MANILA — A new study from state-run Philippine Institute for Development Studies (PIDS) said the government should help not only the poor, but also the middle class, which carries a disproportionate share of the tax burden.
According to a study titled "Why we should pay attention to the middle class,” there is a need for government to support the middle class in order to sustain Philippine economic growth.
Authors PIDS senior research fellow Jose Ramon Albert and researchers Raymond Gaspar and Martin Joseph Raymundo said government programs that target the poor should be expanded to include the middle class, who are at risk of falling into poverty by reason of illness, death of the provider, natural hazards, among others.
The study defined the middle class as those with per capita incomes between four and 10 times the poverty line, or those families of five with incomes of between P31,560 and P78,900 a month.
This places the number of middle-income households at 3.6 million, based on the 2012 Family Income and Expenditure Survey.
According to the study, a big number of middle-class households can be found in Metro Manila, Central Luzon and the CALABARZON.
Middle-class families have smaller households — averaging four to a family — as against the average of six for the poor.
Also, while the poor spend a bigger portion of their incomes on food, the middle-class spends bulk of its earnings on education and health. The study said middle-income families spend more on education than do high-income households.
The middle class, particularly the lower middle class, also counts among its ranks the majority of households with overseas Filipino workers. As such, joblessness ranks as a top concern among the middle class.
Given this, the study said the government should look for ways of attracting job-intensive investments.
"Although the private sector is responsible for job creation and income-generating activities, the government sets the investment climate," which includes infrastructure, the authors said.
Moreover, middle-income households rely more on salaried jobs, which explains why they contribute the biggest share to income tax payments, as well as to government’s total tax collections.
In this regard, legislation aimed at lower income tax rates would boost middle-class take-home pay, in turn spurring domestic consumption, which comprises two-thirds of the Philippine economy.
Fiscal redistribution, therefore, could be an "important tool to raise the income share of the poor and middle class and, in turn, support growth,” the authors said.
"It will be important to examine the effects of removing income tax altogether, and instead only collecting consumption taxes (as the wealthy find too many income tax loopholes) with heavy consumption taxes on luxury items, and minimal consumption taxes on basic items (especially those consumed by the poor)," the authors said.//
PIDS study underscores economic contribution of middle class, need for lower income tax rates
