Questions:

Analyze the development of public nance in relation to the process of development among nations.

Reference:

PUBLIC FINANCE AND ITS ADMINISTRATION IN THE PHILIPPINES

PRE-SPANISH PERIOD

Before the coming of foreign conquistadores, the Philippines was already engaged in trade with

countries of Asia. The medium of exchange was barter system of commodities. It was based on

trust and honesty of participating parties. Commercial items were left at the shores in the

absence of buyers. The sellers would return months later for the payments. Crude as it was,

they had their own ways of accounting for their barter business and also auditing them.

Village societies, known as barangays, were headed by chieftains called datus who exercised full

power on the lives of people. Simple governance included the communal allocation and

distribution of resources to the villagers. The "datus" collected tributes known as buwis from

the people. Nobles and freemen were free from paying tributes and exempted from rendering

services to the datu except in case of war.

SPANISH ERA

The Spanish conquerors who defeated the local rulers established settlement in Cebu and their

capital in Manila. The location of the Philippines was good for international trade with

neighboring countries.

The Spanish Empire utilized the clergy of the religious orders of the Catholic Church to reach the

natives and influence them with Spanish culture, politics and faith. Religious orders like

Dominicans, Recoletos, Franciscans, Augustinians and Jesuits worked hard for the conversion of

the natives to Christianity.

In the early part of the conquest, the Spanish treasury had to subsidize the Philippines in the

amount of P250,000.00 per annum because of the latter's poor financial condition attributable

to the poor revenue collection system.

All male Filipinos, from 16 to 60 years of age, rendered forced labor called "polo" for 40 days a

year. They worked in building and repairing roads, bridges and churches, etc.; cutting timber in

the forests, and working in artillery foundries and shipyards.

The tributes and the taxes, plus encomienda system (local version of feudal estate) became the

sources of Spanish resources and at the same time of abuses and even state corruption.

In 1583, the Audiencia Royal, functioning as legislative-judicial body, was established, with

added authority to audit. Bartolome de Renteria was appointed the first auditor of accounts.

The auditor of accounts was appointed each year to avoid connivance with the auditee. Later,

the appointed Auditor was allowed longer tenure to hold office.

The government also established three tribunals of accounts, each was composed of a governor

and two auditors (oidores) who stayed in the provinces to audit the accounts there. This may be

looked upon as s similar to the current practice of having resident auditors in government

offices. These improvements prevented large scale irregularities and fraud in the generation and

expense of colonial funds.

The Chief Royal Accountant served as the Chief Arbitrator whose decisions on financial matters

were final except until revoked by the Council of Indies.

The Philippines remained with Spain as colony for more than 300 years.

AMERICAN PERIOD

The American regime in the Philippines (1898 to 1946) lasted for almost 50 years. The country

experienced military government, civil government, and the Commonwealth. Many of the

Spanish legal and business practices were initially adopted until replaced with those of

American influence.

At the start of American rule in the Philippines, the position of auditor was created by the

Military Governor and Major Charles E. Kilbourne, Paymaster of the Army, was appointed as the

first Auditor of the American military government in the Philippines on August 13, 1898. The

office of Auditor was formally established on May 8, 1899 by the U.S. President.

THE PHILIPPINE REPUBLIC

During the first Philippine Republic, the government was financed from two principal sources of

revenue: taxes and license fees, and military contributions, or war taxes. Special payment for

taxes was allowed in the form of rice, edibles, etc. for the sustenance of the army.

Budget preparation on a yearly basis was practiced from the level of municipalities to provincial

and at the central government.

THE CIVIL COMMISSION

The system of handling government finance was reformed when the Civil Commission headed

by William H. Taft was established. The office of the auditor was reorganized with the passage of

Acts No. 90 and 91 by the Philippine Commission on July 4, 1901. Act No. 222 converting the

office into a bureau known as the Bureau of Insular Auditor under the Department of Finance

and Justice. This move finally reorganized auditing as a permanent significant component of

government operations.

The local governments were provided with their own sources of income from the real property

tax. A system of inspection and examination of banks, an accounting and audit system, an

internal revenue system and a tariff system under the Tariff Act of 1905 of Congress were

created. The powers and duties of the Secretary of Finance and Justice included administrative

and legislative matters.

Under the Jones Law in 1917, a budgetary system was introduced in the Philippines which

required the Governor-General to submit to the Philippine Legislature within ten days after the

opening of its regular session, a budget of receipt and expenditures to be used as the basis of

the annual appropriations bill. The budget was prepared by the Secretary of Finance based on

the estimates of income and expenditures submitted to him by the different department

secretaries approved by the Governor-General. The Philippine Legislature made the final action

on the appropriation bill.

THE JAPANESE OCCUPATION

Nothing much economic activities during the Japanese Occupation. Industries, commerce and

trade were almost on a standstill. There was practically no production and agricultural lands

remained idle for a time, which caused the exorbitant price of basic commodities, particularly

rice. Most people engaged in the buy-and-sell business. It was a common experience to see

people exchanging almost anything just for a meager bag of rice or flour. The Japanese printed

Japanese paper money popularly known as Mickey Mouse money which flooded the Islands

resulting in inflation with everything sold at an exorbitant price.

TODAY: BUILDING A NEW PHILIPPINES

This time the government of the Sovereign State pursued an overall stabilization program. This

was directed to curb the growing government deficits brought about by massive spending.

Tax Reform Program was introduced: the 35% single tax rate for corporations was formulated

and implemented; the Value Added Tax was replaced; a complicated sales tax structure;

restructuring tax on the downstream oil industry; shift from ad valorem to specific tax on "sin"

products. The National Government efforts directed to sustain its fiscal position by continuously

providing corrective measures in its financial policy formulation and implementation.