Philippines: Why We Need to Invest in the Poor
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In my 10 years of working in the World Bank, I have seen remarkable changes around me. In 2004, Emerald Avenue in Ortigas Center, where the old World Bank office was located, started to wind down after 9 PM. Finding a place to buy a midnight snack whenever I did overtime was hard. It was also hard to find a taxi after work.
Today, even at 3 AM, the street is bustling with 24-hour restaurants, coffee shops, and convenience stores, hundreds of BPO (Business Process Outsourcing) employees taking their break, and a line of taxis waiting to bring these new middle class earners home. Living in Ortigas Center today means that I also benefit from these changes.
Bonifacio Global City, where the new World Bank office is located, started from empty lots and grassland a decade ago. Today, it is the fastest growing district in Metro Manila. Even at 3 AM, the district is also still very much alive. These spectacular changes are the result of high and sustained economic growth.
Indeed the last 10 years have been remarkable for the Philippine economy. The economy grew faster than any period in the last 7 decades. Today, on average, if GDP were to be divided equally among 100 million Filipinos, we would be more than twice as rich compared to 7 years ago. If current growth rates are sustained, per capita income would increase by twice in a decade, over 5 times in 2 decades, and 12 times in 3 decades. The economy is also awash with USD 40 billion every year from remittances and revenues earned by the BPO industry. Inflation has been low and stable, allowing businesses and households to raise their real income. Finally, government finances are improving. Lower deficits and debt has made it possible for the government to double social services spending in the last 4 years, with strong impact on poverty.
While millions of Filipinos are now benefiting from higher economic growth and stability, 25 million Filipinos are still living in poverty. A Filipino is poor if he lives on less than PHP 52 per day, the daily poverty line. Moreover, three-fourths of Filipino workers are informally employed with little protection when they get sick and face bleak career prospects. Also, around 3 in 10 Filipino workers are without jobs or want to work more hours since they do not earn enough.
The government has done a good job in raising growth and securing macroeconomic stability in the last decade, leading to significant job creation and poverty reduction. But much more can be done. How do we ensure that all Filipinos, especially the poor, benefit from higher growth?
For a poor Filipino to benefit from higher growth, she needs to be healthy first, so that she can spend more time in school and raise her chances of getting a good job. A poor Filipino farmer needs reliable roads, bridges, and irrigation to produce better crops and connect to markets in the cities. These are essential for raising his income and bringing him out of poverty.
These underscore the urgent need to invest more in infrastructure, health, and education. This requires new sources of tax revenues. This is not easy given the country’s long history of under-investment and weak tax collection. But the Aquino Administration has signaled a change from the past. We have a reason to believe that things can be much better for everyone.
Currently, our tax system is complex, inefficient, and highly inequitable. Many large corporations benefit from tax incentives, such as income tax holidays or reduced tax rates, when they don’t really need it (my friend working in a large corporation that receives tax incentives gets an 18th month pay), while the majority of small and micro enterprises, where the poor are, have to pay much higher taxes relative to their income. Taxes that are not adjusted for inflation also worsen the equity of the tax system, as the rich pays less and less as their income rises. The complexity of the tax system, where small and micro enterprises have to file and pay a multitude of taxes almost every month means that they spend a considerable amount of time and money falling in line and complying with tax rules, instead of doing more productive things and earning more.
These need to change. The tax system needs to be reformed so that it promotes, rather than hinders, job creation. It needs to be reformed so that Filipinos have an easier time paying taxes. It needs to be reformed so that poor people pay much less and rich people pay much more.
This is hard for many well-to-do Filipinos, but mobilizing revenues from those who can afford to pay is needed if we are to care more for the poor, by ensuring that they stay healthy, get a good education, and are able to raise their incomes. When their lives improve,, wouldn’t this be much better for the economy and for us as well?
Of course any taxpayer would want to make sure that her tax contribution from her hard-earned money is not wasted. Thus reforms to improve transparency and accountability of government spending are necessary before we can expect richer Filipinos to contribute more.
What do you think? I’d like to hear your thoughts. Helping the poor is a daunting task, but perhaps we can agree to start somewhere.
Hi Karl,
Nice article. From reading it, I get the impression you are asking people to be prepared to pay the proper taxes if not higher amounts in support of government's efforts to invest for infrastructure, health and education to help the poor.
The problem is the current administration while having one of the best governance practices the country has is starting to lose its moral fiber by trying to deny its shortcomings on how it managed the budget by using the DAP option. Can we trust them to see the light?
The bigger question is whether the current level of governance will continue in the next administration. Will the straight road ("Daang Matuwid") reach greater heights? Or will our days of Camelot end in two years time?
Where do you think we should start?
Dear Charles, Simon, Kyle and anonymous,
Thanks very much for your interest in my blog. Like you, I understand that the Philippines faces several challenges but this is also an opportunity to learn from them so that we can grow as a nation together, with no one being left out. This is what we mean by inclusive growth.
To ensure this, government needs the help of business, labor, and civil society. This is the core message of the Philippine development report "Creating more and better jobs," which I discuss in my other blog.
If we all work together and agree on a package of reforms to protect property rights, promote more competition, simplify regulations, and invest more in infrastructure, education, and health, I have no doubt that we can surpass the current challenges.
You mentioned your friend receives an 18th month pay. Is that the same as a 50% annual bonus?
