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Universal social protection possible with progressive taxation, say development experts

In a University of the Philippines (UP) PILIpiLUNAS 2022 Webinar on National Social Protection Floor on Monday, former Labor Undersecretary Rene E. Ofreneo said countries with very strong social protection programs are implementing a progressive taxation system, where the tax rate increases as the taxable income goes up.
OFRENEO: “Make [the] taxation system more progressive. This has long been pushed by progressive economists like Joseph Stiglitz, but the opposite happened here. There was TRAIN, which had focus on more taxes for the masses, excise tax on oil and then we also had CREATE, giving fiscal incentives to big corporations.”

GOVERNMENT must pursue a more progressive taxation system and improve its tax administration to address the fiscal constraints in providing universal social protection in the country, experts said.

In a University of the Philippines (UP) PILIpiLUNAS 2022 Webinar on National Social Protection Floor on Monday, former Labor Undersecretary Rene E. Ofreneo said countries with very strong social protection programs are implementing a progressive taxation system, where the tax rate increases as the taxable income goes up.

Ofreneo, a former dean of the UP School of Labor and Industrial Relations (Solair), lamented that the Philippine government pursued “regressive” tax measures with the passage of the Tax Reform for Acceleration and Inclusion (TRAIN) and Corporate Recovery and Tax Incentives for Enterprises (CREATE) laws.

“Make [the] taxation system more progressive. This has long been pushed by progressive economists like Joseph Stiglitz, but the opposite happened here. There was TRAIN, which had focus on more taxes for the masses, excise tax on oil and then we also had CREATE, giving fiscal incentives to big corporations,” said Ofreneo, speaking partly in Filipino.  Providing universal social protection is a way to combat poverty and inequality, he added.

Assistant Professor Herisadel P. Flores of the UP Diliman-National College of Public Administration and Governance (NCPAG) agreed with Ofreneo that it is vital for the government to pursue more progressive taxation, but pointed out that improving tax administration is equally important.

“I think it’s also worth mentioning that pursuing a more progressive taxation should also include looking at the taxation being done at the local government level,” Flores said.

On top of these, the government, he said, should rationalize the roles of the local government units (LGUs) in terms of implementing social protection programs, especially given the Supreme Court’s Mandanas ruling. While the ruling paved the way for bigger share of LGUs in the taxes and customs duties collected by the national government, certain functions of the national government will be fully devolved to LGUs not later than the end of 2024.

Ma. Victoria Raquiza, Associate Professor at the UP NCPAG and co-convenor of Social Watch Philippines, also said that even low-income countries, such as Bolivia, Lesotho, and Namibia, were able to have that fiscal space to implement universal pension programs prior to the Covid-19 pandemic.

Raquiza recalled that the Philippine government was able to implement the conditional cash transfer even though it had to borrow heavily to finance the program because of the policy-makers’ political will.

“Of course, that’s not to say fiscal space is not real, it is real, it remains a concern. But we can build [the] institutional capacities to develop our fiscal capacity across time for as long as the vision is clear and there is political will,” Raquiza said.

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