‘Wage hike won’t offset impact of tax reforms’

A wage hike of P21 might provide relief for workers in the short run, but soon enough, its value will diminish under the proposed tax program of the Duterte administration, according to experts.

Like calm before the storm, experts said the P21 wage hike for workers in Metro Manila will suffice for now, but will be rendered futile in the face of the Tax Reform for Acceleration and Inclusion (TRAIN). The TRAIN is the first package of the administration’s comprehensive tax-reform program.

Economist Maria Ella C. Oplas of the De La Salle University said the 4.2-percent wage increase is “good news” for workers because it is higher than the 3.1-percent inflation rate in August.

“That is supposed to be good news because [the] capacity of individuals to buy is greater than the price increase,” Oplas told the BusinessMirror.

“However, the [wage] increase will be diluted by the anticipated increase in prices because of the tax reforms that will affect the consumption pattern of individuals,” she added.

The TRAIN intends to reduce personal income-tax rates and roll out offsetting measures, such as expanding the taxpayer base, limiting value-added tax (VAT) exemptions, increasing excise taxes on petroleum products and imposing a levy on sugar-sweetened beverages (SSBs).

Oplas said the P21-wage hike will appear like a “consolation increase” for minimum-wage earners, as they will have to pay additional taxes once the TRAIN is enacted into law.

“[The government should] allow people to make decisions as [to] what to buy. [It needs to] review the proposed tax reforms because an additional tax is a burden you force people to carry,” she added.

“My point is, one way for people to survive their minimum wage is by [the] government to be more gracious in allowing them to have higher net take-homes. If [the] government is prudent in its spending and efficient in allocating resources, then there is no need for higher taxes,” Oplas said.

A study by think tank IBON Foundation claimed the TRAIN will burden the poor more than the rich. According to the study, the poorest 60 percent of the population will pay more than the highest-income 40 percent due to additional VAT and taxes on petroleum products and SSBs.

This is why IBON Foundation Executive Director Jose Enrique A. Africa is unimpressed by the P21-wage hike, saying it will be overwhelmed by additional taxes the poor will pay under the TRAIN.

“Any wage hike is, of course, welcome for workers and employees struggling with so little as it is. The P21 hike is, as has been the case for decades, just too little,” Africa told the BusinessMirror.

For the wage increase to make sense, Africa said the government should review the components of the TRAIN. “So the problem is that, while wages are already too low and eroded by inflation, the Duterte administration will even raise the prices of goods and services bought by the poor further by increasing consumption taxes”.

“If anything, the government should even stop the lifting of VAT exemptions that [will] hit the poor, such as on low-cost housing and power; stop insisting on SSBs that’s burdensome on the poor; and hold the additional excise taxes on oil products. It’s better to raise revenues by greater taxes on the rich and superrich, many of whom are paying wages much less than what workers and employees contribute to their firms,” Africa added.

Estimates by the IBON Foundation reported the poorest 60 percent, with a combined income of some P2 trillion, will pay P47 billion in additional taxes in 2018, while the highest income 40 percent, with a combined income of about P4.1 trillion, will pay P47.6 billion.

The think tank concluded the TRAIN is regressive because the highest-income 40 percent will pay the same amount in additional taxes as the poorest 60 percent, in spite of the huge disparity between their incomes. It added the poor, most of which are minimum-wage earners, will not gain anything from the TRAIN, as they are already exempted from paying personal-income taxes.

On top of this, Africa said the P21-wage hike, which will put the minimum wage at P475 for workers in the agriculture sector and P512 for workers in the nonagriculture sector, is far from the family living wage indicated by the IBON Foundation. The think tank in July claimed that a family of six needs at least P1,130 a day to live a decent and comfortable life.

The Regional Tripartite Wages and Productivity Board-National Capital Region last Thursday issued a new wage-hike order increasing by P21 the minimum wage in Metro Manila. The P21-wage hike covers all minimum-wage earners in the region, regardless of position, designation or status of employment and irrespective of the method by which they are paid. However, the wage-hike order does not apply to domestic workers, persons in the personal service of another and workers of duly registered barangay microbusiness enterprises.

The P21-wage hike is far less than what labor groups petitioned in June. The Association of Minimum Wage Earners and Advocates-Philippine Trade and General Workers Organization filed for an across-the- board wage increase of 175; the Associated Labor Unions (ALU), P184; and the Trade Union Congress of the Philippines (TUCP), P259.

In a statement, the ALU-TUCP said it will no longer contest the new wage-hike order, but will ask President Duterte for additional government cash subsidy. The ALU-TUCP in April appealed to the President to provide minimum-wage earners with a monthly subsidy of P500.

“We will ask President Duterte again to grant our request to him to provide a P500-monthly subsidy, or a P16 a day, for all minimum-wage earners, not just in Metro Manila but to all workers nationwide, to augment workers’ purchasing power to cope with [the] 3.1-percent and rising inflation [rate] and surging cost of living,” ALU-TUCP Spokesman Alan A. Tanjusay said.

Oplas said asking for a monthly subsidy is “too much” and is redundant with the dole-out conditional cash transfer (CCT) program of the government. “The more important questions are where will the government acquire budget for this and how will its logistics proceed. The monitoring and evaluation of the CCT is already problematic,” Oplas added.

 

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Turning Points 2018