Train law to spur manufacturing demand, but impact on production cost

WHILE the newly enacted tax reform law will boost consumer and manufacturing demand, its inflationary pressure could also impact on the cost of production, the National Economic and Development Authority (Neda) said.

Government is hopeful the manufacturing sector will recover this year, with the Tax Reform Acceleration and Inclusion (Train) law boosting the disposable income of around 99 percent of Filipino income taxpayers.

“With the higher take home pay of around 99 percent of Filipino income taxpayers because of the TRAIN law, household consumption will likely increase,” Neda Director General and Socioeconomic Planning Secretary Ernesto Pernia said in a statement.

He also said the government's Build Build Build program, which involves the rollout of major infrastructure projects, and the programmed increase in social spending will also increase domestic demand for manufactured goods.

But at the same time, he said the government must remain cautious on the short-term upward inflationary impact of Train law.

He said this may largely affect the cost of production, particularly of those energy-intensive manufacturing firms.

“Inflationary pressures, higher global raw material costs, and peso depreciation will continue to be a challenge to the sector’s growth,” Pernia said.

Manufacturing has been on a downward trend, with the Volume of Production Index (VoPI) for manufacturing contracting by 9.7 percent in December 2017, a reversal from the 21.7 percent growth in the previous year, based on the Monthly Integrated Survey of Selected Industries (MISSI) of the Philippine Statistics Authority.

The Value of Production Index (VaPI) also decreased by 10.3 percent, resulting in the year-to-date growth of VoPI and VaPI by 0.4 and -0.5 percent, respectively.

“The recent declines in manufacturing are a cause for concern but we are also fully aware of the opportunities that lie ahead: robust domestic consumption demand, increased demand from government, and government’s resolve to improve the ease of doing business,” Pernia said.

He said government will have to continue implementing policy reforms and improve infrastructure to support the manufacturing sector. (MVI/SunStar Philippines)
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