BUDGETING

The budgeting phase of the planning process resolves the question: “How much money or
fund is available for each program, project or activity?”

All decision makers and planners are faced with the dilemma of harmonizing what they
want with what their organization can afford. Every organization is faced with problem of
adjusting needs against available resources. But a problem arises when resources are scarce but
needs are great.

BUDGETING PRINCIPLES AND THEORIES

Budgetary governance is the process of formulating the annual budget, overseeing its
implementation and ensuring its alignment with public goals.

The Recommendation on Budgetary Governance sets out ten principles which provide
concise overview of good practices across the full spectrum of budget activity and aim to give
practical guidance for designing, implementing and improving budget systems to make a positive
impact on citizens’ lives.

The Recommendation also underpins the importance of the budget principles to other
aspects of good public governance, including integrity, open data, achievement of strategic goals,
and the promotion of trust between citizens and government.

The ten principles are:

1. Manage budgets within clear, credible and predictable limits for fiscal policy.

2. Closely align budgets with the medium-term strategic priorities of government.

3. Design the capital budgeting framework in order to meet national development needs in a
cost-effective and coherent manner.

4. Ensure that budget documents and data are open, transparent and accessible.

5. Provide for an inclusive, participative and realistic debate on budgetary choices.

6. Present a comprehensive, accurate and reliable account of the public finances.

7. Actively plan, manage and monitor budget execution.

8. Ensure that performance, evaluation and value for money are integral to the budget
process.

9. Identify, assess and manage prudently longer-term sustainability and other fiscal risks.

10. Promote the integrity and quality of budgetary forecasts, fiscal plans and budgetary
implementation through rigorous quality assurance including independent audit.

These principles draw together the lessons of a decade and more of work by the
Organization for Economic Cooperation and Development (OECD) Working Party of Senior
Budget Officials (SBO) and its associated Networks, along with the contributions and insights
from other areas of the OECD and of the international budgeting community more generally.

ORGANIZATION FOR PHILIPPINE BUDGETING

Creation of the Budget Commission. As the agency accountable for “carrying out the
President’s responsibility of preparing the budget,” the DBM dates back its institutional history
to its birth as the Budget Commission on April 25, 1936 with the issuance of Executive Order
No. 25 by Commonwealth President Manuel L. Quezon. The National Assembly certified the
creation of the Commission on September 30, 1936.
 The establishment of the Philippine Commonwealth formally created a Budget Office,
initially under the Department of Finance. This Office was eventually subsumed into the Budget
Commission created in 1936.

A new Budget Office created within the Commission, by virtue of Administrative Order
No. 1 dated May 11, 1936, served as executive arm of the Commission.

The Budget Commission, under the President’s direct supervision and control, was a
triumvirate composed of the Director of the Budget Office as Chairman and Executive Director,
the Director of the Civil Service, and the Auditor General.

First budget law. Commonwealth Act No. 246, the first budget law (passed on December 17,
1937 and took effect on January 1, 1938), provided for a line-item budget as the framework of
the government’s budgeting system. Calling for a “balanced budget,” the system emphasized the
task of the Commission “to tie up the proposed expenditure with existing revenues.”

Revised Budget Act of 1954. It was not until the passage of Republic Act No. 992, or the
Revised Budget Act of 1954, that the practice of placing importance on control and itemization
of proposed expenditures of agencies, in effect for more than 15 years, gave way to budgetary
reforms.

RA 992 introduced the performance budgeting system and put emphasis on budgetary
programs and activities and on expected results. Its passage on June 4, 1954 abolished the
triumvirate under EO 25, replacing it with the Office of the Budget Commissioner. The law
enhanced the role of the Budget Commission as the fiscal arm of the government.

Reorganization Act of 1954. The Reorganization Act of 1954 (RA 997) created the Government
Survey and Reorganization Commission (GSRC) to reorganize government. It defined the first
major organizational structure of the Budget Commission.

Integrated Reorganization Plan of 1972. Eighteen years later, Presidential Decree No. 1, or the
Integrated Reorganization Plan (IRP) of 1972, reorganized the Executive branch extensively.
The Budget Commission remained under the President for administrative policy and program
coordination.

Budget Reform Decree of 1977 and other laws. A series of other laws followed PD 1, notably
PD 1177 or the Budget Reform Decree of 1977, which prescribed the “form, content, and
manner of preparing the budget.” PD 1177 strengthened the planning, programming, and
budgeting linkages; and introduced a regionalized budget supportive of a region-based
government structure.

On June 11, 1978, Presidential Decree No. 1405 converted the Budget Commission into
the Ministry of the Budget and gave its head the rank and status of a Minister and member of the
Cabinet. Under the parliamentary form of government, the Minister of the Budget automatically
chaired the Committee on Appropriations and Reorganization in the Batasang Pambansa.

Three years later, on July 28, 1981, Executive Order No. 711 was issued reclassifying/renaming
the Ministry of Budget into the Office of Budget and Management (OBM), its head retaining the
rank of a Cabinet member.

Revised Administrative Code of 1987. Executive Order 292, or the Revised Administrative Code
of 1987, provided for major organizational subdivisions of the OBM which has been converted
into the Department of Budget and Management. It likewise stipulated the Department’s
responsibilities (formulating and implementing the National Budget and ensuring the efficient
and sound utilization of government resources to achieve the country’s development objectives)
which are still being followed to this day.

