Wealth tax now: an argument by numbers

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One consequence of the ridiculous concentration of wealth is that even a fraction of that amount can solve poverty year in and year out. —UCANEWS PHOTO

In August 2022, the Philippine Statistics Authority (PSA) revealed that the poverty incidence rose to 18.1% in 2021 from 16.7% in 2018. Completely understandable, our technocrats said: After all, we all bore the brunt of the pandemic-driven recession. Philippine gross domestic product (GDP) shrank by 9.5% from 2020 to 2021, the worst since 1947. Of course, there’ll be more poor people.

Except that not all of us suffered. Almost a year before the PSA made its announcement, Forbes revealed that the combined wealth of the 50 richest Filipinos grew by 30% from 2020 to 2021. The wealth of real estate tycoon Manny Villar grew by 28.6%, Enrique Razon Jr. by 43.3%, and Lucio Tan by 94%.

Given this context, it is thoroughly unsurprising that the call for a “wealth tax” would emerge as a major discourse from the 2021 recession up to the 2022 elections. A few months before Forbes disclosed its 2021 list, former economic planning secretary Solita Monsod openly called for a wealth tax modeled on a 2020 Argentinian law. Around the same time, the Makabayan bloc in Congress filed House Bill No. 10253 which seeks to impose a levy on people with assets above a billion pesos Labor leader and presidential candidate Leody de Guzman insisted on a wealth tax-funded stimulus program to counter the pandemic crisis.

Since Ferdinand Marcos Jr. became president in 2022, efforts have been made to attack or dilute these calls. Finance Secretary Ben Diokno initially voiced no objection, only expressing doubt that a wealth tax bill would ever pass Congress. A few weeks later, he threw down the gauntlet and dismissed wealth taxes as a “turn-off” for investors. Rep. Joey Salceda proposed a 25% tax on luxury items instead, which will raise a measly ₱12.4 billion per annum.

We have to push back against Diokno and Salceda and double down on our demand for wealth taxes. By itself, the gap between Filipino billionaires and workers is such that outright expropriation may actually be the moderate call. A wealth tax, in fact, is the conservative positiona compromise of sorts.

Labor-capital split

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While real GDP grew by an average of 5.4% and labor productivity by 3.1% from 2001 to 2016, real wages did not grow. —PHOTO FROM PNA.GOV.PH

Monsod, herself a champion of the free market, “put it bluntly”: “[I]t is clear as a bell that our workers have been screwed. What should have gone to them has gone to the capitalists instead.” Monsod has the data to back it up: While real GDP grew by an average of 5.4% and labor productivity by 3.1% from 2001 to 2016, real wages did not growand there were even years when growth was negative. This is economic growth trickling up.

Simple number-crunching using the recent income accounts data confirms this. According to the PSA itself, using its data called the “consolidated accounts,” the share of wages in the 2021 GDP is only 36.67% (₱7.12 trillion). This is the share of the total economic output which went to labor compensation and other benefits. Note, however, that a part of that share goes directly to the government as income tax.

The other 63.32% of GDP went to capitalists and the taxes they paid on production and import. If we exclude taxes and subsidies, a whopping ₱10.82 trillion accrues as gross operating surplus to capitalists, or 55.72% of GDP! 

Of course, part of that goes to “capital depreciation” or “consumption of fixed capital,” which we have to deduct from GDP. Unfortunately, the PSA stopped publishing capital depreciation data from 2019 onwards, but we can guess. From 2012 to 2018, the years when the data was available, capital consumption averaged 9.5%. In 2021, that would be around ₱1.84 trillion. If we deduct that from the gross operating surplus, we will have a net operating surplus of ₱8.97 trillion accruing solely to capitalists, 26% more than total wages.

One who is thoroughly educated on textbook economics might ask: What’s wrong with this? Isn’t it the social function of businessmen to reallocate this social surplus as investment, to procure machines, infrastructure, and other technologies which later uplift society?

Let’s subtract from the estimated net operating surplus (₱8.97 trillion) the new capital invested in 2022, the gross fixed capital formation (₱5.46 trillion). We are actually being liberal in this case because we know that not all new capital came from existing capitalists. But even with this deduction, capital owners still end up with a hefty ₱3.51 trillion, around half of the total wages. And of course, this new capital still belonged to the class of capital ownersas well as all their future yield.

