Strama

Philippine Institute for Development Studies
Surian sa mga Pag-aaral Pangkaunlaran ng Pilipinas

Analysis of the President 's Budget for 2013
Rosario G. Manasan
DISCUSSION PAPER SERIES NO. 2013-31

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April 2013
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ANALYSIS OF THE PRESIDENT’S BUDGET FOR 2013

Rosario G. Manasan

Philippine Institute for Development Studies
December 2012

Table of Contents Page ABSTRACT EXECUTIVE SUMMARY 1. 2. 3. INTRODUCTION OVERALL FISCAL POSITION IN PERSPECTIVE EXPENDITURE PROGRAM 3.1. Spending Priorities in the Proposed President’s Budget for 2013 3.2. The 2012 National Expenditure Program in Longer Term Perspective 4. 5. 6. REVENUE PROGRAM FINANCING PROGRAM CONCLUSION iv v 1 1 7 8

18 23 30 32 34 37

REFERENCES APPENDIX TABLES

List of Tables Table 1. Table 2. Table 3. Table 4. National Government Fiscal Position, 2010-2013 Debt Sustainability Simulation, 2013-2017 2013 National Budget Program (in million pesos) Comparative Analysis of National Expenditure Program, By Sector, 2011-2013 Top Gainers in 2013 national Expenditure Program, Selected Agencies Top Gainers in 2013 national Expenditure Program, Selected Agencies Government Spending on Education Sector in Selected Countries, 2000-2011 4 6 8

9

Table 5a.

11

Table 5b.

15

Table 6.

22

i

Page

Table 7. Table 8.

Recent Revenue Performance, by Semester, 2007-2011 Existing Excise Tax Rates on Tobacco and Alcoholic Products (RA 9334) The Excise Tax Rates on Tobacco and Alcoholic Products (RA 10351)

25

26

Table 10.

38

List of Figures Figure 1. Figure 2. Figure 3. National Government Fiscal Performance, 1996-2012 National Government Outstanding Debt (% to GDP), 1996-2012 Aggregate national Government Expenditures, as a Percentage of GDP, 1975-2013 Budget Share of Debt Service and Transfers to LGUs (%), 1975-2013 Percentage Distribution of National Government Expenditures Net of Debt Service, by Major Expenditure Group, 1975-2013 National Government Expenditures on Social Services Sectors, as a Percentage of GDP, 1975-2013 Real Per Capita National Government Expenditures on Social Services Sectors, 1975-2013 (in 2000 prices) National Government Expenditures on All Economics Services Sectors and All Infrastructure Sectors, as Percentage of GDP, 1975-2013 National Government Revenue Effort, 1996-2012 Excise Tax Revenue as % of GDP 2 2

18

Figure 4.

18

Figure 5.

20

Figure 6.

21

Figure 7.

22

Figure 8.

23 24 27

Figure 9. Figure 10. Figure 11. Figure 12.

Composition of National Government Borrowing (%) 1996-2013 31 Distribution of National Government Outstanding Debt (%) 1996-2012 Distribution of National Government Outstanding Debt, By Maturity, 1996-2012

31

Figure 13

32

ii

Page

List of Appendix Tables Appendix Table 1. National Government Expenditures, Obligation Basis, as a Percentage of GDP, 1975-2013 Percentage Distribution of National Government Expenditures, Obligation Basis, by Function or Sectors, 1975-2013 Percentage Distribution of NG Expenditures Net of Debt Service, by Function or Sectors, 1975-2013 Real Per Capita national Government Expenditures, Obligation Basis, 1975-2013 (in 2000 prices) NG Revenue Effort, as % GDP, 1992-2012

38

Appendix Table 2.

39

Appendix Table 3.

40

Appendix Table 4.

41 42

Appendix Table 6.

