The 2018 National Budget, Infrastructure, and Economic Growth

Louie C. Montemar, Fellow of the Stratbase ADR Institute

The government slogan “Build, build, build!” resonates for many, especially those who have some grounding on economic growth theories. In a serious attempt to address the country’s decrepit infrastructure, the administration decided to pour in funds for “hard infrastructure” and implement projects that are physically necessary to facilitate trade and improve the country’s business climate.

The primacy of infrastructure development is very evident in the national budget for 2018 given the lofty sum apportioned to the sector. In his budget message in July 2017, President Duterte himself said that there was P1.097 trillion ($22.03 billion) to be allocated for infrastructure development in 2018. This is nearly one-third of the total 2018 national budget. To illustrate, the Department of Public Works and Highways (DPWH) will receive the largest departmental allocation in the 2018 national budget. DPWH, given its infrastructure development programs, will get P637.86 billion ($12.8 billion) — even surpassing the P553.3 billion budget of the Department of Education (DepEd), which usually receives the highest allocation among all government agencies. This is equivalent to 16.9% of the country’s total 2018 budget and is higher by 40.3% from the previous year’s budget. This budget will primarily be available for the construction, rehabilitation, and improvement of transportation infrastructure and flood control systems.

In addition, the Department of Transportation (DoTr) has been provided with P66.3 billion ($1.33 billion). This is a 24.4% increase in its annual budget compared to its allocation in 2017. In line with its mandate, the DoTr budget should allow for the provision of a safe, affordable, and comfortable public transportation system, especially big-ticket railway projects.

Then there is the P10-billion ($201 million) budget — predominantly allotted for infrastructure projects — to support the rebuilding and rehabilitation of Marawi, which has been shattered by a catastrophic siege that has resulted in severe human and physical damage.

Several studies on the growth of national economies show how transport infrastructure improvements (including road networks, airports, railways, ports, and logistics) have led to increased trade flows. Infrastructure, particularly information and communications technology (ICT), also strengthens trade, as the density in numbers of telephone lines, mobile phones, broadband access, Internet users, and secure Internet servers have a positive impact on trade for both exporters and importers.

Relatedly, it has been shown that, in lower-income countries, domestic revenue collections have a positive effect on firm performance, which could be channeled into the financing of public infrastructures that are vital to firms. Indeed, it has also been revealed in studies that tax revenue resources had a positive effect on infrastructure development. These studies recommend that the government should provide the necessary human and material infrastructure that are needed to support seamless tax collection so increased revenues can really enhance development.

Note that the National Budget for 2018 is intimately tied to the Comprehensive Tax Reform Package (CTRP) being nurtured by the government. The recently signed Tax Reform for Acceleration and Inclusion Law, the first package of the CTRP, seeks to lower personal income tax rates, limits value-added tax exemptions, introduces tax administration measures and raises excise taxes on several commodities, while generating the requisite funds for infrastructure spending, education, health and other social safety nets. This is seen as crucial for sustaining long-term economic growth.

While the government’s goals sound very rational and sensible, serious governance-related concerns remain.

For one, there is a need for vigilance in ensuring that the government is more prudent in spending its budget, and more importantly, that the actual budget allocated is being used in the programs as designed. It would be helpful indeed if investing in infrastructure translates to improving the flow of the economy and thereby the mitigation of price increases and additional levies for everyone. Unfortunately, as it stands, key infrastructure agencies have yet to unlock the solution to addressing public spending bottlenecks. There is also a continuing need for additional measures by government in ensuring that taxpayers do not avoid and evade taxation so enough revenues can be tapped for the economy. Authorities responsible for taxation should be strengthened and made more accountable in enforcing compliance by taxpayers.

It is only in this end that the national budget may be more fully and concretely seen as a real tool for national development.

Otherwise, for many Filipinos, especially the regular Juan and Juana, whose immediate concerns are about the daily sustenance of their families, this “Build, build, build!” slogan would only be an empty promise.

 

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