1 DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE. Vision for the - - PowerPoint PPT Presentation

DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.

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DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.

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Vision for the Philippines

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Progress in achieving the 10-point socioeconomic agenda is advancing strongly.

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• 1. Macroeconomic policies

Constraints to doing business have shifted from macro to micro issues…

World Bank 2005 World Economic Forum 2017-18

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Strong macroeconomic fundamentals underpin solid growth.

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• 1. Macroeconomic policies

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• 1. Macroeconomic policies

BB- BB BB+ BBB- BBB BBB+

Philippine credit rating

Source: S&P

Investment grade

Credit rating upgrade means upgrading everyone’s life.

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• 2. Tax reform

Tax reform is about INVESTING in our country’s FUTURE.

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• 2. Tax reform

Impact on Taxpayer’s Personal Income

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• 2. Tax reform

Higher tax revenues funding social services and infrastructure

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Lower debt has led to reduced interest payments

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• 2. Tax reform

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…Creating more fiscal space for more productive spending.

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• 2. Tax reform

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• 2. Tax reform

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• 3. Ease of doing business

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• 3. Ease of doing business

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• 4. Infrastructure spending

16 photos from DOF, DOTr, BCDA

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• 4. Infrastructure spending

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• 4. Infrastructure spending

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• 5. Rural development

photos from IRRI

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Farmers benefit from the Rice Competitive Enhancement Fund (RCEF) with a 10 billion peso annual appropriation for the next six years, plus any additional amount from rice tariff exceeding PHP 10 billion.

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Rice Competitive Enhancement Fund (RCEF)

Photo: IRRI Photo: IRRI Photo: IRRI

• 5. Rural development

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• 7. Human capital development

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• 7. Human capital development

These are some of the specific benefits that Filipinos will receive under UHC if fully implemented.

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• 9. Social protection programs

photos from DSWD, IRRI

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Results after the first three years

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GDP growth has remained robust despite headwinds in the global economy.

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With higher growth, the Philippines is scheduled to become an upper-middle income country in 2020.

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Poverty reduction is encouraging.

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28.6 27.9 26.3 27.6 21.0 15.0 14.0 12 16 20 24 28 32 Poverty rate (percent)

First semester poverty estimates among the population

2006 basket based series 2012 basket based series Source: PSA Note: Poverty rates for 2021 to 2022 represent government targets.

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Photo: IRRI

Rice liberalization is…

pro-consumer pro-farmer pro-taxpayer pro-workers pro-children pro-poor

Photo: IRRI Photo: IRRI

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Rice liberalization reform is a game-changer.

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The next three years will be focused on achieving entirely the 10-point socioeconomic agenda.

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Development objectives in next three years.

• The overarching objectives for the next three years are to:

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DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.

Some economic priorities in next three years

• 1. Accelerate implementation of the Build Build Build infrastructure program.
• We have achieved 5.1 percent of GDP spending on infrastructure and we are on track to achieve 7

percent of GDP by 2022. This is consistent with achievingan 8 percent GDP growth.

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• Consider hybrid PPPs
• Improve pre-planning
• Involve LGUs in identification and strategic

planning of projects

• Upgrade technical capacity of LGUs to deliver

local infrastructure

• Introduce land valuation reform to resolve right-
• f-way conflicts
• Introduce National Land Use Plan to implement

proper zoning

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Some economic priorities in next three years

• 2. Pursue the remaining tax reform packages to make the tax system simpler, fairer,

and more efficient, while ensuring sustainable financing for the infrastructure

• program. Four major packages remain:

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Package 2 Corporate income tax and incentives reform Package 3 Property valuation Package 2+ Alcohol and e-cigarette excise Package 4 Passive income and financial taxes

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Some economic priorities in next three years

• 3. Pursue economic reforms to increase FDI and jobs. Priority bills include
• Public Service Act amendment
• Retail Trade Liberalization Act amendment
• Foreign Investment Act amendment

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Some economic priorities in next three years

• 4. Improve implementation of existing reforms such as
• National ID
• Ease of doing business
• Universal health care
• Rice liberalization
• Social programs to increase investment in health, education, and social protection
• Building resilience to climate change

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Some economic priorities in next three years

• 5. Improve the productivity of agriculture, including distribution of

individual titles to land reform beneficiaries.

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Tax reform is about INVESTING in our country’s FUTURE.

