Philippines new finance chief willing to cede revenue for growth

[MANILA] Carlos Dominguez, who is set to become finance secretary in the Philippines, said the incoming government of President-elect Rodrigo Duterte is willing to initially lose revenue through income-tax cuts to help boost economic growth and reduce poverty.

Lower income taxes will be part of a tax reform bill submitted to lawmakers by September, Mr Dominguez said in an interview on Friday at his office in Manila. The new administration may consider raising levies on alcohol and cigarettes, while an increase in the sales tax is unlikely, he said.

"We won't look at erosion of revenue as simply erosion of revenue but really, investment in the future and encouraging more business activity," he said.

Widening the budget deficit to 3 per cent of gross domestic product from the current goal of 2 per cent gives the government more room to invest in human capital and infrastructure, he said.

Mr Duterte, who takes office on June 30, will inherit an economy that grew faster than China last quarter, won its first investment-grade credit rating and has ample fiscal room for the new government to boost spending.

Mr Dominguez will need to sustain those gains while also bolstering investor confidence in the incoming president, who has little economic policy experience and has made headlines for his brashness and often vulgar speech.

Ben Diokno, who will take over the budget portfolio, said this week the new government is seeking to cut income taxes and borrow more as it widens the budget deficit to a "comfortable" target of 3 per cent of gross domestic product.

Outgoing finance secretary Cesar Purisima, who helped double government revenue in the past six years, said on Friday that there is sufficient fiscal room to boost spending.

"Enough confidence and fiscal space has been amassed for the government to support a more expansionary fiscal policy stance," Mr Purisima said in a statement.

The outgoing government of Benigno Aquino had cut the budget deficit to 0.9 per cent of GDP in 2015 from 3.5 per cent in 2010.

BLOOMBERG