* This is my column in BusinessWorld last week.
The current tax reform program of Dutertenomics known as TRAIN (Tax Reform for Acceleration and Inclusion) is generally based on envy. While its income tax cut for the low income earners is good and commendable, its tax hike for upper middle class and the rich is not. And the government will hike the taxes of many other products and services including those consumed by the poor and lower middle class -- cars, petroleum products, sugar-sweetened beverages, more services that will be covered by VAT.
BWorld 137, ASEAN trade expansion and RCEP, June 20, 2017
BWorld 138, PPP vs ODA, Part 2, June 21, 2017
“The curious task
of economics is to demonstrate to men how little they really know about what
they imagine they can design... Planning leads to dictatorship because
dictatorship is the most effective instrument of coercion and the enforcement
of ideals and, as such, essential if central planning on a large scale is to be
possible.”-- Friedrich Hayek
The bigger the socioeconomic unit like a state, the less
central planning should be. And the smaller the socioeconomic unit like a
household, the bigger the planning should be. The family is a good example of
this. Parents take care of their children until they grow up. Once the kids
feel they are independent enough, they move out of the house. And moving out is
an expression or an attempt at independence of the kids from the nitty-gritty
of support and intervention by the parents or guardians.
In contrast, in many countries including the Philippines,
as the population expands and as the needs and aspirations of the growing
population further diversifies, the state bureaucratizes further and regulates
and imposes more taxes. Meaningful decentralization and federalism is muted by
high taxes and regulations from the central or federal government so that the
states, provinces, and cities are left with little leeway for tax adjustments
and regulations.
The current tax reform program of Dutertenomics known as TRAIN (Tax Reform for Acceleration and Inclusion) is generally based on envy. While its income tax cut for the low income earners is good and commendable, its tax hike for upper middle class and the rich is not. And the government will hike the taxes of many other products and services including those consumed by the poor and lower middle class -- cars, petroleum products, sugar-sweetened beverages, more services that will be covered by VAT.
This government therefore, its politicians and
bureaucracies, feel that they have more entitlement to the income and wealth of
the upper middle class and the rich. The implicit message is that if people
aspire to become upper middle class and rich, the state will go after them,
demonize them if they resist paying more taxes. And this is where the advice of
Friedrich Hayek above becomes appropriate.
During the BusinessWorld Economic Forum last May 19, 2017
at Shangri-La at the Fort, one of the impressive speakers in the afternoon
session was Ms. Vicky Abad of Kantar. She discussed what are the income ranges
of upper and lower middle class households and their aspirations. Below is the
income class differentiation she made. ONCR means Outside of the National
Capital Region (NCR) or Metro Manila (See table).
Three things are worthy of note in Ms. Abad’s
presentation.
One, middle class households in C1, C2, and D classes
comprise some 72% of the population or nearly three out of four households.
Those in D should include previously bicycles- or jeep-riding people who now
drive motorcycles or second, third-hand cars.
Two, while middle income class C1 and C2 are big
consumers of fast-moving consumer goods (FMCG) or consumer packaged goods, the
class D households drive about 62% of the FMCG market in value contribution.
Three, the key, constant driver of middle class
aspirations is being able to provide for the needs of family. Family basic
needs, health, and savings are the top three concerns. Followed by
friends/bayanihan, car and house, value of work, and social status/rewards like
travel.
Many of these things are not sufficiently provided by the
government. There is public education, yes, but many middle class including
government officials and personnel bring their kids to private schools and
universities. There is public health but these people go to private hospitals
and clinics when they are unwell. There is public peace and order by the police
but these people employ lots of private security agencies to secure their
villages, schools, shops, banks, buildings. There is public welfare department
but many people still dig deep into their pockets and savings to help their
fellow Filipinos struck by severe natural calamities.
With this wide gap between government taxation and low
quality of public services, and the rising aspirations of the people,
government central planning should decline, and households should be given more
leeway, more take home pay via deep income tax cut across the board. Household
planning should prevail over state central planning.
Bienvenido S. Oplas, Jr. is the head of Minimal
Government Thinkers and a SEANET Fellow. Both are members of Economic Freedom
Network (EFN) Asia.
----------------
See also:
BWorld 136, Income tax and the politics of envy, June 12, 2017 BWorld 137, ASEAN trade expansion and RCEP, June 20, 2017
BWorld 138, PPP vs ODA, Part 2, June 21, 2017
