Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said Tuesday the tax reform program of the government will lift economic growth in the next couple of years.
Guinigundo said the tax reform program was expected to improve gross domestic product growth by 0.6 percentage point this year and 0.2 percentage point in 2018.
“The lowering of income tax and corporate tax will translate immediately to higher consumption. And on the part of the government, [it will be good for] infrastructure, human development and social protection for the poor. That is the impact, immediately on consumption and investment,” Guinigundo told reporters.
The economy is expected to grow between 6.5 percent and 7.5 percent this year, driven by the government’s higher fiscal expenditures, robust domestic demand and investment, particularly on infrastructure projects.
The economy grew 6.8 percent in 2016, surpassing the 5.9-percent expansion in 2015.
Guinigundo said the tax reform program was expected to result in a 0.5-percentage-point increase in inflation rate in 2017, or from the earlier estimate of 3.3 percent to 3.8 percent.
He said in 2018, inflation was seen increasing by 0.7 percentage point to 3.7 percent from the earlier projection of 3 percent.
“The impact on inflation will be quite modest and within the target [of 2 percent to 4 percent]. There is a countervailing effect that when your potential capacity increases because of infrastructure or spending on social protection, there will be an impact on inflation in the sense that more people will be able to produce, there is more potential capacity to produce. So in the presence of better supply conditions, price movements will moderate,” Guinigundo said.
The interagency Development Budget Coordination Committee projected that inflation would be in the range of 2 percent to 4 percent from 2016 to 2018. Inflation in 2016 averaged 1.8 percent, below the target range.