33 times

How many capital owners are there in this country? Per the 2021 Financial Inclusion Survey of the Bangko Sentral ng Pilipinas, only 36% of adults have financial investments. Only 1% of that 36% own stocks, bonds, mutual funds, and other investment schemes. Given that there are 68.43 million adults in the Philippines, this translates to around a quarter of a million. Meanwhile, the Census for Philippine Business and Industry reported in 2018  that there are 334,522 establishments in the country. If we assume that each establishment has roughly one owner, we have 334,522 capitalists on top of the stock owners.

We certainly expect overlaps: An owner can own multiple businesses, and can even own stocks. In any case, the maximum number only adds up to less than three quarters of a percent of the populationand the combined income of this group already exceeds by 26% the combined income of the other 99.2%.

What this implies: ₱3.51 trillion translates to an average annual per capita yield of ₱4.6 million for capital owners, or around ₱390,000 a month. This is already net of new investmentswhich, for the average rich person, takes up the bulk of gross income. Furthermore, this is just an average: Some tycoons earn millions of pesos a day and some owners of MSMEs (or micro, small and medium enterprises) earn just enough for daily expenses, no better than the average employee. Finally, the capital owners also earn wage income when they act as executives, directors, and managers of companies they wholly or partly own.

Nonetheless, compare this number to the monthly income of a minimum wage earner of ₱11,599.20 (the minimum wage of ₱537 times 21.6 working days)which is even ₱2,200 shy of the monthly poverty threshold for a family of five. This figure means that a single breadwinner cannot even take her family across the poverty line with the mandated minimum salary. But more importantly, this figure highlights the fact that the average capital owner is earning at least 33 times the average wage earner!

Staggering inequality

One consequence of this ridiculous concentration of wealth is that even a fraction of that amount can solve poverty year in and year out. Suppose we want to simply give National Capital Region minimum wages to all the poor families in the Philippines so they won’t be poor anymore. Suppose we do so every year (though there will come a point when subsidizing a poor family will eventually push it out of poverty permanentlybut let’s set that aside for now).

Given a monthly poverty threshold of ₱13,854.21 for a family of five, the annual subsidy for each family would be ₱166,250. For 3.5 million poor families, that would only be ₱581.88 billion. It looks huge but it is only 16.58% of the ₱3.51 trillion earlier. Capitalists can solve poverty just by slashing 16.58% of their annual haul. They’ll still live incredibly luxurious lives, net of the reinvestment necessary to reproduce their status in the economic hierarchy.

Instead, what we have now is severely uneven development. Consider: From 8.1 million families in 2007 that form part of the officially “poor” (defined using a rather stingy cutoff), we are down to just 3.5 million families in 2021. This is a 43% reduction in just over a decade. It may seem impressive, but it is peanuts when compared to what capitalists got: The wealth of the top 40 families increased by 343.4% from 2007 to 2021 (for perspective, nominal GDP only grew 169.7%). The average increase in the net worth of the Sy family during this period is at 12% per annum. Sy’s and Villar’s estates grew sevenfold in just a decade and a half.

Just and necessary

Wealth taxes are not only just; they are also necessary. The concentration of power in a few oligarchs means the perpetuation of poverty and the continuing misallocation of resources. Instead of “build, build, build”we need high-rise, 3-bedroom housing for urban workers, hospitals for farmers, lanes for bikers, and high-tech, high-speed railways for commuterswe have highways after highways which are set to benefit only the 6% of the population that own cars.

Instead of investments in agriculture to mitigate rising hunger due to climate change, we have fertile fields converted wholesale into suburban sprawls. Instead of robust watersheds that protect working-class communities from floods and landslides, we have mining projects primarily benefiting foreign conglomerates. 

All of these, because the bulk of Philippine society’s wealthand therefore command over existing resourcesis in the hands of a handful of families, people who are not necessarily smarter, more competent, more courageous, and more benevolent than the rest of us.

Let us unite in the call for wealth taxes, and ensure that the country’s wealth is used to end the misery and poverty of Filipino workers. 

James Matthew Miraflor is a graduate student at the College of Engineering, University of the Philippines Diliman, and an independent consulting analyst. —Ed.

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