The 2012 National Budget

TOWARDS RAPID, INCLUSIVE AND SUSTAINED ECONOMIC GROWTH?

STRATBASE RESEARCH INSTITUTE

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Copyright 2012 SRi Stratbase Research Institute. All rights reserved.www.stratbase.com.ph

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TOWARDS RAPID, INCLUSIVE AND SUSTAINED ECONOMIC GROWTH?

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...To deepen the reforms we are setting in place; to go one notch higher in our fight against corruption and our pursuit of good governance, in poverty reduction, and in employment generation from inclusive and sustained economic growth.

-President Benigno Aquino III, 2012 Budget Message

taking precious public resources away from other pressing national issues and concerns. In fact, it has been reported that at least 10 million pesos has already been spent for the trial and estimates see it bloating even further as the sessions push on towards March 2012. 1

To some, such spending may appear unnecessary and rather counter-productive. But to the cur-rent national administration, the exercise may be seen as one of leadership cleansing for the pro-motion of good governance. The proceedings could be seen in light of the efforts to promote a better policy and governance framework for national development. This is suggested by the way the most recent Presidents budget message, and the National Budget itself, has been framed.

Bearing in mind key ideas from said budget message, especially the underscored need for good governance, a review of the 2012 national budget shows that measures or mechanisms deemed as anti-corruption have been allocated significant monies along with other items which are identified as gainers budget items which got bigger shares in this years budget compared to that of 2011.

On the bright side, the national budget appears to be the product of an earnest Executive with a laden Legislative attempting to cut up a small pie among competing stakes in an overburdened bureaucracy. Assuming such earnestness in the national leadership, government priorities and reforms as expressed through the 2012 budget make much sense.

The national leadership is now talking of Rapid, Inclusive and Sustained Growth in the most recent Presidents Budget Message. This Budget Message appears well-crafted and suggests something beyond mere talk of the Matuwid na Daan. The national development agenda may be shaping up to be a bit clearer with the 2012 national budget having been recently passed.

However, so much public attention is now directed at the on-going impeachment probe at the Senate, with

talk of national economic development appearing to be less attended to. With Supreme Court

Chief Justice Corona being tried after his impeachment by the House of Representatives for, among other things, culpable violation of the Constitution, these proceedings are also

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P1.9 billion from the budgets of the Departments of Agrarian Reform, Interior and Local Government, Social Welfare and Development, and the Office of the Presidential Adviser of the Peace Process for the PAMANA program;

P700 million from the Department of the Interior and Local Government to the Local Water Utilities Administration for potable water supply for third-level water systems; and,

P440.6 million from the judiciary for unorganized courts

Certainly, governments prioritizations as suggested by the selected items above have generated some critique and opposition. However, the budget process approval in the House of Representatives and the Senate of the Republic went on rather smoothly with only Sen. Joker Arroyo being the lone dissenting vote in the Senate.

Senator Arroyos disapproval stems, in the main, from the governments underspending in 2011 which has left more than P200 billion in unspent funds that Malacaang could use like a blank check next year.5

On the part of the House of Representatives, the House Minority Leader, Representative Edcel Lagman, cast a dissenting vote, saying the appropriations for the Conditional Cash Transfer (CCT) and for Public Private Partnerships (PPPs) are inordinately overstated and excessively funded. Further, he has been cited as saying that the amount earmarked for CCT and PPPs should instead augment appropriations for education, state colleges and universities, health, and infrastructure.6

Related to these dissentions, a reported crucial budget policy change came with the Senate and the House agreeing to remove the restrictions on the use of funds

Of Gainers and Losers

In the bicameral conference committees report presented by Senate finance committee chair Franklin Drilon, as reported in national media, some agencies and branches of governments allocations were increased. Most notable of these include:2

P351 million for the House of Representatives for personal services; P96.69 million for the Senate for the operational requirements of the 5th global conference of the Global Parliamentarians Against Corruption, and for the repair and construction of conference rooms; Restoration of P500 million to the Department of Agriculture for irrigation projects; P100 million as initial funding for newly-created Governance Commission for Government-Owned and -Controlled Corporations;

P36 million for the Philippine National Police for its Anti-Illegal Drug Special Operation Task Force, which will be sourced from the budget of the Philippine Drug Enforcement Agency; P30 million for the Department of National Defense for the payment of a property of the Philippine Navy in Puerto Princesa City, and, P25 million for the reconstruction and renovation of the Armed Forces of the Philippines General Headquarters and buildings at the Philippine Military Academy.

