Assessment of TRAIN’s Coal and Petroleum Excise Taxes: Environmental Benefits and Impacts on Sectoral Employment and Household Welfare

This study assessed the impact of the first package of the Tax Reform for Acceleration and Inclusion (or TRAIN) Law, which includes an increase in petroleum and coal excise taxes, as passed by Congress in 2017. This study reviewed the context of the energy sector in the country given that petroleum and coal are the largest sources of energy in the country. Using a computable general equilibrium-microsimulation model, it mainly assessed the impact of this increase and of the whole TRAIN 1 package (which includes a reduction in the personal income tax and the broadening of the value added tax). The results from the simulations show that there is a slight adverse output effect for most industries under an increase in petroleum and coal taxes scenario, resulting in a lower level of carbon emissions. There is a slight decline in employment, and poverty incidence increased slightly as excise taxes have an adverse effect in terms of higher commodities prices among the poor

Reviving the Philippine Economy under a Responsible New Normal

After the reclassification of areas under enhanced community quarantine (ECQ) to general community quarantine (GCQ), the urgent task for the Philippine government is to provide an exit plan to revive the Philippine economy. Given the significant economic damage resulting from the shutdown of roughly 75 percent of the country’s total production in the National Capital Region (NCR) and in the CALABARZON and Central Luzon areas, a gradual reopening of the economy will be necessary to prevent further economic damage that could not only be difficult to repair, but also long to overcome. Indeed, based on recent directives from the government, a substantial number of industries and services have thus been allowed to operate in both the ECQ and GCQ areas. However, as the Philippine government begins to calibrate the opening of sectors, there remain concerns as to how this process will affect jobs and livelihoods now and beyond. In this context, an economic recovery plan that talks about short-term, a transition, and full recovery phases— encompassing a revision of the current Philippine Development Plan without losing sight of the long-term goals envisioned in Ambisyon Natin 2040— is still needed. Indeed, a key component of AmBisyon 2040 has been of building resiliency over the long-term, which includes resiliency in health and economic shocks apart from natural disasters. At the same time, this recovery plan should also be accompanied by structural reforms to enhance its implementation. The Department of Finance has crafted a four-pillar socio-economic strategy aimed at: (a) supporting the more vulnerable sectors of society; (b) increasing medical resources to contain the virus and offer safety to front-liners; (c) keeping the economy afloat through financial emergency initiatives; and (d) creating jobs and sustaining the economy. Yet while enumerating the costs of these plans, the said strategy lacked details on how the country could achieve some of the goals without the availability of widespread testing and adequate health facilities. Loan guarantees, cash transfers, and other forms of subsidies can revive disrupted supply chains but cannot restore productivity in the middle of a persisting health crisis, while the uncertainty of a possible outbreak can keep workers from supplying goods and services. It is crucial to have these programs and institutions in place since a number of cities, regions and provinces have started to reopen. A modified community quarantine without the necessary health system investments, protection measures, and economic recovery plan risks amounting to an unregulated herd immunity strategy. Opting for herd immunity allows governments to blame the failure of the health and economic system on the virus, rather than on bad governance. Under current GCQ protocols, the burden on containing the virus is mostly transferred to the public. Unless the government provides mass testing, the problem of information is aggravated, probably raising the transmission risks. Moreover, unregulated herd immunity will be differentially felt by the poor. As healthy workers may recover their earnings from the modified quarantine, the poor, who have limited access to the health services and are thus more susceptible to the virus, are unlikely to benefit from this system. In effect, this will only exacerbate the inequality that prevails in the country. Moving towards a responsible new normal requires a strategy that addresses both people’s wellbeing and the socio-economic weaknesses exposed by COVID-19. Thus, the strategy should have the following elements

­Structural Inequality in the Philippines: Oligarchy, Economic Transformation and Current Challenges to Development

Over the past four decades; the Philippines has achieved significant advances in its growth performance and has undergone a series of transformations in its political; economic and social structures. However; while average incomes have risen; the country’s record in terms of generating quality employment and reducing poverty and inequality has been disappointing. High levels of income inequality and social exclusion have persisted; even as the rate of upward mobility; at least compared to its ASEAN neighbors; has been low. Moreover; new evidence suggests that key forms of wealth inequality have been rising. These trends are caused not only by poor human and physical investment as well as the adverse impacts of premature deindustrialization; but also by the dynamics of an oligarchical political economy in which political dynasties and family-linked conglomerates have substantially curbed the capacity of non-elite formations and players to assert more developmental policy regimes and more substantive democratization. More recently; we argue; these same political economy constraints have also been starkly exhibited in the country’s incoherent response to the COVID-19 pandemic

Structural Inequality in the Philippines: Oligarchy, (Im)mobility and Economic Transformation

Over the past four decades, the Philippines has achieved significant advances in its growth performance and has undergone a series of transformations in its political, economic and social structures. However, while average incomes have risen, the country’s record in terms of generating quality employment and reducing poverty and inequality has been disappointing. High levels of income inequality and social exclusion have persisted in the country, even as the rate of upward socio-economic mobility, at least compared to its ASEAN neighbours, has been low. Moreover, new evidence suggests that key forms of wealth inequality have been rising. These trends are caused not only by poor human and physical investment as well as the adverse effects of premature deindustrialization, but also by the dynamics of an oligarchical political economy in which political dynasties and family-linked conglomerates have substantially curbed the capacity of non-elite formations and players to assert more developmental policy regimes and substantive democratization

