Budgetary issues

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By Neil Honeyman

An Independent View

Monday, July 21, 2014


CONGRESS, during the latter part of this year, will be considering the proposed 2015 budget put forward by the Executive Branch. The projected expenditure is likely to be around P2.6 trillion. A budget, by definition, is an estimate of national revenue and expenditure.

I am not a member of the Freedom From Debt Coalition but I empathize with its philosophy that we should control expenditure and ensure that it does not greatly exceed revenue.

Revenue comes substantially from the Bureau of Internal Revenue (BIR). Ambitious targets are set and, in recent years, despite valiant efforts and the controversial “naming and shaming” advertisements, BIR is not quite achieving the targeted revenues.

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In 2013, BIR obtained P1.217 trillion (a substantial increase from P1.058 trillion recorded in 2012) but missing its goal of P1.253 trillion.

Year 2014 shows a similar picture. By the end of May, BIR had collected P549 billion compared with P505 billion collected in the same period last year. A good increase but P55 billion short of the period’s target of P604 billion.

Under these circumstances, therefore, it is prudent to keep expenditures under control, otherwise the budget deficit is excessive and our indebtedness becomes a cause for concern.

By the commonly used international measure of debt to Gross Domestic Product (GDP) ratio, we are doing quite well. This ratio is currently just under 50 percent which compares favorably with the 2009 level of 74.5 percent. Some other countries have proportionately greater indebtedness. For example, the United States is 100 percent (US$15 trillion indebtedness, US$ 15 trillion GDP) and some European countries, for example Italy and Greece, are in severe economic difficulties and have a debt to GDP ratio of 150-180 percent.

Under the circumstances where our revenues are not meeting targets, it does not seem to be a good idea to initiate new, unbudgeted, projects during the year. These projects may be proposed for the following year.

For the past few years the Executive Branch has also subsequently included projects, not included in the budget and which, therefore, did not have Congressional approval. According to the Department of Budget and Management, these projects amounted to P144.4 billion over three years (2011, 2012, 2013). Of the P144.4 billion, projects amounting to P17.6 billion were allocated to projects “requested” by individual legislators.

We classify these lucky recipients into the good, the bad, and the ugly.

The good, such as the saintly Neri Colmenares do not touch the funds but who nevertheless specify worthwhile project on which the funds should be allocated. The good do not comprise the majority of our legislators.

The bad who self-servingly claim “commissions.” As result, not all the money is allocated for the purpose for which it is intended. This results in, for example, defective roads and contributes substantially to our inadequate infrastructure which has an enormously adverse effect on our economy.

The ugly who divert the funds away from the laudable projects they specified. The ugly often reinforce their ugliness by making sanctimonious and untruthful claims as to how the funds will be allocated. “We want to help our poor farmers” is an example allegedly used by Senator Bong Revilla.

PNoy has said that he wants to reduce corruption. The best way to reduce corruption is to reduce corruption opportunities. The Disbursement Acceleration Program (DAP) described above in some cases creates corruption opportunities. In any case, most aspects of DAP have been deemed by the Supreme Court (SC) to be unconstitutional. We hope that PNoy will eventually accept the SC ruling.

The next task for the Executive Branch is to produce the 2015 Budget which will be discussed with, and hopefully approved by, the Legislative Branch before the end of 2014.

We look to this budget to facilitate inclusive economic growth.*

Published in the Sun.Star Bacolod newspaper on July 21, 2014.

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