Economic managers’ dilemma: Can TRAIN fund record-high 2019 budget?

The landmark Tax Reform for Acceleration and Inclusion (TRAIN) Act will be put to the test ahead of its implementation early next year as economic managers meet on Friday to determine if the first package, whose projected net revenue gain fell short of the target, will help finance the higher spending requirements of the Duterte administration in 2019.

Budget Secretary Benjamin Diokno confirmed to the Inquirer on Thursday that the Cabinet-level Development Budget Coordination Committee (DBCC) would be discussing the projected record P4.213-trillion national budget for 2019 in light of the recent approval of the tax reform package tagged as “1A.”

Collections from new taxes under the TRAIN Act were supposed to fund the 2018 budget, which was signed by President Duterte on Tuesday, with a price tag of P3.767 trillion. It was also on the same day that the President signed a watered down version of the tax reform law after more than a year of haggling in Congress.

Starting January next year, personal income tax rates that stayed constant for two decades would be restructured. To compensate, the law also slapped new taxes on oil, cigarettes, sugary drinks and vehicles, among others.

But Diokno also said the DBCC was “not concerned” about the revenue impact of tax reform package “1A.” He was hoping that package “1B” would likely be approved in the first quarter of next year.

Finance Secretary Carlos G. Dominguez III last week also told reporters that Congress had committed to pass the second package, which would involve general and estate tax amnesties, higher motor vehicle user’s charges, etc.

Dominguez had said package “1A” would generate only over P90 billion in the first year of implementation, or just two-thirds of the more than P130-billion net revenue target.

Package 1B was expected to fill in the gap of about P30 billion in revenues, Dominguez had said.

The Finance chief had earlier warned that if the TRAIN was not passed into law, the government cannot roll out massive infrastructure projects, including new railway networks, airports and highways, under the ambitious “Build, Build, Build” program. Government borrowings from here and abroad would also finance “Build, Build, Build.”

Under the infrastructure program, the government would roll out 75 flagship, “game-changing” infrastructure, with about half targeted to be finished within President Duterte’s term. A total of up to P9 trillion was earmarked for hard and modern infrastructure until 2022.

The share of infrastructure spending to gross domestic product (GDP) had been programmed to hit 7.3 percent by the end of the Duterte administration.

Under the recently approved 2018 national budget, the government will spend P1.1 trillion on infrastructure, equivalent to 6.3 percent of GDP.

Based on earlier Department of Budget and Management projections, the government wanted to allocate P1.204 trillion on capital outlays in 2019, including an infrastructure program of P1.117 trillion.