On the other hand, certain budgetary allocations were lowered. Budgets for these offices were notably reduced to the consternation of some sectorsthe numbers mentioned

are the amounts deducted from their 2011 allocation:3

P697.83 million from the Presidents miscellaneous personnel benefit fund; P138.3 million from the Payapa at Masaganang Pamayanan (PAMANA) fund; P224 million from the Department of Health, which was deemed an excess in the fund for senior citizens vaccines; P100 million from the Philippine Drug Enforcement Agency; and, P91 million from the Department of Labor and Employment, which was supposed to be for the operation of Filipino centers abroad.

Of Priorities and Lone Dissenters

The budget process has led to certain realignment of allocations. Amounts from certain agencies or from items within agencies were transferred to other items in the budget, including:4

P1 billion from the Department of Educations capital outlay to the maintenance and other operating expenses of the kindergarten program and for hiring additional teachers;


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Education and social services are packaged

as getting the biggest slices of the national budget pie.

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for unfilled positions by Congress, the judiciary, and constitutional agencies, which all enjoy fiscal autonomy. These institutions are, however, required to submit to the President a quarterly report on how the funds are spent... Funds for vacant positions were placed in the miscellaneous personnel benefit fund in the original version of the budget, but various agencies objected to it.7

Packaged Priorities: Sectors and Significant Slices

Education and social services are packaged as getting the biggest slices of the national budget pie. The Department of Education is reportedly P238.8 billion or 15.2% higher than the previous budget of P207.3 billion. Social Services will get the bulk of the spending pie with P575.8 billion or 31.7% of the entire General Appropriations Act for 2012. 8

Also included under the rubric of social services, the Public Works Department is second priority with P125.5 billion, followed by the National Defense with P107.9 billion, the Interior and Local Government with P101.4 billion, and the Department of Agriculture with P54.1 billion.9

Economic services is at second with P438.9 billion (24.2% of GAA) which shows the largest growth of 21.3%. Debt service comes third with P356.1 billion, general public services with P332.1 billion, and defense at P113.1 billion.10

In analyzing these allocations and priorities, it should be noted, however, that the budget for 2012 represents only about 16 percent of the countrys GDP and, furthermore, assumes allocation for debt servicing and Internal Revenue Allotment (IRA). Net of the IRA and debt servicing, this budget for 2012 is higher by 20.8 percent over the equivalent portion of the 2011 national budget.

In other words, the perennial Automatic Appropriations could be seen as the real budget priority item and it now amounts to P723.6 billion the biggest single slice of the total 2012 National Budget, net of the Unprogrammed Fund.

The Presidents budget message points out however that the Sectoral Distribution of our proposed Budget reflects this administrations priorities. Indeed this sector receives the lions share of 31.7 percent or P575.8 billion of the National Budget as the Economic Services sector receives the second biggest share at 24 or about P438.9 billion.

The Debt Burden is supposed to only follows and its share has been reduced by 3.0 percentage points to 19.6 percent or P356.1 billion from 22.6 percent or P372.1 billion.


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Priorities by Expense Classes

By Expense Class, Capital Outlays (CO) is reported to have increased by 25 percent to about P328 billion, as compared to its previous budgetary allocation of P262.0 billion. In particular, Infrastructure and Other Capital Outlays has increased signifi-cantly by 33 percent to about P255 billion from about P192 billion. In relation to these, the President has stressed that his administration will not spend on infrastructure randomly and with much leakage: rather, in an efficient and targeted manner that supports our priority economic growth drivers.11

billion, respectively. This is mainly due to increases in the support for GOCCs in the agriculture sector, in support of this administrations rice self-sufficiency program.

Meanwhile, the Internal Revenue Allotment (IRA) shares of LGUs decreased from P287 billion in 2011 to P273.3 billion in 2012, as the legally-mandated base year for computing the IRA is 2009 when revenue collections slumped due to the global financial crisis. On the other hand, the Special Shares of LGUs from the utilization of national wealth increased from P11.9 billion in 2011 to P16.8 billion in 2012.

