Philippine Franchise AssociationMembership Meeting Ensuring and Sustaining Inclusive Economic Growth

Posted on February 15, 2017

February 15, 2017 | 2:20 PM | Marco Polo Ortigas Secretary Benjamin E. Diokno Department of Budget and Management

​Ladies and gentlemen, guests, fellow workers in government, officials of the Philippine Franchise Association: good afternoon.

It is my honor to be in the presence of esteemed entrepreneurs. Thank you for having me in your general membership meeting.

As a pioneer association in Philippine franchising, I’m sure you’re excited to hear about the growth prospects of the Philippine economy and the overall business climate for the medium-term.

Today, let me share with you the ambitious plans of the Duterte Administration in promoting a wealth-generating and wealth-distributing national economy.

Expansionary Fiscal Policy

​As the Secretary of Budget and Management, I am primarily concerned with our fiscal policy. Government spending and taxation inherently influence investment incentives and the achievement of national development goals.

​On this note, we have decided to pursue an expansionary fiscal policy raising the deficit from 2 to 3 percent of GDP. This implies a deficit target of P478 billion in 2017, rising to P777 billion in 2022.

​Our borrowings, with an 80-20 mix in favor of domestic borrowing, will be complemented by increased revenue collection. Revenue effort as percent of GDP is projected to increase from 15.3 percent this year to 17.7 percent in 2022, including the revenue measures being proposed by the Department of Finance.

​So it’s easy to decipher our fiscal policy – more borrowings, more revenues, more spending, and ultimately, higher growth trajectory.

​Yet, some investors may be spooked by our tax-spending strategy, particularly the higher deficit. But let me assure you that it is manageable, appropriate and sustainable.

First, we intend to outgrow our debt burden. The debt-to-GDP ratio is expected to decline from 45 percent in 2015 to 35 percent in 2022.

Second, the expansionary fiscal policy is needed to finance our development needs. If we are to unlock the full growth potential of the Philippine economy, then we must invest heavily in public infrastructure and human resource development.

Fiscal Priorities: Infrastructure

The poor state of infrastructure has long constrained our growth potential. It stifles productivity, hampers mobility, and makes the Philippine economy less attractive to foreign direct investments. Traffic congestion alone costs us P2.4 billion daily, or P876 billion annually, according to a JICA study 3 years ago. It’s time for us to reverse this pitiful state of affairs.

​This is exactly what our expansionary fiscal policy will allow us to do. P847.2 billion is allotted for infrastructure development in the National Budget this year, equivalent to 5.3 percent of GDP. This is only a down payment as we plan to spend P8 to P9 trillion for public infrastructure in the next six years. In fact, infrastructure spending is projected to reach 7.4 percent of GDP come 2022.

The Golden Age of Infrastructure will be supported by initiatives from the private sector and our development partners. The Public-Private Partnership program of the government is being revitalized. We now welcome unsolicited proposals, subject to Swiss challenge.

We are also maximizing our access to Official Development Assistance (ODA) to fund our infrastructure program. Just last month, I accompanied Finance Secretary Carlos Dominguez, alongside Transportation Secretary Arthur Tugade, Public Works Secretary Mark Villar, and NEDA Director-General Ernesto Pernia, to China to discuss 40 infrastructure projects for loan financing and assistance in conducting feasibility studies.

​To date, we estimate that the Duterte Administration has already raised close to P1 trillion in ODA, primarily from China and Japan, over the last seven months. This monumental amount will only serve to benefit our economy.

Fiscal Priorities: Human Capital Development

​Aside from infrastructure, we will prioritize developing our young population into an agile, competent and productive workforce. The median age of Filipinos is 23 years old. We recognize that this can be an asset or liability. If we want our youth to be future drivers of growth and innovation, then we must educate them, take care of their health, and provide them with proper nutrition.

​This explains why 40 percent of the 2017 Budget is allocated to social services – education, healthcare, social protection, socialized housing and so on.

​Noteworthy items include the P544.1 billion allocation for the Department of Education (DepEd) which will support our pursuit for universal basic education. State Universities and Colleges (SUCs) will also have an increased allocation of P58.7 billion for quality and accessible public tertiary education.

