Public Finance

 Refers to the income and outgo of the

governments in the pursuit of national objectives.
 It involves the inflow of financial resources in the
form of taxes and other revenues, and the
outflow of such resources in the form of
expenditure to finance goods and services.
 Formulation of fiscal
Public Finance Cycle policy
A process

Generation of revenue
Accountability from taxation and other
sources

Expenditure of
Public borrowings funds through the
national budget
Public Finance

The FORMULATION OF FISCAL POLICY lies at the dead

center of the democratic government.

-E. Pendleton Herring, 1938

Public Finance Cycle
1. Formulation of fiscal policy
FISCAL POLICY
 Fiscal policy refers to policies on taxation, and other revenue,
expenditure, and borrowings which is intended to promote
the stabilization and development of the economy.

 Now a days, “FISCAL AND MONETARY POLICY” is used as

a single concept though it has a different aspect of economic
policy but have related impact.
FISCAL POLICY
 Fiscal and monetary policy have been crafted in response to
requirements of stabilization, and subsequently, and in
accordance with the structural adjustment programs (SAPs)
negotiated by the International Monetary Fund (IMF).
 On the other hand, monetary policy is generally understood
to be that which influences the level of money supply in the
economy.
FISCAL POLICY
 The formulation of fiscal and monetary policy made a huge
part of economic and social development but not limited to
socio-cultural and political.
 Things to ponder:
i. As a PA scholars how we are going to assist the
government in reinventing fiscal and monetary policies to
cope with the drive towards social and economic
transformation?
Public Finance Cycle
2. Generation of revenue from taxation and
other sources
Generation of Revenue
 Revenues refer to all cash inflows of the national government
treasury which are collected to support government
expenditures but do not increase the liability of the NG.
 A tax is a compulsory contribution mandated by law and
exacted by the government for a public purpose. The major
tax collecting agencies of the national government are the
Bureau of Internal Revenue and the Bureau of Customs.
Generation of Revenue
Non-tax revenues refer to all other
impositions or collections of the
government in exchange for
services rendered, assets conveyed,
penalties imposed, etc.
Generation of Revenue
 Taxes on income and profits are imposed on all taxable
income earned or received by a taxpayer, whether as an
individual, as a partnership, or as a corporation, during a
particular period of time, usually lasting one year. Taxes on
domestic goods and services are imposed on the use or sale
of locally manufactured goods as well as local services availed
of within the domestic territory.
Generation of Revenue
 Taxes on international trade and transactions include import and
customs duties, and other international trade-related collections
of the government. Taxes on property are imposed on the
ownership of wealth or immovable property levied at regular
intervals and on the transfer of real or personal property.

 Other taxes primarily include collections from the motor vehicles

tax, immigration tax and forest charges.
MAJOR CLASSES OF TAX
Taxes on
REVENUES Domestic
Goods and Taxes on
Taxes Services
International
on Property Trade and
Transactions

Taxes on
Other
Income and Revenue
Sources
Profits
Generation of Revenue
 What are the government's current efforts to improve
tax collections?
i. The national government has continuously expended an all-
out effort to strengthen its revenue-generating capability
through legislative and administrative reforms.
ii. Recently, the government came up with a comprehensive
measure to overhaul the tax system to bring in badly needed
revenues for the government. Called the Comprehensive Tax
Reform Program (CTRP), the new tax measure has three
principal components, namely, a) income tax reform; b)
excise tax reform; and, c) fiscal incentives reform.
Generation of Revenue
 What are the government's current efforts to
improve tax collections?

iii. The CTRP aims to widen the tax base, simplify the
tax structure to minimize leakages, undeclared
revenues, overstated deductions and corruption to
make the system more elastic and easier to
administer.
Public Finance Cycle
3. Expenditure of Funds through the
National Budget
Expenditure of Funds - National Budget
 A budget is a plan of financial operation
composed of estimate or proposed
expenditure for a given period or purposed
and the proposed means of financing them.
 The principal activities of government are
normally controlled by a system of budget.
 Expenditure of Funds - National Budget