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ABSTRACT This study presents an evaluation of the National Expenditure Program for 2013. First, this paper projects that the fiscal targets set out in the Budget of Expenditures and Sources of Financing (BESF) for 2013 are likely to be met. Specifically, fiscal deficit is projected to be P9.6 billion lower than the BESF at PhP 231 billion, while government revenue is estimated to be equal to be PhP 1.8 trillion in 2013 which is also higher than the BESF projection. This is despite the expectation that the BOC collections and non-tax revenues will be just equal to the 2011 and 2012 levels. Additional revenues is thus sourced from the BIR collections, which is estimated to reach PhP 1.26 trillion in 2013, exceeding the President’s Budget’s estimate of PhP 1.24 trillion. Second, although a more balanced distribution of the budget between the social services and economic services sectors is emphasized in the 2013 National Expenditure Program, the services sector still accounts for more than half of the increase in expenditure program in 2013. Finally, the improving debt profile of the country will continue in 2013. National government borrowing will continue to be biased in favor of domestic borrowings.

Keywords: expenditure program, revenue program, financing program, tax effort, fiscal deficit, fiscal sustainability, budget share,

iv

EXECUTIVE SUMMARY This paper evaluates the President’s Budget (PB) or the National Expenditure Program (NEP) for 2013. The assessment is composed of four parts: (i) an evaluation of the overall fiscal picture as projected in the 2013 Budget of Expenditures and Sources of Financing; (ii) an examination of its revenue program; (iii) an appraisal of the expenditure program embodied in the NEP; and (iv) an analysis of the financing program. Overall Fiscal Position in Perspective. A combination of expenditure compression and increased tax reform resulting from the enactment of new tax measures in 2004/2005 resulted in a considerable improvement in the country’s fiscal position and a contraction of national government outstanding debt in 2003-2007. Gains in tax effort, however, proved to be temporary given no improvement in tax administration. In 2011, the Bureau of Internal Revenue (BIR) exhibited creditable progress towards improving its tax effort, despite having no new tax measures during the first two years of the Aquino II administration. In addition to this, expenditures of the national government in 2011 and 2012 were significantly lower than the programmed levels. Fiscal deficit was thus trimmed down to 2.0% of GDP in 2011 and 2.3% of GDP in 2012, both lower than programmed levels. Consequently, outstanding national government debt was cut from 52.4% of GDP in 2010 to 50.9% in 2011 but increased to 51.4% in 2012. This paper projects BIR collections to reach 1.26 trillion in 2013, exceeding the President’s Budget’s estimate of 1.24 trillion. This higher projection takes into account the passage of the amendments to the excise tax law on sin products which is expected to yield an additional revenue of PhP34 billion in 2013, as well as the assumption that the BIR is able to improve its tax effort the same manner it did in 2011 and 2012. On the other hand, this paper projects BOC collections and non-tax revenues to be equal to that in 2011 and 2012. BOC collections in 2013 is projected to be equal to 2.9% of GDP, lower that the projection of the President’s Budget of 3.3% of GDP, while non-tax revenues is estimated to be equal to 1.6% of GDP, higher than the 1.1% of GDP projection of the President’s Budget. This paper projects national government revenues to be equal to P1.8 trillion in 2013, P9.6 billion higher than the BESF’s projection. As a corollary, the fiscal deficit estimated in this paper is PhP 9.6 billion lower than that of the BESF at PhP 231 billion. In the medium term, debt sustainability analysis undertaken for this paper suggests that if the overall revenue effort were to increase by 0.2 percentage point of GDP yearly in 2014 onwards after rising by 0.9% of GDP in 2013 following the enactment of the new sin tax law, and if non-interest expenditures were to rise by 0.3 percentage point of GDP in 2014 onwards while assuming that (i) GDP will grow by 6% in 2013, 5.5% in 2014 and 5% yearly in 2015-2017, (ii) inflation remains steady at 4% yearly in 2013-2017, (iii) interest rate on government debt stays at the 2012/2013 level and (iv) the foreign exchange rate stays at PhP 41.50 to the dollar, then the level of fiscal deficit will initially rise from 1.2% of GDP in 2013 to 2.0% of GDP in 2014-2017. Despite said increase in the overall fiscal deficit during the period, the national debt stock is projected to exhibit a downward trajectory, going down 51.4% of GDP in 2012 to 47.5% in 2013 and 40.3% in 2017.