Priority Departments

The Top 5 Departments in terms of budgetary allocation have reportedly remained the same with some key changes in their program composition and relative rankings.

(1) DepEd, as already pointed out, remains at the top, with another significant budgetary increase of 15.2 percent to P238.8 billion from its previous budget of P207.3 billion. Most significantly, it has been claimed that from the 12.6 percent increase in 2011, the largest in over a decade, the increase [education] for 2012 is even larger.

(2) DPWH remains in second position with another significant increase of 13.5 percent to P125.5 billion, from P110.6 billion in 2011.

(3) The DND, again at third, receives almost P108 billion, slightly higher by 3.1 percent than its 2011 allocation. To fund unfilled positions, at least P989 million has been given to the DND.

(4) The Department of Interior and Local Govern-

ment (DILG) is at fourth with P101.4 billion, repre-senting an increase of 15.1 percent. These covers al-locations for the security sector agencies, including the the PNP, the Bureau of Jail and Management Penology (BJMP) and the Bureau of Fire Protection (BFP)

(5)Finally, but certainly not the least concern, there is the Department of Agriculture, at fifth, getting the largest budgetary increase of 53.6 percent to P54.1 billion, from P35.2 billion in 2011.

This last item on the DA appears the most strategically meaningful with the qualification that:

With better targeting of agricultural support for small farmers and sustainable fisherfolk, the increased agriculture budget will support this administrations Rice and Food Sufficiency agenda: the construction and rehabilitation of irrigation facilities, the establishment of postharvest facilities, the expansion of research and development (R&D) and increased provisions for the National Rice, Corn, Fisheries, Livestock and High Value Crops Programs.

Let us also note at this point the oft-mentioned development approach that is the PPP. As the Presidents Budget Message points out:

...[W]e continue to employ PPPs as an innovative approach to tapping private capital into key, growth-driving infrastructure projects. This year, we again pro-visioned in the national budget P22.1 billion as national governments counterpart funding for various infrastruc-ture and other capital outlay support of the DWPH, DA, and Department of Transportation and Communi-cations (DoTC) for PPP as well as for the rehabilitation and maintenance of regional hospitals of DOH and the construction of school buildings of DepEd.

Current Operating Expenditures (COE) has been increased but with less magnitude by 7 percent to P1.464 trillion from the previous years P1.368 trillion. In particular, Maintenance and Other Operating Expenditures (MOOE) has increased by 24 percent to about P268 billion in 2012, primarily for the expansion of operating programs for social and

economic services. Personal Services has reportedly increased by almost 10 percent to about P593 billion. This is supposed to support the final tranche of the Salary Standardization Law III and the requirements for new teachers and uniformed personnel, and other civil servants.

Meanwhile, Interest Payments allocation has decreased by almost 7 percent to P333.1 billion.

In addition of the total Personal Services, P53.6 billion is included to provide for the pension requirements of the military, uniformed and civilian personnel which are indexed by law to current base pay and salaries.

Notably, the Presidents budget message also indicated that support for GOCCs in the form of Subsidy (under COE) and Equity (under CO) increased substantially by 85.9 percent it increased to P18.2 billion and by 106.8 percent to P2.1


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the case of taxes paid that should be refunded. Hence, embedded in its revenue program is the effort to convert P10.0 billion worth of tax refunds, both current and outstanding since 2001, from tax credit certificates into cash in the coming year. The President, in his budget message says that of these tax credits, P9.0 billion is due for input value-added tax (VAT), mostly for exports. Fairness means giving back to taxpayers promptly what are due to them.

There is also the aim to reduce the share of the Debt Burden on the National Budget, with the allocation for this Debt Burden lessened by 3.0 percentage points to 19.6 percent or P356.1 billion from 22.6 percent or P372.1 billion.

Then of course there is governments counterpart in PPPs, including the employment of Multi-Year Obligational Authorities to encourage private participation in the construction, operation and maintenance of basic government infrastructures.

Finally, a notable scheme is that in the 2012 budgets design, there is the consideration to deepen national-local partnerships in implementing social interventions. Says the President in his budget message: We have been encouraging co-financing schemes between national government agencies and local government units (LGUs) in the implementation of crucial programs and projects, such as the construction of school houses... and health care centers...

