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PARTLY BY DEBT FINANCING

Taxes largely to fund golden age of infra, says Diokno


The P8.2 trillion the government needs to fund the "golden age of infrastructure" will largely come from tax revenue, the Department of Budget and Management revealed.

"The bulk will be tax-financed, others will be debt-financed," Budget and Management Secretary Benjamin M. Diokno told GMA News Online.

The Duterte administration plans to spend P8.2 trillion over the next six years, with P860.7 billion allocated to large-scale projects this year alone.

"Right now, we have not yet decided on the ratio. The relatively less expensive projects (like the Chico River Pump irrigation project) will be tax-financed," he said.

According to the National Economic and Development Authority (NEDA), the Chico River Pump Irrigation Project is designed to irrigate around 8,700 hectares of agriculture land, benefit some 4,350 farmers and serve 21 barangays in Cagayan and Kalinga.

Debt financing

Diokno said the government is also looking at the possibility of debt financing, considering the prevailing low interest rates and high returns from the projects.

"If a project will yield an economic internal rate of return much higher than the cost of borrowing, then it makes sense to borrow money. With today's low interest rates, the more projects will pass the go/no-go criterion," he said.

"The relatively more expensive, long-gestating projects (like the South Rail project, the Dinagat (Leyte)-Surigao link bridge, the Luzon-Samar link bridge) will be debt-financed," he added.

The P170.7-billion south line of the North-South Railway involves the construction of a 532-kilometer railway from the Philippine National Railway (PNR) Tutuban station in Manila and Legazpi City in Albay. Details for the two other bridges are still being finalized.

"Other projects will be funded by the private sector through solicited and unsolicited PPP (public-private partnership) modes," he added.

The National Economic Development Authority (NEDA) recently approved a lower project hurdle rate – the minimum rate of return required by a manager or investor – of 10 percent from 15 percent, according to the Cabinet official.

"Hence, more projects will qualify for funding," he said.

Enough money

First Metro investments Corp. (FMIC) said there is enough money in the financial system to fund infrastructure spending over the next six years.

"The tax reform, that's net positive for the government by 2018. So dun pa lang positive na sila," FMIC Senior Vice President Christopher Ma. Carmelo Y. Salazar told GMA News Online on the sidelines of a briefing earlier this month.

The government in November said it would gain as much as P174.2 billion from the comprehensive tax reform package – now pending before Congress – which seeks higher excise taxes on petroleum products and, at the same time, lower income taxes from both individual and corporate taxpayers.

However, not all lawmakers are keen on imposing higher taxes on oil products in the absence of a financial crisis that would justify such move.

Socioeconomic Planning Secretary Ernesto M. Pernia defended such move. "As expected, economic reforms are typically non-populist. Short-term satisfaction (often narrow) is usually preferred to wide long-term benefits."

In the December issue of EconomyPH, the Bangko Sentral ng Pilipinas Investor Relations Office (IRO) noted the administration is set to increase spending on infrastructure to 7.1 percent of the gross domestic product (GDP) by the end of its term in 2022.

"I think the tax reform that we have right now, which will produce additional intake ... this will prep up the spending of this government. The other factor that will allow this to happen is essentially reduced corruption and streamlining," FMIC President Rabboni Francis B. Arjonillo said.

PHL-China relations

FMIC's Salazar also noted that another source of financing could come from the warming relations between the Philippines and China.

"Then China wants to lend to us because we want to improve [relations]. So there are sources from other countries. So I think in terms of capacity to fund it, it shouldn't be a problem," he said.

As his administration pushes for an independent foreign policy in September, Duterte said he was ready to deal with China and Russia.

Filipino and Chinese businessmen signed a memorandum of understanding in December that may eventually translate to $100 billion worth of infrastructure investment in the country.

"We have an understanding that we will have cooperation work in future projects, either private projects or government projects," Telesforo E. Peña, managing partner at T&D Design Consultancy Co., said.

Last week, the Philippines submitted some 40 infrastructure projects – small- and large-scale – to China for possible loan financing, as well as assistance in doing feasibility studies. — VDS, GMA News

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