A Process on Public Finance Cycle

Public FinanceRefers 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.

Public Finance Cycle Formulation of

fiscal policy

Generation of revenue from

taxation and other sources

Expenditure of funds through the national

budget

Public borrowings

Accountability

A process

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 POLICYFiscal 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 POLICYFiscal 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 POLICYThe 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 RevenueRevenues 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 RevenueNon-tax revenues refer to all other impositions or collections of the government in exchange for services rendered, assets conveyed, penalties imposed, etc.

Generation of RevenueTaxes 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 RevenueTaxes 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.

Revenue

Taxes on Income

and Profits

Taxeson

Property

Taxes on Domestic

Goods and

ServicesTaxes on

International Trade and

Transactions

Other Sources

MAJOR CLASSES OF TAX REVENUES

Generation of RevenueWhat 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 RevenueWhat 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

Preparation and

Presentation

Budget Authorizatio

n

Budget Execution and

operation

Budget Accountabilit

y

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)

0

100

200

300

2011 National Budget Allocation

Source: http://www.dbm.gov.ph/dbm_publications

2011 National BudgetPresidential 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 BudgetPnoy 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 BudgetGovernment 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.

Expected 1.41 T

BIR 940B

BOC 320B

Privatization 6B

Others 144B

Approved Budget 1.645T

Expected Deficit 290B or 3.2 GDP

2011 Nat’l Budget

Public Finance Cycle

4. Public Borrowings

Public BorrowingsBorrowings 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 BorrowingsThe 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 BorrowingsIs 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 increasediii. Foreign exchange reserves have reached a

comfortable level.

Public BorrowingsIs 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 BorrowingsRight 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 BorrowingsPublic 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 BorrowingsObligations 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

AccountabilityAccountability 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.

AccountabilityTypes 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.

AccountabilityTypes 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

AccountabilityPhilippine Administrative Structure

i. Constitutional bodies: 1) constitutional commissions - CSC, COA, COMELEC; 2) constitutionally created/mandated special bodies – CHR and Ombudsman

ii. Executive Departmentsiii. GOCCs (wholly-owned or at least 51%)iv. Chartered institutions (created by law)v. LGUs

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. Guerrerohttp://www.nscb.gov.ph/secstat/d_finance.asphttp://www.dbm.gov.ph/dbm_publications

References:

A Process on Public Finance Cycle

Reported by: Sherwin M. ArcipeLNU Dagupan City

Prof. Jo B. Bitonio, DPA