How rich is rich?

MANILA, Philippines—Who are the rich? Are they the ones who go to Belo for specialized services? Driving a Lexus, BMW and the like? How rich is rich? Do they also eat galunggong (round scad) and NFA rice like most of us? And do they pay taxes? How much?

In 2010, to be counted in the high-income class, a family should earn at least P 2,393,126 a year or P199,927 a month compared to P2,000,073 a year or P166,673 a month in 2006! (See Table 1.)

Dwindling

In 2006, the rich numbered 19,738 families or 0.1 percent of the estimated 17,403,483 families in the country. Just like the middle-income class, the rich in our society have been dwindling, from 0.3 percent in 2000 (51,160 families) and 0.2 percent in 2003 (25,849 families). Kawawa naman sila! (See Table 2.)

It would have not been so bad if the decrease in the share of the high-income class families actually translated to an expansion of the middle-income class. However, as pointed out in the past, only the share of the low-income class families, consistently expanded between 2000 and 2006! (See Table 2.) Bakit ganon?

In current prices, the average monthly income of high-income class families was P194,965 in 2006 up by seven percent from P181,504 in 2003 but still lower by eight percent than the level of P211,579 in 2000.

President won’t qualify

Assuming the income of the rich grows at the same rate as the CPI inflation, their average monthly income in 2010 would amount to about P235,155. Based on salary alone, even the President of the Philippines would not qualify!

On the other hand, the average monthly expenditures of the rich consistently increased from P78,475 in 2000 to P96,807 in 2003 and P114,035 in 2006. In fact, from 2000 to 2006 the average monthly spending of all families, regardless of income class, increased faster than their average income.

It may be noticed, however, that the increase in spending of the rich decelerated from 23 percent during the period 2000 to 2003 to 18 percent between 2003 and 2006, while that of the middle-income and the low-income classes accelerated. So after their income went down between 2000 and 2003, natuto ring magtipid pati mga mayayaman!

Income gap narrowing

The income difference between the high-income class and the rest of society has been narrowing! In 2006, the average income of the rich was about 6.4 times that of the middle-income class and about 26.0 times that of the low-income class, down from 9.4 times and 36.7 times, respectively, in 2000 and 7.2 times and 28.6 times, respectively, in 2003!

It may be noted that this is in consonance with the findings of my earlier article that growth had been propoor between 2000 and 2003!

In terms of difference in expenditure, the situation has not changed much, and as may be expected, is lower than in the case for income. In 2006, the rich spent about 4.6 times and 16.5 times the amount spent by the middle-income class and the low-income class, respectively.

Are the rich getting richer?

The savings ratio of the high-income families decreased from 50 percent in 2003 to 47 percent in 2006. For the middle-income class, the savings ratio remained at 20 percent from 2003 to 2006 while for the low-income class families, it went down from 4 percent to 2 percent.

We do not know how it feels to save close to 50 percent of our income, but let us try to look more closely on how rich families spend. Saan ba napupunta ang limpak limpak na salapi ng mga rich?

From 2000 to 2006, the high-income families spent about 75 percent of their total expenditures on basic needs compared to about 85 percent among the middle-income class and 90 percent among the low-income class.

And how do the rich spend on “basic” expenditures?
It may be expected that the biggest share of expenditures would go to food. Indeed this was so in 2006 when the high-income families spent close to 30 percent on food while the middle-income spent at least 40 percent and the low-income close to 60 percent.

Rental

In 2000 and 2003, while the middle-income class and the low-income class also spent the most on food, the high-income families spent relatively more for rental (imputed value when owned) of their occupied dwelling units.

Could this be because in the earlier years, the rental cost of living in mansions and first-class condominiums was higher compared to 2006 after real estate had boomed with double-digit growth in gross value added resulting in the decline of rental values?

Across all income groups, the Top 4 basic expenditure items in 2006 were food, rent/rental value of occupied dwelling units, transportation and communication, and fuel, light and water.

For all families combined, education ranked sixth, but for the low-income class, education only ranked seventh. Indeed, if we are to inject new vigor to our human capital, subsidy for the education of our poor is a must!

B-day, wedding, baptism

For the nonbasic expenditures, high on the list across all families in 2006 were expenditures on special family occasions like birthday, wedding and baptismal parties, other expenditures, which include life insurance and retirement premiums as well as interest payments on loans and durable furnishings.

