Economic gains not trickling down to the poor

Published by rudy Date posted on May 1, 2010

MANILA, Philippines – Despite recent economic strides, the majority of the country’s population is still poor, with the ranks of  the impoverished, seemingly continuing to outpace economic gains.

Economists at a recent ANC-Asian Development Bank forum said economic advances in recent years have benefited, and have been confined mostly to the already relatively affluent sector, while those at the bottom of the economic ladder, the rural poor and those in the urban slums, are still struggling to make ends meet.

That’s because growth has not been “inclusive” or has not trickled down to the poor.

Dr. Cayetano Paderanga, former socio-economic planning chief and a UP economics professor, said that the country’s economic   growth for the past 10 years had been fueled largely by the increased buying power coming from remittances of millions of  Filipinos working overseas.

And yet, he said, “this had “no natural and spontaneous reverberation in the private sector.”

“This is because our infrastructure is poor, the cost of energy is high, and roads are not complete. These are the things that   affect private investments,” he said.

Unlike its Asian neighbors, where increased local consumption is attracting foreign and private investments, the Philippines  is being consistently thrown off their radar.

Former finance undersecretary Romeo Bernardo said the Philippines’ investment-to-gross domestic product (GDP)  ratio has continued to decline versus those of its peers, which have already fully recovered from the Asian financial crisis.

“What we have failed to do is to inspire and reward foreign investors, assure them they will get their money back,” Bernardo pointed out.

The country’s tainted image as one big bureaucracy, wracked with red tape and under-the-table dealings, also makes doing business in the country more expensive, and has not helped in attracting investors.

Dr. Cielito Habito, director of the Ateneo Center for Economic Research and Development, said the government should address the main culprits behind the high cost of doing business, particularly, corruption and poor governance.

“The government should give a clear signal that there will be zero tolerance for corruption. We also need to institutionalize stronger transparency and accountability mechanism in government to promote efficiency in the use of public resources,” Habito said.

“Corruption and weak governance are impediments to high investments,” stressed Habito.

For economic growth to be real and filter down to the marginalized sectors, the government also has to pay attention to industries that create high employment, such as business process outsourcing, agriculture, mining, tourism and information  communication technology, said Rolando Tungpalan, deputy director-general of the National Economic and Development Authority.

He said that the government must provide support for small and medium enterprises, which generate 70% of employment  and contribute 32% of GDP.

Low revenue, low spending

While stimulus and structural reforms are implemented, the economists said the government should prioritize raising revenue  and channel these to hike spending for basic goods and services, particularly, education and healthcare, which are vital to  long-term economic growth and poverty reduction.

Raising revenue, alongside tax collection efficiency, will also help plug the country’s ballooning budget
deficit, and reduce the cost of borrowing.

“Reducing the deficit is important. It gives the government greater ability to increase investments in social services and infrastructure. The government should not reduce public spending but increase collection of taxes,” said Asian Development  Bank Philippine country office director Neeraj Jain.

Habito said the government should target bringing back its tax-to-GDP ratio to its level of 17% back in 1997.

To do this, it should push for several measures such as raising the excise tax for sin products, simplifying income taxes, and rationalizing  fiscal incentives.

The government should also improve its tax collection effort by going after tax evaders and smugglers.

“According to the Finance Department, we lost P242 billion from tax evasion several years ago. That’s probably a lot more  now,” Habito said. –Judith Balea,

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