Hi thanks Simon. Yes that seems to be it.
wow I am in the wrong industry!
Reforming to an environment that the richer pay more tax instead of less is a very good thing I think, but not an easy one to change quickly. But if the government can convince them in having a stable financial policy and can show the better prospects for every one also the poor, I do believe also richer people must get more committed.
Thanks for your blog!
Thanks anonymous
Hi, Kendrick!I am impressive to learn ways on macroeconomics and economic growth? I had to see that way anything else.
Thank Kyle
Yes the govt must do more to help the poor. The small farmers need help from the govt in providing subsidized (irrigation system, mechanical systems, fertilizer) to small farmers cooperatives, including training and to free the farmers from the clutches of the middlemen. Also assist the poor in setting up small time businesses without much distractions from BIR. Tax collection should focus on rich people and leave the poor people.
What i can not understand is farmers in other countries are rich, while in the Philippines, farmers are poor.
Everybody is talking macro or microeconomics that would help somebody blah blah blah well i think it would be best to change the mentality of everyone in the country before somebody would talk about economic terms. Many have tried to lift up the economy but all of them failed. Why? Because of the negativity of the people. Why again?now thats much harder to answer just browse the history. Im not a pessimist but if politicians would be public servants this issue would be solved. And the people will just follow everything. Now why the phil. Government will not pass an act that NO foreign individual would acquire land area in the whole country? Because they are gaining net money on it with a question "how much will i get from my signature" which richochet back to the mentality sense. Well im Pro on helping the poor but not in a 4Ps way. Build a factory.hire the less fortunate.and walla money on sweat. This government only throws money to nowhere where we tax payers hardearned those.
I do believe the government should prioritize investing with the middle class rather than the poor.
More than this, goevrnment should invest eavily on intellectual infrastructure of the country, protect the bright minds, encourage and support innovation, and strengthen the national innvovation system, which up to this moment, is almost non-existent in the Philippines.
Government can not even value the economic needs and productivity of the middle class, as these needs impacts businesses of the tycoons which support them during elections.
We have just returned from our visit to see my wife's relatives on Luzon. I am concerned about the poverty I have seen and the poor sanitation road structure lack of passenger rail transport etc etc. I had a few answers to my observations regarding green belt land which seems huge. I wondered who owned this land along with the people living in poverty on the verges along the road side. Yes it seems people do own this land many of which have now left it to family members. However the government saw fit to declare that individuals cannot hold land over a certain size thus families need to subdivide the land to family members. In order to do this family need to pay legal costs and fees to government along with having to survey the plots. Simply families cannot pay these fees including survey fees costing 1 million pesos. Thus the land remains until someone in the family wins the lottery. As many family members need to agree to sell land inherited just one person not agreeing to sign causes inaction. A disaster. I also believe that the peso should not be pegged to the US $ this only favours the rich wishing to convert US $ to Peso and vice versa. Who owns the major supermarkets SM (not the Filipinos the Chinese)that upon conversion to other currencies such as UK Pounds or AU$ seems extremely expensive compared with supermarkets in the UK or Australia. Certainly not a cheap place to have a vacation for tourists. Traffic congestion road maintenance. Where is the manufacturing industry and what is putting off investors? Our encounters with trying to open bank accounts etc is very off putting and they appear to be maintaining both paper and computer systems along side red tape and excuses to do nothing. My wife lost 2 previous bank accounts due to the accounts not being used for over 12 months. She lost 2 amounts of 9000 peso's and they refused to giver her this money (Metrobank and BDO). Something more than helping the poor needs to be done and this relates to the way government is operating.
Martin, Although I don't quite understand the specifics of land subsidivion scenario, I can believe it. Especially the ginormous cost/taxes that the govt charges. Even with vehicle annual registration, it's unbelievable how much they charge even on very old vehicles. It's downright robbery! With regards to the dormant bank accounts, I can attest to that. They charge you so much money, higher than the interest you get back for a dormant accounts. I tend to forget my account every now and then and had to remit money just to keep the darn thing current. Next time I go back, I'm surely going to close my Peso account. What is the point if they're just gonna take your money. Why invest in them, right? Totally asinine.
KARL,
Read a couple of your blogs and I thank you for preaching on helping the poor of the country. I believe like yourself that in order for the country to actually flourish, that we need to help the rest the ones who are not able to help themselves, especially whey they are compounded by challenges that I believe are mostly created by the very wealthy in the first place. Like in the US, many big corporations, e.g. the wealthy, much of government policies I believe are dictated by the few. But, at least there's social welfare for everybody to fall back on. How can the wealthy be proud of their country when you see little, dirty children running around the city. How can your travel industry flourish, when you see people constantly beg for food and money. You shouldn't hide your problems but solve them. If you help the poor, surely this will have a domino effect in prospering a healthy mindset from everybody. If no one is hungry, there'll be less chances for miscellaneous crimes and will no doubt improve the economy and safety of our homeland.
Karl's recent appointment as acting socio-economic planning secretary in the Philippines will see further improvement in the country's formulation of continuing, inclusive, coordinated and fully integrated social and economic policies, plans and programs.
Dear Secretary Karl,
You will be our next President. Our beleaguered country and people need you to lead them to prosperity. You are to me a person of integrity with a brilliant mind and empathy for the poor. Thank you for sharing your thoughts with us.
With my good wishes In your professional and personal life.
Constancio R. Vingno Jr.