The chairman of the House Committee on Ways and Means said the passage of the Corporate Income Tax and Incentives Rationalization Act (Citira) before March 2020 is important for the “Road to A” strategy of the Duterte administration to succeed.
In his 2020 report on the “Road to A-level credit rating,” Albay Rep. Joey Sarte Salceda said Congress should pass Citira by March 2020 to realize its benefits to the economy.
“Citira is so pivotal that achieving A-level credit rating by 2022 becomes unlikely without its immediate passage,” Salceda said.
The lawmaker said that with Citira, economic growth, measured as gross domestic product (GDP), could reach 6.8 percent to 7.0 percent, with the boost provided by the influx of deferred investments alone.
“The central reform in this strategy is Citira, an unprecedented public investment in the private sector whose value, considering safe rates of return, could be as high as P1.25 trillion over the next 10 years, whose effect on the GDP could be as high as 1.01 percent above the baseline, and could create as much as 1.5 million jobs over the same period,” he added.
While increasing public investment in the broad private sector, Salceda avers that Citira would also reduce tax expenditures that are not productive, especially tax discounts that were supposed to incentivize pro-economy behavior among investors, but have not been performance-based, time-bound, targeted, or transparent.
In this sense, Citira aligns with the two-pronged strategy for achieving A-level rating: good fiscal management and growth acceleration, he said.
The Philippine’s current rating is BBB+, given by Standard & Poor’s in 2019, and a notch away from the A-level. The A-level means that the borrower has a strong capacity to meet its financial commitments.
Salceda said a credit rating upgrade to A-levels is not just a measure of investor confidence in the Philippines.
“In immediate terms, higher investment grade means that the Philippine government can borrow to finance its programs for the poor at much more favorable rates,” he explained.
Liberalization measures
BESIDES Citira, Salceda said the lower chamber is also pushing for amendments to the Public Services Act (PSA), Retail Trade Liberalization Act (RTLA) and the Foreign Investments Act (FIA) to ease constraints to economic growth. The lawmaker said these liberalization measures should be passed before Duterte’s 2020 State of the Nation Address (Sona).
Salceda explained that the passage of key reforms, primarily Citira and the liberalization bills, would help the country achieve a 38.0-percent debt-to-GDP ratio by end of 2020, 36.8 percent by 2021 and 35.3 percent by the year 2022, surpassing the 35.4-percent target of the government by 0.1 percent.
“Our debt-to-GDP targets were based on the assumption that Congress would expedite the passage of reforms critical to the success of our Road to A strategy,” he said. “The immediate passage of a fiscally sustainable, economically impactful Citira, above all, reforms, is now the mother lode of our catch-up strategy. Because economic growth takes time to respond to stimulus, we must pass Citira before March; otherwise we risk limiting our growth for full-year 2020.”
According to Salceda, all the liberalization bills (PSA, RTLA and FIA) are now also in advanced stage in the House. The FIA, to note, was passed in September last year.
“For the reforms to take effect on the economy, the House must finish deliberating on the other two bills by March, and the Senate must pass these bills before the President’s Sona for 2020,” he said. “Otherwise, we postpone their economic benefits to 2021, compromising, yet again, our efforts to reach our debt-to-GDP targets.”
Supporting acts
SALCEDA added the government will also expedite its “Build, Build, Build” (BBB) infrastructure program to ensure that infrastructure’s spillover effects on investment and consumption are realized on time.
According to the lawmaker, the completion of this year’s spending for BBB can yield another 0.3-percent to 0.5-percent GDP growth above baseline.
“The infrastructure agencies must complete its backlog of projects. The House has already contributed its share of policy reform to expedite Build, Build, Build, by passing the Real Property Valuation and Assessment Reform Act, which will help ease right-of-way acquisition and also boost local government funds for education. We hope the Senate could finish its version of the bill before the 2020 Sona. [RPVARA], on its own, and without its spillover effects, can yield almost an additional 0.1-percent GDP growth,” he added.
He added that the complete funding of the universal health care and universal access to higher-quality education to keep Filipino labor productivity high is also one of important components to the Road to A strategy.
“Also, keep food items cheap with reforms in agriculture and trade, to ensure that wage price pressures are limited and that Philippine wage prices are regionally competitive,” he added.
Salceda said the government must also adopt a “good steward” approach to spending: for every new spending introduced, find corresponding means to fund the proposal.