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Why tax policy reform is needed: A bad tax system

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Inflation Special treatment and exemptions Lack of information (e.g., bank secrecy) Inequity Complexity Inefficiency High tax rates Narrow base (only about half

• f the economy

is taxed) Cause Effect Outcome

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Others

• 1. Motor Vehicle Users Tax
• 2. General amnesty with lifting of bank secrecy for

fraud cases and automatic exchange of information.

• 3. Mining tax regime

Duterte Administration’s Comprehensive Tax Reform Program

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Package 1

Package 1A: TRAIN Personal income tax, consumption tax, and transaction taxes (RA 10963) Package 1B: Tax amnesty Estate and delinquency tax amnesty (RA 11213)

Package 2

Corporate income tax and fiscal incentives

Package 2+

• A. Tobacco excise (RA 11346)

B. Alcohol and e-cigarette

Package 3

Property valuation reform

Package 4

Passive income and financial tax

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Rice Liberalization Act (RA 11203)

Photo: IRRI Photos: IIRI

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Year-on-year inflation further decelerated to 2.4 percent in July 2019.

Photo: IRRI Photo: IRRI Photo: IRRI Photo: IRRI

Source: PSA 105 3.4 3.9 4.3 4.5 4.6 5.2 5.7 6.4 6.7 6.7 6.0 5.1 5.2 4.4 3.8 3.3 3.0 3.2 2.7 2.4

1 2 3 4 5 6 7 8 2018 2019 Percent

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With the recent implementation of the Rice Liberalization Act, prices of rice has fallen and is no longer a top contributor to inflation.

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Source: PSA Note:Rice inflation ratesfrom 1995 to2012 arebased on the 2006 series,while rates from2013 to2018 arebased on the latest 2012 series

• 0.5

0.0 0.5 1.0 1.5 2.0 2.5 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD

Percentage point

Historical rice contribution to inflation

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Rice brought inflation to a decade high

Rice supply issues

• 1. NFA did not buy enough paddy rice during harvest

season.

• 2. NFA imported to fill the gap but importation was

delayed.

• 3. Yet, importation given underlying issues in rice policy…

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Rice tariffication and food policy reform are needed to address repeated rice supply problems.

Source: PSA Note:Rice inflation ratesfrom 1995 to2012 arebased on the 2006 series,while rates from2013 to2018 arebased on the latest 2012 series

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• 5

5 10 15 20 25 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD

Percent Historical rice inflation rate

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NFA monopoly and regulation, resulting in rents

1. Quantitative restrictions: bureaucratic control of trade volumes. 2. Regulation of all aspects of rice trade: country origin, quality, shipping, stevedoring, warehousing, domestic landing and movement, wholesaling, transport, packaging, retailing, etc. 3. NFA has operated for nearly 50 years that the rice industry is co-opted and resists reform.

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DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.

Philippines, in general, is not competitive in rice production

• Mountainous
• 20 typhoons a year
• Less natural irrigation
• Population growth
• Land inequality and

property rights insecurity

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Philippine domestic production of rice has not been enough to fill the total rice requirement of the country.

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Source: FAO Note: The total height of the bars represent the total requirement of the country

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• 1. Our geography is

mountainous and thus not conducive for rice planting

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Why the Philippines is not competitive in rice:

Photo: IRRI

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• 2. The country has few

natural irrigation to make rice production cheap

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Photo: IRRI

Why the Philippines is not competitive in rice:

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• 3. Frequent natural

calamities damage our harvests, like the 20 typhoons every year

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Photo: IRRI

Why the Philippines is not competitive in rice:

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• 4. History of land inequality

creates insecurity in land

• wnership, and hence little

investment

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Photo: IRRI Photo: IRRI

Why the Philippines is not competitive in rice:

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• 5. Population growth is

almost 2% annually, or around 2 million more babies each year

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Photo: IRRI Photo: PhilRice

Why the Philippines is not competitive in rice:

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In contrast, the other SEA countries have...

(Notably Cambodia, Thailand, and Vietnam)

• Better geography
• No typhoons
• Less history of land inequality
• Presence of natural irrigation
• Population growth far lower

than ours

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…Yet we produce around 90 percent of our rice needs, but

• At a very high cost to all consumers
• At a very high cost to farmers
• At a very high cost to taxpayers
• At a very high cost to workers
• At a very high cost to children
• At a very high cost to the poor

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DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.

Rice Liberalization Law (effective 5 March 2019)

• Key provisions

○ Limits NFA to emergency buffer stocking; ○ Converts quantitative restriction into tariffs; ○ Removes all import and trade licensing; ○ Tariff revenues earmarked for rice productivity improvement.

