The ProGRESS Bill: Populist Bait‑and‑Switch

 

 

Governments have encouraged magical thinking among citizens, encouraging them to believe that policymakers can shield them from these events. Subsidies, transfers and price control are electorally popular, but they do not address the core problems—Satyajit Das 

The ProGRESS Bill: Populist Bait‑and‑Switch 

A tax bill dressed as redistribution, designed as election positioning. 

GMA News: The Department of Finance (DOF) is proposing a new comprehensive tax reform package to legislate President Ferdinand Marcos Jr.’s tax relief promises and to offset anticipated revenue losses by raising taxes on vices, single-use plastics, and the introduction of a “wealth tax” targeting luxury vehicles and items, private jets, and other non-essential goods. 

The DOF's ProGRESS bill formalizes what our Stagflation Part 13 flagged only in passing as one of two new SONA liabilities: the Php 350,000 income-tax exemption ceiling is not free. 

The seen half of that ledger is the less popular half: a higher tax-free threshold, a 12-month MCIT holiday for micro and small enterprises (MSME). 

The unseen half is where the offset actually lives — an expanded sugary-drinks tax (Php 296.97 billion, the single largest line item), updated road-user fees (Php 89.58 billion), a new plastics excise (Php 52.19 billion), higher vape/alcohol taxes (Php 64.32 billion), and a "wealth tax" on luxury vehicles and private jets (Php 15.64 billion, the smallest line item by a wide margin). 

Despite dominating the bill's public narrative, the wealth tax contributes barely 3% of the package's projected new revenue. The overwhelming majority comes instead from broad-based consumption taxes. 

DOF's ProGRESS bill will be financed — the DOF's own numbers show Php 518.71 billion in new revenue against Php 326.92 billion in relief between 2027 and 2030, netting Php 191.77 billion. 

Four problems are worth naming before this gets waved through as a fiscally responsible bargain. 

First, the relief is temporary and the extraction is permanent. The MCIT exemption for MSMEs runs twelve months; the sugary-drinks, plastics, and vape excises do not sunset. A bill that trades a one-year holiday for permanent new consumption taxes isn't really offsetting anything — it's front-loading the popular part and back-loading the durable revenue base. 

Second, the Php 350,000 threshold repeats TRAIN's design flaw rather than correcting it.

TRAIN's own Php 250,000 exemption was a fixed nominal figure, never indexed to inflation while SWS's self-rated poverty series (SRP) exposes and traces exactly the trajectory that design flaw predicts: SRP bottomed out near TRAIN's 2017 passage, then climbed back through the 2022 global inflation wave and again through 2023–2026, re-converging on 52% in March 2026, almost back at pre-reform levels, over a period when the threshold itself never moved. 

That's not a one-off shock working itself out; it's a nominal exemption acting as a wasting asset against inflation. The mechanism matters more than the timing: each inflation wave — externally triggered in 2018 and 2022, self-inflicted in 2026 — claws back the relief's real value until self-rated poverty drifts back toward baseline. 

Raising the threshold to Php 350,000 now doesn't fix that design; it resets the clock, and resets it into a fiscal environment this series has already shown is more inflation-prone than 2018's, because the inflation itself is now an output of deficit financing rather than an external commodity shock waiting to pass. 

Third, the "wealth tax" targets the most visible and most mobile expressions of wealth — a luxury car, a jet — rather than the underlying capital stock. Both are easy to defer, relocate, or register elsewhere; neither captures the concentrated equity sitting in the regulated sectors this series has already mapped (banking, power, tollways) where ownership is entrenched and politically insulated rather than liquid and mobile. 

Durable economic rents are generated by ownership of productive capital, not by ownership of luxury consumption goods. Taxing the latter therefore says more about the politics of visibility than about the distribution of economic power. 

A tax that hits the visibly rich while leaving the politically connected rich untouched isn't redistribution. It's oligarchy protecting itself — narrowing who's allowed to become rich while leaving who's already entrenched untouched. 

And treating demand as inelastic here repeats the same error twice over: raise the sugary-drinks or alcohol tax high enough and consumption doesn't vanish, it migrates to the cheapest available substitute. 

Alcohol already demonstrates the broader principle. Raise excise taxes far enough and demand doesn't simply disappear; part of it migrates toward cheaper, untaxed or illicit substitutes. 

