Economic Policy Imperatives

1
Economic Policy Imperatives
W01/3868
2
I want to create an economic opportunity at home
and abroad. I dont want just one or the other I
want both. But it can only be done with energy
and with a common purpose to do that which still
lies within our power. Put our economic house
back in working order before it finds itself
beyond hope of repair and doomed to share the
fate of failed nations
PGMA, SONA
3
ECONOMIC POLICY IMPERATIVES

• SUSTAINING MACROECONOMIC STABILITY
• RESTRUCTURING AND REFORMING THE POWER SECTOR
• RESTRUCTURING AND REFORMING THE FINANCIAL SECTOR
• INCREASING INVESTMENTS, EXPORTS AND EMPLOYMENT

4

• SUSTAINING MACROECONOMIC STABILITY

5
THE ECONOMY TODAY

• GDP real growth in 2003 was 4.7 and 6.4 Q1 in
  2004
• National savings to GDP rate was 20.6 in 2003
  and 23.4 in Q1 2004
• Investment to GDP rate was 16.6 in 2003 and
  20.5 in Q1 2004
• Exports grew by 4.4 in 2003 and 10 in Q1 2004
  against import growth of 10.2 in 2003 and 4.9
  in Q1 2004

6
THE ECONOMY TODAY

• Inflation was 3.1 in 2003 and 4.1 first
  semester 2004
• Unemployment rate was 11.4 in 2003 and 11 in
  Q1 of 2004

7
THE ECONOMY TODAY

• NG deficit to GDP was 4.7 in 2003 and expected
  to be contained at Php 197.8 billion or 4.2 of
  GDP by end of 2004
• CPSD was 5.6 of GDP in 2003 and expected to rise
  to 6.7 of GDP by end of 2004
• NG debt was 74.4 of GDP in 2003 and Public
  Sector Debt reached 135.6 of GDP in 2003

8
REAL GDP GROWTH, 2003 SELECT ASIAN COUNTRIES
Country REAL GDP GROWTH
Philippines 4.7
China 9.1
S. Korea 3.1
Singapore 1.1
Malaysia 5.2
Thailand 6.7
Indonesia 4.1
Vietnam 7.1
Source ADB
9
INVESTMENTS TO GDP RATIO, 2002 Select Asian
Countries
Source SPEI, Bangko Sentral ng Pilipinas
10
INFLATION RATES,2003SELECT ASIAN COUNTRIES
Indonesia
China
Korea
Philippines
Thailand
Malaysia
Singapore
Source SPEI, Bangko Sentral ng Pilipinas
11
UNEMPLOYMENT RATE,2003 SELECT ASIAN COUNTRIES
China
Korea
Singapore
Thailand
Malaysia
Philippines
Source SPEI, Bangko Sentral ng Pilipinas
12
NG DEFICIT TO GDP RATIO, SELECT ASIAN COUNTRIES,
2003
Country NG Deficit/GDP Ratio
Philippines -4.6
China -2.3
South Korea -1.7
Singapore 6.4
Malaysia -5.3
Thailand 0.6
Indonesia -2.1
Vietnam -4.8
Source ADB
13
NG REVENUE TO GDP RATIO, SELECT ASIAN COUNTRIES,
2003
Country Revenue/GDP Ratio
Philippines 14.1
China 18.8
South Korea 20.9
Singapore 20.6
Malaysia 22.7
Thailand 16.6
Indonesia 19.1
Vietnam 22.7
Source ADB
14
TAX EFFORT, 2002 Select Asian Countries
Source SPEI, Bangko Sentral ng Pilipinas
15
NG EXPENDITURES TO GDP RATIO, 2002, SELECT ASIAN
COUNTRIES
Country Expenditure/GDP Ratio
Philippines 19.5
China 21.5
South Korea 22.8
Singapore 17.5
Malaysia 28.7
Thailand 18.2
Indonesia 19.4
Vietnam 20.8
Source ADB
16
CAPITAL EXPENDITURES TO TOTAL GOVT EXPENDITURES,
2002 Select Asian Countries
Source SPEI, Bangko Sentral ng Pilipinas
17
NG DEFICIT TO GDPRATIOS, PHILIPPINES
Source DOF
18
REVENUES TO GDP VS. TAX EFFORT, PHILIPPINES (IN
PER CENT)
Source DOF
19
NG EXPENDITURE TO GDP, PHILIPPINES
Source DOF
20
NATIONAL GOVERNMENT EXPENDITURE PROFILE 1997 vs.
2003

