Reformist zeal combined with a new approach to financing infrastructure
Since being appointed finance minister of the Philippines by Rodrigo Duterte in July 2016, Carlós Dominguez, a childhood friend of the president’s, has barely stood still.
A five-pronged tax bill passed by the lower house and, in recent weeks, the Senate is the most ambitious reform package attempted by the government of the fast growing Asian state in decades. Then add in the ambition to tackle the country’s woeful infrastructure. Previous finance ministers talked up the need to build good roads, airports, schools and power grids yet all too rarely did their words result in meaningful action.
Dominguez’s approach has been to engage with any source of funding willing to help build a better country, from private investors to multilaterals such as the Asian Development Bank (ADB) and the Asian Infrastructure Investment Bank.
In this vein, he has pledged to widen the fiscal deficit to 3% by 2022, from an average of 2% over the last five governments, and to boost spending on infrastructure to 7.4% of GDP by 2022 from 5.2% in 2016.
Infrastructure hit list
Dominguez has drawn up a list of 75 infrastructure projects. Top of the to-do list are 12 projects worth $4.4bn including a $3bn north-south rail line, a $374m dam in Quezon province and the expansion of Clark airport.
Given that the country is reckoned by the ADB to have a $190bn infrastructure gap, Dominguez’s ambitions are wholly dependent on raising more revenues — and this is where the tax plan comes in. The finance minister aims to generate Ps133.8bn ($2.6bn) in additional revenues in 2018, according to data from CLSA, rising to Ps375bn a year by 2020, or 1.7% of GDP.
The reform package as it stands will raise taxes on those earning Ps5m or more, increase levies on fuel and tobacco and offset the pain by cutting the corporate tax rate to 25% from 30% to encourage more local and inward investment. The bill as it stands should be passed into law in December.
Of course, this only works if the country’s economy continues to impress. And it’s a case of so far, so good, with growth tipped by the IMF to rise from 6.8% in 2017 to 6.9% in 2018 and to 7% by 2022, making it one of the emerging world’s faster growing economies.
The whip-smart Dominguez, a cheery soul with an easy way, who has worked in the private and the public sector before, having run two ministries in the 1980s under former president Cory Aquino, was a canny pick for the role of finance minister. So far, he has certainly not disappointed.—Elliot Wilson