Good, not great

I am pleased to share with readers the executive summary of our quarterly economic outlook report for GlobalSource Partners (globalsourcepartners.com) written by Marie Christine Tang and me last Nov. 22, 2018. The second part of this column is a statement of the Foundation for Economic Freedom supporting TRAIN 3, on property valuation for taxation purposes issued Nov. 30, 2018.
Local moods have soured over the past several months as inflation rose, economic growth slackened, the trade deficit ballooned, the peso fell and asset returns dropped. The string of bad news may be traced to: global events, particularly the triple whammy of US monetary tightening, surging oil prices and an escalating US-China trade war, that have contributed to risk-off sentiments; as well as domestic developments, particularly the badly managed rice import policy and the many chokepoints caused by lagging infrastructure that have led to the economy’s greater import dependence.
More recent news of stabilizing world oil prices and easing local inflation have given rise to hopes that the worst may be over. Indeed, optimists are apt to bet that slower US growth would reduce the number of Fed rate hikes going forward, that the US and China are likely to reach some agreement to ward off the imposition of even higher tariffs next year, and that locally, not only would the visit of President Xi Jinping speed up execution of China-funded infrastructure projects and deepen trade and investment ties in other areas but a new law freeing up rice imports would send prices of the basic food staple down. Should these happen, as the argument goes, emerging markets would benefit from improved financial market sentiments and risk appetites that would bring about a virtuous cycle of capital flows and asset price recoveries and face lower risk of a trade-related China slowdown and its adverse knock-on effects on regional growth; separately, the Philippines would gain from expanding trade and investments with China, and the specter of rising inflation would recede from consumers’ memories, raising confidence anew.
Wishful thinking? Rosy certainly and in the event, the headwinds are unlikely to disappear completely. As it is, oil prices are still projected to remain at current high levels, the US Fed is still on course to tighten once more this year and anywhere from 50 to 100bp next year, a high degree of uncertainty surrounds the US-China trade dispute where both sides appear prepared to set aside WTO rules, and locally, most Filipinos continue to eye the rewards of Chinese projects with suspicion, including opportunities for job creation, and with regards to the proposed law to “tariffy” rice, it remains unclear at this point whether it would truly free up rice trade.
Moreover, election season lasting through May 2019 is upon the Philippines during which time, work on the executive’s tax reform proposals, particularly the unpopular Package 2 dealing with corporate investment incentives, is widely expected to be put on hold, keeping investors in suspense about the future corporate tax regime. In the meantime, any boost to domestic demand from election spending may simply translate into higher imports, especially with all the construction works spurred by public spending adding to the economy’s chokepoints in the interim. As well, second round impacts from all the supply shocks this year are still working their way through the economy and expected to keep inflation outside monetary authorities’ target band through mid-2019.

All things considered, the Philippine growth outlook is still a good one. Our baseline view forecasts GDP growth remaining above 6% in the next 12 months, among the highest in the region However, the downslide in output growth would continue in the face of external headwinds and internal supply bottlenecks. Upsides to growth include better than expected exports of both goods and services, including tourism, as well as lower inflation, particularly rice prices. Downsides include an escalating trade war, more by way of confidence than direct trade impact which is expected to be manageable, and a multiplicity of geopolitical risks, including another runup in oil prices.
FEF STATEMENT ON THE VALUATION REFORM ACT
We, the Foundation for Economic Freedom, support the proposed amendments to the country’s real property valuation system under Package 3 of the government’s Comprehensive Tax Reform Program.
The main objective of Package 3 is to develop and maintain an equitable and efficient real property valuation system.
It will address the present problem of multiple, overlapping valuations through the adoption of a uniform valuation standard and establishment of a single valuation base for taxation purposes.
Conflicting land values result in right-of-way compensation problems — leading to delays in implementation of government infrastructure projects and additional costs to the government.
It also will make the Bureau of Local Government Finance (BLGF) to develop and maintain implementation of uniform valuation standards in compliance with international best practices, under the Department of Finance (DoF) oversight while assessment levels and tax setting will remain a function of the Sanggunian of the Local Government Units (LGUs). Separating valuation from political bodies will also ensure that the practice is free from undue politicization.
It will further ensure timely updating of the Schedule of Market Values (SMVs). At present, only 38.8% of LGUs and half of Regional Development Offices have updated SMVs. Outdated and below market valuation means foregone government revenues from property ownership and conveyances.
Setting up of an electronic database on real property will ensure transparency and accessibility of data.
On average, real property taxes contribute around 31% of the LGUs local source of income. The proposed reform will increase government revenues and at the same time increase local autonomy as it will improve LGU financial self-sufficiency. Package 3 does not intend to create and impose new taxes but rather improve efficiency in real property tax collection.