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Alternatively, if there is a simultaneous reduction in the GDP growth rate by 1 percentage point, a 2 percentage point increase in interest rate and a PhP 2 depreciation in the foreign exchange rate given the same revenue and expenditure program, debt-to-GDP ratio will start to rise by 2016 after declining from 51.4% of GDP in 2012 to 47.8% in 2015. If, however, any of the aforementioned shocks were to occur singly, debt sustainability will still be attained, albeit the debt-to-GDP ratio will be higher. Expenditure Program. The 2013 National Expenditure Program adopts the program budgeting approach, where a number of strategic programs that cuts across sectoral concerns of departments and agencies is identified. This is complemented by the zerobased budgeting (ZBB) approach to weed out wasteful programs and direct funds to programs that will benefit the people most. With the implementation of the 2013 National Expenditure Program, government also hopes to improve and consolidate its performance budgeting and performance management system. The proposed national expenditure program (NEP) for 2013 under the President’s Budget amounts to PhP 2.0 trillion, which is equal to 17.2% of the projected GDP for the year. About 62% of the proposed expenditure program for 2013 will be funded from new appropriations for various departments and agencies as well as for special purpose funds. The remaining 38% will be funded from automatic appropriations. However, a total of PhP 117.5 billion is proposed as unprogrammed appropriations in case the national treasury collects more than the revenue targets. The proposed expenditure program for 2013 is PhP190 billion (or 10.5%) higher than the PhP1.8 trillion expenditure program for 2012. 53.1% of the increase in expenditure program is allocated for the social services, due to the high priority given by the administration to education (34.6%), health (5.7%), and other social services (12.8%), while 26.1% is earmarked for the economic services sectors. The remaining 21% is allocated to public administration (7.6%), other sectors not elsewhere classified including the Internal Revenue Allotment (12.9%), and national defense (0.6%). The estimated national government spending in 2013 is imperceptibly higher than the 2012 level but lower than the Ramos and Estrada administration, which is expected given the fiscal consolidation that is programmed under the government’s medium term fiscal framework which aims to reduce fiscal deficit in 2013. National government debt service in 2013 is lower compared to earlier period because of persistent downward trajectory of national government debt stock in 2004-2012, continuing appreciation of the peso, and decline in interest rates. Consequently, the expenditure program net of debt service appears to be slightly more expansionary in 2013 compared to the situation during the Ramos and Arroyo administrations. Revenue Program. The Aquino II administration posted laudable gains in the overall revenue effort since it assumed office. These gains are most pronounced in the case of the BIR. BOC tax effort actually deteriorated in the first semester of 2011 and only partially recovered lost ground in the first semester of 2012. In the case of non-tax revenue effort, improvements were evident in the first and second semesters of 2011

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but stagnated in 2012. Moreover, these gains are not enough to fully reverse the decline in national government revenue effort since 1997. The amendment of the existing excise tax law on tobacco and alcoholic products is the only revenue measure that the Aquino administration has certified as urgent to date. Because the demand for cigarettes is relatively price inelastic, the expectation is that higher taxes will yield higher revenues in the near term while deterring smoking in the longer term. In December 2012, President Benigno C. Aquino signed Republic Act 10351 (An Act Restructuring the Excise Tax on Alcohol and Tobacco Products) into law. The additional revenue take from RA 10351 is estimated to be PhP 34 billion in 2013, PhP 43 billion in 2014, PhP 51 billion in 2015, PhP 57 billion in 2016 and PhP 64 billion in 2017. Financing Program. The debt sustainability analysis used in this paper indicates that the fiscal deficit targets embodied in the 2012 President’s Budget will result in a consistent reduction of the outstanding debt stock of the national government. Thus, the national government debt stock is projected to decline persistently from 54.8% of GDP in 2009 to 52.4% in 2010, 50.9% in 2011 and 51.4% in 2012. Given the uncertainties in the international financial market, the financing of the national government aims to (i) shift the national government borrowing mix toward a 25:75 ratio in favor of domestic borrowing, and (ii) extend the maturities of existing debt. These changes are evident in the programmed borrowing mix in 2011-2012. These trends are expected to persist as the profile of national government borrowing in 2013 continues to be biased in favor of domestic borrowings. To wit, the share of domestic borrowing in total national government borrowing is programmed to be equal to 54.5% in 2013.

