PUBLIC FINANCE
Development of Public Finance: Issues and Problems
WEEK 5
Module 5 Development of Public Finance: Issues and Problems
At the end of this module, you are expected to:
1. To understand the Issues and Problems of public finance
2. To discuss the issues and problem that public finance have encounter
Fiscal Policy refers to the administration's resolutions regarding how much to tax and disburse.
Synopsis of the Nation’s Fiscal Policy
i. Marcos administration was the fundamental focal point on indirect tax collection and on
administration spending on financial services and infrastructure development.
ii. The first Aquino administration inherited a huge fiscal shortfall from the previous
administration but organized to lessen fiscal imbalance and enhance tax collection through the
introduction of the 1986 Tax Reform program.
iii. The Ramos administration encountered budget surpluses due to the massive sale of government
assets and virile foreign investment in the early years.
iv. The Arroyo administration, the Expanded Value Added Tax Law was established, national debt
to GDP ratio peaked, and underspending on public infrastructure and another capital expenditure
was noticed.
v. The Pnoy Aquino administration faced fiscal shortfall yet managed to raise up the country’s
GDP.
CURRENT ISSUES AND PROBLEMS
INEFFIECIENCY IN BUDET ALLOCATION
In the education sector, for example, the Millennium Development Goal (MDG) target of universal
primary education would require PHP 133 billion (USD 2.6 billion) in 2006. But the budget for
education in 2006 is PHP 119 billion (USD 2.3 billion), which means the supply difference in PHP
14 billion (USD 273 million). The picture for health financing is just as gloomy. The supply
difference is calculated at PHP 7.5 billion (USD 146 million). What is surprising about health
financing is that the donor community is contributing more to the health budget than the
Government itself. The table below shows that while available resources from the Government
amount to PHP 687.4 billion (USD 13.4 billion), the donor community is contributing PHP 783.7
billion (USD 15.3 billion).
Table 1. Financing for health related MDGs - Summary
Source: Department of Health
MDGS
Total cost Department ODA Budget gap
programs &
(PHP) of Health (PHP) (PHP)
projects funding
(PHP)
Reduce Child 1,469,938,544 370,544,000 3,500,000 1,095,894,544
Mortality
Improve 4,825,928,227 107,880,277 11,230,000 4,706,817,950
Maternal
Health
Combat HIV/ 2,692,233,557 208,976,667 768,978,810 1,714,278,080
AIDS,
Malaria &
Other
Diseases
HIV/AIDS 358,253,587 22,899,667 153,377,920 181,976,000
Malaria 1,727,102,970 19,200,000 354,400,890 1,353,502,080
Tuberculosis 606,877,000 166,877,000 261,200,000 178,800,000
GRAND 8,988,100,328 687,400,944 783,708,810 7,516,990,574
TOTAL
BUDGET DEFICIT
The Philippines’ fiscal balance hit back to a deficit in July, as revenue collections fell amid the
period. While consumption increased, the rise was not as aggressive as experts had hoped. The
Bureau of the Treasury said on Wednesday, August 26, that the budget gap reached P140.2 billion
in July, 86.2% higher than the P75.3-billion gap in the same month last year. This is a reversal
from the P1.8-billion surplus in June. From January to July, the budget deficit already reached
P700.6 billion, 494% higher than in the same period last year.
Administration yield fell 11.2% to P234.5 billion in July, as the administration gathered less during
the coronavirus crisis. On a year-to-date basis, total collections stood at P1.68 trillion, down by
6.8% from last year’s P1.8 trillion. On the consumption side, outlays for July rose by 10.4% to
P374.7 billion, driven mainly by the administration's emergency cash assistance program.
Aggregate outgo rose to P2.388 trillion, 23.78% higher than the January to July 2019 figure.
Dilapidated, outgoings were mainly driven by interest payments, which grew 16.5% in July,
largely due to interests paid in advance for issued global bonds. Actual spending from agencies
grew by only 9.3%. On a year-to-date basis, expenses increased by 23.78%In a nutshell, the
amount needed by the government to finance its budget needs has increased due to lower revenues.
But expenses in July were driven mainly by interest payments, and the so-called "productive"
spending by agencies did not increase much.
TAX COLLECTION
The government is bent on improving tax collection and rein in the budget deficit. the government
must address these concerns to make the economy stronger in the wake of the global financial
crisis. The citizenry and the business community to pay the appropriate taxes, thus enabling the
government to meet revenue collection targets. Otherwise, the Bureau of Internal Revenue (BIR)
will miss its P798.5 billion collection target this year. The tax collection is seriously affected by
the world economic downturn.
“The revenue collection efforts have been seriously impaired as the effects of the weaker global
economy which lowers the level of taxable economic transaction is among the possible
replacement show that the BIR collected only about P500 billion from January to September this
year, falling short of the target by P39.2 billion. Typhoons Ondoy and Pepeng, which devastated
Luzon, were a major factor cited as the cause for the losses revenue earners claimed in their
quarterly income tax returns. Both the BIR and the Department of Finance (DOF) are now in the
process of pinpointing “those changes in evaluating the performance of the BIR and possibly
asking the target revision depending on the situation on the ground.”
