for our people,” he added.
The Finance head also underscored the importance of Republic Act 11523, or the “Financial Institutions Strategic Transfer Act” (FIST), which aims to energize the economy and guide it toward a quick and sustainable recovery.
Signed on February 17, FIST allows banks to efficiently offload their bad loans and nonperforming assets (NPAs).
According to Dominguez, this new law will assist the banking system in performing its crucial role of efficiently mobilizing savings and investments by extending more loans to micro, small and medium enterprises.
Last week, he cited National Economic and Development Authority estimates in saying RA 11523 could free up to P1.19 trillion in loans from banks’ sale of their NPAs to asset management companies.
To encourage them to acquire banks’ soured loans and assets, the law provides tax exemptions and lower fees on certain FIST-related transactions, he said.
By helping banks keep their lending operations strong, FIST would assist about 600,000 micro, small and medium enterprises in continuing their operations and retaining around 3.5 million jobs, he added.
“The Duterte administration is committed to ensure that our economic fundamentals remain strong and our fiscal resources sufficient and sustainable,” Dominguez said.