FDC: Covid loans may spur debt crisis; wealth tax needed

THE country’s Covid-19 debts are enough to plunge the Philippines into an 1980s-like debt crisis, according to the Freedom from Debt Coalition (FDC). In its State of the People Address, FDC said that as of May 2021, the country’s debt has reached P11.07 trillion, a 44.98-percent increase from the end 2016-level.

In order to avoid this, FDC backed efforts to push for a wealth tax in a much-needed law to augment the country’s financial needs at this time.

“With government debt spiking, revenues falling and the budget deficit widening, the country appears to be headed down a path similar to the crisis period of the 1980s,” FDC said in its State of the People Address (SOPA) 2021 on Tuesday.

“The coalition is also pushing for a Wealth Tax on the country’s top billionaires, arguing this could raise sufficient revenues for the nation’s recovery,” it added.

Based on FDC’S brief, at the end of 2019, the Philippines’s outstanding debt already stood at P7.73 trillion. By end 2020, FDC said the debt ballooned to P9.8 trillion, representing an increase of P2.1 trillion or a 27-percent increase from the previous year’s level. The borrowings secured in 2020, FDC said, accounted for the largest annual addition to the country’s debt stock. “Latest data shows that the national debt stands at P11.071 trillion. Still, the government intends to borrow another P3 trillion this year,” FDC said. The organization also noted that in the first quarter of 2021, debtto-gdp ratio stood at 60.4 percent. This was a record high over a 16-year period and significantly higher than the pre-covid level of 39.6 percent, it noted.

Further, FDC said the budget deficit in 2020 was P1.37 trillion, more than double the deficit in 2019.

“For 2021, while the proposed budget is pegged at P4.47 trillion, revenues amount to only P2.72 trillion. Unless there is a reversal of the current slide in revenue generation or alternative fund sources are found, the financing needed to plug deficits will continue to be sourced from loans,” FDC said.

Wealth tax

ONE of FDC’S proposals is to craft a wealth tax which it said, would “correct tax injustice and solve poverty.”

FDC explained that in 2019, some P30.66 trillion in financial wealth circulated in the Philippines. However, only about 30 percent of the population had access to 96 percent of this wealth.

Of the 96 percent, FDC said, 13 percent is owned by only 40 families. Further, a total of P3 trillion of this 13 percent is owned only by 300 individuals.

Those without bank accounts— the marginalized, laborers, etc., who make up 70 percent of the population—have to share P1.4 trillion in cash.

“Due to the wide wealth gap, the proposal is to tax the extremely wealthy according to their net income. Using a 5-7-10 taxation scheme, those with an annual net income of P5 million and above must pay additional taxes,” FDC said.

FDC proposed that a 1 percent wealth tax could help the government generate P316.55 billion, based on 2019 data which puts the total wealth at P31.66 trillion.

A 2-percent tax per annum will generate P633.1 billion while a 3 percent tax will create additional government revenues worth P949.7 billion.

FDC proposed that if the wealth tax targets those with stock and bank accounts, who have P29.58 trillion in stocks & transferable, time and savings deposits, the government could generate wealth tax revenues of P295.77 billion at 1 percent, P591.54 billion at 2 percent, and P887.3 billion at 3 percent.

“Billionaires have wealth that could last for seven generations in their respective families. The State should thus exact contributions from these individuals considering that they made their fortune in this country and are in fact subsidized by the working people through low wages and low prices for agricultural produce,” FDC said.

“Far from harming the business sector and the economy in general, the wealth tax would increase expenditures in basic goods and services, thus providing an added boost to the local economy—thereby also benefiting the very persons who will pay the wealth tax,” it added.