Japanese global financial firm Nomura retained its 2018 growth forecast for the Philippines at 6.9 percent, saying the passage into law of the Tax Reform for Acceleration and Inclusion would further boost domestic consumption and generate more revenues for development projects.
Nomura said in a report over the weekend the first package of the Comprehensive Tax Reform Program would generate more revenues for infrastructure projects that would eventually be beneficial to the economy.
“We reiterate our above-consensus GDP growth forecast of 6.9 percent in 2018, with additional fiscal revenues helping fund more infrastructure projects,” Nomura said.
Nomura said the incremental revenues from the first package would increase as other measures kicked in such as a larger increase in fuel taxes which should coincide with continued improvements in the government’s capacity to implement infrastructure projects.
It said this would allow the government to stick to its medium-term plan to keep the fiscal deficit at 3 percent of GDP or less, although for 2019 fiscal deficit would likely widen to 3.1 percent of GDP with the mid-term elections.
“We think that the provisions of RA 10963 [Train], beyond the overall fiscal impulse, are also highly growth-positive as they help improve the quality of fiscal spending. The law mandates that 70 percent of additional revenues is earmarked for infrastructure spending under the government’s ‘Build, Build, Build’ program,” it said.
Under the ‘Build, Build, Build’ program, the government will construct more roads, bridges, airports, seaports, railways, water and irrigation projects around the country to spur more economic activities.
Also included in the program is a 24-kilometer subway to be constructed in Metro Manila to decongest the metropolis of heavy traffic.
Nomura said the personal income tax cuts under Train would likely offset the impact of rising inflation for most taxpayers. Nomura estimates that in real terms, household disposable income would rise 6.8 percent in 2018 versus the 5.1-percent average annual increase over the past few years.
Nomura said that as a result, private consumption growth was expected to rise to 5.9 percent year-on-year in 2018 and 6.5 percent in 2019 from 5.3 percent in 2017.
Overall, Nomura expects gross domestic product growth in 2019 to rise to 7.1 percent from the target of 6.9 percent this year.
The economy grew 6.7 percent in the first three quarters of 2017, within the government’s target range of 6.5 percent to 7.5 percent.The country has recorded an uninterrupted GDP growth for the past 73 quarters.