NEDA chief says inflation to hit 4.2% as tax reform law bites in 2018

Inflation is expected to accelerate by 100 basis points or 1 percentage point this year as a result of the new tax reform law, the country’s chief economist said on Thursday.

“Ang estimate namin ay 1 percentage point increase in the overall inflation rate ... Sa average inflation rate sa 2017 3.2 ... magiging 4.2 sa 2018,” National Economic and Development Authority (NEDA) chief and Socioeconomic Planning Secretary Ernesto Pernia said in an interview on GMA News’ “News to Go.”

Pernia, however, does not think that faster inflation would be a long-term impact of the tax reform initiative.

“But then immediate effect ‘yon o short-term effect, mag-dissipate din ‘yon, liliit overtime. By 2022, mawala na ‘yung inflationary effect o minimal, negligible na lang by 2022,” he said.

President Rodrigo Duterte signed into law the TRAIN bill or Republic Act No. 10963 last December 19. The tax reform law embodies the first package of the Duterte administration’s comprehensive tax reform program.

With RA 10963 in place, employees earning P250,000 and below are exempted from paying the personal income tax starting in 2018, while raising the excise tax on fuel products and other commodities and expanding the value-added tax base.

To mitigate the impact of tax reform on the poor, the law mandates the government to provide each of the 10 million poorest households in the country with a monthly unconditional cash transfer of P200.

In the same interview, Pernia noted the economy would grow between 7 and 8 percent this year.

“Well, the spending programs sa imprastraktura at sa social services by themselves ay makakaboost, makakalakas sa paglago ng ekonomiya. At tsaka, kasi maraming multiplier effects ‘yon. ‘Yung spending sa imprastaktura, spending sa social services, hindi lang ‘yun one time effect. May mga multiplier effects ‘yon, siguro times five o times four ang overall effect ng spendings on imprastaktura at social services,” he said.

“At tsaka may ibang sources of economic growth. ‘Yung exports natin, agriculture nagiimprove, sumisipa ang manufacturing natin. At tsaka ‘yung iba pang mga polisiya natin na nagreform ... like improving the means of doing business, liberalizing some restrictions and framework investment,” he added. — Marlly Rome Bondoc/VDS, GMA News