Dominguez: Inflationary episode has been politicized
MANILA, Philippines — The Department of Finance said rising inflation, which has been partly stoked by a new tax law, has been “politicized,” making it hard for the Duterte administration’s succeeding tax reforms to breeze through Congress.
Inflation spiked to a fresh five-year high of 5.2 percent in June from May’s 4.6 percent, putting the year-to-date figure at 4.3 percent, or above the Bangko Sentral ng Pilipinas’ 2-4 percent target range. The central bank has responded by delivering back-to-back rate hikes.
People have blamed soaring prices on the Tax Reform for Acceleration and Inclusion law, which raised excise levies on fuel, “sin” products and sugary beverages, among others.
Supply-side factors like higher global oil prices—exacerbated by the continuing depreciation of the peso—are also pushing up commodity prices. The country’s economic managers, meanwhile, have pointed out that elevated inflation was typical of a rapidly expanding economy.
“Unfortunately, the inflationary episode has been politicized. Tax reform was blamed for causing inflation,” Finance Secretary Carlos Dominguez III said in a speech on Wednesday.
“What should otherwise be understood as an economic phenomenon normally accompanying high growth has been skewed to pin blame on our reformist policies,” Dominguez added.
According to the Finance chief, tax rates imposed on “sin” products and sugary drinks—which have been driving up inflation—were intentionally punitive to improve the health of Filipinos.
‘Resistance’
He then said the remaining tax reforms might hit snags in Congress due to “more political resistance.”
“Part of the reason for this resistance is the proximity of elections. Tax policy, as we know, is never the best way to be re-elected,” Dominguez said. “Nevertheless, we are committed to seeing the entire comprehensive tax reform program enacted this year.”
Also known as TRAIN 2, the second package of the government’s Comprehensive Tax Reform Program seeks to reduce corporate income tax rates and streamline fiscal incentives to grant them only to those who need them.
Despite President Rodrigo Duterte’s public popularity and the super-majority he holds in Congress, Senate majority leader Juan Miguel Zubiri earlier said the proposed corporate tax reform has “very little support” from senators amid fears that the measure could slow investments and fan inflation.
The DOF is targeting to introduce in July this year the rest of the tax reform packages that mainly cover property and capital income taxation.
Since the start of 2018, the DOF has submitted Package 2, as well as the reforms on taxes on alcohol and mining, while supporting the bill of Sen. Manny Pacquiao on tobacco excise taxes.
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