New Gov't Plans Tax Cuts, Loose Fiscal Policy

Manila Bulletin, June 2, 2016 | Go to article overview

New Gov't Plans Tax Cuts, Loose Fiscal Policy


The incoming administration of Philippine President-elect Rodrigo Duterte signaled its willingness for looser fiscal policy and higher borrowing as it seeks to ramp up spending on infrastructure and cut taxes.

Benjamin Diokno, who will be Duterte's budget secretary when the new government takes office on June 30, said a fiscal shortfall of 3

percent of gross domestic product is a "comfortable deficit target." That would be the highest since 2010 and a departure from the more conservative approach adopted by Benigno Aquino, which resulted in the nation's first investment-grade credit ratings.

Duterte, a firebrand mayor who won support with promises to fight crime and fix transport bottlenecks, has pledged to reform the country's tax regime. The new government plans to cut personal and corporate taxes within six months of taking office and borrow more, said Diokno.

"I don't mind borrowing now, because it's quite cheap," he said. "Rates now are a lot lower than before." He questioned why the nation wasn't borrowing more, adding that "we need to fund and invest in infrastructure and social capital."

Investor Support

Investors may support a widening in the deficit target because the government plans to use the additional fiscal space to improve public infrastructure, Diokno, 68, said. He is currently a professor at the University of the Philippines' School of Economics and was also budget chief under President Joseph Estrada.

"Investors would be willing to look past any potential increase in the deficit depending on the details of the fiscal policy," said Michael Wan, an economist at Credit Suisse Group AG in Singapore.

"A broad overhaul of the tax structure could put more money in the hands of consumers while more spending on infrastructure, education and health would boost the Philippines' growth potential. …

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