Carlos G Dominguez, Secretary of Finance: Interview

Interview: Carlos G Dominguez

How is a balance being struck between increasing tax revenues and boosting foreign investment?

CARLOS G DOMINGUEZ: Fewer than 90 days after assuming office in July 2016 we submitted to Congress the Tax Reform for Acceleration and Inclusion (TRAIN) bill, which was signed into law in December 2017. TRAIN attained 108.1% of its revenue target in 2018 and improved revenue flows to the state. By 2020 we hope that all the tax reform packages will be in place. These include reducing the corporate income tax from 30% to 20%, to move closer to the regional average, and rationalising fiscal incentives to encourage competitive investment. Other packages cover reforms in property valuation and the rationalisation of capital income taxation to address the multiple rates and tax treatments on capital income and other financial instruments. We propose the reduction of the number of capital income tax rates from 80 to 42, to ensure that financial products are chosen due to risk and reward, not special tax treatment.

In 2017 and 2018 we received a total of $20bn in foreign direct investment (FDI). For two consecutive years, FDI averaged a record $10bn – double the value of inflows in 2015. The tight spread of our bond offerings also demonstrates investor confidence in our fiscal discipline. Our young and well-educated labour force is another asset that should increase our appeal. The population’s median age is 24 years old, in contrast with the ageing populations of our more mature industrial neighbours, with whom we are natural demographic partners. We are seeking ample opportunities for our young workforce by ensuring that the fiscal regime supports our industries, as well as by leveraging mutually beneficial relationships between the public and private sector, and higher education institutions and industries.

In what ways can the Philippines secure sustainable financing for large-scale infrastructure projects?

DOMINGUEZ: With the tax reform programme creating a robust flow of revenue, we now have the means to invest in upgrading our logistics backbone. For years, the Philippines underinvested in public infrastructure. In 2018 infrastructure disbursements amounted to $16.9bn, equivalent to 5.1% of GDP. This is the first time our infrastructure disbursements exceeded 5% of GDP. We plan to invest around $170bn in this programme, reaching 7% of GDP by 2022. Our Build, Build, Build programme involves 75 strategic infrastructure projects as well as thousands of projects to improve infrastructure and logistics across the country. China and Japan have each committed $9bn in official development assistance, while South Korea has pledged $1bn. These commitments complement the support we are receiving from multilaterals, such as the World Bank and the Asian Development Bank. We have taken great care to ensure that the economic returns on our major projects far outweigh the costs of financing, and that we have a diverse pool of project funding. Our debt-to-GDP ratio in 2018 was down to 41.9%, and we expect to lower this further as we accelerate the completion of large infrastructure projects.

Describe how the country can control the inflation rate while developing avenues for growth.

DOMINGUEZ: Investment in infrastructure has the highest multiplier effects. Immediately, it creates new jobs, thus reducing unemployment and underemployment. It can also open up new areas for joint ventures, improve property prices, create new manufacturing zones, and reduce transportation costs.

A significant recent development that will offset inflation is the passing of the Rice Tariffication Act in February 2019. After more than 30 years of attempts under various administrations, a law was passed to liberalise rice trading. This reform will reduce the price of rice, the staple food of Filipinos and a major contributor to inflation, and make high-quality rice more affordable and accessible to consumers. In addition, it will open the door to improvements in agricultural productivity.