The Philippines already has several case studies — lambanog contaminated with methanol, deliberately spiked because it closes the price gap between registered product and untaxed denatured alcohol, has killed dozens in recurring outbreaks since 2018. 

Sugary drinks need not follow the same pathway into illegality, but they face the same economic constraint: higher excises encourage substitution into cheaper legal alternatives, shrinking the tax base more than static revenue projections assume. 

A Php 296.97 billion sugary-drinks projection and steeper alcohol excises are therefore betting the same proposition: that higher tax rates will leave the revenue base largely intact. They won't. Consumers substitute—toward cheaper legal products in some markets and untaxed or illicit ones in others. 

Fourth, timing makes the politics plain. Relief is immediate — a one‑year MSME holiday, a threshold bump — while extraction is permanent: new excises, unindexed thresholds, compounding after 2028. 

The costly reforms in debt‑ratcheting sectors stay untouched; the cheap optics of “soak the rich” branding get front‑loaded. This isn’t revenue design, it’s election positioning. 

Set against Part 13's fiscal picture — a record Php 786.8 billion first-half deficit, interest payments at their highest share of spending since 2009 — a Php 191.77 billion net gain stretched over four years reads more like narrative‑driven revenue grabbing.  

Sin and luxury goods sell themselves as villains.  

Broad-based reform of the sectors actually driving the debt-service ratchet does not. 

Tax Data: 92% of Taxpayers Earn 33K and Below! Tax Reform Equals Tax Increase!

Income Tax bracket from the DOF’s Infographic on the Tax Reform and the breakdown of taxpayers from the BIR…

 

I am using the tax data above from the DoF to put into perspective the income distribution of the domestic population

If the data is accurate, then this provides a startling profile of the resident consumers.

A total of 92% of the (taxpaying) population earns a monthly income of Php 33,333 and below!!!!

And such level of income supposedly represents the vaunted consumer economy? The consumer economy whereby waves and waves of shopping malls, hotels and residential housing projects have hurriedly been built for?????????????????

 

In my view, this income bracket would be highly sensitive to rising real economy prices, such as rents, food, transportation and more…, and would unlikely function as a key source of munificent disposable income.

And such group have likely used payroll loans to augment their income. Payroll loans have been growing at a furious rate at 30+% and above, and which growth rate have climbed alongside with CPI from 2015 to 4Q 2016.

More. The Philippine Statistics Authority estimated that for April 2017 the labor force population was at 69.6 million. The population of individual taxpayers as of December 2015 was around 17 million. Let us assume that individual taxpayer grew to 18 million from 2015 to April 2017. The numbers suggest that 51.6 million of the labor force or 76% have not been paying taxes!!!

And have most of the non-taxpayers signified the informal economy where income bracket falls in the range of the DoF’s 33K and below? Grab and Uber drivers for instance?

Also, such numbers imply of a mammoth leakage in the individual taxpayer’s system. No wonder the DoF’s tax reform.

Yet for the spend spend spend ‘spend your way to prosperity’ to happen is if a huge number of high-income earners comprise the informal economy or haven’t been paying taxes.

Now for a short take on the DoF’s proposed tax reform.

With the government’s thrust to undertake Php 8.4 trillion in infrastructure projects along with many other welfare programs, only a buffoon would believe that the DoF’s tax reform would amount to tax cuts.

The government proposes to shift its tax base structurally from income to spending. That would be aside from boosters in the excise tax on petroleum products and on automobiles. As shown above, the government has had a difficult time expanding the base of individual taxpayers.

So desperate for funding, it instead proposes to expand the supply side tax base through an expanded VAT coverage.

According to the DoF, while the Philippines have the highest VAT rate in the region, it has the most exemptions: 59 based on the tax code and 84 additional exemptions in special laws.

Among the proposed VAT exemptions to be removed are those on cooperatives, replacement of franchise tax with VAT for Power transmission, lease of residential units, domestic shipping importation, boy scouts and girl scouts, low cost and socialized housing, indirect exporters and agents and foreign currency denominated sales.

Wow rent prices will soar!

The thrust towards an expanded VAT system comes with a consolation: income taxes will generally fall. The lowest category of taxpayers would be exempt from tax payments. That would look good except that the supply side tax increases or the VAT will more than offset whatever savings from cuts in income taxes.