But of course! Studies by the National Statistical Coordination Board (NSCB) have shown that the most important source of happiness for many Pinoys is the family!

Rounding up the Top 4 among the high-income and middle-income classes were taxes (isn’t that nice to know?) while for the low-income class, unfortunately, it was tobacco!

In terms of levels of expenditures by expenditure item:

In 2006, the average monthly food expenditure of a high-income class family was P21,184; this was 2.4 and 5.7 times the amount spent by middle-income (P 8,702) and low-income class families (P3,687), respectively! Ano kayang kakaiba sa mga kinakain ng mga high-income families?

For transportation and communication, high-income class families were spending, on the average, P12,694 per month while middle-and low-income families spent P2,212 and P305, respectively, in 2006! Malaki siguro ang matitipid nila kung matututo silang mag MRT o pedicab!

For fuel, light and water, high-income families were spending P6,175 monthly, which is 3.3 times and 12.7 times more than what were spent by middle-income (P1,865) and low-income families (P485), respectively, in 2006!

And do the rich engage in conspicuous consumption of non-basic commodities? Do they pay taxes? The Family Income and Expenditures Survey (FIES) data available to the public may not be able to provide all the answers but here are some.

In 2006, the high-income families spent, on the average, P9,583 monthly on durable furnishing, which is 9.6 and 33.8 times what the middle-income (P1,000) and low-income (P283) families spent!
Low tax payments

But while the proportionate share of expenditures of the high-income class that goes to taxes is relatively high, the median amount of taxes paid by these families is low! The amount of monthly taxes paid by the rich amounted to only P1,803 in 2006, P6,269 in 2003 and P4,682 in 2000.

On an annual basis the tax payments amounted to P21,634 in 2006, P75,226 in 2003 and P56,182 in 2000. This low median amount of taxes paid indicates a low level of tax collection from the high-income class! Indeed, managing the budget deficit may be better addressed through more effective implementation of existing tax laws than by imposing new ones!

Gifts

However, it is also worth noting that in 2006, our high-income families spent P2,800 monthly on gifts and contributions, up from P767 in 2000 and more than double the P1,300 in 2003.

This includes gifts and assistance to private individuals outside the family, contributions to church and religious institutions, and contributions and donations to other institutions.

The grouchy may consider this a pittance, but it must indicate the growing conscientization of the rich! Don’t you agree Doña Buding? Kc, d lhat ng myaman ay k2lad ni Wuwa!

Talking about conscientization, if the rich families sampled in the FIES would tithe their savings toward poverty reduction, the family with median savings among the rich would be able to deliver five families from poverty.

As mentioned earlier, not only will we look at the income and expenditure of high-income class families, we shall also try to describe their socioeconomic characteristics.

Predictors of income

Three predictors of income were found to be consistently significant for the high-income class for 2000, 2003 and 2006:

o Household head working as corporate executives, managers, managing proprietors, supervisors, officials of government and special interest organizations;

o Owns at least three air conditioning units; and

o Owns at least three cars/vehicles.

Sa mga naghahangad na maging “June bride” or “June bridegroom” with a “good catch,” dapat alam nyo na kung sino ang hahanapin!

Six other variables had positive effect on income in some but not for all three years:

Household head is a college graduate;
Household head has a postgraduate degree;
Number of employed household members is greater than three;
Ownership of a house;
Household head is an employer in his own family-operated farm or business; and
Household living in an urban area.

We are almost sure that aside from the NSCB, many are now waiting for the results of the 2009 FIES not only so that the NSCB can release updated statistics on the country’s low-, middle- and high-income families, but also for us to know what happened to the poverty situation in 2009—after the global financial crisis!

Meantime, we are currently undertaking a study to improve the methodology on the identification of the low-, middle- and high-income class families which will be presented in the 11th National Convention on Statistics on Oct. 4 and 5.

Hopefully, our efforts will be useful in designing programs that will better target the marginalized … and narrow the gap between the poor and the rich!

(Dr. Romulo A. Virola is the secretary general of the National Statistical Coordination Board [NSCB]. He holds a Ph.D. in Statistics from the University of Michigan in Ann Arbor, USA. This article, which appeared in Virola’s column “Statistically Speaking” on the NSCB website, was cowritten by Jessamyn O. Encarnacion and Mechelle Viernes, OIC-director and statistical coordination officer II of the NSCB, respectively.) –Dr. Romulo A. Virola, Philippine Daily Inquirer