Speech
of
His Excellency Fidel V. Ramos
President of the Philippines
At the 97th Anniversary of the Department of Finance

[Delivered in the Agrifina Circle, Ermita, Manila, May 16, 1994]

Mobilizing our resources
for greater progress

A NATION without resources is a nation bound for self-extinction. History provides ample evidence of great empires that fell because of inadequate resources.

Owing to poor finances, the Byzantine empire was forever erased from the map of the world, and its glory, the extent of its military power, its golden age in arts and culture and scientific innovation were consigned to the dustbin of history.

A nation’s capability to survive depends on its ability to marshal resources to finance the programs it needs—programs not only for its economic growth but also for diverse services such as security, enforcement of law and order, preservation of the environment, enhancement of health and education and the fostering of national unity.

Intensive mobilization

A nation unable to provide these basic services either falls prey to an external aggressor, or just falls apart into petty tribal divisions or prolonged chaos.

This is why intensive mobilization of our resources is one of the vital cogs of our development strategy. This is also why the Department of Finance is a lead player in our country’s development.

Our Medium-term Philippine Development plan for 1993-98—which was drawn up with the active participation of your Department—is intended to ensure that this country will not go the way of the Byzantines. Rather, it should provide us with the means to prosper and to endure.

The Plan ensures that we will be able to generate adequate revenues to help raise our per capita GNP to at least US$1,000 by 1998 and attain the status of a newly industrializing country (NIC) by the turn of the century. By that year we would have reduced the poverty level to 30 percent, from about 50 percent.

But reaching NIC status will be much more than a matter of making fervent wishes, or drafting the correct strategies.

It will require hard work, on the part of every Filipino, as we may have never known before, and the burden will fall most heavily on those of us in Government, who have made a compact with our people to give material substance and economic empowerment to their political freedom.

Radical solutions

NIC-hood will require a major change in our economic policies and in our attitudes. Our industries have been used to protection for a long time. Having been sheltered from the inroads of foreign competition, they have grown flaccid and dependent on the domestic markets, unable to improve the quality of their products to approximate their international competitors, and unable to export.

Thus smuggling remains a problem, at the same time that our balance-of-payments position remains shaky because many of our domestic industries are unable to generate enough export receipts to finance our import requirements.

Uplifting ourselves from our inability to compete globally, due to our failure to tap the best talents and skills of the Filipino, requires radical solutions. Palliatives will not work. These just serve to delay the problem until it resurfaces, much worse than it ever was.

Global competitiveness requires an overhaul of our tax and tariff system. To address this needed reform, I recently issued an order creating a task force with the Secretary of Finance as its head. I expect the task force to submit its recommendations and draft executive issuances as soon as possible.

The reform of our tax and tariff system is long overdue. Our tax system has been rendered inequitable by decades of piecemeal revenue measures and exemptions.

It has also been made obsolete by an international wave of liberalization and deregulation ushered in by the Uruguay Round agreements and the ASEAN Free Trade Area.

We must set our tax system right by making tax rates more equitable, broader-based and simpler to administer. This way, the costs of compliance are lower and the room for discretion—and the opportunity for graft and corruption—is narrower.

The enactment of the new expanded VAT Law (Republic Act 7716) is a major reform move in the right direction.

The progressivity of taxation

At the same time, we can enhance the progressivity of taxation by globalizing taxes under a single schedule, instead of setting differential rates for each type of income.

But, to my mind, the best way to improve progressivity is by collecting income taxes more efficiently through computerization, procedural reforms and an expanded withholding system.

In the past, our reliance on international trade taxation has resulted in a bias against efficient sectors, especially those that contribute more to exports and those that contribute to uplifting the rural sector. Exports have been penalized by tariffs imposed on their inputs, while nonexporters have had a heyday with a captive domestic market that has been deprived of the basic right to decide more freely on what to buy.

Reliance on a limited market has instilled in most Filipino entrepreneurs the fear to compete. Many have lost confidence in their capabilities and, even in our own backyard, they feel threatened by the unfounded fear of foreign competition.

