MANILA, Philippines — Higher public spending on infrastructure and social services made possible by the implementation of the tax reform law will help keep inflation in check in the long-term, Finance Undersecretary Gil Beltran said.
During a Senate hearing, Beltran said the expected rise in inflation this year is only temporary and remains manageable even amid the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) Law.
“The current spike in inflation is only temporary. All these programs we are implementing, which are made possible because of the additional revenues from TRAIN, are meant precisely to prevent prices from rising further in the future,” Beltran said.
“TRAIN is a long-term measure that would push the economy to a much higher development path, create more jobs, and improve the living conditions for our people,” he said.
According to Beltran, moderate inflation is typical under a fast-growing economy like the Philippines, especially after a tax reform program.
He said tax reform raised salaries and helped boost government spending, which propelled economic growth and increased demand or consumption, ultimately driving up prices.
In addition, Beltran said the impact of TRAIN on inflation is being mitigated by lower income tax rates and cash transfers.
As a result of TRAIN, Beltran said disposable income of wage earners rose by about 15 percent on average as income tax rates were reduced.
The TRAIN also provides for additional unconditional cash transfers (UCTs) to the poor and low-income earners amounting to P 2,400 for 2018 and P 3,600 for 2019 and 2020. He said about P4.3 billion in cash transfers has been released in the first quarter.
Meanwhile, the DOF’s chief economist said the reforms being implemented by the administration have been recognized by international institutions, leading to strong investor confidence and better growth prospects for the economy.
“Standard and Poor’s, for instance, upgraded our credit outlook from stable to positive, citing solid economic growth, healthy external position and improvements in policy-making. This raises the possibility of a rating upgrade for the country,” Beltran said.
“World Bank and ADB (Asian Development Bank), on the other hand, project a GDP growth close to seven percent this year and the next,” he said.
Citing DOF data, Beltran earlier said the TRAIN Law pushed up inflation by only 0.4 percentage point, lower than its earlier projection of 0.7 percentage point.
Other factors, such as the rise in global oil prices and the better collection of cigarette excise taxes drove inflation to 4.5 percent in April, he said.
Beltran said that while inflation reached 4.5 percent in April, month-to-month inflation, however, declined from one percent in January to only 0.5 percent in April.
“This suggests a potential easing of inflation moving forward. The Bangko Sentral ng Pilipinas expects inflation to temper and settle to 3.9 percent in 2018 and decelerate further to the midpoint of the target range (of two percent to four percent) in 2019,” Beltran said.