2020/2021 Philippine Human Development Report: Socioeconomic Mobility and Human Development

This issue of the Philippine Human Development Report explores a new perspective on the advancement of living standards; one that not only documents achieved human development outcomes but that also inquires into the processes that allow people and families to improve their condition through time and sustain such improvements across generations. It views welfare changes not only through the usual dichotomy of poor and nonpoor but through a prism that recognizes the increasing social and economic differentiation of families and individuals in the country. The Report shows that Filipino households have been moving across different welfare trajectories over time and across generations. At least until the breakout of the COVID- 19 pandemic; the proportion of households who were extremely poor was declining while the nonpoor; composed of the vulnerable; the economically secure; and the upper middle class had increased. The global pandemic and its effects on the country have momentarily interrupted this trend and exposed the vulnerability of the improvements in the situation of socio-economic mobility. It has increased the probability of more frequent and abrupt swings in welfare in the future. But future research is only bound to show that people have adjusted to the crisis in better or worse ways; reflecting the pre-existing social heterogeneity. While upward and downward movements in income itself are nothing new; the emergence of increasingly distinct socio-economic classes poses new questions and challenges. The Report tries to identify the different factors that cause individuals and households to be promoted or relegated on the welfare ladder—these include both nonhuman wealth; such as land; physical property and financial assets; and human capital transfers; such as parents’ investments in their children’s education and health; as well as parental efforts in the formation of life skills and their influence on marriage matches and reproductive decisions. The Report tries to quantify empirically the effect of these various factors; using a specially constructed dataset; and from other studies. Differences in education and health status of families across classes affect the direction and degree of welfare change over time and across generations. The persistence of these inequalities creates unequal human capital development that puts households in lower classes at a disadvantage. It also shows how people belonging to the upper classes are afforded greater choice and are able harness networks to optimize the use of their human capital.Given changing social circumstances; however—particularly the gradual reduction of the statutorily poor to a minority in society—there is a greater need for integrated programs that explicitly envision the upward mobility of different categories of individuals and families over time and across generations. Such a strategy must recognize that different households confront different life obstacles and that there are different pathways for them to move up the socioeconomic ladder.The implication is that long-standing blanket policies targeting only the poor—especially in terms of subsistence—although still necessary; may no longer suffice. Policies are required that take into account the differentiated capacities and needs of households and individuals in the entire process of upward social mobility. As the Report notes; “government need not implement a single type of benefit scheme for these different categories—one size does not fit all.” This requires the government to design programs that are differentiated in both provision and financing depending on the socioeconomic groups they intend to benefit. While the extremely poor should continue to benefit from direct provision and transfers; this is less true for the middle classes; who may benefit more from mutual insurance or access to forms of credit. Governance structures and financing systems must move beyond the customary sectoral approach (e.g.; undifferentiated crop programs or blanket subsidies and discounts) and instead provide assistance that is differentiated according to the requirements of individuals and households. The intergenerational nature of mobility also implies more focus should be given to policies and programs that improve opportunities and secure the future of children of the poorest households

Assessment of TRAIN’s Coal and Petroleum Excise Taxes: Environmental Benefits and Impacts on Sectoral Employment and Household Welfare

This study assessed the impact of the first package of the Tax Reform for Acceleration and Inclusion (or TRAIN) Law; which includes an increase in petroleum and coal excise taxes; as passed by Congress in 2017. This study reviewed the context of the energy sector in the country given that petroleum and coal are the largest sources of energy in the country. Using a computable general equilibrium-microsimulation model; it mainly assessed the impact of this increase and of the whole TRAIN 1 package (which includes a reduction in the personal income tax and the broadening of the value added tax). The results from the simulations show that there is a slight adverse output effect for most industries under an increase in petroleum and coal taxes scenario; resulting in a lower level of carbon emissions. There is a slight decline in employment; and poverty incidence increased slightly as excise taxes have an adverse effect in terms of higher commodities prices among the poor

Harmonizing FORIN for climate change adaptation & disaster risk management to develop multi-sectoral narratives for Metro Manila

Policy and development planning initiatives in the Philippines currently recognize the need for the mainstreaming of climate change adaptation (CCA) and disaster risk management (DRM). Given the connections between climate and extreme weather events, a holistic framework that integrates CCA and DRM would allow for the analysis of common variables that affect risk and resilience to both climate change and disaster impacts. This project therefore aimed (1) to adapt the in-depth “Forensic Investigation” (FORIN) framework for disaster analyses into a comprehensive CCA-DRM framework, (2) to operationalize the framework by developing FORIN narratives focused on Metro Manila, and (3) to attempt to connect key variables, processes and trends into a systems model structure. The narratives encompassed the physical, social, economic and health sectors. Project output included (1) the CCA-DRM Addendum to the FORIN Report, (2) the multi-sectoral narratives for Metro Manila, and (3) sectoral causal loop diagrams and preliminary systems model structures. Project implementation highlighted the need for leveling-off and deeper communication among sectors to evolve a truly interdisciplinary approach to the characterization of risk and a consistent paradigm for a systems model. This project was intended as a preliminary scoping activity in preparation for deeper FORIN analyses and is in conjunction with a larger project, the International Research Initiative on Adaptation to Climate Change (IRIACC) Coastal Cities at Risk (CCaR) project