Monday, February 23, 2009

Labor insurance and bureaucrat insecurity

Labor insurance, along with other social security insurance, is among the "bywords" these days as the global economic turmoil claims more victims everyday. Labor insurance is a laudable concept and public policy because it is meant to give some peace of mind to people who produce the various goods and services that are needed by other people. What is not laudable though, is how certain quarters and institutions propose to attain that social goal.

Recently, the International Labor Organization (ILO) produced a new report, the Global Employment Trends (GET) Report 2009. ILO regional officials held a press briefing in Manila last week and discussed the impact of the ongoing global financial turmoil on workers. Among the policy proposals that the Report and the ILO regional officials made include the "extension of unemployment insurance" and a "wider coverage of unemployment benefits and insurance schemes" by governments.

It is important to remind ourselves, that governments have no money on their own for their various programs and subsidies, except what they take from the people in the form of various taxes and fees, and when they print money.

Here in the Philippines, there are a number of government regulations, government corporations and agencies, that are meant to provide mandatory labor insurance. Among these are the following:

(1) Social security insurance through the Social Security System (SSS) for those working in the private sector, and the Government Service Insurance System (GSIS) for those working in the government.

(2) Health insurance through the Philippine Health Corporation (PhilHealth).

(3) Housing insurance through Pag-IBIG contributions.

(4) Education insurance, credit insurance, peace and order insurance, and many others, through various local and national government agencies --financed by multiple taxes and fees, collected by both local and national government units.

There is no need, therefore, of another government-administered program for unemployment benefits and other insurance schemes. Any additional regulation and mandatory contributions for another labor insurance scheme would mean additional confiscation of a portion of what's left of corporate and personal income and savings.

On the contrary, existing and surviving companies and other business entities need drastic income tax cut. A cut in personal income tax, say from 32% to only 10% flat rate, is equivalent to a 22% "pay hike" on the part of the salaried personnel, even if there is no actual pay hike given by their employers. While people have jobs, their disposable income, their after-tax and take-home pay, should approximate their actual monthly or annual salary -- which means that personal income tax should be as low as possible.

Corporations do not pay taxes. People do. Corporations are just legal entities and such entities are distinct and different from the individual entities of people who work for those corporations – as owners, managers and average employees. Since it's the people themselves who pay for the tax of corporate earnings, high corporate income tax means lower income for the shareholders, lower salaries for the employees and higher prices for the consumers.

Governments around the world collect many consumption-based taxes, like sales tax or value-added tax, travel tax, excise tax, vehicle registration tax, property tax, amusement or entertainment tax, and so on. Thus, a reduction in income tax rate (both personal and corporate) will not mean the end of the world for those governments.

It is therefore unwise for the ILO or other UN bodies, multilateral and foreign aid institutions, national and local government agencies, to propose that governments should create new or expand existing labor insurance and related social security programs.

What people would probably need more, is a free economic environment where the productive, the efficient and ambitious people can engage in more entrepreneurial activities. This will significantly expand the production of more goods and services needed by society and create more jobs to hire the unemployed but trainable people who have the ambition to improve their lives.

In short, the best form of labor insurance is more entrepreneurship and less intervention, less taxation and less mandatory contributions – policies that are proposed by some bureaucrats who may be insecure of the relevance and usefulness of their work to society.

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