To improve tax collection and address the fiscal challenge, according to Deputy Presidential
Spokesperson Lorelie Fajardo, requires the serious implementation of anti-corruption laws. The
BIR’s RATE (Run After Tax Evaders), and the Bureau of Customs’ (BOC) RATS (Run After The
Smugglers) and RIPS (Revenue Integrity Protection Service), make up the three-pronged anti-
corruption drive of the Department of Finance (DOF) which continue to file complaints at the
Office of the Ombudsman against erring revenue officers. “The Ombudsman’s conviction rate is
high because the government is seriously going after tax offenders. In 2005, President Gloria
Macapagal-Arroyo signed and called for full implementation of Republic Act No. 9335 or the
Attrition Act of 2005 to improve the national tax collection performance through the creation of a
rewards and incentives system. (PNA)
PORK BARREL
Every single solon or government official connected to the latest pork barrel scam is trying to make
us (the public) believe that he or she has got nothing to do with it at all! This scandalous pork
barrel issue is history in the making. It is a problem and it is bigger than it seems. Imagine how
many senators, congressmen, and government agencies are allegedly involved in it? How can they
have processed the projects without knowing that they gave our money to a fake NGO that didn’t
even deliver? How could the Department of Budget and Management (DBM) and the Commission
on Audit (COA) have approved the many transactions that took place under their very noses?
Something smells fishy here very fishy.
So who should be held accountable? Why is everyone all of a sudden washing their hands on the
issue? There is even a strong effort to silence this whole issue because there are too many of them
involved. The naturally outspoken Napoles has also been silenced. Well, it is the other way around.
They don’t want her to speak because she might turn against all of them. So these imbeciles are
not hard on her.
This case is a model of a perfect crime. The perfect example of corruption and malversation of
government funds where every paperwork and trail has been studied with the right connections in
the different agencies to get the processed approved, released, and shared to the hogs. Nothing can
beat this case. Nothing! No one will ever be convicted because there are no traces of evidence that
corruption has taken place. It is the greatest deal yet so far in the history of this country.
The question of the hour is: Should the congressional Pork be stopped? The two houses are already
divided on the issue. Do they give up or not their Priority Development Assistance Fund (PDAF)
and just concentrate on legislative work?
Here are the two-cents worth of opinion. The Countrywide Development Fund (CDF), established
in 1990, is the progenitor of PDAF. As the term implies, the fund was intended to bring
development to every part of the country by making sure that every congressman will have an
assured allocation for his district even if he is a member of the silent committee in congress.
In 2000, the CDF was renamed PDAF to stress its use for priority projects. But what’s in a name?
The fund continues to be sarcastically referred to as â pork barrel due to the general perception
that it is allocated to congressmen and senators, to be used, based on their unrestrained discretion,
to fund pet programs or projects in their districts without any accountability. In the guise of
bringing home the bacon to their constituents, the mind-boggling cut of up to 60%, as reported,
would insure them of re-election for the next batch of pork. What a wonderful world indeed. No
wonder, a candidate could risk spending millions during elections. With annual pork of P70M for
a congressman and P200M for a senator, it is worth all the investment. And with pork, politics has
become a lucrative family business in the Philippines too.
In defense of pork, then Speaker Prospero Nograles and then Chairman of the Committee on
Appropriations, Rep. Edcel Lagman, reported that the Members of Congress neither handle the
funds nor implement the projects. Their authority is limited to the identification of projects and
designation of beneficiaries, subject to a specific menu. The implementation is undertaken by the
appropriate government agency after open public bidding. Hence, the congressional allocations
have definitive parameters, equal apportionment's, built-in accountability, and clear transparency.
So what happened to the P10 Billion Pork Barrel in question? If the whistle-blowers are telling the
truth, how was it possible for a private individual to have become the mother of all scams
concerning the release and implementation of PDAF of senators and congressmen? Did they not
say that the utilization of the PDAF should have been strictly defined and limited by a shortlist or
menu of qualified projects, tested by the requirement of utility and relevance, subjected to stringent
procurement and public bidding procedures, reviewed by accountable implementing agencies and
post-audited by the Commission on Audit (COA), among other safeguards? Were not the people
assured that for further transparency and accountability, there shall be a publication in a
congressional website of all projects and programs identified by House Members under their
respective lists of soft and hard projects, which will also include the progress status and
accomplishment of the same?
When there was a call for the scrapping of PDAF, it has been touted as a defense that since the
advent of the CDF in 1990 and the institution of the PDAF in 2000 up to the present, there has
been no post-audit report by the Commission on Audit (COA) directly associating any Member of
Congress to serious abuse, misuse and/or infraction in the utilization and implementation of the
much-maligned congressional funds. Is this true?
Of course, none of the allegations have been proven yet. But I will not bet on a sacrificial lamb.
PDAF cannot be released and implemented without the knowledge and approval of the legislator
concerned and the complicity of the implementing agency. That much is clear. Agriculture
Secretary Proceso Alcala whose office has been implicated as a key facilitator in funneling
government funds to at least two dummy non-government organizations allegedly formed by Janet
Lim-Napoles explained that the DA had practically no choice when given an endorsement letter
from a lawmaker or local government officials to allocate DA funds for a livelihood project.
When acknowledge such an undeniable fact, only then can follow where the putrid smell is coming
from. Maybe the investigators should also consider the possibility of grandmothers or grandfathers
of all [Link] the men and women of congress will miraculously make a great sacrifice, one
thing is sure, the congressional pork (reportedly at P25B) is here to stay.
Unless they change the culture of political patronage and the general perception that politics is a
lucrative business, it is best to scrap the Pork and come up with a better scheme of assuring the
delivery of basic services to all corners of the country through executive line agencies. At least,
the cut of up to 60% will be spared. Let our legislators focus on the enactment of laws. Then they’ll
can truly see who will vie for congress, not for the Pork but the greater interest of public service.
But then again, P-Noy has spoken. He has not only retained the controversial pork barrel in his
proposed 2014 national budget, he has even increased it by more than P2 billion.
References and Supplementary Materials
Books and Journals
1. Hyman David,Public Finance 11th Edition; Pampanga, Philippines
Online Supplementary Reading Materials
[Link]
Citation:
Manasan, Rosario. (1981). Public Finance in the Philippines: A Review of the Literature.