Times columnist’s view rejected by Finance dept
The Finance department has rejected claims made by The Manila Times columnist Ben Kritz in a recent piece on economic growth.
“Kritz should be informed that government’s targets are annual and quarterly actuals may depart from this level,” the department said in a statement on Wednesday.
It was reacting to an August 12 column titled “Train wreck” where Kritz said the government was “completely adrift when it comes to economic policy and management” after economic growth slowed to 6.0 percent in the second quarter.
The gap between the result and the government’s 6.6-percent estimate, the columnist continued, highlighted the “disconnect” between policymaker perceptions and economic reality.
The Finance department responded by saying that “while the economy expanded less than the target, it can still catch up in the second half since many of the projects in the ‘Build Build Build’ program are scheduled for full implementation in the second half.”
“Also, economic policy and management involves more complicated issues than formulating targets and therefore should not be made the basis for effectiveness,” it added.
The department also rejected Kritz’s advice that aspirations should be set lower.
It particularly dismissed his view that the “sweeping Train tax reform agenda” was “wreaking havoc on the economy” by fostering the belief that “prices are higher because of taxes”.
“First, we believe that the source of inflation really matters,” the Finance department said, adding: “To put things in perspective on the effects of inflation on consumption, we have to compare the growth rate of consumption in nominal terms and inflation.”
It explained that in the second quarter, consumption grew by 10.4 percent while inflation was at 4.5 percent based on a price deflator, with the difference setting real consumption growth at 5.6 percent.
“What Mr. Kritz did was to compare the 5.6 percent consumption growth in real terms and July’s CPI (consumer price index) inflation rate of 5.7 percent thus giving the impression that consumption contributed “nothing to economic expansion. But it did, by 5.6 percent,” it said.
The department also pointed out that second quarter growth was not entirely due to government spending. While public construction surged by 21 percent in the second quarter, private construction is also picked up by 7.9 percent during period. Altogether, investment grew by 20.7 percent in the second quarter, it said.
“And that’s precisely what economic policy makers want to achieve: to make growth more investment-driven because investments beget more investments, which in turn, make growth not only higher but also more sustainable, that is, growth that does not stoke inflation. Thus, we continue to be aggressive,” the agency stressed.
“At the same time, we are fixing the tax system by making it flatter and broader so that growth becomes more inclusive. We should not forget that Train 1 also reformed personal income taxation such that it corrected for bracket creeping, among others.”
Sought for comment, Kritz highlighted the short period between the release of the Q2 estimate and actual growth figure, adding: “If economic policy and management is not being managed toward some reasonably clearly defined objectives, then what is the basis for its direction? “
The Finance department rebuttal, he added, does not strongly refute his assertion that current economic policy was adrift.
The columnist also claimed that the department seemed have misread his observations on Train, adding that he had acknowledged that the law was not a significant source of inflation.
Kritz also argued that the department itself recently admitted it had little information about the potential indirect effects of tax reform on inflation.
“One of those indirect effects is the existence of the tax package as a tangible answer — objectively correct or not — to public confusion over what is causing higher prices, and it in effect has become a self-fulfilling prophecy: Retailers and wholesalers who are experiencing price pressures of their own can more easily raise prices because there is now a public expectation that prices will go up,” he said.
“This would not be happening, or at least not nearly to the degree it is now, if there were no Train.”
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