• Impact

○ Rice price lower by 2 to 7 pesos per kilo (20% reduction); ○ Inflation in 2019 about 0.6 ppt lower per central bank; ○More competitive manufacturing as lower food price reduces pressures on wage increases.

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Tariff rates (percent) Within MAV Outside MAV

Within ASEAN 35 35 Outside ASEAN 40 50

Tariff rates

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Photo: IRRI

Rice tarifficationis

pro-consumer pro-farmer pro-taxpayer pro-workers pro-children pro-poor

Photo: IRRI Photo: IRRI

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Pro-consumer: Filipinos no longer need to pay twice as much for rice compared to other countries.

Sources: FAO and BSP Notes: Due to differences in available data, prices for the Philippines use the retail price of regular milled rice, price for Thailand and Vietnam use the wholesale price of 25 percent broken rice, while prices in Pakistan use the retail price of IRRI rice

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Region/ Province Current price Peak price Price drop Agu 2019 Week 2 Sept 2018 Week 2 Sept 2018 peak to date Philippines 38.38 45.92

• 7.54

NCR 35.00 45.00

• 10.00

Luzon 37.43 43.47

• 6.04

Visayas 39.80 47.13

• 7.33

Mindanao 38.93 48.80

• 9.87

Retail prices of rice have fallen by as much as PHP 10/kg (as of Aug 2019 week 2)

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BSP and NEDA estimates thatrice prices will drop by 2 to 7 pesos per kilo under a tariffied regime. This will slow down inflation by 0.6 percentage points, thereby helping the country achieve the target inflation of 2 to 4 percent.

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Impact of Rice Tariffication Act

• n rice price and inflation

DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.

Around 1.6 million (55 percent) of 2.9 million rice farming households are smallholders, planting less than

• ne hectare, and most of them are

net consumers of rice. While they may gain from higher prices during harvest, they buy expensive rice during the rest of the year, thereby reducing their real incomes.

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Rice tariffication is pro-farmer

Photo: IRRI

DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.

Farmers will benefit from the Rice Competitive Enhancement Fund (RCEF) with a 10 billion peso (USD 200 million) annual appropriation for the next six years.

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Rice Competitive Enhancement Fund (RCEF)

Photo: IRRI Photo: IRRI Photo: IRRI

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Pro-taxpayer: NFA liabilities of PHP 144 billion (0.9 percent of GDP in 2018) can begin to fall.

Source: National Food Authority

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Philippines Rice Program Budget, 1995-2015

Distribution 1995-2015 Total (PhP, B) Average (PhP, B) % DA 82 4 13 PhilRice (R&D) 6 0.3 1 NFA 293 15 47 NIA 243 12 39 Total 625 31 100

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DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.

Photo: IRRI Photo: IRRI

Pro-worker: Minimum wage has generally tracked the increase in domestic rice prices. Lower price of rice can relieve wage pressures and create jobs.

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Source: PSA and NWPC DOLE

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Pro-children: high hunger rate can begin to fall, allowing children to finish school

131 Source: SWS

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Pro-children: high malnutrition rate can begin to fall, allowing children to finish school.

132 Source: National Nutrition Survey

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According to the 2015 Family Income and Expenditure Survey conducted by the Philippine Statistics Authority:

• NFA rice accounts for only 7.2

percent of total rice consumption and

• Worse, around 43 percent is

consumed by non-poor households. This will now change for the better.

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Rice tariffication is pro-poor

Photo: IRRI Photo: IRRI Photo: IRRI

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Pro-poor: the 40 percent leakage can be reduced by better targeting systems based on national ID

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NFA only hit an average of only 58.7 percent of its annual procurement targets. In 2018, it reached only 48.7 percent of its target. Overall, NFA targets to procure around 10 percent of total demand but only manages to procure less than 5 percent.

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NFA has been largely ineffective in procurement

Photo: IRRI Photo: IRRI Photo: IRRI Photo: IRRI Photo: IRRI

DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.

Photo: IRRI

Rice tarifficationis

pro-consumer pro-farmer pro-taxpayer pro-workers pro-children pro-poor

Photo: IRRI Photo: IRRI

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Reform as bridging the future

Source: https://www.pinterest.com/explore/social-stratification/

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DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE. Source: https://scottdeutschtalks.files.wordpress.com/2016/05/who-wants-change.jpg

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Reform coalitions needed to understand the reform as a package

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Thank you

Photo: IRRI Photos: IIRI

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