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Regional income inequality seen worsening in countries spending less on welfare

INCOME INEQUALITY is expected to worsen in Asia Pacific economies that skimped on social safety nets and welfare spending during the pandemic, according to Moody’s Investors Service.

“Governments with weak social protection systems and low fiscal capacity to raise spending will face particular challenges in tackling income inequality. India, Indonesia and, to some extent, Malaysia and the Philippines stand out in this regard,” it said in a report.

Moody’s said most emerging markets in the region have weak safety nets, with social spending seen lowest in the Philippines, India and Indonesia.

“China, Indonesia, Pakistan and the Philippines are increasing welfare assistance under conditional cash transfer programs,” it said.

The government spent P205 billion for its social amelioration program, which provided cash handouts to about 18 million low-income families over two months at the height of the lockdown.

Only 20% of the 7.6 million Filipinos of pensionable age are covered by either the Social Security System or the Government Service Insurance System, according to the Philippine Statistics Authority.

Moody’s noted that Philippine sin taxes provided a boost to social protections.

“In the Philippines, revenue collections from sin taxes on tobacco, and alcoholic and sugary beverages help to finance the universal healthcare program, representing a double-barreled fiscal approach to enhancing social protection,” it said.

The Department of Finance estimated that taxes generated by tobacco products amounted to P61.47 billion in the first half, while alcohol products raised P27.46 billion.

Less-skilled workers and those armed with only basic education are viewed as more vulnerable even when the pandemic ends, Moody’s said.

Unemployment in the Philippines was 10% in July, easing from 17.7% in April but nearly double the 5.4% year-earlier rate. The July 2020 rate represents 4.571 million jobless people of working age. — Luz Wendy T. Noble

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