"We should closely watch these trillion-peso deals."
"We should closely watch these trillion-peso deals."
As the Duterte administration crosses the halfway mark, all eyes are on one of the President’s most anticipated campaign promises: the “golden age of infrastructure” in the country via his much vaunted Build, Build, Build program. These include long-term, big-ticket projects, and so the last three years of what is proving to be an immensely controversial presidency put heavy pressure on Duterte to deliver on his commitment.
This massive infrastructure push sees the government aiming to spend some P2.18 trillion in 75 flagship projects, 37 of which have already secured approval from the National Economic and Development Authority (NEDA). Of the 37, 13 are envisioned to be completed by the end of the Duterte presidency in 2022, with the rest being completed beyond.
With just three years left to fulfill such a massive undertaking, time is of the essence, and the timely rollout and implementation of such projects will make or break a critical campaign promise.
The budget impasse at the beginning of the year was a discouraging economic spoiler. According to figures from the Bangko Sentral’s First Quarter 2019 Report on Economic and Financial Developments, the protracted stalemate resulted in an underspending of about P1 billion per day, which was largely responsible for the sharp decline in public construction activities in the same period, from 22.6 percent a year ago and 11.8 percent last quarter to a low 8.6 percent.
The same slowdown was reflected in the gross domestic product (GDP). Data from the Philippine Statistics Authority showed a near 1 percent drop in GDP growth year-on-year to 5.6 percent from 6.5 percent in the same period last year. Moving forward, the envisioned multi-trillion government spending on infrastructure will require the adoption of an expansive fiscal policy that can help guarantee a reliable stream of funds.
Because two-thirds of projects in the pipeline are to be funded by government money, this means we need to keep a vigilant eye on the government’s dealings with regards to loans as well as its proposed tax-related reforms.
Top of mind when it comes to loans is of course China. An offshoot of Manila’s controversial pivot to Beijing and warming of its ties with the Asian superpower, the Duterte administration had not been shy about its looking to China to finance some of its big-ticket infrastructure projects. Of the 35 flagship projects, 12 will be reportedly financed by Chinese loans and grants.
Among the biggest are the P175-billion Philippine National Railways (PNR) South Long-Haul aimed at connecting Metro Manila to Bicol, followed by the P50-billion Subic-Clark Railway seen to connect the two free port zones in Central Luzon. Two loan agreements with China have already been signed: the P4.37-billion Chico River Pump Irrigation Project and the P12.2-billion New Centennial Water Source-Kaliwa Dam. Both projects have been criticized for posing a risk to the way of life of indigenous peoples in their proposed areas of operation.
Many have also warned that the country is, like some developing countries, potentially falling into a Chinese debt trap. Former Bayan Muna representative Neri Colmenares has called attention to, for instance, the “onerous” Chico River project, which is not only covered by loan terms that are severely disadvantageous to the country, but also surrenders Philippine sovereignty and patrimonial assets should we be unable to pay off the loan.
Meanwhile, introducing changes to taxation is also a thorny issue, in particular plans to lower corporate income taxes, rationalize tax incentives, as well as those involving mining or sin taxes. Calibrated rashly, this may have severe implications on the broader economy.
For instance, the much talked about and controversial Tax Reform for Attracting Better and High-Quality Opportunities or TRABAHO Bill, meant to rationalize incentives by making them more time-bound and performance-based, failed to pass the last session of Congress despite consistent championing by the Department of Finance and the administration’s economic managers.
Some business sectors have protested the proposed removal of the preferential 5 percent gross income earned currently on offer by Investment Promotion Agencies. These include the Philippine Economic Zone Authority, whose many locators were among those who warned that, if enacted, the bill would dampen investor confidence and thus lead to large-scale revenue reduction and job losses.
This will shrink the tax base and therefore fail to generate revenue, one of its most salient intentions.
Also, worth watching is the easing of bank secrecy laws, which the Department of Finance hopes to be implemented within the year. This will pave the way for the implementation of a general tax amnesty, seen to generate billions for the country’s coffers. Duterte has vetoed the relevant provision in a recent bill as he wanted more state authority to run after tax evaders, in particular the relaxation of bank secrecy protection.
Sen. Panfilo Lacson had filed a bill precisely to exempt government employees and officials, including uniformed servicemen and employees of government-owned and controlled corporations, from supposedly exploiting the decades-old Bank Secrecy Act to hide ill-gotten wealth.
Two potentially potent sources of funding are worth looking at but also require careful calibration. House Bill 8400, which sought to rationalize and institute a single fiscal regime governing all mining operations, could have allowed the country to make use of its massive untapped mineral resources. If truly maximized, the mining sector could single-handedly provide the fiscal muscle to implement Build, Build, Build.
Finally, the passage of two landmark pieces of health legislation, the Universal Healthcare Act and the National Integrated Cancer Control Act, would need a consistent source of funding, which in turn makes increasing sin taxes tempting. While this is laudable on paper, the country’s recent experience with TRAIN, for instance, teaches us that these things need to be approached with caution because of the risk of triggering inflation.
While there is no question that an infrastructure push is long overdue, the sheer size of the projects involved also make it imperative that we closely watch these trillion-peso deals. After all, for every loan and every new tax measure, the burden inevitably accrues to the ordinary Filipino.