Interview: Carlos G Dominguez III
To what extent will the CTRP impact state revenue and the wider fiscal landscape?
CARLOS DOMINGUEZ: The revenue gains from the Tax Reform for Acceleration and Inclusion (TRAIN), and Official Development Assistance (ODA) deals have been complemented by the successful float of 10-year US dollar-denominated bonds worth $2bn, followed by our inaugural issue of RMB1.46bn ($219m) worth of threeyear Panda bonds in March 2018. These measures will ensure a steady revenue stream for the government’s spending on public infrastructure, which, in turn, should lead to various multipliers for the economy.
The sizeable personal income tax (PIT) cuts under TRAIN should boost consumer spending and rev up the economy. This tax reform law corrects the long-standing inequity of the country’s tax system by reducing PIT for 99% of taxpayers, giving them much-needed relief after 20 years of non-adjustment. Lowering PIT rates will align these with the current thresholds in other South-east Asian economies and make our rates competitive with the rest of the region. For its first year of implementation, TRAIN is expected to generate an additional P89.9bn ($1.8bn) in revenue. In terms of ODA, China has committed $7.34bn in soft loans and grants to the Philippines, while Japan committed $1.26bn in 2017.
What steps are being taken to increase incoming foreign direct investment (FDI)?
DOMINGUEZ: The government is set to ease economic restrictions by reducing the Foreign Investment Negative List. It also aims to fast-track measures to cut red tape and improve the ease of doing business by harnessing digital technology in a bid to attract FDI and stimulate economic activity. If things proceed as scheduled, we will also support moves in Congress to lift foreign ownership restrictions in certain industries via amendments to the 1987 constitution. We will push the next tax reform packages under the CTRP. A bill for Package 2 has already been filed in the House of Representatives to reform corporate tax and modernise fiscal incentives. By mid-2018 we aim to submit Packages 3 and 4, tackling property and capital income tax.
How will more diversified sources of funding support the administration’s priority policies?
DOMINGUEZ: Besides a successful dollar-denominated bond float, we are diversifying our funding sources, starting with the aforementioned March 2018 issuance of Panda bonds. This generated RMB9.22bn, making it 6.32 times oversubscribed. We also plan to issue yen-denominated Samurai bonds by late 2018. The local-currency bond markets of China and Japan are the largest in the region. As part of the IMF’s Special Drawing Rights, a balance of Japanese yen and Chinese renminbi will contribute to international reserves. Reserves and other inflows of these currencies can be used to meet the growing number of obligations denominated in yen and renminbi loans that are the result of financing our massive infrastructure programme.
How will the creation of an overseas Filipino workers’ bank affect domestic capital markets?
DOMINGUEZ: To further invigorate our domestic government securities market and allow overseas-based Filipinos to participate in our economic resurgence, we launched the first-ever Overseas Filipino Bank (OFB) in January 2018. This institution will cater not only to our overseas Filipino workers (OFWs), but to other foreign-based Filipinos as well to make the bank more inclusive. The establishment of the OFB will give rise to an additional player in the local government securities market, potentially leading to more active participation in the primary and secondary markets. On the other hand, through the proposed microfinance and micro-insurance products and services to be offered by the OFB, which are tailored to OFWs and their families, cost-efficient funding will become easily accessible, allowing them to start or expand entrepreneurial activities.
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