For instance, the call center agent who earns Php 273K a year (Php 22.75K per month) would see a tax savings of 21,867 or 8%. Great but…

…if the call center agent buys all of his/her requirements from the sari-sari store A which sales have been more than Php 3 million a year, then such store would be subjected to VAT. And since sari-sari A would pass the VAT to the consumers then this translates to 12% increase in prices.

So such magnitude of price increase would more than wipe out the savings from the tax exemptions.

And if call center agent buys from Sari-sari store B which sales is below Php 3 million a year, then the saidsari-sari store will be subjected to Non-VAT taxes of 8%. This tax sleight of hand means again that whatever savings from “exemptions” would only be transferred to as higher consumer prices through an expanded VAT.

At the day’s end, the tax reform represents a general tax increase and that there would hardly be any savings for income earners.

Higher taxes mean a lower standard of living for the citizenry. Higher taxes extrapolate to a bigger payday or a windfall for the government and for their favored private sector patrons.

The DoF’s tax reform essentially signifies the “crowding out” process in motion.

Quote of the Day: Slash Taxes to Restrain Government

This is the problem with taxation. Major public corporations can move their tax domicile offshore to avoid taxes legally. The average person cannot move his labor offshore to lower his taxes, which is a disadvantage we must address with tax reform. VAT is far worse than a sales tax. Every person in the chain must collect and file paperwork. It must require three times the number of people to administer such a system compared to a point of sales tax collection.

But that issue aside, there should be ABSOLUTELY NO income taxes whatsoever. That not only eliminates government having to track everything, but it also eliminates the whole movement of capital solely for tax purposes. This is unfair, for the average person cannot send their labor offshore to avoid taxation without moving. Even then, that would only get an American the first $100,000 tax-free; after that, it would be subjected to U.S. income tax. 

The Founding Fathers of the United States revolted over taxation without representation. We are back to that now, for we are being taxed to pay interest to service debts from the last two generations. We had no right to vote on that spending, which took place before we were born. This is not a democratic process.

There should be ONLY a retail sales tax EXCLUSIVELY for local government. Federal government should be prohibited from imposing ANY tax and it should be barred from borrowing money. The local tax will naturally be checked by the free market, for if they keep raising taxes, businesses will move to the next town and there goes the jobs. This will help to restrain government on a more practical level.

This is from former Princeton Economics chairman and present day analyst, Martin Armstrong at his website.

Aside from than administrative taxation, the INFLATION TAX should be ABOLISHED.

Infographics: Taxes Around the World

(hat tip zero hedge)

Source: Online-Accounting-Degrees.net

Possibly one of the reasons for rising food prices in the world can be also be traced to Denmark's bizarre "Cow flatulence tax". 

Anyway, global tax on wages reportedly rose in 2013. The Reuters says that total world taxes on wages rose to 35.9% in 2013 from 35.7% a year earlier based on OECD data. 

You can see the graphic on tax wedge and unemployment rate of the OECD countries by clicking on the link here.

Quote of the Day: Income Tax: Its unpopularity will grow with its life

POPULARITY OF THE INCOME TAX.

The Chamber of Commerce has directed an inquiry into the administrative feature of the income tax after a debate in which it was said that the tax would not affect 99 per cent. of the citizenship. It was suggested that this deprived the bill of general interest, and that it was sure to be unpopular on account of the narrowness of its application.

[...]

The case is worse than this. It will tax the honest and allow the dishonest to escape. The administrative features which the Chamber is to investigate are so complicated that those who understand them will make their taxes light at the cost of those less well informed about the law. The income tax law may be considered good nevertheless by some, but even those who approve the tax despite its faults cannot contend that the same sums could not have been raised more certainly, more equitably, and with less trouble to both payers and collectors by a stamp tax.

The experience with the tariff shows how hard it is to reduce or remove a tax once laid. It always seems better and easier to devise ways to spend the money than to repeal the tax. This fact will be better appreciated as the years pass, and particularly when the time shall come when this extraordinary tax–as it ought to be–shall be needed for an emergency. Then it will appear that this resource has been utilized and that the tax must be doubled instead of imposed initially. The tax was most popular before it was laid. Its unpopularity will grow with its life.

This is from the New York Times published in April 12, 1913 when the income tax had been made a permanent fixture in the US tax system via the Sixteenth amendment to the US constitution (hat tip Mises Blog)