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.
Public Finance
Cycle Formulation of
fiscal policy
A process

Generation of revenue
Accountability from taxation and
other sources

Expenditure of
Public funds through
borrowings the national
budget
Public Finance

The FORMULATION OF FISCAL POLICY lies at

the dead center of the democratic government.

-E. Pendleton Herring, 1938

Public Finance Cycle
1. Formulation of fiscal policy
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.
FISCAL POLICY
 Fiscal and monetary policy have been crafted in
response to requirements of stabilization, and
subsequently, and in accordance with the
structural adjustment programs (SAPs)
negotiated by the International Monetary Fund
(IMF).
 On the other hand, monetary policy is generally
understood to be that which influences the level
of money supply in the economy.
FISCAL POLICY
 The formulation of fiscal and monetary policy
made a huge part of economic and social
development but not limited to socio-cultural and
political.
 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?
Public Finance Cycle
2. Generation of revenue from taxation
and other sources
Generation of Revenue
 Revenues refer to all cash inflows of the national
government treasury which are collected to
support government expenditures but do not
increase the liability of the NG.
 A tax is a compulsory contribution mandated by
law and exacted by the government for a public
purpose. The major tax collecting agencies of the
national government are the Bureau of Internal
Revenue and the Bureau of Customs.
Generation of Revenue
Non-tax revenues refer to all
other impositions or
collections of the government
in exchange for services
rendered, assets conveyed,
penalties imposed, etc.
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.
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.
MAJOR CLASSES OF
Taxes on
TAX REVENUES Domestic
Goods and Taxes on
Taxes Services
International
on Trade and
Property Transactions

Taxes on
Other
Income Revenue
Sources
and Profits
Generation of Revenue
 What are the government's current efforts to
improve tax collections?
i. The national government has continuously
expended an all-out effort to strengthen its
revenue-generating capability through legislative
and administrative reforms.
ii. Recently, the government came up with a
comprehensive measure to overhaul the tax
system to bring in badly needed revenues for the
government. Called the Comprehensive Tax
Reform Program (CTRP), the new tax measure
has three principal components, namely, a)
income tax reform; b) excise tax reform; and, c)
Generation of Revenue
 What are the government's current efforts
to improve tax collections?

iii. The CTRP aims to widen the tax base,

simplify the tax structure to minimize
leakages, undeclared revenues,
overstated deductions and corruption to
make the system more elastic and easier
to administer.
Public Finance Cycle
3. Expenditure of Funds through
the National Budget
Expenditure of Funds - National
Budget
 A budget is a plan of financial
operation composed of estimate or
proposed expenditure for a given
period or purposed and the
proposed means of financing them.
 The principal activities of
government are normally controlled
 Expenditure of Funds - National
Budget

PHASES ON
BUDGETAR
Y
PROCEDUR
ES
Budgetary Procedures:
1. Preparation and Presentation
• This phase covers the estimation, determination and
translation of government revenues, priorities and activities.
• Government entities prepare their budgets for the year to be
submitted to the Department of Budget and Management
(DBM) for review.
• The DBM then consolidate all budgets to form a
government wide budgeting estimate, The “National
Budget”.
• This shall be submitted to the president for final approval.
Budgetary Procedures:
2. Budget Authorization and
Legislation
• Involves the submission of the national
government budget to the legislative body
for review, deliberation, and formulation of
an appropriation bill to be forwarded to the
president for approval and signature.
Budgetary Procedures:
3. Budget Execution and Operation
• Covers the implementation of the various
operational aspect of the budget.
• Such as release of allotments to the
various agencies, the continuing review of
the fiscal position, and other related
activities.
Budgetary Procedures:
4. Budget Accountability
• Involves the evaluation of expenditures and
performance against the predetermined
budget.
• Obligation incurred, personnel used and work
accomplished are compared with the plans
and goals of various agencies submitted at
the time their respective budget is prepared.
Budgetary Procedures:
4. Budget Accountability
• Accomplished by the heads of the
various agencies who review the
performance of their respective agency;
• And the Commission on Audit (COA)
who examines the operations of the
agency.
2011 National Budget
the Development Budget Coordinating Committee
(DBCC’s) recommendation of the budget for 2011
which has gone down from what was originally
proposed which was P1.757 trillion then; President
Noynoy Aquino has approved a budget of P1.645
trillion for 2011. 6.7 percent higher than 2010
Budget.
 The premised on a revenue assumption of 15.6
percent or in absolute terms, P1.410 trillion
(Reference :
http://www.dbm.gov.ph/dbm_publications)
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)
 400

200

Department of…
Public Works…

Agriculture
Social Welfare…
Health
Transportatio…
Agrarian Reform
Source:
2011 National Budget Allocation

Justice
http://www.dbm.gov.ph/dbm_publications
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.
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
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.
 Privatization
2011
Nat’l
BOC 320B
6B

Budget
BIR 940B Others 144B
Expect
ed 1.41
T

Approved Budget Expected Deficit 290B

1.645T or 3.2 GDP
Public Finance Cycle
4. Public Borrowings
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.
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 terms
than the opportunity cost of revenues;
iv. to take advantage of benefits attached to the
funds, e.g. technology; and,
v. to balance the timing of resources with the
Public Borrowings
 Is the debt crises over?
 Government claims that debt crises is already over
in 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 increased
iii. Foreign exchange reserves have reached a
comfortable level.
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.
Public Borrowings
 Right now, Japan is our No. 1 Bilateral
creditor. Nearly 70% of the total official
debt is owned to Japan.
 The country debt to Japan is growing
rapidly now so much because of new
loans but because of revaluation.
Public Borrowings
 Public debt includes obligations incurred by
the government and all its branches, agencies
and instrumentalities, including those of
government monetary institutions.
 It consists of all claims against the
government which may be payable in goods
and services, but usually in cash, to foreign
governments or individuals or to persons
natural or juridical.
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; and
iii. 3) for external debt such as claims of foreign
entities, securities held in trust, nonbonded debts
and obligations of the Philippine government to
Public Finance Cycle
5. Accountability
Accountability
 Accountability is defined as a condition in which individuals
who exercise power are constrained by external means
and by internal norms. It refers to the institution of checks
and balances in an organization thru which an
administrator accounts for his stewardship of resources or
authority.
 The political-administrative continuum means that elected
officials are politically accountable to the electorate or their
constituencies who voted them to their positions. These
elected officials are held responsible thru regular elections
and other means, i.e. recall and referendum. Appointive
public officials answer to the people thru the elected
officials who appointed them and directly to the public
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
Accountability
 Types of Accountability
iii. 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
Accountability
 Philippine Administrative Structure
i. Constitutional bodies: 1) constitutional
commissions - CSC, COA, COMELEC; 2)
constitutionally created/mandated special bodies
– CHR and Ombudsman
ii. Executive Departments
iii. GOCCs (wholly-owned or at least 51%)
iv. Chartered institutions (created by law)
v. LGUs
 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 National
Government Agencies: 2011 Edition By P. Guerrero
http://www.nscb.gov.ph/secstat/d_finance.asp
http://www.dbm.gov.ph/dbm_publications
 A Process on Public Finance
Cycle
Reported by: Sherwin M. Arcipe
LNU Dagupan City

Prof. Jo B. Bitonio, DPA