FISCAL POLICY

PROF. ISIDRO APOLLO G. VALENSOY, JR.

 Chapter Objectives
• What is fiscal policy in relation to public
finance?
• Why is fiscal policy important even in a
market-oriented economy?
• What are the fiscal tools available to the
government?
• How do these tools promote social and
economic welfare?
 Public Finance
• It pertains to the activities of the government
regarding Taxation, Expenditures, and
Borrowings.
• It is primarily the economics of the public
sector.
• It deals with the efficient use and fair
distribution of public resources to achieve
maximum and optimum benefits for all.
 Market Limitations…
• Would there be fair distribution of resources if
only a few has control of these resources?
• Would those individuals with low incomes
avail of the economy’s produce?
• Would the producers of goods provide for
those who could not afford to pay for their
product’s price?
 The need for fiscal tools…
• Certain goods could not be efficiently allocated
through the market – these are social goods (use
of Sinsuat Avenue; anti-dengue project in a
barangay)
• Ownership of economic resources is unevenly
distributed. This could be due to some unjust
social and economic structures existing.
• Imbalances in the supply and demand forces may
create unemployment and inflation, therefore,
causing economic instability.
 Fiscal Policy
• “Fiscus” – “money bag” or purse
• Refers to public treasury or revenues
• Revenues are collected to be spent for
education, health, public works, and more…
• Public funds (derived from revenues) for
education, health and others are allocated
through the National Budget system.
• Programs and projects are funded on the basis
of economic and social priorities.
• Fiscal Policy refers to the revenue and
expenditure measures of the public budget.
• The citizenry’s interests are ought to be
prioritized and promoted first and this should
be reflected in the national budget.
 Fiscal Policy Objectives
• Provision for social goods;
• Equitable distribution of wealth and income;
• Maintain high employment;
• Ensure price stability; and
• Satisfactory rate of economic growth.
 Instruments of Fiscal Policy
• Taxation
• Public Expenditures
• Borrowings
 Public Expenditures
• Personal Services
• Maintenance and Other Operating Expenses
• Capital Outlay

• National Budget as “mirror” of the major goals

of the government
• Social, economic, defense, general public
administration, and debt service.
How should public expenditures be
evaluated?

Economic
Profitabilty

Improved
Quality of
Life for all
Social
Impact
 Taxation
• It is the MEANS of raising/generating funds for
the operations of the government.
• Tax, therefore, is the lifeblood of the
government. It is the main source of fund
used to finance public services on health,
education, housing, and others. It is an
enforced contribution levied on persons and
properties within the state’s jurisdiction.
 What is a good tax system?
• Adam Smith said:
• “The time of payment, the manner of
payment, the quantity to be paid ought all to
be clear and plain to the contributor, and to
every other person…Every tax ought to be
levied, at the time or in the manner, in which
it is most likely to be convenient for the
contributor to pay it.”
 Requirements…
• The distribution of the tax burden should be
EQUITABLE and FAIR. (theoretical justice)
• Taxes should not ruin an efficient market system.
• Taxes should serve as tools in facilitating
economic stability and economic growth.
• Tax administration should be efficient. It must be
clear and understandable to all. (fiscal adequacy)
• The cost of tax administration and its compliance
must be economical. (administrative feasibility)
 Equitable Taxation
• BENEFITS RECEIVED Principle
• Only those who receive benefits should pay.

• ABILITY-TO-PAY Principle
• Payment should be based according to ability
to pay (income/wealth)

• Which one is more accurate to measure?

 TAX STRUCTURES
• Tax Rate – determines how much tax is paid
• Tax Base – the amount of income that is taxed

• PROGRESSIVE – TR rises with TB

• REGRESSIVE – TR decreases as TB increases
• PROPORTIONAL or UNIFORM – TR is constant
regardless of TB
 FORMS OF TAXES
• As to who bears the burden
• As to product
• As to purpose
• As to the authority imposing the tax
• As to graduation or rate
 As to who bears the burden
DIRECT TAX INDIRECT TAX
Income Taxes Amusement tax
(corporations, individuals, Customs duties
fines and penalties) Privilege taxes
Residence tax Sales Tax
Immigration Tax Value-added tax
Real Property Tax Tariffs
Estate, gift, and
inheritance tax
 As to Product
SPECIFIC AD VALOREM
Determined by some value Determined according to
of measurement. the value of the item that
is taxed.

Examples are excise taxes Examples are real property

on distilled spirits, wines, tax, sales tax, and value
films. added tax (VAT)
 As to Purpose
GENERAL or SPECIAL or
FISCAL REVENUE REGULATORY
The only purpose is to The intent is to regulate or
generate revenue that will control the sale of the
be used to finance gov’t good.
operations.

Examples are income, vat, Examples are customs

and business tax duties
 As to Imposing Authority
NATIONAL TAX MUNICIPAL TAX
Imposed by the National Imposed by local
Government. government units (LGUs).

Examples are customs Examples are real property

duties, national internal tax, professional tax.
revenue, and other taxes
created by special laws.
 As to Graduation
• Proportional
• Progressive
• Regressive
 Who are exempted from Taxation?
• Cooperatives
• Cottage industries
• Infant industries
• Rural Banks
• Corporations or associations organized and operated solely for religious,
charitable, scientific, athletic, or cultural purposes.
• Benefits received by members from GSIS
• SSS Benefits, retirement gratuities, pensions received by retirees
• Prizes received by winners from the PCSO
• Benefits received by war veterans
• Donations to social welfare, cultural, and charitable institutions
FOREIGN BORROWINGS
Economic Indicators
GDP AT CONSTANT PRICES
Philippines Population

The total population in Philippines was last recorded at 95.8 million

people in 2012 from 27.1 million in 1960, changing 254 percent during
the last 50 years. Population in Philippines is reported by the Bangko
Sentral ng Pilipinas. Philippines Population averaged 58.39 Million
from 1960 until 2012, reaching an all time high of 95.80 Million in
December of 2012 and a record low of 27.06 Million in December of
1960.

The population of Philippines represents 1.37 percent of the world´s

total population which arguably means that one person in every 74
people on the planet is a resident of Philippines.
This page contains - Philippines Population - actual values, historical data, forecast, chart, statistics,
economic calendar and news. 2013-09-22.
Philippines Inflation Rate

The inflation rate in Philippines was recorded at 2.10 percent in

August of 2013. Inflation Rate in Philippines is reported by the
National Statistics Office (NSO). Philippines Inflation Rate averaged
8.97 Percent from 1958 until 2013, reaching an all time high of 62.80
Percent in September of 1984 and a record low of -2.10 Percent in
January of 1959.

In Philippines, the most important categories in the Consumer Price

Index are: food and non-alcoholic beverages (39 percent of total
weight); housing, water, electricity, gas and other fuels (22 percent)
and transport (8 percent). The index also includes health (3 percent),
education (3 percent), clothing and footwear (3 percent),
communication (2 percent) and recreation and culture (2 percent).
Alcoholic beverages, tobacco, furnishing, household equipment,
restaurants and other goods and services account for the remaining
15 percent.

This page contains Philippines Inflation Rate - actual values, historical data, forecast, chart, statistics,
economic calendar and news. 2013-09-22