This report discusses key policy challenges that need to be addressed if the Philippines were to embark on sustainable and inclusive growth. We take the view that the main reason behind the Philippines' lagging growth and development outcomes in the regional context lies in a sluggish transformation of the economy---in particular, stagnant industrialization. Chronic problems of unemployment, poverty, and low investment are reflections of weak industrial development. The economy has been led by services, and it has been further shifting toward services with the growing business process outsourcing. Nevertheless, sole development of the services sectors is not sufficient to address the development challenges and lead to inclusive growth. We propose more targeted public sector support, which focuses on specific industries and products for industrial upgrading and diversification. This report shows a methodology of choosing products for targeted public sector support, and recommends effective dialogue between the public and private sectors to identify constraints specific to the target products and to develop adequate solutions. The Philippines needs to develop a stronger industrial base to enable the economy to "walk on two legs" of industry and modern services, to create productive job opportunities for the growing working-age population.
This policy note assesses tax administration measures and tax rate adjustments, two options for the Philippines' fiscal consolidation in terms of their efficiency for revenue mobilization and impacts on tax equity. Its key findings are: 1) a policy mix of a higher value-added tax and a lower corporate income tax will make the overall tax system more regressive, even if its impact on tax revenue is neutral; 2) the country's tax productivity is much lower than those of its peers in the region, which signals the presence of significant tax loopholes and weak tax administration; and, 3) there is ample room to increase excise taxes on tobacco, alcoholic products, and gasoline, without ruining the equity of the tax system. These suggest that tax administration remains a key focus of efforts for the new administration.