Inclusive and Sustained Growth?

To reaffirm governments focal concerns in achieving its Social Contract with the Filipino people, the President issued on 13 May 2011, Executive Order (EO) No. 43 that defines five areas of priority of the so-called Social Contract. Accordingly, Cabinet was organized into five Clusters in line with these priorities:12

1. Transparent, accountable and participatory governance;

2. Poverty reduction and empowerment of the poor and vulnerable;

3. Rapid, inclusive and sustained economic growth:

4. Just and lasting peace and the rule of law; and,

5. Integrity of the environment and climate change adaptation and mitigation.

Put even more parsimoniously, the development rationale behind the budget is to fight corruption and pursue good governance, poverty reduction, and employment generation.

In view of the concern for financing, as suggested above, what is the governments approach to ensuring that there are monies for the 2012 budget scheme?

Whats the Financing Plan?

The Presidents instruction to the Department of Finance (DOF) is reportedly to increase revenues without raising the tax burden of our people. This Malacaang posits to do by introducing more collection efficiency measures.

In particular, to sustain the total projected disbursements of P1.8 trillion for 2012, the DOF has set its sights to increasing

revenues by 11.1 percent to P1.569 trillion from its current years target of P1.411 trillion.

Moreover, Malacaang recognizes the need to be fiscally

responsible and to level the playing

field in


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Fighting Corruption for Good Governance. As mentioned at the onset, good governance and anti-corruption activities have been designed or programmed into the budget. In the budget process itself, one expression of this has been the removal or discouragement of lump-sum budgeting. Lump sum bud-geting delays the implementation of programs and projects, especially critical ones...[and] masks the lack of master plans in core undertakings, the weak planning capacities and poor monitoring and evaluation systems in the bureaucracy. Moreover, Lump-sum budgeting has also encouraged political intervention given the lack of firm criteria or priorities, allow-ing anomalies in the use of public fundssuch as the Fertilizer Fund Scamto flourish, argues the President.13

been budgeted with P740 million, P500 million of which will go to an On-Line X-ray Imaging System and a Petroleum Inventory System.

The budget mandates the public disclosure of budget information through the internet as all agencies are required to post a Transparency Seal on their websites, which link to important information on governance including annual reports for the last three years; approved budgets and their correspond-ing targets; major programs and projects, and their implementation status, and beneficiaries; contracts awarded and names of suppliers, among others.

Pursue Poverty Reduction in the Context of Good Governance. The Zero-Based Budgeting approach, also used last year, makes government spending more focused and expands the Pantawid Pamilyang Pilipino

Program (4Ps) the Aquino administrations central poverty reduction agenda, which claims to have already served at least 2.3 million households. Employing the National Household Targeting System (NHTS) to more accurately determine and locate beneficiaries, the 4Ps is being expanded to reach key sectors like our farmers, fishers, and indigents.

These concerns are set within the framework of the Millennium Development Goals (MDGs), that commits government to reduce poverty from 26.5 percent in 2009 to 16.6 percent by the end of 2015. Hence, for 2012, 20.3 percent of the total budget, or P368.8 billion, is set towards direct poverty reduction, the biggest among the key areas of expenditure and 15.8 percent higher than its 2011 level at P318.5 billion.

The 4Ps, with a P39.5-billion budget, should cover 3 million households across 80 provinces, 138 cities and 1,496 municipalities in the 17 regions. This means an P18.3-billion increase over its 2011 budget of P21.2 billion.

Government is also maintaining its Kapit-Bisig Laban sa Kahirapan-Comprehensive and Integrated Delivery of Social Services (KALAHI-CIDSS), a top-to-bottom, people-powered development approach wherein communities participate in the design and implementation of pro-poor activities in their respective areas. Since its launch in 2003, the project has already covered 4,583 barangays in 200 municipalities. Next year, with its provision of P1.3 billion, 3,404 more barangays are expected to be given assistance.

Underpinning all this of course is the view that general budget allocations on health and education are human resource investments that are ultimately aimed at poverty reduction by increasing the capabilities and employability of people.

More pointedly, for 2012, there is a P29-billion allocation for various initiatives to improve the state of governance in the country a hefty 54 percent increase over a comparable allocation in 2011.

