Tax reform crucial in sustaining strong macroeconomic fundamentals
Whether the Duterte administration will be successful in enacting a comprehensive tax reform program (CTRP) would affect the Philippines’ currently strong macroeconomic fundamentals, as this determines if the “build, build, build” push would have sustainable funding, according to Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr.
Espenilla yesterday said that without such resources to bankroll big-ticket infrastructure projects, the BSP faced the risk of faster inflation and higher interest rates.
The BSP chief was speaking in a meeting of the Philippine Bar Association.
“There is a concern about ‘build, build, build’ potentially busting the budget and pushing inflation out of control,” Espenilla said. “Yes, these are certainly possibilities as the government makes choices, which means trade offs with winners and losers.”
Still, Espenilla gave credit to the administration for pushing a CTRP, which was not a popular measure.
“I think, on balance, it (CTRP) would be good for our economy. It will prevent precisely the scenario that we are all afraid of,” he said.
“Yes, for the short term, it would be good to ‘build, build, build’ and ‘spend, spend, spend.’ And yet at the end of the day we need to be able to pay for the projects or it would be ‘debt, debt, debt,” he said.
Espenilla said that if the government would be successful in enacting a CTRP, it would provide the means for sustainable funding of infrastructure “and all the good things that enable a more equitable growth in our society.”
“If the fiscal house is in order, monetary policy—inflation target—is not actually going to be a challenge,” he said.
“If the budget is out of whack, controlling inflation is going to come at a price,” he added. “We could possibly have high interest rates which could cause the economy to go out of hand. So we need to look at this on a broad balance.”
Espenilla called on the lawyers for support in advocating the BSP’s legislative wish list, including laws that would help prevent cyber crime; giving formal authority to BSP over a payment system to facilitate safe, efficient and reliable cross-border transactions; and amendments to laws on bank secrecy law and foreign currency deposit.
The BSP also wants amendments to the anti-money laundering law and to the BSP charter as well as laws on Islamic banking and a national ID system.
