Resurgent mainstay John Carlo Tria puts a face to the cold statistics of tax reform, and explains why the Filipino may be better off today than he ever was before.
Malou is a teacher working in a 4th class municipality in Zamboanga del Norte. She makes about 19,000 a month, making her among the hundred or so salaried individuals working and living in the municipality.
She once paid something like P2,000-3,000 for taxes per month, which she says could have gone into repairing their old house, or paid her outstanding debts to the local loan broker for a medical need she had to fill.
Nonetheless, with the passage of the Tax Reform for Acceleration and Inclusion (TRAIN), she will no longer need to pay taxes, freeing up these funds for much needed home repairs, even pay her outstanding debts.
This repair work will employ local carpenters and buy locally made contruction materials, creating a multiplier effect on the small town's economy.
In the case of some municipalities in the country, the eonomic multiplier and its benefit for a small town is clear: 5,000 more pesos per month multiplied by 100 employees is at least half a million pesos per month or 6 million pesos pumped annually into the economy of a 4th class town, that earns roughly 25-35 million pesos a year.
This stimulates the local economy, benefitting all who produce for it by giving them the chance to increasing their volume of production.
1997 CTRP failed to stimulate the economy
With the first Comprehensive Tax Reform Program (CTRP) in 1997, the key victory was the tax exemption for minimum wage earner.
While a good measure, it failed to achieve the needed economic stimulus for the simple reason that single breadwinners earning minimum wages cannot meet the minimum expenses needed to survive.
Families will require double the minimum wage, or require two breadwinners to make ends meet.
Excess money can stimulate local economies
On the other hand, exempting public school teachers , and supervisors and managers or those earning a bit more than them (until 250,000 per year), can at least allow some excess money to flow into the local economies and buy more things that people produce, like fruits, vegetables and meat.
The local producers can in turn earn more and perhaps expand their business. The saved money can pay up loans to mean more money available to lend others.
GDP Contribution, Slight inflation
The release of more funds into the economy is not without its negatives. Key among these is a slight, yet temporary uptick in commodity prices since the immediate demand can exhaust local supply of things like vegetables.
The expanded cropping by farmers from additional earnings may take about two months till the next, bigger harvest. Prices tend to ease when bigger supply arrives.
Meanwhile, these temporary price increases are expected to stay within the 2-3.5% level, still a shade lower than the 4% spike of 2014.
Nonetheless, this is stimulus at the local level from which the NEDA expects to contribute at least .5% to our Gross Domestic Product by 2022.
Thus, for Malou and thousands like her living in similar small towns, the growth from this stimulus will be felt at the end of 2018, as small businesses and traders, farmers and other local producers start producing, and earning more in a stimulated local economy.
(Photo: Philippine Finance Secretary Carlos Dominguez III discusses the government's bold tax reform program aimed at generating enough revenues to fuel an ambitious infrastructure program.)