The Economic Philosophy Behind Duterte’s TRAIN Law: A Keynesian Analysis

The TRAIN (Tax Reform For Accelerated National Tough Choices) law, implemented under the Philippine presidency of Rodrigo Duterte, has sparked significant debate regarding its underlying economic philosophy. Some argue that it reflects principles of neoliberalsim, socialism, or even something uniquely ‘Dutertenesian.’ However, a closer examination suggests that the TRAIN law embodies key aspects of Keynesian economics. This article delves into the economic philosophy behind the TRAIN law and evaluates its alignment with Keynesian, neoliberal, and socialist principles.

Understanding the TRAIN Law

The TRAIN law, enacted in 2018, aimed to address economic challenges through the realignment of tax structures to stimulate economic growth and reduce poverty. Key components of the law include:

Introduction of new tax measures to fund infrastructure and development projects. Phasing out existing tax incentives to encourage better tax collection. Introductions of new social welfare programs, notably free tertiary education, student voucher programs, mental health initiatives, and credit assistance for farmers.

Economic Philosophy: Keynesian vs. Others

The economic philosophy guiding the TRAIN law can be best characterized as adhering to Keynesian principles. To understand why, let's briefly explore the major economic theories mentioned:

Keynesian Economics

Keynesian economics, developed by British economist John Maynard Keynes, emphasizes the role of government intervention in stabilizing the economy through fiscal and monetary policy. Keynesians argue that government spending and taxation can shape economic outcomes, especially during periods of recession or economic downturn.

Neoliberalism

Neoliberalism advocates for minimal government intervention in the economy, promoting free markets and privatization. It rejects high government spending and pointedly critiques the expansion of social welfare programs.

Socialism

Socialism, on the other hand, emphasizes collective ownership of resources and significant government control over the economy. Social democratic socialism often combines elements of both capitalism and socialism, aiming for greater economic equality.

Dutertenesian Economics

While Duterte's economic policies have been hailed as ‘Dutertenesian,’ this term refers more to a blend of populist rhetoric and practical economic measures rather than a specific economic theory.

Keynesian Underpinnings of the TRAIN Law

The TRAIN law's emphasis on fiscal policy and social welfare highlights its Keynesian leanings. For instance, the introduction of new tax measures and social welfare programs aligns with Keynesian principles of government intervention to stimulate economic growth and promote social equity.

Stimulus to Economic Growth

By providing public infrastructure funding and social welfare programs, the TRAIN law follows Keynesian principles of using government spending to drive economic growth. The law's intention to fund infrastructure projects directly supports this goal, as public investment can create jobs and stimulate demand in the economy.

Regulation of Tax Incentives

The reduction of existing tax incentives and the focus on improving tax collection mirror Keynesian arguments for changing fiscal policies to align with economic goals. This approach reflects a belief that fiscal discipline and better revenue collection can lead to more sustainable economic growth.

Public Welfare Initiatives

Keynesians advocate for social welfare programs to address income inequality and stimulate demand. The TRAIN law's emphasis on free tertiary education, student vouchers, and mental health initiatives align with these principles, aiming to improve education and social well-being, which can, in turn, boost economic activity.

Comparison with Other Economic Philosophies

While the TRAIN law incorporates elements of both neoliberal and socialist principles, its primary focus on government intervention and fiscal policy better aligns with Keynesian economics. Here's a comparative analysis:

Neoliberalism vs. Keynesianism

Neoliberalism typically advocates for minimal government intervention, whereas the TRAIN law advocates for targeted government spending and regulatory changes. This difference is stark and underscores theTRAIN law's adherence to Keynesian principles.

Socialism vs. Keynesianism

Socialist governments often emphasize collective ownership and extensive state control. In contrast, the TRAIN law focuses on public welfare and fiscal discipline rather than complete state ownership and control. While social democratic principles are present, they are integrated within a broader fiscal policy framework that is more in line with Keynesian economics.

Implications and Controversies

The TRAIN law's implementation has sparked controversy, particularly surrounding its impact on inflation and the national budget. Some critics argue that increased taxation and the expansion of social welfare programs have contributed to inflation, mirroring the economic challenges faced by Venezuela.

Keynesians might acknowledge these challenges but would argue that the short-term sacrifices are justified for long-term economic stability and growth. They would also point to the success of similar policies in other countries where targeted government spending has led to sustainable economic improvement.

Conclusion

In conclusion, the TRAIN law can be best understood as an embodiment of Keynesian economic principles. Its focus on government intervention, fiscal policy, and targeted social welfare initiatives aligns closely with Keynesian economics. While critics debate its effectiveness, the TRAIN law represents a strategic approach to addressing economic challenges in the Philippines, rooted in the belief that active government intervention is necessary for economic stability and growth.