This is not the way to go, and we cannot allow this situation to persist. We are blessed with adequate natural resources. We are endowed with a vast pool of entrepreneurial talent—skilled, hardworking and well-motivated people. We do have comparative advantages arising out of our human and natural resources as well as our strategic location at the gateway of the Asia-Pacific region.

This human potential, which is now being used by employers most everywhere in the world, is an asset we ourselves have barely tapped. And our failure to tap it is due to our inability to compete.

How we can compete more effectively

How do we tap the international market? How can we compete effectively?

First, we must regain faith in our own selves. We can compete toe to toe and head to head with the rest and the best of the world in many areas of economic enterprise.

Given a more favorable policy environment, we can export Philippine-made products to most countries. But for Philippine industry to emerge, we should liberalize imports, reduce and eventually remove protective tariffs, and open our markets to investments, products, ideas and opportunities.

We must make the market work to our advantage, not muzzle it with regulations, subsidies and other distortions. In a level playing field, our capability to compete, survive and win will surely emerge.

But the transition may be painful. Some industries which are inefficient may have to close down. Some industries may have to pay more in taxes. Consumers will have to get used to upswings and downturns in the prices of goods and services as they are affected by world developments.

This is why reforms directed toward liberalization and deregulation are usually unpopular. Affected sectors often block such reforms with passionate appeals to nationalism.

We should convince them, and our people at large, that true nationalism lies in securing the strategic advantage, the long-term gain, for our nation, rather than in perpetuating self-defeating palliatives or satisfying ourselves with instant gratification.

The benefits of reforms are not immediately achieved in the short term, but are more evident bountiful and enduring in the long run.

Many of the industries adversely affected by reforms in the beginning will likely be able to adjust. By replacing their antiquated machinery and investing in new equipment, by streamlining processes and procedures, by training young Filipinos to be more enterprising and competitive, by trying new marketing skills in global markets, they could be transformed into major players in the global market.

The essential tasks

By doing away with unnecessary subsidies and ridding itself of unnecessary regulatory functions, Government can concentrate on its essential tasks—providing direction and information, and ensuring the health, education and security of its citizens.

Second, we must perform the tasks assigned to us to the best of our ability. Let us not fear to innovate. Let us make sure that what we do well today, we do better tomorrow.

The Department of Finance has been assigned a major role which it should play the best it can. It is tasked with raising an average of P415 billion in revenues annually from 1994 to 1998.

Your Department has to raise the tax effort this year to 16 percent. And we should not stop here. We should raise the tax effort further to 18 percent by 1998 to equal the average of ASEAN countries.

This will have to be achieved at the same time that we are cutting tariffs to make our exports more competitive. These tasks are not easy to perform, because they could be conflicting at the outset. We need the help of all Government departments, Congress and the private sector as well as the understanding support of the judiciary and multilateral institutions.

But if we look at the record of the Department of Finance, there is every reason to be optimistic. You have raised the tax effort from 10 percent in 1986 to about 15 percent last year.

Based on performance during the first quarter of this year, you have reported that the 16 percent is attainable in 1994. I am confident that the Department can meet its targets, especially considering that it has a hardworking professional secretary with an excellent record of public service.

The ultimate responsibility

As you celebrate your ninety-seventh founding anniversary, I trust that you will gear up not only to attain your targets but also to exceed them. The bigger the strides we take on the road to reform, the earlier we shall reach the status of newly industrializing country to which we all aspire under our shared vision of Philippines 2000.

We have been lagging behind our ASEAN neighbors, and we cannot allow this situation to continue for much longer—for the sake of our children and our grandchildren, more than ours.

We cannot simply be serving the rest of the world, by exporting the best of our labor as overseas workers, while failing to address our own needs.

We must learn to take our future into our own hands and maintain control by ourselves of our own destiny. To be sure, we will need to receive help from our friends and neighbors, but the ultimate responsibility for our own growth and sustained development must still be ours.