Since the DBM’s conversion into a department, it had eight Secretaries, one of whom
was the late Emilia T. Boncodin, the only female DBM Secretary so far who served in 1998 and
in 2001 to 2005. Other secretaries are Guillermo N. Carague (1987 to 1992), Salvador M.
Enriquez, Jr. (1992 to 1998), Benjamin E. Diokno (1998 to 2001), Romulo L. Neri (2005 to
2006), Rolando G. Andaya, Jr. (2006 to 2010), and Joaquin C. Lagonera (2010).
The Department is currently under the leadership of a fervent architect of reform and national
transformation – Secretary Florencio ‘Butch’ Abad.

Under his watch, the DBM has been infusing reforms in the public financial management system
to enhance the efficiency and effectiveness of government spending, and promote good
governance. Among the significant reforms are the following: bottom-up and zero-based
budgeting, wider citizen engagement in the budgeting process, digitization of financial
transactions, and performance budgeting. These are meticulously being embedded in the
budgeting system to put daylight in governance through the proper use of government’s
resources, and to ensure every peso spent benefits the poor and the marginalized sectors.

APPROACHES/TECHNIQUES IN BUDGETING

There are four budgeting methods used in the Philippines since 1937. Briones (1996)
enumerates these as follows: 1) line-item budgeting; 2) performance budgeting; and 3) planning,
programming and budgeting system (PPBS); and 4) zero-based budgeting (ZBB).

1. Line-Item Budgeting

The line-item budgeting approach emphasizes listing of objects for itemized expenditure
such as personnel, supplies, and equipment without much regard for the purpose of programs or
projects for which such items are proposed. It also controls expenditures at the department or
agency level giving emphasis on the accounting aspect of the government operations in terms of
items bought or paid (Miclat, 2005).

2. Performance Budgeting

In performance budgeting, objects of expenditures are grouped into categories related to

the specific services or products an institution produces, as against objects it purchases, and the
development of product cost measurements of activities or services so that managers can
measure the efficiency or productivity of spending agencies (Ibid.).

3. Planning, Programming and Budgeting System

PPBS is an answer to the need for an economic allocation of resources and the
undertaking of government policy, program analysis, and cost utility analysis to improve the
policy decision process of government. The scheme requires agency managers to identify
program objectives, develop measuring program output, calculate total program costs over the
long-run, prepare detailed multi-year program and financial plans, and analyze the costs and
benefits of alternative program designs. The system provides a strong linkage between planning
and budgeting (Ibid.).

4. Zero-Based Budgeting

ZBB is an operating, planning, and budgeting method which requires every agency
manager to justify his entire budget systems in detail and transfers the burden of proof to each
manager why he should spend any money. It underscores the analysis of all budgetary
expenditures to answer effectiveness in achieving organizational goals. The term “zero-based”
refers to the yearly analysis, evaluation, and justification of each program/project/activity
starting from zero performance level.

The idea is to “zero-in” on only the most important activities in the program or project for
inclusion in the budget or on the least important or lowest priority activities which may be
removed in the event that resources are not sufficient. In this way, the most important programs
and projects are allocated enough funding rather than distribute the resources thinly among the
many activities and achieve nothing in the end (Ibid.).

THE PHILIPPINE BUDGET PROCESS

 A budget is a financial plan. It is an estimate of institution’s income and expenditures for
a definite future, e.g. fiscal year. It is what the institution plans to spend for its priority programs
and projects. Thus the national budget is the financial translation of approved national
government plans and programs which are supposed to be supported by the resources of the
government (Ibid.).

The national government budget cycle consists of four phases, namely: 1) budget
preparation, 2) budget legislation or authorization, 3) budget execution or implementation, and 4)
budget accountability (Briones, 1996):

1. Budget Preparation

This involves the formulation or devisement of a national budget based on budgetary

priorities and activities given available revenues and borrowing limits.

The Development Budget Coordination Committee (DBCC), an interagency body, conducts

consultations and studies on fiscal and financial issues with the objective of determining overall
expenditure levels, revenue projection, deficit levels, and the financing plan. These are then
forwarded to the cabinet and the President for approval. After approval by the President, the
Department of Budget and Management (DBM) issues a Budget Call. The call usually issued in
November directs the different agencies to prepare their respective budget proposals in
accordance with approved budget ceilings.

2. Budget Authorization or Legislation

In this phase of the budget cycle, the budget is reviewed by the House of Representatives and
followed by the Senate through consultation and justification by department and agency heads of
their budget proposals. Conflicting provisions are worked out and harmonized by a conference
committee. Once a common budget bill has been approved by both chambers, it is submitted to
the President for approval. The product of the President’s approval of the proposed budget
legislation is the General Appropriations Act (GAA).

3. Budget Execution

This phase of budget cycle is the implementation of the General Appropriations Act. The
Department of Budget and Management (DBM) implements the national budget through the
administrative supervision of the President. The Bureau of Treasury of the Department of
Finance (DOF) coordinates with the DBM so that cash releases by the latter are based on
collected revenues by DOF.

4. Budget Accountability

Budget accountability is the analysis and review of the agency operating performance,
systems and procedures, and the evaluation of agency accomplishments relative to cost incurred.
It compares actual expenditures and performance with the planned expenditures and
predetermined targets of the organization.