Source DOF
21
POLICY OBJECTIVES

• NG Fiscal Consolidation in six years
• Reduce CPSD to GDP to 3 in six years
• Reduce Public Sector Debt to GDP to 90 in six
  years

22
ACTION PLAN

• Proposed Legislative Measures
• Introduce new tax policy measures
• Gross income tax system for corporation and self
  employed
• Indexation of the excise tax on sin products
• Increase excise tax on petroleum products
• Rationalize fiscal incentives

23
ACTION PLAN

• General Tax Amnesty with Submission of SAL
• Lateral Attrition System
• Franchise Tax on Telecommunications to replace
  VAT
• Two-Step Increase in the VAT rate

24
ACTION PLAN

• Push for the enactment of the Fiscal
  Responsibility Bill, i.e. no new expenditure
  without new revenue measure
• Push for the enactment of an Omnibus
  Re-engineering Law
• Rationalize existing pension/retirement schemes
  of all uniformed personnel and veterans
• Remove automatic guarantee provisions in certain
  GOCCs

25
ACTION PLAN

• Administrative Measures
• Upward adjustment of fees and charges
• Improve enforcement mechanisms of revenue
  generating agencies to increase collection
  efficiency
• Issue an EO to jumpstart reorganization process
  in the national government agencies and GOCCs

26
ACTION PLAN

• Issue an EO on integrated control and supervision
  of GOCCs
• Fully implement the devolution of LGU Code
• Increase social safety net programs within the
  budget
• Rationalize GOCCs with negative retained earnings
  and limit NG exposure

27
ACTION PLAN

• Implement a debt reduction plan
• Bond exchange to lengthen debt maturity
• Make more use of ODAs than commercial borrowings
• Limit guarantees to GOCCs

28
RESTRUCTURING AND REFORMING THE FINANCIAL SECTOR
29
THE FINANCIAL SECTOR TODAY

• The financial system remains an important
  intermediation channel. But unless critical
  reforms are undertaken to improve its efficiency
  and competitiveness, investment would continue to
  be weak.

30
THE FINANCIAL SECTOR TODAY

• Inadequate legal and regulatory framework for
  bank and non-bank supervision
• High level of NPLs
• Poor corporate governance and lack of market
  discipline

31
THE FINANCIAL SECTOR TODAY

• Main pension providers, SSS and GSIS, are in poor
  financial health resulting in growing funding
  gaps and deficits and declining surpluses which
  may translate to NG bailout
• Underdeveloped capital market

32
POLICY OBJECTIVES

• Broaden and deepen the financial system
• Develop the domestic capital market
• Strengthen the supervisory and regulatory powers
  of the financial regulatory agencies
• Create an environment of transparency and
  accountability in accordance with international
  standards

33
ACTION PLAN

• A. Proposed Legislative Measures
• Amend BSP Charter to strengthen its supervisory
  capacity
• Amend the Corporation Code to include stronger
  provision on governance

34
ACTION PLAN

• Establish a Central Credit Information Bureau and
  domestic credit rating agencies
• Enactment of the Corporate Recovery Bill,
  Pre-Need Code, Personal Equity Retirement
  Account, Lending Investors Bill, Revised
  Investment Company Bill

35
ACTION PLAN

• Administrative Measures
• Allow SSS to increase members contribution to
  narrow funding gap
• De-politicize appointments to the Boards of SSS
  and GSIS
• Diversify and professionalize the management of
  pension funds

36
ACTION PLAN

• Have BSP and PDIC compel banks to clean up their
  balance sheets and increase their equity base
• Push for fresh listings in the Philippine Stock
  Exchange
• Strengthen the credit cooperative sector through
  regulation and supervision

37
INCREASING EXPORTS, INVESTMENTS AND EMPLOYMENT
38
CURRENT SITUATION

• Stiff global competition affecting our exports
• Insignificant increase in FDI inflows from
  US1.43 B in 2002 to US1.49 B in 2003
• High cost of doing business
• Limited government funding for infrastructure
  projects reducing global competitiveness

