Train brought down 2nd quarter GDP growth

By Fernando Fajardo |August 09,2018 - 09:53 PM

The Philippine economy grew by 6.0 percent in the second quarter of 2018. This is down from the 6.6 percent growth rate recorded in the same period last year and the much higher 6.9 percent growth rate also recorded in the same period in 2016.

On the production or supply side of the economy, among the major economic sectors Services recorded the fastest growth at 6.6 percent.

Industry followed with a growth of 6.3 percent, and Agriculture with 0.2 percent.

In the same period last year, economic growth was led by Industry at 7.1 percent, followed by Services with 6.4 percent, and Agriculture with 6.3 percent.

On the expenditures or demand side of the economy, Capital Formation or Investments recorded the fastest growth at 20.7 percent, followed by Government Final Consumption Expenditures with 11.9 percent, and Household Final Consumption Expenditures with 5.6 percent.

Exports went up by 13.0 percent but imports also went up by 19.7 percent. Since total imports (P1.622 T at constant 2000 prices) very much exceeded total exports (P1.426 T at constant 2000 prices), the net effect of trade on the GDP growth was downward.

It was the negative net exports or trade deficit together with the much lower 5.6 percent growth in Household Final Consumption Expenditures that lowered the overall GDP growth to just 6.0 percent in the second quarter of this year from 6.6 percent in the same quarter of last year.

In the same period last year, growth on the demand side were jointly led by Capital Formation and Government Final Consumption Expenditures.

Both grew by 7.6 percent, followed by Household Final Consumption Expenditures with 6.0 percent. Exports grew at 21.4 percent in the same period last year while imports only grew by 18 percent.

Net Primary Income (NPI) which included the OFW remittances posted a growth of 4.7 percent in the second quarter, resulting in the 5.8 percent growth of Gross National Income (GNI). Both NPI and GNI recorded a growth of 6.6 percent in the same quarter of the previous year.

With the country’s projected population reaching 106.2 million in the second quarter of 2018, per capita GDP grew only by 4.3 percent in the second quarter of this year.

Now it can be told that the Train Act had a negative effect on the economy by way of lowering the growth on Household Final Consumption Expenditures.

One reason for this negative effect is that the reduction in income tax brought about by the Train went mostly to the higher income groups which have lower marginal propensity to consume.

This means that what is gained by the taxpayers from lower tax payments, a good part of it is not return to the
economy.

The other reason for the Train’s negative effect on GDP growth is that the higher excise taxes and expanded value added tax amounted to an increase on the cost of production on the part of the producers.

This forced them to increase their prices.

Higher prices dampened demand, and thus the lower GDP growth.

The unfortunate thing is that it is the poor who did not benefit from the reduction in income tax who suffered greatly from higher prices by way of the cut in their buying power, thus making their lives more miserable.

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