Why can we reasonably expect that our Government, as Secretary of Finance Ralph Recto indicated, can realistically target to collect some P16 billion daily in tax and tariff revenues?  We need not rely on the words of our national leaders who may be suspected of over optimism and tendencies to issue propaganda.  One who reads the international press can verify for himself that there have been numerous declarations of international institutions and foreign banks about the sweet spot in which the Philippine economy finds itself today because of hard decisions made by our government officials over at least the last twenty years.  One of these very positive assessments of the bright future faced by the Philippine economy came from a widely quoted report from the Hong Kong and Shanghai Banking Corporation (HSBC) entitled “The Philippines takes off: From Stability to Prosperity.”  Among the local commentators who called my attention to this glowing report was my fellow columnist in the Business World, Dr. Victor Limlingan.

            Among the praises from the HSBC Report that I share with Dr. Limlingan are the following: “Fueled by demographics (which I have described in great detail in a series of articles also in the Business World), digitalization and services (especially OFW remittances, BPO-IT and tourism), two decades of reform have prepared the economy for take-off….The Philippines will continue to grow in size and influence, creating many opportunities for foreign and local investments.”  Let me add that the larger investments will be especially in infrastructures, large-scale agribusiness, logistics, renewable energy (including nuclear power), tourism facilities, and higher-value electronics products that will result from what I expect U.S. President Donald Trump will be eager to fund:    the Luzon Economic Corridor that is targeted to attract higher value manufacturing of electronic products that will transfer to the Philippines from China. Because of our leaders’ refusal to join the BRICS political grouping which China and Russia are organizing to counteract the U.S. influence on the Indo-Pacific region, with which ASEAN neighbors have aligned themselves, it is very likely that the Trump Administration will give priority to the Philippines in relocating the high-value chips factories of the U.S. and Japan away from China.

            What can explain the bullish stance of HSBC about the Philippine medium-term economic future?  The answer of HSBC:  “The Philippines has built a solid runway for takeoff from two decades of hard earned reform.  Since the beginning of the 21st century, the country has embarked on a number of reforms, including fiscal reforms and trade deals of the Macapagal administration, the Sin Tax and institutional reforms of the Noynoy Aquino Administration, the fiscal and infrastructure reforms of the Duterte Administration, and liberalization and fiscal reforms of today.  The country has laid a solid fiscal and economic foundation that could finance the long-term investments needed to lift its economic potential.”  

            Continuing with the (LIFO) enumeration of the fiscal reforms slowly and painfully introduced by previous Administations through highly competent technocrats, sometimes working for some not so ideal political leaders (the secret behind the Philippine sure, but slow progress), let me now describe briefly the Rice Tariffication Law.  As Mr. Limlingan commented, the RTL is based on a simple economic fact:  the world price of rice is about half of the domestic one.  Our local businessmen could always make money by importing rice and selling it to domestic consumers.  What the Philippine Government did was to perform the role of equalizer.  Under the RTL, the Government allowed the importation of rice, greatly benefitting our more than 100 million rice eating population. This was also a result of the realization that the Philippines did not have the competitive advantage vs. Thailand or Vietnam to be self-sufficient in rice.  At the same time, the revenue raised from the tariff was used to subsidize the one million rice farmers who are adversely affected by the importation of rice.  Since the start of 2024, the Bureau of Customs reported last August 15 that P29 billion in excise tax had been collected on imported rice which more or less amounted to P29,000 in assistance to each rice farmer, not an insignificant amount.

            Before the Rice Tariffication Law was passed in 2019 during the Duterte Administration, there were quantitative restrictions on the importation of rice.  This system, however, had some serious weaknesses.  The price of rice was unreasonably high.  More than 100 Filipino consumers had to pay two to three times higher than the citizens of neighboring ASEAN countries.  In 2018, for example, rice was the number one driver of high inflation.  Poor households had to spend around 20 % of the family budget on rice alone.  With the rice tariffication law, inflation fell by 0.6 percentage points, placing the 2019 inflation within the government’s target range of 2 to 4 %.  With the QR system, the high price of rice put undue pressure on the minimum wage rate during the many decades.  Our neighboring countries were able to develop a strong labor-intensive manufacturing sector by keeping rice prices low.  Ironically, the rice farmers themselves were victimized by high prices of rice after the harvest season was over.  From the fiscal point of view, the subsidy to the National Food Authority (NFA) caused serious deficits that were a burden not only to the ordinary citizens but also to the rice farmers themselves.

            Then there were the “Sin Tax” laws that started in 2012, during the Administration of President Noynoy Aquino. Through Republic Act No. 10351, the tax structure was drastically changed by imposing higher taxes on tobacco products, which succeeded in raising significant additional revenues that were earmarked for the Universal Health Care program of the Government.  It killed two birds with one stone by also reducing alcohol and tobacco consumption leading to less diseases associated with these products.  In 2024, the programmed contribution of sin taxes to the Philippine Health Insurance Corporation, better known as PHILHEALTH, amounted to around 300 billion pesos, an amount that was expected to reduce the premiums that must be paid by the 113 million members of PHILHEATH.

            Then there was the game changing Value Added Tax (VAT)Law passed during the Administration of President Gloria Macapagal at great political cost to her.  Value added tax is a tax imposed on the exchange, lease, or sale of goods, services and properties.  VAT is also imposed as a tax on imported goods. With the assistance of then Senator Ralph Recto (who is now our Secretary of Finance), President Macapagal pushed for the approval of the Expanded VAT Reform Act.  The law raised the VAT rate from 10 to 12 % , the corporate income tax rate from 32 % to 35 % and removed tax exemptions, thus putting the Philippine Government on sound fiscal footing to this day.

            Dr. Limlingan presents the historical perspective in assessing these reforms:  “From the perspective of an AIM Professor in the 1990s, we now realize the economic progress the Philippines has made.  In the 1990s, the Philippine was struggling to achieve a growth rate of 2 -3 %; now, we assume growth rates of 5–%. In the 1990s, the Philippines experienced inflation rates of 10 –12%, now we can aspire to inflation rates of 2–4%.  Back then interest rates ranged from 12 -18%; now, they range from 6–8%.  Then the difference between the interest rate on Philippine government securities and the US 10-Year Treasury Bills was 14%, now it is around 1 %.  Finally, then our reserves of around $5 billion barely allowed us to meet our importation requirements, now with our $100 billion reserves, we have sufficient buffer not only for our importation requirements but also for our debt service requirements as well.”  These figures capture graphically, from the viewpoint of one who was very much an active participant in the very turbulent years after the EDSA revolution, the evolution of the Philippine economy from the “Sick Man of Asia,” to one of the “fastest growing economies in the Indo-Pacific region” today.  If I may add my own optimistic forecast, we may see a growth rate of our GDP accelerating to 8% or more in the coming 5 to 10 years as we reap the benefits from the amendment in the Public Service Act which allowed foreigners to own 100 % of vital infrastructures projects and in the focus of the BBM Administration on food security which can lead to an average growth of the agriculture sector to 3 % annually.  Given this possible growth scenario for the next ten years or so, we may attain NEDA’s Ambisyon Natin 2040:   that by the beginning of the decade of the 2040 to 2050, the Philippines will have acquired the status of a high-income economy with a poverty incidence of less than 10%.   To be continued.