New index shows gov’ts worldwide including PH fueled an inequality explosion during COVID-19 pandemic.

Half of the poorest countries saw health spendings drop despite the pandemic, while 95 percent of all countries froze or even lowered taxes on rich people and corporates

Rich and poor countries alike have exacerbated an explosion of economic inequality since the outbreak of the pandemic from 2020, reveals new research by Oxfam and Development Finance International (DFI). 

The overwhelming majority of governments cut their shares of health, education and social protection spending. At the same time, they refused to raise taxes on excessive profits and soaring wealth.

The 2022 Commitment to Reducing Inequality Index is the first detailed analysis into the type of inequality busting policies and actions that 161 countries might have pursued during the first two years of the pandemic. 

The index shows that despite the worst health crisis in a century, half of low and lower middle-income countries cut their share of health spending of their budgets. Almost half of all countries cut their share going to social protection, while 70% cut their share going to education.  

As poverty levels increased to record levels and workers struggled with decades-high prices, two thirds of countries failed to raise their minimum wages in line with economic growth. Despite huge pressure on government finances, 143 of 161 countries froze the tax rates on their richest citizens, and 11 countries even lowered them. 

France fell five  places in the index after cutting corporate tax rates and eliminating its wealth tax altogether in 2019. Jordan dropped its budget share for health spending by a fifth, despite the pandemic. Nigeria did not update its minimum wage since before the pandemic, and the US has not raised the federal minimum wage since 2009.

“Our index shows that most governments have completely failed to take the steps needed to counter the inequality explosion created by COVID-19. They ripped away public services when people needed them most and instead left billionaires and big corporations off the hook to reap record profits. There is some good news of valiant governments from the Caribbean to Asia bucking this trend, taking strong steps to keep inequality in check,” said Gabriela Bucher, Oxfam International Executive Director.

Philippines

The Philippines has a dismal overall rank of 102 out of 161 countries included in the CRI Index of 2022, which measures government efforts to reduce inequality through public services, taxation and labor rights and wages.

The country’s performance under “Reducing inequality through progressive spending” dropped from a rank of 99 in 2020 to 106 this year.

Research from the CRI Index showed that while the Philippines spends two-fifths of its government budget on education health and social protection (pension, etc.), it was lagging behind Mongolia, China, Thailand, Vietnam and Malaysia in East and South Asia (excluding high-income countries or HICs).

Compared to the CRI Index released in 2020, the Philippines’ education budget was cut by 15%. The health budget increased marginally, while the social protection budget increased by 28%. 

“It’s quite disheartening though not unexpected to see how the Philippines fares compared to other countries when it comes to allotting resources to crucial public service such as education and health. And even if we saw an increase in social protection spending, it is still considered low compared to other countries,” said Oxfam in the Philippines Country Director Lot Felizco.

Felizco pointed out that Filipinos have been grappling with unemployment and high cost of food and living expenses due to inflation and the pandemic.

The Philippines’ essential health coverage is already lower than the regional average (excluding HICs), with about 55% of the population having no coverage of essential healthcare and being burdened by out-of-pocket health spending. This pushes more people into poverty, resulting in further inequality.

“Health insurance and universal health care service are different things altogether. More Filipinos are registered under government’s health insurance service but not all of them live in areas with nearby hospitals or health facilities with sufficient number of health workers and supplies,” Felizco said.

For the five years preceding the COVID-19 pandemic, the proportion of elderly people of pensionable age receiving a pension nearly halved (based on International Labour Organization data). It is now two times less than the regional average (excluding HICs). On a better note, secondary school completion by the learners from the poorest 20% has nearly doubled, with one in two completing, one of the highest rates in developing countries. 

Despite slight improvements, the Philippines is still lagging behind in terms of “Reducing inequality through progressive tax policies” (with a rank of 104 out of 161 countries) primarily because of low tax collection (with the Philippines ranking 136 out of 161 for this sub-category). It collects just 19% of the potential revenue, well below the regional average of 31% (excluding HICs) and behind Afghanistan, Sri Lanka, and Myanmar, the three countries facing economic and political turmoil. According to Oxfam International analysis, this shows the likelihood of widespread tax dodging and evasion by the wealthy and their corporations, excessive tax breaks and weak enforcement measures by the tax authority. 

Under “Reducing inequality through respect for labor rights and fair wages,” the Philippines ranked 92 out of all of the countries. Among the labor indicators, the worst performance was on “respecting labor and union rights according to ILO standards,” with the Philippines ranking 146 out of 161 countries. The Philippines, with a minimum wage of 13% of per capita GDP, is at the bottom 20 of the countries with the lowest minimum wages, putting the low-paid workers at risk of exploitation. On the other hand, the top 10% of wage earners take home twice as much labor income as the bottom 50%.

“The results of the CRI Index show how much the COVID-19 pandemic has exacerbated the widespread inequality that Filipinos have already been experiencing. To get out of this situation, the government will need to make immediate and impactful changes,” Felizco said.

Addressing Inequality

Strong actions to reduce inequality were taken by both low and middle income countries:

• Costa Rica put up its top income tax by 10 percentage points, and New Zealand by 8 percentage points. 
• The Occupied Palestinian Territory increased its social spending from 37 to 47 percent of its entire budget. 
• Barbados introduced a comprehensive set of laws to improve women’s labor rights, and the Maldives introduced its first national minimum wage.

As Finance Ministers gather in Washington for the International Monetary Fund (IMF) and World Bank Annual Meetings, developing nations are facing a global economy that is making it ever more difficult to meet the needs of their population. While injecting trillions in their own economies, rich countries failed to increase aid during the pandemic. Economic inequality and poverty in poor countries are further exacerbated by the IMF’s insistence on new austerity measures to reduce debts and budget deficits.

“The debate has catastrophically shifted from how we deal with the economic fallout of COVID-19 to how we reduce debt through brutal public spending cuts, and pay freezes. With the help of IMF, the world is sleepwalking into measures that will increase inequality further. We need to wake up and learn the lessons; preventing huge increases in inequality is completely practical, and common sense.  Inequality is a policy choice, governments must stop putting the richest first, and ordinary people last”, says Matthew Martin, Director of DFI.

Oxfam and DFI analysis shows that based on IMF data, three quarters of all countries globally are planning further cuts to expenditures over the next five years, totalling $7,8 trillion dollars.

In 2021, lower income countries spent 27.5 percent of their budgets in repaying their debts - twice the amount that they have spent on their education, four times that of health and nearly 12 times that of social protection. 

“For every dollar spent on health, developing countries are paying four dollars in debt repayments to rich creditors. Comprehensive debt relief and higher taxes on the rich are essential to allow them to reduce inequality dramatically”, said Martin.

Despite historical precedent, nearly all countries failed to increase taxation on the richest or pursue windfall profits during the COVID crisis. After the 1918 flu epidemic, the 1930s depression, and World War Two, many rich countries increased taxes on the richest and introduced taxes on corporate windfall profits. They used this revenue to build education, health and social protection systems. Taxation of the wealthiest and windfall profits can generate trillions of dollars in tax revenue.

“Government leaders in Washington face a choice: build equal economies where everyone pays their fair share or continue to drive up the gap between the rich and the rest, causing huge, unnecessary suffering”, said Bucher.