Pro-middle class is also pro-poor

Our growth model has not focused on building our middle class, supposedly the driving force of modern economies.

While President Aquino’s definition of inclusive growth is to “empower citizens to become bona fide actors who can productively contribute to nation-building,” it appears as though the resources dedicated to this empowerment are skewed, rather than truly inclusive.

The elite get a big share of the economic pie while the poor are target recipients of generous government programs such as the Pantawid Pamilyang Pilipino Program (4Ps) and the K to 12 basic education program.

Why the middle class?

US President Barack Obama, in a speech delivered at Osawatomie High School in Kansas, emphasized that an empowered middle class would bolster entrepreneurship, promote innovation, and invest in education, among others. (READ: Rise of the middle class)

But more than anything, he asserts it is the middle class that would help promote better governance by supporting policies that are widespread and foresighted since their economic fate is closely intertwined with the quality of public service.

The poor also stand to benefit from an empowered middle class.

Nancy Birdsall, founding president of the Center for Global Development (CGD), echoes President Obama’s assertion: the poor benefit when an economically strong middle class insists on accountable government and supports, through their willingness to pay taxes, universal and adequate public services.

Indeed, how can the Philippine economy expect to achieve and maintain inclusive and sustainable growth if we are not building our middle class?

The middle class serves as job creators since they fuel consumption, which in turn creates jobs.

The current status of the middle class is not clear.

There has not been any consensus on an internationally accepted standard for the term “middle class.”

There have been attempts by the National Statistical Coordination Board (NSCB) to provide a definition based on income and based on socioeconomic indicators. The NSCB has also attempted to determine whether the middle class is shrinking or expanding.

In 2013, the annual income of a single person should fall between P65,708.00-P802,063.00 to be considered middle class.

For example, an unmarried government employee having no dependents with Salary Grade of up to 27 would be classified as middle class.

A family of 3 would be classified as middle class if their annual family income falls between PhP 197,124.00 and PhP 2,406,189.00.

Using these benchmarks, the NSCB determined whether the middle class is expanding or shrinking. 

Between 2003 and 2009, their study reveals, the middle class did expand. The poor comprised around three-quarters of the income distribution while the wealthy comprised less than 1%

What needs to be done

While the NSCB report depicts an infinitesimally expanding middle class, these figures have not been updated since President Aquino assumed office.

Aquino’s programs for inclusive growth have favored poverty alleviation rather than middle class expansion.

Policies that would help build our country’s middle class remain in the works. These include tax reform, energy reform, and building infrastructure, among others.

Tax reform is long overdue.

Since the 1977, P500,000 has already been considered the top income bracket. This figure, when adjusted for inflation, translates to more than P10 million in 2011.

This puts undue burden on the middle class as their incomes are subjected to the top income tax rate. There are pending bills in the legislature to correct this, among other fiscal reforms.

Energy reforms are still warranted to bring our high electricity rates down.

If our country truly wants to industrialize and revive the manufacturing sector, it must be able to address the high cost of electricity, which deters prospective energy-intensive firms.

We also need to address the backlog in infrastructure.

Government spending for public works will suffer from the abolition of the Priority Development Assistance Fund (PDAF) and the Disbursement Acceleration program (DAP).

While another Aquino program serves as an alternative – the public-private partnerships (PPPs) – these are not being maximized. The framework for PPPs is still undergoing important changes.

Empower the middle class

While the fight to alleviate poverty continues, it is equally important to empower the country’s middle class, especially with barely two years to go before Aquino leaves Malacañang.

In this regard, at least in the short-term, there remain two important areas of concern.

First, more research must be undertaken and statistics updated in order to better characterize our middle class, in turn being able to address their nuanced needs.

Second, policy-makers need to continue seeking alternative models of economic growth, other than just poverty alleviation. – Rappler.com

Jose Maria L. Marella graduated last April 2014 from the UP School of Economics, summa cum laude. He is an incoming freshman in the UP College of Law.

* Family silhouette from shutterstock