Some of these initiatives are: Aiming at the closure of large-scale and notorious cases of corruption that have been left unresolved, the budget of the Sandiganbayan has been increased to P357 million, with P254.0 million of this is set aside to help the primary graft court to fast track the disposition of 3,546 pending cases of corruption.

Information and communications technology (ICT) is considered a vital tool in open governance, hence, P2.9 billion is allotted to support major ICT projects that promote transparency and accountability in government operations and more responsive front line services. This effort includes a P978 million budget for the GIFMIS a project that seeks to improve the link between public sec-tor resource allocation and expenditure management.

To reduce customs fraud and smuggling and increase revenue collections, the Bureau of Customs (BOC) has


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In Conclusion: Some Fine Tuning and the Need for Revenue Generation

Key concerns raised with regard to the 2012 national budget can be summed up in three themes.14

First, there is, as already pointed out, the debt burden. The slight decrease in the alloca-tion for debt servicing next year the P738.6 billion allocation for principal and interest payment is rather misleading. This is still more than twice than P309 billion allocation for education and 15 times larger than the P49.9 billion allotment for health.

Then there is of course the underinvestment in the people their education and health. The budget for state universities and colleges (SUCs) for instance was reduced by P146.6 million, with 51 SUCs suffering cuts in their budget. Meanwhile, the allocation for public hospitals in the country decreased by around P1.1 billion15 and, as mentioned earlier, there has been a general complaint on the decrease in allotment for health.

Third, and perhaps most crucial of all from an economic managers perspective, is the need for revenue generation. Needless to say, the ability of the government to achieve its revenue goals will impact significantly on the budget plan of government. As government is now wont to say, Walang mahirap, kung walang corrupt [There will be no poverty if there is no corruption]; in this case, there will be nothing to spend without those revenues.

For now, the budget process for 2012 is a done deal. We can only expect so much leeway in the allocation of the set national budget. For 2013, the best thing to do is to look at the challenge of revenue generation as a central concern. After all, government can provide so much for so many with but a limited pie.

Revenue generation should be a central concern of this regime. Three approaches must be considered in this regard attracting more foreign investments, improving on local government expenditure and revenue generating schemes, and weeding out corruption in the Bureau of Internal Revenue (BIR), Bureau of Customs (BOC), Philippine Amusement and Gaming Corporation (PAGCOR), Philippine Charity Sweepstakes Office (PCSO), Land Transportation Office (LTO), Ninoy Aquino International Airport Authority (NAIAA), Duty Free Philippines, Philippine Ports Authority (PPA), and other revenue-generating agencies under the different departments of the Executive Branch. All these opportunities must be tapped and maximized to push bold developmental reforms under a regime of good governance.

These should be among the key challenges and opportunities to a truly sustained and inclusive Philippine development plan with a balanced and realistic budget.

Endnotes:

1 Mendez, C. CJ trial going over P10-M budget, The Philippine Star, 6 February 2012, http://www.philstar.com/Article.aspx?articleId=774832&publicationSubCategoryId=63

2 Chua, R. and Cruz, RG. Senate, House ratify 2012 budget, ABS-CBN News, 29 November 2011, http://www.abs-cbnnews.com/nation/11/29/11/senate-house-ratify-2012-budget

3 Ibid.

4 Ibid.

5 Sy, M. Senate OKs 2012 budget, The Philippine Star, 23 November 2011, http://www.philstar.com/Article.aspx?articleId=751134&publicationSubCategoryId=

6 Ibid. Chua, R. and Cruz.

7 Ibid, Sy.

8 Office of the President (OP). Tungo sa paggugol na matuwid: The Presidents Budget Message, 2012, http://www.gov.ph/2011/07/26/president-aquinos-2012-budget-message/; House okays P1.8T proposed budget for 2012, Philstar.com, September 17, 2011, http://www.philstar.com/article.aspx?articleid=728179&publicationsubcategoryid=200

9 Ibid.

10 Ibid.

11 Ibid.

12 Ibid.

13 Ibid. OP.

14 Tucay, M. 2012 National Budget Deceptive, Anti-Development-IBON, Philippine Collegian, 23 August 2011, http://www.philippinecollegian.org/?p=2152.

15 Ibid.

Documents

The 2012 National Budget