Has The Middle Class Gone Richer?

The President, in her State of the Nation Address (SONA) last Monday, said she is neither scrapping, suspending, nor lessening the 12% VAT on oil and electricity.

In so many words, Mrs. Arroyo repeated her often made argument that tinkering with the VAT now would only benefit the rich and hurt the poor.

“If the VAT on power and oil would be scrapped, it would benefit the rich who consume 84% of oil and 90% of electricity while hurting the poor who will lose P80 billion for programs,” Mrs. Arroyo said.

This is a clever argument and I must say the President really has some very good speech writers in her employ. It is like saying that, faced with the dilemma of having to choose which to save, the poor or the rich, she is opting to side with the poor.

But, forgive my stupidity, but whatever happened to people like me who in all honesty belong to neither? Whatever happened to people like me who belong to the thinning ranks of the middle class?

While it is understandable to buck demands from various sectors to rethink and retool the VAT imposed on fuel considering the P18 billion windfall government expects to collect from VAT on oil this year, this is nevertheless an obvious attempt to put a populist spin on an unpopular issue.
We really have to hand it to Mrs. Arroyo. She makes getting screwed from behind sound as if it is thoroughly enjoyable.

The 2006 Family Income and Expenditures Survey (FIES) contains a breakdown of the total oil consumption by income bracket. The poor’s share is 5.4 percent. The rich and upper middle class consume 40.3. The lower middle class has the biggest share of oil consumed, accounting for 54.3 percent.

Listening to Mrs. Arroyo last Monday, however, you get to wonder: has the lower middle class’ fortunes, from 2006 to 2008, suddenly improved to the extent that they now can be classified as “rich”?

She said further that, faced with the twin global crises on food and fuel, she has had to make unpopular but right choices.

“Thank God for the guts not to flinch in the face of tough choices. Thank Congress for the intelligence and thank the taxpayers for footing the bill...Take the VAT away and you and I abdicate our responsibility as leaders and pull the rug from under our present and future progress,” she said.

But the truth is the President, far from making “tough” choices, has been taking the easy way out. Instead of going after tax cheats, ridding the BIR and Customs of corruption, and generally improving tax collection, she has instead relied on the VAT to plug shortfalls on collection.

In fact, some critics of government, aside from those favoring the scrapping or the temporary suspension of the VAT, have been calling on the reduction of the VAT rate for all products from 12 percent to 10 percent.

The Philippine Finance Institute of the Philippines (PFIP), headed by former Finance Secretary Bobby de Ocampo, believes that the loss of revenue from reducing the VAT rate for all goods can be compensated by tax reforms that are in fact long overdue—tax administration, the indexation of the excise tax on sin products, and the rationalization of fiscal incentives. The PFIP further argues that “the increase in the VAT rate from 10 to 12 percent (in 2006) was an exigency measure when the threat of an unmanageable budgetary deficit threatened fiscal stability.”

In other words, the increase from 10% to 12% should have only been temporary in the first place and that government should have improved its tax administration in the meantime.

“We are afraid that continuous reliance on exigency measures would ease the pressure on collecting agencies to perform their responsibilities with utmost integrity and competence…. Exigency measures would continuously mask the fiscal problems that we have in tax evasion, avoidance, corruption, and proliferation of incentives,” the PFIP statement said.

But Mrs. Arroyo obviously had other things to consider last Monday and we are stuck with a 12% VAT on oil. I only wish she had us in mind.

But then again, that’s just me.