PHASES ON
BUDGETARY
PROCEDURES
Budgetary Procedures:
1. Preparation and Presentation
• This phase covers the estimation, determination and
translation of government revenues, priorities and activities.
• Government entities prepare their budgets for the year to be
submitted to the Department of Budget and Management
(DBM) for review.
• The DBM then consolidate all budgets to form a government
wide budgeting estimate,The “National Budget”.
• This shall be submitted to the president for final approval.
Budgetary Procedures:

2. Budget Authorization and Legislation

• Involves the submission of the national
government budget to the legislative body for
review, deliberation, and formulation of an
appropriation bill to be forwarded to the
president for approval and signature.
Budgetary Procedures:
3. Budget Execution and Operation
• Covers the implementation of the various
operational aspect of the budget.
• Such as release of allotments to the various
agencies, the continuing review of the fiscal
position, and other related activities.
Budgetary Procedures:
4. Budget Accountability
• Involves the evaluation of expenditures and
performance against the predetermined budget.
• Obligation incurred, personnel used and work
accomplished are compared with the plans and
goals of various agencies submitted at the time
their respective budget is prepared.
Budgetary Procedures:
4. Budget Accountability
• Accomplished by the heads of the various
agencies who review the performance of
their respective agency;
• And the Commission on Audit (COA) who
examines the operations of the agency.
2011 National Budget
the Development Budget Coordinating Committee (DBCC’s)
recommendation of the budget for 2011 which has gone down
from what was originally proposed which was P1.757 trillion
then; President Noynoy Aquino has approved a budget
of P1.645 trillion for 2011. 6.7 percent higher than 2010
Budget.
 The premised on a revenue assumption of 15.6 percent or in
absolute terms, P1.410 trillion
(Reference : http://www.dbm.gov.ph/dbm_publications)
2011 National Budget
 The Department of Education has been allocated P207.3
billion; Public Works and Highways, P110.6 billion; and
National Defense has been allocated P104.7 billion. Interior
and Local Government get P88.2 billion; Agriculture, P37.7
billion; Social Welfare and Development, P34.3 billion;
Health, P33.3 billion; Transportation and Communications,
P32.3 billion; Agrarian Reform, P16.7 billion; and Justice,
P14.3 billion.
 (Reference : http://www.dbm.gov.ph/dbm_publications)
 400

200

Department of…
Public Works…
National Defense
Interior and…
Agriculture
Social Welfare…
Health
Transportation…
Source:
2011 National Budget Allocation

Agrarian Reform

Justice
http://www.dbm.gov.ph/dbm_publications
2011 National Budget
 Presidential Decree No. 1177 (PD 1177) which prescribes
the budget process and provides for the automatic
appropriation of, among other things, the debt service. This
decree, promulgated by the late President Ferdinand E.
Marcos during his autocratic regime and continue to dictates
fiscal processes even under the present democratic system.
2011 National Budget
 Pnoy Administration continue to adopt measures to further bring down
the expenditure as well as the deficit level.
i. tighter allocations for government-owned and controlled corporations;
ii. limits in the increases for utility, communications and supply
expenditures;
iii. a ban on the construction of new office buildings except classrooms and
public health centers;
iv. a ban on the acquisition of motor vehicles;
v. a ban on new positions except those for teachers and uniformed and
medical personnel;
vi. and keeping contractual and casual employee levels unchanged from this
year.
2011 National Budget
 Government revenues are expected to reach P1.41
trillion , with P940 billion coming from the Bureau of
Internal Revenue (BIR), P320 billion from the Bureau of
Customs (BOC), P6 billion from privatization and P144
billion from other revenue-generating agencies. Deficit is
expected to reach P290 billion or 3.2 percent of GDP.
 Privatization
2011
BOC 320B
6B

