Growing the middle class

Charts and analytical data on the tablet screen with a cup of coffee and a telephone in the background

By Rose de la Cruz

Not since the assumption of President Duterte has there been a real effort to resurrect the middle class through an easier tax regime that would provide a respite to the currently-struggling work force of the country from the heavy tax burden they have borne for generations. It has repeatedly been said that the middle class is the heaviest taxed sector.

It is hoped that proposed legislations along this line would pass during the term of Duterte and take effect long after 2022. The comprehensive tax reform program, as pushed, would encourage not just the growth of the vanishing middle class (who have joined the lower strata in recent decades) but would lead to faster economic growth.

Indisputably the Philippine economy has grown to enviable international reputability. Yet, the gap between the rich and poor has become more pronounced both in the rural and urban centers, making planners and various stakeholders question if the growth has failed to impact the marginalized sectors of society.

From a very strong agricultural and industrial push during the Marcos years, the economy took a complete turn to services (both here and abroad) and electronics manufacturing (for exports) to compensate for the revenues lost in agriculture (that now shifted to importing food products).

What propelled the economy in recent years—despite the Asian financial crisis of 1997-1998 and the recent global recession—were domestic construction and consumer demand; a robust labor export (and remittances) plus the location of business process outsourcing companies in the country. Tourism, though strong, was not even enough to compensate for the lost values in agriculture and the disappearance of manufacturing.

Property, auto

The property (and construction) sectors are among the fastest growth triggers since the nineties. The rise of skyscrapers (for residential and commercial use); self-contained communities and mushrooming of malls are visible physical indicators of economic growth being experienced in the country.

Automotive sales have never been as brisk as now with banks offering no interest (easy processing) auto loans that have choked the already shrinking road networks of megacities of the country.

Much of the growth in consumer durables (appliances, furniture, etc) and consumer items (food and non-food, including electronic gadgets) is coming from a banking system that is awash with funds.

Even healthcare is becoming more affordable to many people, through the national healthcare program, Philhealth, which provides coverage even to the poorest of the poor, the elderly and the lowly-paid domestic helpers, construction workers, security guards, etc. if they pay the minimal fee of P120 per month.
BPO growth

No doubt, the growth in the business process outsourcing (BPO) sector (both voice and non-voice) has contributed greatly to the economic empowerment of the people and somehow minimized the exodus of skills for jobs abroad.

But no one can underestimate the contribution of overseas Filipino workers’ remittances to the economy of over $25 billion in 2016, which is triggering the economic upswing.

In 2015, the Information Technology-Business Process Association of the Philippines said that the BPO industry’s contribution to the Philippine economy is likely to overtake OFW remittances in two years, or by 2017. The BPO industry exceeded its targets in 2015, generating $22 billion in revenues and 1.1 million direct employment.

But the assumption of US President Donald Trump in January sent jitters to the Philippine BPO sector and Filipino immigrants in the US because of his “America first” policy. So far, though, the sector has shown no signs of contraction.

Consumer driven

The sustainability of jobs and the economy, however, still rests on two drivers: agriculture and manufacturing, which were the country’s strengths during the Marcos years.

Keeping skills locally and creating homegrown products (amidst the import surge from a liberalized trade) could only come about if government puts every effort to boosting domestic manufacturing and agriculture (particularly food processing for local and export markets).

The country has been subsisting on consumer spending but this can’t be sustainable unless we make our own products for our own market.

Infrastructure

For this to happen, the government must put in place vital infrastructure (roads, bridges, ports/seaports, energy/alternative power sources (particularly renewable energy); communications and upgrading education to meet the requirements of agriculture, manufacturing and tourism.

Development must not be concentrated on urban centers but industrial dispersal (of the small and medium scale) must be undertaken to ensure that jobs are created in the remote areas so that people won’t flock to the bursting cities.

Unless all this happens, the migration of people to the urban centers and creation of shanty towns can’t be stopped and poverty will even be magnified as goods and services are insufficient for the exploding population.

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