Invoking poverty in vain

In late February, the Foundation for Economic Freedom (FEF)—of which I am a member—made a statement to the Senate to defend the Tax Reform for Acceleration and Inclusion (TRAIN) program against those blaming it for causing inflation in January.

The statement started by citing inflationary pressures that are unrelated to the TRAIN, including bad weather for agriculture and fishing, rising international oil prices, and improved tax implementation.

Then it listed a number of mitigating safeguards in the TRAIN, the last being that: “The higher infrastructure spending will likewise have a positive impact to [sic] the country’s medium to long term growth path and will lift the poor out of poverty.” (Italics mine)

But first let me say, as an economist, that the Philippine government has been sorely underfunded for a very, very long time. Whereas governments like those of Malaysia and Thailand collect about 20 percent of the gross national product in tax revenue, and that of South Korea gets perhaps 30 percent, our government is still struggling to collect even 15 percent.

Thus, I understand the need for tax reforms that will greatly increase public revenues. Reforms should be designed to spread the burden of taxation as fairly as possible. Taxation by inflation is a very unfair way of sharing the burden, and so should be minimized.

I do not doubt the social value of infrastructure, to be funded by the revenues derived from the TRAIN. What will the government build, build, build if not things useful for the people? Presumably, it will not build only white elephants.

What disturbs me is the gratuitous phrase “and will lift the poor out of poverty,” which is purely decorative. The FEF is only guessing about what might happen to poverty. So is the government, for that matter.

Yes, building infrastructure will promote economic growth. But economic growth has a very weak effect on poverty—so weak, in fact, that the 2000s got christened “the lost decade” by Arsi Balisacan, former economic planning secretary.

The Philippine Statistics Authority (PSA) does very little to educate the public on the facts of noninclusive growth, because it measures poverty only in conjunction with the triennial Family Income and Expenditure Survey (FIES), the latest of which was done in 2015, and reported in late 2016.

The first official poverty measurement under President Duterte’s watch is due from the 2018 FIES, to be reported only in late 2019. The second and final measurement during his term will come from the 2021 FIES, to be reported only in late 2022, by which time there is supposed to be a different president in office.

Official poverty was reported by the PSA to have dropped between 2012 and 2015. That was a confirmation of what Social Weather Stations had reported, much earlier, from its quarterly surveys of Self-Rated Poverty (see my “The poverty drop was anticipated,” 11/5/16).

From the quarterly Social Weather Surveys, the average percentage of families rating themselves as poor was 50 in 2015, 44 in 2016, and 46 in 2017. This shows that the first full year of the Duterte presidency saw a slight increase in poverty from the previous year.

In “Alert on poverty and hunger” (12/9/17), I wrote that “The setback in poverty was noted (12/3/17) by Presidential Spokesman Harry Roque, who said: ‘We attribute the increase to inflation which registered 3.4 percent in September, according to the Philippine Statistics Authority.’”

Yes, inflation should be minimized. But the real way to fight poverty is not through economic growth, but through focused
antipoverty programs.

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