​The Department of Health (DOH), including the National Health Insurance Program, is given P151.3 billion. We intend to achieve 100 percent coverage in health insurance through PhilHealth.

​Lastly, the Department of Social Welfare and Development (DSWD) has an allocation of P128.3 billion. This will sustain our social protection programs, particularly our Conditional Cash Transfer (CCT) Program, which is given P78.2 billion this fiscal year.

Moving forward, the social services sector will receive increased funding from 8.5 percent of GDP in 2017 up to 9.2 percent of GDP in 2022. Education, in particular, will receive funding equivalent to 5 percent of GDP by 2022.

Clearly, our greatest resource is our people and we must equip them as early as now to be positive contributors to Philippine society.

Tax Reform: Key to Growth

​Tax reform is another crucial feature of our fiscal policy. The Comprehensive Tax Reform Package aims to implement a simpler, fairer, and more efficient tax system for the country. This will enable us to fund our ambitious infrastructure and human capital build up, while fostering a tax regime that is comparable with the rest of the region.

Our tax regime is out of sync compared to our ASEAN neighbors, costing us precious investments. This is why we intend to cut personal income tax rates and corporate income tax rates. This will put more money in the pockets of our citizensand attract investors.

To offset losses, we will then broaden the Value-added Tax (VAT) base; increase excise taxes on petroleum products and automobiles; rationalize fiscal incentives, and improve tax administration.

The first tax reform package is now being deliberated in the Lower House, and we are confident of its passage. No less than the Legislative Executive Development Advisory Council (LEDAC) marked the tax reform bill on top of its agenda.

We estimate that the Tax Reform Package will yield the government an additional P162.5 billion, equivalent to 0.9 percent of GDP, in 2018 alone. Nevertheless, this is not the government simply taking away money from the pockets of citizens.

This is a win-win proposition as the tax burden of 99 percent of the population is bound to decline resulting in higher disposable income for almost all Filipinos. Besides, the revenues from the tax reform package will also be reinvested to worthwhile projects, especially infrastructureand human capital development projects.This is why we must support the administration’s tax reform program.

Lowering the Cost of Doing Business

For entrepreneurs and investors, government is undertaking initiatives to lower the cost of doing business in the country as well as encourage and assist micro, small and medium enterprises (MSMEs). I’m sure this is music to the ears of those involved in the franchising sector.

Processing business permits and licenses will be streamlined and facilitated in local government units. We will emulate the Davao model where government offices are able to issue permits and licenses within three days.

The Department of Trade and Industry (DTI) is also firming up its support to MSMEs. Negosyo Centers have tripled in number from 144 in 2015 to 447 in 2016, most being created under our term. Sources of credit will also be made available to aspiring entrepreneurs so they may start their own businesses.

For instance, the DTI has already launched its P3 Program, or the “Pondo sa Pagbabago at Pag-Asenso”. This lending system will provide affordable micro-financing for the country’s MSMEs. The program is set to be implemented in Mindoro, Sarangani, and Leyte, among the top 30 poorest provinces, to represent Luzon, Visayas and Mindanao.

As we all know, the opportunities for financing are few and far in between for micro enterprises. These firms usually have to rely on

“5-6” lenders which impose unfair and astronomic interest rates. Hence, this program can be a crucial initiative in spurring business activity while widening the economic opportunities of the poor and the marginalized.

Project Repeal, a whole-of-government initiative, is also in full swing. It aims to repeal and/or amend outdated, unnecessary laws and regulations. This will reduce the cost of compliance for firms, as well as the cost of administration for regulators.

Red tape has long burdened our entrepreneurs while driving away investors. This reform is another game-changer in striving for a more competitive and investor-friendly economy.

Conclusion

Having grown 6.8 percent in 2016, the Philippines remains to be one of the fastest growing emerging economies in Asia and the entire world. Anchored on the 0+10 Point Socioeconomic Agenda, our fiscal and economic policies will usher in a robust economy that benefits all Filipinos, especially the poorest of the poor.

Change has come. Change is here. With our well-crafted and vigorously-implemented policies, our goal of becoming a high-middle income country by 2022 is attainable as ever.

We invite you to be a part of our efforts for a more prosperous and vibrant economy.

​Thank you and mabuhay!