THERE is a small group of wealthy Filipinos
who are in search of investment opportunities. They might find an
economy that is expanding, albeit at a slower rate, a stock market
that’s less vibrant than before, and a real estate market that’s losing
steam. In brief, potential investors may have to be more cautious,
selective, and circumspect.
Who are these wealthy Filipinos? Consider
the richest 10% of the population. Their average per capita income has
increased by 11.9% from 2009 to 2012. Even more impressive, for the same
group, per capita savings has risen by 24.6%.
For these relatively well-off Filipinos, 2014 will be a challenging year for the Philippines.
During the last three years, the economy has grown with an upward
trajectory -- 3.6% in 2011, 6.8% in 2012, and 7.2% in 2013. But all good
things come to an end. The emerging consensus is that growth will
decelerate to 6.0% to 6.5% in 2014.
The prospect of a rebound in 2015 cannot be ruled out. But it will
depend on the government’s ability to move its public-private
partnership (PPP) projects and its huge rehabilitation and restoration
program.
The average GDP growth rate in recent years (2011 to 2013) is
one-percentage higher than the average growth rate in the previous
decade, 2001-2010: 5.87% vs. 4.77%. That’s good news. But is it
sustainable?
With rising income, the savings outlook of individuals continues to
improve. The Fourth Quarter 2013 survey results of the Bangko Sentral ng
Pilipinas show that for the National Capital Region (NCR), 75% of
households earning a monthly income of P30,000 and over can set aside
savings in the current quarter. Of this income class, 19.7% of
households are willing to allocate 20% or higher of their income to
savings.
For areas outside NCR, the potential is even better. Sixty-five percent
of households earning a monthly income of P30,000 and higher can afford
to save in the current quarter, with 25.7% indicating their desire to
save 20% or more of their income.
MACRO VIEW: TOTAL INVESTMENT VS. GROSS SAVINGS
The Philippine
savings rate is one of the lowest in Asia. The difference between gross
national savings and total investment, both as percent of GDP, is
shrinking and is forecast to shrink in future years.
Yet, the country’s lack of infrastructure has been a major constraint to
sustainable and strong growth. For the country to make up for past
neglect and to meet the demand of a modernizing economy, it has to spend
the equivalent of 5% to 7% of GDP for public infrastructure for the
next 10 years.
One way of doing this is by raising long-term infrastructure bonds, which will be subscribed to by wealthy Filipinos and firms.
INDIVIDUAL INVESTMENT DECISIONS
Individual investors are
expected to maximize return on investment net of taxes. Thus, the tax
regime is important. Our present tax system discourages setting up one’s
business because of the unusually high tax (30%) on corporate income.
The 20% final tax on interest incomes is equally burdensome.
Tax on royalties and winning is a final tax of 10%. Tax on capital gains
is a final tax of 5% if less than P100,000 and final tax of 10% on an
amount greater than P100,000.
The least tax among all investment possibilities is real property.
Hence, it remains to be the investment of choice of wealthy individuals.
Unfortunately, as a people and society, we have overinvested in real
properties and underinvested on modern farms and factories. Such a
pattern of investment is a rational response to the existing tax system,
labor market policies, and the general difficulty in setting up and
running a business in this country.
No wonder, economic growth has failed to create a lot of jobs and
opportunities for many Filipinos. The phenomenon called “jobless” growth
should not be a puzzle to government authorities.
(The author is Professor of Economics at the UP School of Economics and former Secretary of Budget and Management.)
source: Businessworld
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