Closing the income gap between Luzon and Mindanao matters

IN the results of the latest 2015 Family Income and Expenditure Survey (FIES), the highest incomes and expditures belong to families in the National Capital Region, earning 1425,000 a year, and spend 1349,000 annually, while the lowest incomes and expenditures are in the Autonomous Region of Muslim Mindanao, where average income is 1139,000 per year and expenditure is 1 111,000 per year.

Going over the other figures in the 2015 FIES, we can see that all Mindanao regions earned and spent below the national average income and expenditure. Only four Luzon regions in the country met the average. Calabarzon, NCR, and Central Luzon’s incomes are way higher than the rest.

Likewise, reviewing the tables, the trend between the 2012 and 2015 survey shows the same level of inequality.

This large disparity between Luzon and Mindanao is a grave concern, primarily since many issues arise from income inequalities. Moreover, they fly in the face of past government’s claim of inclusive growth.

For the current government, closing this gap is a key challenge to unlock Mindanao’s age-old “promise” as a food basket and growth driver, as narrower income gaps reflect growth that strengthens local economies, sustains peace, which in turn, further boosts productivity. This will mean less poor families and more food for the country.

It is clear in the policies of the past that development efforts and policies barely tried to close this. Glowing economic figures proclaimed growth and the rise in credit ratings, but the data showing continuous inequality between these regions, evidenced in the 2012 and 2015 FIES, was barely discussed.

Agriculture, that sector where most of our poorer brethren work, was barely heard, and its decline in the Aquino years was not even a discussion point of many of Manila’s pundits.

Infrastructure underspending gained a bit more traction in discussions back then, prompted by observations from multilateral institutions, as the past government is accused of less than the 5% of gdp globally recommended for developing economies.

Until now. Recent numbers and policy proposals bear some hope to narrow this gap. In a statement from the Department of Finance, the variability of regional incomes has gone down slighlty between 2016 and 2017, the share of NCR in GRDP declined from 36.64% in 2016 to 36.44% in 2017. In Southern Tagalog, this dropped from 18.74% in 2015 to 18.34% in 2017. Meanwhile, the share of Cordillera rose from 1.69% in 2016 to 1.77% in 2017. This reflects the fact that gross regional domestic product growth rates in key Mindanao regions and Western Visayas, even the ARMM, are significantly higher than the nation’s 6.8% GDP.

Likewise, this is consistent with Agriculture exhibiting positive growth in the last two years, reversing the persistent decline until 2015. This sector, to a great extent, contains the rural incomes that represent the rest of country outside the greater Manila.

What policies can boost these trends?

Ramping up necessary infrastructure spending, and more support for agriculture will be vital. These are often identified as key challenges to create greater economic inclusion that can pushbover all growth. While increases in these have been noted since 2016, much more is expected in the coming years.

Another area is reforms in investment incentives. In a statement, the Foundation for Economic Freedom, supports the rationalization of fiscal incentives under Tax Reform for Acceleration and Inclusion (TRAIN 2). They call to link incentives to performance; and to limit the focus of incentives to sectors that will generate economic benefits.

Proposals are in place to make these incentives more palatable to encourage manufacturing investments outside of Luzon. Note that most of our job generating and value adding manufacturing since the 1960s has been centered in the greater Manila area and Calabarzon. Clearly, its time to encourage their spread elsewhere.

The next FIES will be out in 2019. We hope that the income gap narrows. We must monitor developments in these areas.