Solidarity tax to save whole of society

Covid-19 has flattened the economy of many countries around the world. The Philippine economy is one of the worst hit. This is reflected in the 16.5 percent contraction of its GDP (second quarter 2020), the 17.7 percent surge in official unemployment rate (April labor force survey of the Philippine Statistics Authority), and the ultrahigh 45.5 percent rise in joblessness among adults based on the July 2020 survey of the private Social Weather Station.

the long lockdown in the first half of the year brought the economy to a standstill. the lockdown was akin to a lockout called by an employer who wants to temporarily stop business operation, usually to force unionized workers to agree to the employer’s terms. this time, however, the lockout was initiated by no less than the government, and those locked out of work are the entire productive work force—wage earners, self-employed, informal workers, micro entrepreneurs, professionals, academics and business people.

For the survival of the nation during the lockdown, the government came up with the P1.3 trillion Bayanihan 1. A major portion of the Bayanihan budget went to the hasty and expensive re-organization of the country’s health-care facilities in order to contain the virus spread. Another major portion was allocated for the social amelioration of poor vulnerable families (18 million families targeted) to help them survive the lockdown. A third portion was programmed for government assistance to affected businesses. the fourth, to help maintain the liquidity of the financial system.

the mass media are full of reports on how the government, through the DOH, DSWD and other agencies coordinated by the powerful inter-agency task Force, bungled the Covid containment program and the implementation of the social amelioration and business assistance programs. Hence, the fearless forecast that there will be more cases of Covid infections in the second half of 2020, with some regions likely to experience recurrent waves of infection.

Moreover, the economic prognosis is bad. there will be no quick V curve recovery. Just a long L curve. the Dti reported

that over 26 percent of businesses, mainly micro, small and medium enterprises (MSMES), closed down during the first half of 2020. A big number are unlikely to go back to business, while many among the survivors are not likely to reach their pre-covid productivity and profitability level, except for a very few. With the pandemic and “global distancing” (countries distancing from one another) continuing to flatten the global economy, the bleak business environment at home is likely to persist. the mass displacement of a big percentage of the country’s life savers, the overseas Filipino workers, is also likely to continue.

no doctoral dissertation is needed to conclude that the Philippine recession depression will continue in the second half of 2020 up to 2021.

the problem is: where will the government get the resources to address the requirements of the people to survive, in particular the stimulus funds needed to rev up a flattened economy and alleviate the dire situation of the most vulnerable? the President was quoted as saying “butas ang isa kong bulsa.” the two chambers of Congress just passed a Bayanihan 2, with a puny budget of P165.5 billion. One legislator commented: “Tingi.”

But the economic managers are firm: the government cannot afford to go beyond the budget ceiling of 10 percent of the GDP. they also want to keep the debt-to-gdp ratio at 50 percent, which, they claim, is the envy of countries in Asia. One explanation: keep the peso stable and contain inflationary pressures. Another explanation: avoid an unmanageable debt crisis. Still another explanation: maintain the “pogi” image of the Philippines among the credit rating agencies.

With the economic managers sticking to their deficit and debt-to-gdp targets, the proponents of higher stimulus spending to revive the economy are baffled. the authors of the House Bill called Arise—accelerated recovery and investments Stimulus for the Economy—are asking why the government is not taking new loans given the country’s still low debt-to-gdp ratio.

the ARISE proponents are seeking a P1.3 trillion 3-year program to protect jobs and bail out job-creating businesses. Specifically, Congresswoman Stella Quimbo and company want to protect and assist up to 15.7 million workers (via programs such as wage subsidies), create three million short-term jobs and 1.5 million infrastructure jobs, and help 5.6 million MSMES in the formal and informal sectors. Who can be against the foregoing proposal of Quimbo et al?

the truth is that the country’s level of indebtedness has been rising fast. it is indeed worrisome. the government borrowed a total of P1.2 trillion in the first half of the year. this immediately reversed the decade-long trend of the debt-to-gdp going down from 50 to 40 percent; now, in six months, the old ratio is back.

in one news story, CB governor Ben Diokno cited some lessons from the debt crisis of 1980-1985 which he obviously wanted to avoid: the rapid erosion of the gir, the collapse of the peso, the inflation explosion and the flight of capital. What he forgot to mention was the failure of the economic managers then to manage the country’s borrowing program. When asked in the late 1970s if the country was in economic peril because it was indulging in over-borrowing, the DOF and neda then said that there was nothing to fear because the “growing economy” then would be able to pay for all the debts being incurred. As historical records show, the economy stumbled in 1979-1980 and lurched from crisis to crisis in 1981 to 1986.

So the big question is: how can the economy be revived in Covid times without incurring big debts? How can ARISE and other stimulus-focused spending programs be funded without any fresh funds from the loan givers at home and overseas? Where can the country source the needed stimulus funds when tax and custom revenues are down and OFW remittances also going down? By engaging in heavy borrowing (note: the Bureau of treasury continues to borrow by issuing government securities to finance regular government budgetary requirements), can the government afford to lose its so-called credit-worthiness among the credit raters and watch a depreciating peso and surging inflation ravage the purchasing power of the masses?

And yet, how indeed can the flattened economy be revived amid the bleak global economic environment and given the mounting demands of a restless people for survival and amelioration relief?

Civil society organizations such as the Freedom from Debt Coalition and trade union federations such as those affiliated with the nagkaisa Labor Coalition have come up with one major solution—a “Wealth tax” on the country’s 1 percent. FDC wants to call the wealth tax “solidarity tax” because it is an expression of solidarity, of true bayanihan,

by the elite for the survival of the whole society. After all, one major lesson from the Covid-19 pandemic is that the health of the richest depends on the health of the poorest. One for all, and all for one.

is the wealth tax a new concept? no, it is not. Many countries had adopted varying forms of wealth tax during war periods. And Covid times are war times.

interestingly, the IMF is now one of the advocates of wealth tax. in January 2020, Kristalina georgieva, imf’s Managing Director, raised the wealth tax proposal as an instrument to reduce yawning inequality within and among countries. She said that raising taxes for those at the higher income levels can be done without sacrificing economic growth. in April this year, the IMF, in a policy paper on“tax issues” under the c ovid pandemic, reiterated georgie va’ s suggestion by formally including the wealth tax, dubbed as“solidarity surcharge,” as part of a borrower government’s menu in raising revenues to meet the Covid challenge.

now, what has been the response of the world’s elite? Well, since early last year, some billionaires such as Warren Buffett and Abigail Disney, worried over the unsustainable inequality in society, have been calling the attention of the world on the need to tax the super-rich like them. More recently, a group called “Millionaires for Humanity” issued a manifesto asking governments of the world, that in the name of healing the world from the Covid pandemic—“to raise taxes on people like us. Immediately. Substantially. Permanently.”

in the Philippines, will Filipino taipans like tess Sy-coson and former Senator Manny Villar heed the IMF call for solidarity tax? And how can the wealth tax be operationalized in the Philippine setting?

(More on this in the next issue).