The Tax Reform for Acceleration and Inclusion Act (TRAIN) has increased the incomes or spending power of Filipino consumers to more than makeup for the moderate rise in inflation that happens in fast-growing economies, according to the Department of Finance (DOF).
Finance Assistant Secretary Paola Alvarez said one positive effect of high economic growth is a rise in domestic demand or consumption, which, however, leads to a temporary spike in inflation.
“The good thing, though, is the higher revenues generated by the TRAIN has enabled the government to put in place various measures, such as personal income tax (PIT) cuts, unconditional cash transfers (UCTs) and transport subsidies, which have put more money into the hands of consumers to more than cover for the slight increase in prices,” Alvarez said.
After an initial and temporary spike, inflation will eventually go down and stabilize as the pressure on supply eases and production costs drop because of the massive infrastructure development under the “Build, Build, Build” program that the government has managed to implement via the steady revenue flow from TRAIN, Alvarez said.
“This infra buildup program anchored on 75 flagship projects will, in turn, further supercharge the economy and create more jobs, hence all the more putting extra money into the hands of Filipinos, especially of the poor plus low- and middle-income consumers,” Alvarez said.
She said that for poor and low-income households, the government has carried out measures made possible by TRAIN to address the temporary uptick in inflation, such as the UCTs for the 10 million poorest families and indigent senior citizens across the country.
TRAIN earmarks 70 percent of the incremental revenues generated under this law for infrastructure, and 30 percent for social services, such as improvements in health care and education, UCTs, fuel vouchers for public utility vehicles (PUVs) and other social protection measures.
“The current spike in inflation is only temporary. TRAIN, which has made possible the ‘Build, Build, Build’ program and the increased spending on social services is a long-term solution to prevent prices from further rising in the future,” Alvarez said.
Inflation registered at 5.2 percent in June, with year-to-date inflation averaging 4.3 percent as a result primarily of the higher annual rate posted in the heavily-weighted food and non-alcoholic beverages index, according to the Philippine Statistics Authority (PSA).
The PSA said this means the higher-than-expected price hikes in June was driven by a surge in prices of alcohol and tobacco (20.8 percent), transport (7.1 percent) and food (6.1 percent).
“These factors that drove up inflation, save for the increase in the prices of tobacco, would be present even without TRAIN,” she said. “In fact, the impact of elevated inflation on a fast-growing economy would have been greater on ordinary Filipinos had the government failed to implement social mitigation measures made possible by the TRAIN,” she said.
Alvarez said the “Build, Build, Build” program supported by TRAIN will create more jobs, especially outside Mega Manila and improve the movement of both goods and people across the country, which, in turn, will pull down the costs of producing and distributing commodities and thus translate into lower prices in the long term.
She said the Duterte administration will push through with Package 2 of its comprehensive tax reform program, which aims to lower the corporate income tax (CIT) rate and modernize investment incentives to encourage more companies to invest or expand their businesses, thus further stimulating the economy and again creating more jobs—and higher incomes—for Filipinos.
Lower CIT rates will also benefit small and medium enterprises (SMEs), enabling them to expand and hire more workers, she added.
“Right now, our SMEs, which account for over 60 percent of jobs generated by businesses, have to cope with an unfair tax system in which they have to pay the regular CIT rate of 30 percent while big businesses enjoy various tax perks and benefits that enable them to pay much lower taxes,” Alvarez said.
She said investment incentives will be retained under the corporate tax reform bill now pending in the Congress, but the government would have to ensure that they are given to businesses that will create more jobs outside Mega Manila to stimulate growth in the countryside.
Alvarez said that aside from the TRAIN, the government has also implemented other social mitigation programs such as the free tertiary education in state universities and colleges (SUCs), which has let families save on tuition expenses this school year—which means extra money that they can now spend on their basic necessities or to pay for other expenses amid the slight increase in inflation.
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