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Public Finance

Date post: 04-Nov-2014
Author: jo-balucanag-bitonio
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A Process on Public Finance Cycle
  • 1. 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.

2. Public FinanceCycle Formulation of fiscal policyA process Generation of revenue Accountabilityfrom taxation and other sourcesExpenditure ofPublicfunds throughborrowings the national budget 3. Public FinanceThe FORMULATION OF FISCAL POLICY lies at the dead center of the democratic government. -E. Pendleton Herring, 1938 4. Public Finance Cycle1. Formulation of fiscal policy 5. 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. 6. FISCAL POLICY Fiscal and monetary policy have been crafted inresponse to requirements of stabilization, andsubsequently, and in accordance with thestructural adjustment programs (SAPs)negotiated by the International Monetary Fund(IMF). On the other hand, monetary policy is generallyunderstood to be that which influences the levelof money supply in the economy. 7. FISCAL POLICY The formulation of fiscal and monetary policymade a huge part of economic and socialdevelopment but not limited to socio-cultural andpolitical. 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? 8. Public Finance Cycle2. Generation of revenue from taxationand other sources 9. Generation of Revenue Revenues refer to all cash inflows of the nationalgovernment treasury which are collected tosupport government expenditures but do notincrease the liability of the NG. A tax is a compulsory contribution mandated bylaw and exacted by the government for a publicpurpose. The major tax collecting agencies of thenational government are the Bureau of InternalRevenue and the Bureau of Customs. 10. Generation of RevenueNon-tax revenues refer to all otherimpositions or collections of the government in exchange for services rendered, assets conveyed, penalties imposed, etc. 11. 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. 12. 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. 13. MAJOR CLASSES OFTaxes onTAX REVENUES Domestic Goods and Taxes on TaxesServices International onTrade andProperty Transactions Taxes on OtherIncome RevenueSourcesand Profits 14. Generation of Revenue What are the governments current efforts to improve tax collections?i. The national government has continuouslyexpended an all-out effort to strengthen itsrevenue-generating capability through legislativeand administrative reforms.ii.Recently, the government came up with acomprehensive measure to overhaul the taxsystem to bring in badly needed revenues for thegovernment. Called the Comprehensive TaxReform Program (CTRP), the new tax measurehas three principal components, namely, a)income tax reform; b) excise tax reform; and, c) 15. Generation of Revenue What are the governments current efforts to improve tax collections? iii. The CTRP aims to widen the tax base,simplify the tax structure to minimizeleakages,undeclared revenues,overstated deductions and corruption tomake the system more elastic and easierto administer. 16. Public Finance Cycle3. Expenditure of Funds throughthe National Budget 17. Expenditure of Funds - NationalBudget A budget is a plan of financialoperation composed of estimate orproposed expenditure for a givenperiod or purposed and theproposed means of financing them. The principal activitiesofgovernment are normally controlled 18. Expenditure of Funds - NationalBudgetPHASES ONBUDGETARYPROCEDURES 19. Budgetary Procedures:1. Preparation and Presentation This phase covers the estimation, determination andtranslation of government revenues, priorities and activities. Government entities prepare their budgets for the year to besubmitted to the Department of Budget and Management(DBM) for review. The DBM then consolidate all budgets to form agovernment wide budgeting estimate, The NationalBudget. This shall be submitted to the president for final approval. 20. Budgetary Procedures:2. Budget Authorization andLegislation Involves the submission of the nationalgovernment budget to the legislative bodyfor review, deliberation, and formulation ofan appropriation bill to be forwarded to thepresident for approval and signature. 21. Budgetary Procedures:3. Budget Execution and Operation Covers the implementation of the variousoperational aspect of the budget. Such as release of allotments to thevarious agencies, the continuing review ofthe fiscal position, and other relatedactivities. 22. Budgetary Procedures:4. Budget Accountability Involves the evaluation of expenditures andperformance against the predeterminedbudget. Obligation incurred, personnel used and workaccomplished are compared with the plansand goals of various agencies submitted atthe time their respective budget is prepared. 23. Budgetary Procedures:4. Budget Accountability Accomplished by the heads of thevarious agencies who review theperformance of their respective agency; And the Commission on Audit (COA)who examines the operations of theagency. 24. 2011 National Budget the Development Budget Coordinating Committee(DBCCs) recommendation of the budget for 2011which has gone down from what was originallyproposed which was P1.757 trillion then; PresidentNoynoy Aquino has approved a budget of P1.645trillion for 2011. 6.7 percent higher than 2010Budget. The premised on a revenue assumption of 15.6percent or in absolute terms, P1.410 trillion (Reference :http://www.dbm.gov.ph/dbm_publications) 25. 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) 26. 400 200 0Department ofPublic WorksAgriculture Social Welfare Health TransportatioAgrarian ReformSource: 2011 National Budget Allocation Justicehttp://www.dbm.gov.ph/dbm_publications 27. 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. 28. 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 29. 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. 30. Privatization 2011 Natl BOC 320B6B BudgetBIR 940B Others 144BExpected 1.41 T Approved Budget Expected Deficit 290B 1.645Tor 3.2 GDP 31. Public Finance Cycle4. Public Borrowings 32. 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. 33. 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 termsthan the opportunity cost of revenues; iv. to take advantage of benefits attached to thefunds, e.g. technology; and, v. to balance the timing of resources with the 34. Public Borrowings Is the debt crises over? Government claims that debt crises is already overin 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. 35. 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. 36. Public Borrowings Right now, Japan is our No. 1 Bilateralcreditor. Nearly 70% of the total officialdebt is owned to Japan. The country debt to Japan is growingrapidly now so much because of newloans but because of revaluation. 37. Public Borrowings Public debt includes obligations incurred bythe government and all its branches, agenciesand instrumentalities, including those ofgovernment monetary institutions. It consists of all claims against thegovernment which may be payable in goodsand services, but usually in cash, to foreigngovernments or individuals or to personsnatural or juridical. 38. 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; andiii. 3) for external debt such as claims of foreign entities, securities held in trust, nonbonded debts and obligations of the Philippine government to 39. Public Finance Cycle5. Accountability 40. Accountability Accountability is defined as a condition in which individualswho exercise power are constrained by external meansand by internal norms. It refers to the institution of checksand balances in an organization thru which anadministrator accounts for his stewardship of resources orauthority. The political-administrative continuum means that electedofficials are politically accountable to the electorate or theirconstituencies who voted them to their positions. Theseelected officials are held responsible thru regular electionsand other means, i.e. recall and referendum. Appointivepublic officials answer to the people thru the electedofficials who appointed them and directly to the public 41. 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 42. Accountability Types of Accountabilityiii. 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 43. Accountability Philippine Administrative Structurei. Constitutional bodies: 1) constitutional commissions - CSC, COA, COMELEC; 2) constitutionally created/mandated special bodies CHR and Ombudsmanii. Executive Departmentsiii. GOCCs (wholly-owned or at least 51%)iv. Chartered institutions (created by law)v. LGUs 44. 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 NationalGovernment Agencies: 2011 Edition By P. Guerrerohttp://www.nscb.gov.ph/secstat/d_finance.asphttp://www.dbm.gov.ph/dbm_publications 45. A Process on Public FinanceCycleReported by: Sherwin M. ArcipeLNU Dagupan City Prof. Jo B. Bitonio, DPA