January 20, 2018, 4:51 pm
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Iceland’s high-tax, no-corruption economy

REYKJAVIK, Iceland. --  As Filipino taxpayers, arraying the antics of our honorable Philippine Congress and the Executive Branch against the even higher taxes that we pay relative to the rest of the economies in the region it is easy to think that where a high taxation regime exists there also would be plentiful corruption. 

Already overtaxed at a good third of our incomes, plus the other excises and the myriad of tolls, fees and payments that flow from a public with one of the lowest compensation structures in the region, albeit constantly confronted with multi-billion government corruption, the triple whammy seems to be a permanent feature of the Filipino reality.

It is the reality that we’ve been suffering for so long that each time we go to the polls we pray for deliverance but end up with nothing but compromise. While technically there were no new taxes passed into legislation in the last administration, the utter deficiencies in infrastructure spending while a regime of high taxation persisted simply exacerbated the lack of economic inclusivity experienced before and during the Aquino administration.

Worse, corruption remained and even seemed to have worsened as old demons simply took on updated forms as corruption’s old models mutated. Pork barrels were renamed as development assistance funds and the latter morphed into a monstrous presidential disbursement acceleration program that enjoyed immunity from prosecution. Given a high liquidity economy, there was really more to steal. The same toxic realities simply perpetuated -- high taxes and high corruption.

Corruption takes its sustenance from the taxes we pay to keep our government running and, as it happens, to maintain and fatten the crooks in power so  they might continue doing to us from behind what it is they do so efficiently. Ironically we continue to elect them.

The chemistry of high taxes and high corruption can be toxic. This is evidenced by the growing number of shadow economy endeavors that fall outside the umbrella of taxation. The shadow economy’s existence makes sense. Why should anyone work hard to earn meager incomes only to surrender a good third of the latter to officials who not only give back very little but, through corruption, allow taxpayer’s money to fund and fatten more crooks?

Debunking our Philippine reality there are economies in the world where taxes are astronomically multiples of ours but are readily accepted and have become ironical points of national pride. There are places where, not only is corruption rare but the high tax regimes in those compel ever more diligent hard work which together produce even higher productivity relative to more liberal tax regimes.

A case in point is the Icelandic economy and its high tax, low corruption regime.

First, keep in mind Iceland’s top tax rate for individual income is 46.30 percent down from its peak of 46.90 percent. Their unemployment rate is 2.4 percent. Everyone’s working in the legitimate economy and nearly half of what an Icelander earns goes to the government. What government official in our parts would not salivate at that?

Iceland’s high taxes necessarily increase costs of living in multiples that would shove most into a shadow economy given the imposition. Ironically it doesn’t. Updating relative data to August 2017, let us do the math and analyze why.

A one-piece chicken meal ladled with spaghetti, a cup of rice and a tumbler of soda would cost about P150 in a fast-food restaurant in the Philippines. The same in Iceland would cost about P1,060. On the average consumer prices in Iceland are 253.26 percent higher than ours. Restaurant prices are 537.32 percent higher. Groceries, 242.74 percent higher.

Now here is where an equitable economy trumps one with lower taxes and prices and yet yields inclusive economic productivity. Where the average net monthly salary of a Filipino is in the P16,000 plus range, the same in Iceland is approximately P148,000 to P150,000. While it is arguable that the higher compensation is balanced out by the higher cost of living, when all other factors are considered, ceteris paribus, an Icelander’s net purchasing power is still over 122.15 percent higher than a Filipino’s.

How can Icelanders purchase more if their taxes and costs of living are higher? Here’s a peek at one element of economic inclusivity. Monthly private pre-school educational costs per child in the Philippines can cost as much as P19, 600  plus. The same for Iceland would be about P17, 750 -- a substantial reduction.  Their high tax regime effectively lowers complementary costs.

Moreover, Icelanders see that their taxes benefit them and are not lost to corruption. Iceland ranks 14th among the world’s least corrupt nations. The Philippines ranks 101st. 

Scandinavian economies likewise employ a transparent third-party verification system of taxable income as well as a clean, uncomplicated and transparent tax system. Moreover, Iceland’s high taxes are verifiably returned through government subsidies that are directly complementary to work thus incentivizing Icelanders to work even harder and pay their taxes honestly. These are subsidies for education, healthcare, transportation and even child and elder care.

People wouldn’t really mind paying higher taxes if those weren’t stolen and we saw those returned in beneficial ways. That makes all the difference.
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