39

• POLICY OBJECTIVES

• Promote investments in infrastructure
• Promote investments and exports
• Promote entrepreneurship and SME development

40
ACTION PLAN

• Administrative Measures
• Create the Philippine Infrastructure Corporation
  (PIC) as a subsidiary of NDC
• Amend IRR of the BOT Law to promote wider private
  sector participation
• Draw up a more competitive incentives package
  with focus on priority areas Infrastructure,
  Information Technology, Automotive, Electronics,
  Mining, Health Care, Tourism and Housing

41
ACTION PLAN

• Revitalize the mining industry
• Declare Subic and Clark as logistics hubs
• Declare Southern Mindanao as a Halal food
  production area
• Declare Palawan as an eco-tourism zone
• Conclude JPEPA, ASEAN PIP, ASEAN-China

42
ACTION PLAN

• Promote trade agreements by maximizing exports
  and investment opportunities offered by trade
  agreements
• Empower existing SMEs to generate additional
  employment through increased lending and
  promotion of Big Brother-Small Brother program
• Tap returning OFWs as sources of capital
• Continue Product Development

43
Congressional Initiatives on Proposed Revenue,
Expenditure and Financial Measures
A. TAX BILLS
1. On Shift to Gross Income Taxation
House Bill No. 1470 (Introduced by Cong. Eric D.
Singson)

• Proposes a 15 tax on gross income of
  corporations and self-employed individuals

2. On Rationalization of Fiscal Incentives
House Bill No.122 (Introduced by Cong. Joey
Salceda)
House Bill No. 271 (Introduced by Speaker Jose de
Venecia)

• Streamlines the grant of fiscal incentives to a
  focused list of promotable investments

44
Congressional Initiatives on Proposed Revenue,
Expenditure and Financial Measures
3. On General Tax Amnesty House Bill No. 552
(Introduced by Cong. Danilo Suarez)

• Mandates all taxpayers to file a Statement of
  Assests, Liabilities and Networth as of December
  31, 2003 and grants a tax amnesty on all unpaid
  internal revenue taxes

4. On Sin Taxes
House Bill No. 1558 (Introduced by Cong. Danilo
E. Suarez)

• Adopts ad valorem excise tax system on fermented
  liquor and cigarettes

• Increases the specific excise taxes on wines and
  another 20 increase after 3 years

House Bill No. 1591 (Introduced by Cong. Eric D.
Singson)

• Increases the specific excise tax rates on
  alcohol and tobacco by 18, and by another 15
  after 3 years

45
Congressional Initiatives on Proposed Revenue,
Expenditure and Financial Measures
5. On Petroleum Excises
House Bill No. 1323 (Introduced by Cong. Danilo
E. Suarez)

• Increases the specific excise tax rates on
  petroleum products by P2.00

6. On VAT
House Bill No. 1468 (Introduced by Cong. Eric D.
Singson)

• Increases the VAT rate from 10 to 12

7. On Taxation of Telecoms
House Bill No. 1469 (Introduced by Cong. Eric D.
Singson)
House Bill No. 1560 (Introduced by Cong. Danilo
E. Suarez)

• Re-imposes the franchise tax on telecom companies
  at 5 (HB 1469) and 7 (HB 1560)

46
Congressional Initiatives on Proposed Revenue,
Expenditure and Financial Measures
8. On Lateral Attrition
House Bill No. 554 (Introduced by Cong. Danilo
E. Suarez)

• Provides for the grant of special incentives and
  rewards for exemplary service and imposes a
  Lateral Attrition scheme for non-performers in
  revenue generating agencies of the government

B. EXPENDITURE BILLS
Re-engineering the Bureaucracy

• House Bill Nos. 193 and 1532 introduced by House
  Speaker Jose De Venecia and Cong. Victor
  Sumulong respectively

47
Congressional Initiatives on Proposed Revenue,
Expenditure and Financial Measures
C. FINANCIAL AND CAPITAL MARKET DEVT
Bills have also been filed in the Lower House on

• Proposed Corporate Recovery and Rehabilitation
  Act

• Establishing a Pre-Need Code

48
Thank You
W01/3868