Duterte the (Economic) Liberal

Rodrigo Duterte, the president of the Philippines, has become Southeast Asia’s poster boy for democratic authoritarianism. If one looks closer at what he is doing at home, however, one will be able glean some less obvious clues as to why he is so popular among voters. Put quickly: the president is a liberal, or more specifically, an economic liberal.

Take for example, the Corporate Recovery and Tax Incentives for Enterprises (CREATE) corporate tax reform bill. The bill is awaiting President Duterte’s signature into law. This law, once enacted, will retroactively reduce the corporate tax rate from 30 per cent to 25 per cent and down to 20 per cent by 2027. It will also reduce the dizzying array of tax incentives doled out to preferred firms over time. 

With a quarter of his single six-year term to go, Duterte already is the most controversial Philippine president since the dictator Ferdinand Marcos. Yet, he is the most consequential president since Corazon Aquino wrested power from Marcos in 1986.

Since coming to power in June 2016, Duterte quickly gained international notoriety for his signature (and bloody) “war on drugs”, and his separation from America, the Philippines’ only alliance partner. He has also embraced China, which is ironically the largest external security threat to the Philippines. He has become the favoured Southeast Asian example for the perceived global shift towards political illiberalism and democratic authoritarianism, though regional competition for this not-so-desirable epithet is stiff.

Political liberals, both inside the Philippines and out, find Duterte’s enduring extreme popularity hard to fathom. But 91 per cent of Filipinos polled in September approved of Duterte’s performance as president and trusted him, both noticeable improvements from his still-stratospheric approval ratings in 2019. This, despite the Philippines suffering the most from the Covid-19 pandemic in Southeast Asia.

Economic liberals, unlike political ones, find much to admire and agree with in the Duterte administration. The CREATE Act is the third major economic reform under the Duterte administration that have and will keep more money in consumers and firms’ pockets and reduce state intervention.

Largely ignored by the media … the Duterte administration’s economic reform record already is more substantial and consequential than that of the preceding Estrada, Macapagal-Arroyo and Benigno Aquino administrations.

The first of this trio of reforms was the Tax Reform for Acceleration and Inclusion (TRAIN) Act signed into law by the president on 19 December 2017. This simplified and reduced personal income tax rates, and hopefully widespread tax evasion and avoidance. According to the Department of Finance, the law reduces “personal income taxes for 99% of taxpayers, thereby giving them the much-needed relief after 20 years on non-adjustment of the tax rates and brackets”.

The enactment of the TRAIN law coincided with a sustained increase in the inflation rate that many linked to the higher excise taxes the TRAIN law imposed on fuel products, tobacco, coal and cars and a new tax on sugar-sweetened beverages. Some of the TRAIN law’s legislative supporters distanced themselves from it during the October 2019 mid-term elections.

The second reform of the trio is the most controversial and likely consequential. Liberal economic groups in the Philippines such as the Foundation for Economic Freedom have lobbied the Duterte administration from the outset to liberalise rice imports and strip the government’s National Food Authority of its rice importation monopoly. The cost of producing rice in the Philippines is much higher than in Vietnam or Thailand, meaning that Filipino rice consumers paid much more for this food staple due to these quantitative restrictions on rice imports while the government lost revenue through widespread rice smuggling. When the Philippines joined the World Trade Organization in 1995, it committed itself to replace its quantitative restrictions (quotas) on rice imports with tariffs. The window to make this change closed in June 2017, exposing the Philippines to potential WTO complaints if the rice import quota regime controlled by the National Food Authority remained in place.

Taking advantage of the surge in inflation in 2018 that saw rice prices spike, the importation system falter and the president’s popularity drop, the Duterte administration pushed Congress to pass the Rice Tariffication Act. On 14 February 2019, President Duterte signed into law this act that replaces the rice quota system and the National Food Authority rice importation monopoly with rice tariffs and the ability for rice importers to import directly. The law puts in place a lower 35 per cent tariff on rice imports from Southeast Asia (the major import source for the Philippines), and a much higher 300 per cent for rice imports from elsewhere. As expected, rice imports have grown significantly while the domestic price has fallen significantly. Domestic rice-producing interests are lobbying for this law to be repealed.

Largely ignored by the media, both social and traditional, the Duterte administration’s economic reform record already is more substantial and consequential than that of the preceding Estrada, Macapagal-Arroyo and Benigno Aquino administrations. Even more so if the amendments to the Public Services Act pending in the Senate are passed into law before June 2022. These changes will relax the 40 per cent foreign ownership ceiling on public utilities in order to attract more foreign investment in public infrastructure, an area of comparative Philippine weakness. The Duterte administration has designated these amendments as a priority measure and the House of Representatives passed them in November 2017.

These three major liberal economic reforms may provide a partial explanation for the enduring popularity of President Duterte and his administration. It could be said that the fastest way to voters’ hearts is via their purses. After all, taxpayers like to pay less taxes and consumers prefer to spend less for food staples.

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