Nat’l Budget
BIR 940B Others 144B
Expected
1.41 T

Approved Budget Expected Deficit 290B or

1.645T 3.2 GDP
Public Finance Cycle
4. Public Borrowings
Public Borrowings
 Borrowings refer to funds obtained from
repayable sources, such as loans secured by
the government from financial institutions
and other sources, both domestic and
foreign, to finance various government
projects and activities.
Public Borrowings
 The government borrows from any of the following reasons:
i. to finance national government deficits;
ii. to obtain foreign exchange;
iii. to secure financing at more favorable terms than the
opportunity cost of revenues;
iv. to take advantage of benefits attached to the funds, e.g.
technology; and,
v. to balance the timing of resources with the project
gestation and repayment of benefit
Public Borrowings
 Is the debt crises over?
 Government claims that debt crises is already over in the
Philippines.
 Cited the following indicators;
i. Total debt stock as a percentage of GNP and as a percentage of
exports has been reduce.
ii. The share of concessional debt to total debt stock had increased
iii. Foreign exchange reserves have reached a comfortable level.
Public Borrowings
 Is the debt crises over?
But as to the point of economist, they noted
that it maybe true that debt as a foreign
exchange problem is becoming manageable.
Debt issue remains a fiscal policy problem, in
view of the fact that debt payment continue to
be a terrible burden of the budget.
Public Borrowings
 Right now, Japan is our No. 1 Bilateral creditor.
Nearly 70% of the total official debt is owned to
Japan.
 The country debt to Japan is growing rapidly now
so much because of new loans but because of
revaluation.
Public Borrowings
 Public debt includes obligations incurred by the
government and all its branches, agencies and
instrumentalities, including those of government
monetary institutions.
 It consists of all claims against the government which
may be payable in goods and services, but usually in cash,
to foreign governments or individuals or to persons
natural or juridical.
Public Borrowings
 Obligations maybe:
i. 1) purely financial, i.e., loans or advances extended to the
Philippine government, its branches, agencies and
instrumentalities;
ii. 2) services rendered or goods delivered to the government
for which certificates, notes or other evidence of
indebtedness have been issued to the creditor; and
iii. 3) for external debt such as claims of foreign entities,
securities held in trust, nonbonded debts and obligations of
the Philippine government to the International Monetary
Fund (IMF).
Public Finance Cycle
5. Accountability
Accountability
 Accountability is defined as a condition in which individuals who
exercise power are constrained by external means and by internal
norms. It refers to the institution of checks and balances in an
organization thru which an administrator accounts for his stewardship of
resources or authority.
 The political-administrative continuum means that elected officials are
politically accountable to the electorate or their constituencies who
voted them to their positions. These elected officials are held responsible
thru regular elections and other means, i.e. recall and referendum.
Appointive public officials answer to the people thru the elected officials
who appointed them and directly to the public whom they serve.
Accountability
 Types of Accountability
i. Individual accountability – public employees are
answerable for the responsible, efficient and
effective performance of their tasks.
ii. Accountability of administrators – for their
stewardship of the administrative authority,
resources and information placed at their disposal as
leaders of public organization.
Accountability
 Types of Accountability
iii. Political accountability – of institutions that must answer for
their organizational mandate and functions, particularly as
they form part of the incumbent government strategy for
national development.
iv. Accountability of national leaders – elected national
leadership must answer for the performance in pursuing their
programs of government and their use of national resources,
given the authority, power and resources vested in them by
their constituency
Accountability
 Philippine Administrative Structure
i. Constitutional bodies: 1) constitutional commissions - CSC,
COA, COMELEC; 2) constitutionally created/mandated
special bodies – CHR and Ombudsman
ii. Executive Departments
iii. GOCCs (wholly-owned or at least 51%)
iv. Chartered institutions (created by law)
v. LGUs
 References:
PA in the Philippines: A Reader 2nd Edition (UPNCPAG)
Philippine Administrative System (PAS) : Ma. Concepcion P. Alfiler, UP Open U
 Advance Accounting – Government Accounting System for National Government
Agencies: 2011 Edition By P. Guerrero
http://www.nscb.gov.ph/secstat/d_finance.asp
http://www.dbm.gov.ph/dbm_publications