Scrutinizing the spending plans of the national government is one of the principal activities of a legislature on the performance of its Constitutional role as the keeper of the purse, and in order to be able to do a good job it wants as much time as possible for review of the annual national budget. That is why Congress expects Malacañang to submit the proposed national budget as early as possible during the year preceding the twelve-month period covered by the budget. Before mid-year is usually the time when Malacañang sends the proposed national budget to Congress.
The administration of President Rodrigo Duterte has just transmitted to Congress its national-budget proposal for 2018. The government is proposing expenditures totaling P3.84 trillion next year. That figure represents a 14.6-percent increase on this year’s national budget.
Economists will argue about its economic development aspects—which parts of the national economy should be accorded priority in the allocation of funds—but a budget is essentially about money. More precisely, it is about adequacy of money.
The revenues projected by the makers of most national budgets either match the projected expenditures or fall short thereof. For 2018 the Department of Budget and Management, which prepares the national budget, projects a deficit of P532 billion. This is the amount by which the P3.44 trillion of expenditures are expected to exceed the P2.91 trillion of revenues. Three of the four principal sources of government revenues—Bureau of Internal Revenue, Bureau of Customs and Bureau of the Treasury—are projected to produce P2.0 trillion, P507 billion and P55 billion, respectively, for the national coffers in 2018. Pagcor (Philippine Amusement and Gaming Corporation) is another major source of government revenue.
Fiscal ratios are among the yardsticks that analysts look for when assessing the economic health of a country. Two of the most important fiscal ratios are the ratio of the budget deficit to GDP (gross domestic product) and the ratio of total government revenues to GDP. A budget deficit-to-GDP ratio of 3.0 percent is acceptable, and the fiscal authorities of this country have sought to keep the ratio at this level.
Projected 2018 total revenues will be 15.3 percent of GDP. For the needed additional revenue the Duterte administration is looking to the Comprehensive Tax Reform Package, which has been transmitted to the Senate by the House of Representatives. Tax measures must originate from the House of Representatives.
The projected budget deficit will have to be financed. The key policy decision that has to be made with regard to the budget deficit’s financing is whether it should be done entirely with domestic resources or whether external financing should be availed of on a partial basis. Both approaches to deficit financing involve a risk. By relying entirely on domestic resources to finance a budget deficit, the fiscal authorities risk crowding out private-sector borrowers from the financial markets, and by engaging in external borrowing to finance a budget deficit, a country runs the risk of over borrowing and thereby endangering the stability of its currency.
The government has for some time adhered to an 80:20 formula—80 percent domestic resources and 20 percent external resources—for deficit financing. 80-20 is a sound formula. The P532 billion deficit in the 2018 national budget will be financed on an 80-20 basis.
DBM can attempt to explain the whopping (P490 billion) increase in the 2018 budget by pointing to the substantial growth in the national population and the persistent shortfall in government spending on physical and social infrastructure. But legitimate and necessary questions that were directed at the budget makers in past years are again being directed at them.
How much fat is embedded in the 2018 budget? Have the underspent Aquino-administration appropriations been incorporated into it? Should credence be accorded to the Secretary of Budget and Management’s affirmation that the 2018 budget does not embody ‘pork’ (allocations under the Constitutionally prohibited Priority Development Assistance Fund)? And why must there be several humongous and non-auditable funds at the disposal of the President of the Philippines?
From the purely financial standpoint, the success of a budgetary exercise will depend on the availability of funds sufficient to cover the budgeted expenditures—i.e., on whether the budget will prove to be financially balanced. Borrowing, with all of its negative consequences, will have to be resorted to if it proves to be otherwise.
The CTRP, which is about to face Senate scrutiny, is banking on a net positive change (increases minus decreases) of more than P200 billion in 2018 government revenue. On the correctness of this projection will the outturn of next year’s national budget largely depend.
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