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SCMP Reporter

Philippine President Joseph Estrada has the reputation of not knowing the first thing about economics and in recent times rave reviews have been rare.

As his popularity plummets, his administration does have one achievement in finessing one part of the economy to its credit - that of balancing the budget.

It is no way near there yet, but recent developments suggest the government may be finally on the right course.

In the first quarter, Mr Estrada's two-year-old administration achieved an historic economic first for the Philippines. It exceeded its customs and tax revenue collection target.

Coupled with low interest rates and manageable debt levels, Budget and Management Secretary Benjamin Diokno is now hopeful of achieving a balanced budget by 2003 and a surplus before Mr Estrada steps down in 2004, barring major setbacks.

'My answer to the president's critics is look at the numbers,' Mr Diokno said. 'The numbers are quite impressive. Look at the real economy.' In April, the government agreed new targets with the International Monetary Fund aiming for higher economic growth and slower inflation.

Projected economic growth for this year was raised by 0.5 of a percentage point to 5 per cent or 5.5 per cent for gross national product and 4.5 per cent to 5 per cent for gross domestic product.

The inflation target was reduced 1 per cent, to 5 per cent or 6 per cent. Last month's inflation was just 4 per cent, well within range.

Meanwhile, new Commissioner of Internal Revenue Estelita Aguirre, is confidently forecasting a further increase in tax collections in line with the improved economy.

Some big firms, such as Philippine Long Distance Telephone (PLDT) and Robina Farms have recently posted increases in net profits. Ms Aguirre says this means the government should expect high profit taxes.

This may sound obvious. But in the Philippines, tax collection has never been that straightforward. Loopholes are many, government records incomplete, and collection officers often inert and inept. Of the tax officers that have taken a serious interest in their work, a significant number have done so for corrupt reasons.

Under IMF pressure, repeated new Philippine presidents have pledged to sort the country's sorry tax collection system.

All have failed. As a result of repeated low tax-collection levels, state borrowing has mounted to cover spending, leading to high debt levels which have been difficult to service.

When former president Corazon Aquino succeeded toppled dictator Ferdinand Marcos in 1986, debt servicing ate up 30 per cent of the state budget.

Today it is less than 10 per cent, but this is still seen as too high. After exceeding its budget deficit target of 111 billion pesos (about HK$20.22 billion) last year, Mr Estrada's team has now begun to make a serious start at tackling this long-running debt problem.

It kicked off with a major revamp in the Department of Finance. Ex-banker Edgardo Espiritu was ousted as finance secretary in January and replaced by former trade secretary Jose Pardo. New commissioners of internal revenue and customs were appointed.

'There has been a complete change of personalities,' Mr Diokno said.

'There is closer co-ordination now between the finance and budget departments.' Two new offices have been created, the Large Taxpayers Unit and Excise Tax Unit. Previously, large taxpayers would pay taxes all over the country to different local and district government.

'It was very difficult to find out how much taxes they had already paid until months later, if at all,' Mr Diokno said. 'Now they are required to pay in Manila, just one place.' Personal income tax collection is another problem being tackled. At present, probably the majority of ordinary Filipinos do not bother.

One initiative being taken here is to tax civil servants at source. The appropriate sum is now automatically deducted.

Two further bold ideas are being considered, both potentially controversial.

The first says if tax officers exceed their assigned collection target, they get to keep a share of the excess as a reward. The Estrada administration is presently trying to push this idea through Congress.

The second would be a tax amnesty, allowing dodgers to come forward and confess their past ways in return for immunity from prosecution. Legislation is still pending.

Forcing people to pay taxes may not boost Mr Estrada's popularity among the voting masses, but it may do his reputation with the IMF and foreign investors a power of good.



Estrada advantage proves taxing