Public Expenditures and Budget Reform

Prof. Leonor Magtolis BrionesUP National College of Public Administration and Governance

AndLead Convenor, Social Watch Philippines

Debt and deficits: Opportunities and risks for a new administration

UP Academic CongressMalcolm Hall, UP College of Law

February 01, 2010

Outline

National Government Spending Pattern Spending “wiggle room” and fiscal space Budget Reforms

NG Expenditure, 1998-2008

0200,000400,000600,000800,000

1,000,0001,200,0001,400,000

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

In '0

00 P

esos

02,0004,0006,0008,00010,00012,00014,00016,000

In P

eso

s

Total NG Expenditures Per Capita

Source: Basic Data from DBM

Increasing NG Expenditures, but…

Source: Basic Data from DBM

Share of productive sectors are less than debt service

Source: Basic Data from DBM

Source: Basic Data from DBM

Source: Basic Data from DBM

Critical spending for social development is decreasing in real terms

Source: Basic Data from DBM

Source: Basic Data from DBM

Next administration should

• Prioritize critical requirements for social development in light of– Poor progress in meeting Millennium Development

Goals (MDGs) by 2015– Immediate and lingering social impact of economic

slowdown

• Lessen debt burden by improving revenue generation and plug leakages in tax administration

• Cut wastage due to corruption and frivolous spending of discretionary funds

What is the spending “wiggle room” for the succeeding administration?

• Limited, due to:– poor revenue generation;– misplaced/outdated fiscal incentives and passage of more

revenue-eroding laws in Congress;– leakages in tax collection;– Automatic appropriation of debt service which will likely

increase further due to staggering deficit in FY 2009• … but budget reforms can expand fiscal space by

redirecting funds that are highly discretionary and prone to abuse– Special Purpose Funds– “Overall Savings”– “Invisible budget”– Rationalizing support to GOCCs including SUCs

P51 Bn less P123 Bn more

P114 Bn more

P3.774 Bn less P166 Bn more

P88

2 B

illio

n

P65

9 B

illio

n

P69

6 B

illio

n

P91

4 B

illio

n

P1.

541

Tril

lion

- 2

00,0

00,0

00 4

00,0

00,0

00 6

00,0

00,0

00 8

00,0

00,0

00

1,0

00,0

00,0

00

1,2

00,0

00,0

00

1,4

00,0

00,0

00

1,6

00,0

00,0

00

1,8

00,0

00,0

00

TotalObligations

NewAppropriations

AutomaticAppropriations

Departments SPFs

In t

ho

usa

nd

pes

os

2009 2010

Comparison of 2009 GAA and 2010 Proposed Budget

Source of basic data: NEP 2010

Special Purpose Funds

• Many lump-sum appropriations in the SPF are highly discretionary, some with vague or even no special provisions making it prone to frivolous utilization;

• Considering the large amounts (more than half the budget) and its discretionary nature, SPF can effectively:• Distort sectoral and regional budget priorities approved by

Congress;• Weakens the ability of Departments and agencies to

strategically program spending for their respective services

• The performance-based budgeting is not applicable to SPFs which constitute half of the budget.

% SHARE OF SPECIAL PURPOSE FUNDS vs. DEPARTMENTS PER ADMINISTRATION

2009

SPFs 50.19

%

Dep't, 49.81

%

2010

SPFs 57.23

%

Dep't 42.77

%

In ‘000 pesos

TOTAL SPECIAL PURPOSE FUNDS (SPFs)

881,879,847

Interest Payment 340,812,000

Allocations to LGUs 290,617,057

Pension and Gratuity Fund 79,494,246

Misc. Personnel Benefits Fund 76,496,242

Tax Expenditure Fund 38,142,000

Budgetary Support to GOCC 35,933,087

PDAF 6,940,000

AFP Modernization Program 5,000,000

Calamity Fund 2,000,000

Dep-Ed, School Bldg. Program 2,000,000

International Commitments Fund 1,595,215

E-Government Fund 1,000,000

General Fund Adjustments 1,000,000

Contingent Fund 800,000

National Unification Fund 50,000

Internal Revenue Allotment for 2009 Budget is P249.988 Billion. IRA formula is set by law BUT over and above that, other allocations are being provided in the budget under the control of the President.

Examples:• Kilos Asenso Support Fund = P1 billion• Kalayaan Brgy. Program Fund = P1 billion• Financial subsidy to LGUs = P4.168 billion• MMDA = P1.8 billion

Negative Fiscal Politics:Discretionary Funds – Political Funds?

“Overall Savings”, Impoundment and Presidential Discretion

Overall Savings, FY 2008Pooled Savings (“Transferred From”) P 178.728 Billion

Realignments (Transferred To”) P 38.059 Billion

Net Overall Savings P 140 Billion

P140 Billion is:13.19 % FY 2008 GAA

P34 Billion more than FY 207 Overall Savings

Other lump-sums and invisible budget

• Intelligence funds• Motor Vehicle User Charge (MVUC)

• Other remittances from other government corporations that do not pass through the annual budget deliberations:– PAGCOR– PCSO

Funds Balance as of31 Dec 2008

2010

Revenue Expenditure

Special Road Support Fund 1,571,180,000 7,605,600,000 7,329,826,000

Special Local Road Fund 789,266,000 475,350,000 399,000,000

Special Road Safety Fund 211,700,000 713,025,000 599,000,000

Special Vehicle Pollution Control Fund 2,473,449,000 713,025,000 198,000,000

Call for Budget Reforms• There are systemic issues in the budget process which

should be addressed to curb abuses and misuse of public resources;

• There is a need to strengthen oversight function of the legislature to curtail wastage in government spending.

• Social Watch Philippines and the Alternative Budget Initiative (ABI)* is pushing for legislative budget reforms

– already started early last year with the public hearing conducted by the Senate Committee on Finance on the impoundment control bills.

*ABI is a network composed of CSOs and partner-legislators lobbying alternative budgets (on health, education, agriculture and environment), advocating participatory budgeting and lobbying for budget reforms.

Budget Reform Measures

• HB 5580 Impoundment Control Act;• HB 5706 National Budget Fund Classification Act;• HB 5707 Budgeting Guidelines for Re-enacted Budget• HB 5723 An Act Defining Unprogrammed Funds• HB 5724 An Act Mandating that the Bicameral Meeting

on the National Budget be conducted in an Open and Transparent Manner;

• HB 5725 An Act Mandating Transparency in Fund Releases;

• HR 912 Open and Transparent Bicam;• HB 5716 National Budget Savings Act;• HB 5256 People’s Participation in Budget Deliberation

Act