Commentary: Budget priorities to fuel development
In this Wednesday, Aug. 12, 2015 photo, Filipino workers arrange metal rods at a government road project in Quezon City, Philippines. Manila and other cities are choked with construction sites for office and apartment towers. But spending on roads, railways and other unglamorous but essential infrastructure collapsed after the 1997 financial crisis and has yet to recover. AP/Aaron Favila
The proposed 3.35-trillion national budget for the next fiscal year hopes to be an instrument of vigorous investment. This budget is higher by about 11 percent compared to the previous year’s. The 2016 budget failed to capitalize on infrastructure, a key expense in our goal to become one of the region’s economic elite. For 2017, the Duterte government plans to spend at least P900 billion for infrastructure.
To sustain economic development, the government should expend at least 8 percent of the national budget for infrastructure, thus creating jobs for at least 3 million people which will spur growth both in the urban centers and the countryside.
To sustain economic development, the government should expend at least 8 percent of the national budget for infrastructure.
This potential spending phenomenon has been overlooked and was never sustained in the previous administration. Hopefully, the current government which maintains basic and microeconomic fundamentals will heed the plan to accelerate government spending.
President Rodrigo Duterte, for his part, should devote more of his energy in addressing what was missed out by previous administrations, such as in significantly reducing poverty incidence, which currently remains at 26 percent of the population.
Another issue Duterte has to look into is something pointed out over and over by the business sector as a factor that turns investors off: government red-tape. Bureaucratic procedures should be relaxed, if not totally abrogated, or they will continue to derail the government’s “ease of doing business” initiatives.
Bureaucratic procedures for businesses should be relaxed, if not totally abrogated.
The corporate tax rate, which stands at 32 percent, is the highest in Southeast Asia. Budget Secretary Benjamin Diokno said the rate is “above the average in Asia of 23 percent.” It is also higher than Singapore’s 17 percent, Thailan’s 20 percent and Malaysia’s 25 percent. How can the country attract investments if, from the very start, businesses have already committed to a higher tax rate? A high tax rate complements the cost of production, which induces high prices affecting consumers.
The Bangko Sentral ng Pilipinas, the guardian of financial stability relative to commodity prices, should always be on its toes to promote a well-planned and manageable inflation rate within the range of its target. Currently, inflation rate is within the expected range of 2 to 3 percent. This brings about price stability despite the peso depreciation from the value of the U.S. dollar.
The stock market which serves as the immediate barometer and measure of economic and financial stability remains firm and steadfast despite the worldwide slowdown in the bourse. The shares market which continues to make a name in the region is expected to do well in the immediate future.
All factors considered, we expect an optimistic economic development to be attained at least in the next fiscal year, especially if it goes without political storm from disgruntled sectors.
Emmanuel J. Lopez, Ph.D. is an associate professor at the University of Santo Tomas and the chair of its Department of Economics. Views reflected in this article are his own. For comments, email:[email protected]
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