vii

ANALYSIS OF THE PRESIDENT’S BUDGET FOR 2013 Rosario G. Manasan*

1.

INTRODUCTION

The purpose of this short note is to evaluate the President’s Budget (PB) or the National Expenditure Program (NEP) for 2013. The assessment is composed of four parts: (i) an evaluation of the overall fiscal picture as projected in the 2013 Budget of Expenditures and Sources of Financing; (ii) an examination of its revenue program; (iii) an appraisal of the expenditure program embodied in the NEP; and (iv) an analysis of the financing program. The national government’s fiscal position in any given year (by showing whether the government has a surplus or a deficit) provides an overall measure of the fiscal health of the nation. Given this perspective, Section 2 evaluates the likelihood that the estimate of the fiscal deficit that is targeted in the President’s Budget will be met. At the same time, it also assesses if the projected fiscal position will lead to greater fiscal instability. Section 3 assesses the Aquino (II) administration’s expenditure priorities relative to its policy pronouncements and relative to the overarching imperative for inclusive growth. On the other hand, Section 4 presents an analysis of the present administration’s revenue program in support of the 2012 President’s Budget while Section 5 provides an assessment of the government’s borrowing program.

2.

OVERALL FISCAL POSITION IN PERSPECTIVE

The national government fiscal position deteriorated quite rapidly and continuously, from small surpluses in 1996 and 1997 to deficits that grew from 1.9% of Gross Domestic Product (GDP) in 1998 to an average of 3.7% in 1999-2001 and 5.0% in 2002 following the Asian financial crisis (Figure 1).A combination of expenditure compression and increased tax effort resulting from the enactment of new tax measures in 2004/ 2005 1 subsequently enabled the national government to achieve considerable progress in improving its fiscal position in 2003-2007, trimming down the overall fiscal deficit gradually from 4.4% of GDP in 2003 to 0.2% in 2007. Thus, national government outstanding debt contracted from 74.4% of GDP in 2004 to 53.9% in 2007 (Figure 2). If contingent liabilities are included, national
Republic Act (RA) No. 9334, which amended excise tax rates on sin products, was legislated in late 2004 and took effect in January 2005. On the other hand, Republic Act No. 9337, otherwise known as the Reformed VAT Law, was legislated in the first half of 2005 and took effect in the last quarter of that year. RA 9337 not only expanded the coverage of the VAT but it also provided for an increase in the gross receipts tax (on royalties, rentals of property, real or personal, profits from exchange and all other items treated as gross income) of banks and non-bank financial intermediaries from 5% to 7% and a temporary increase in the corporate tax rate from 32% to 35%. Moreover, RA 9337 also enabled the President to authorize the increase in the VAT rate from 10% to 12% in January 2006. 1
1

government outstanding debt went down from 90.7% of GDP in 2004 to 60.9% in 2007.
Figure 1. National Government Fiscal Performance, 1996-2012
% to GDP 20.0 15.0 10.0 5.0 0.0 -5.0 -10.0 1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Total Revenues

Total Expenditures

Overall Surplus (Deficit)

Primary Surplus (Deficit)

Primary Expenditures

Figure 2. NG Outstanding Debt (% to GDP), 1996-2012
% to GDP 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

NG Outstanding Debt

Overall Surplus (Deficit)

NG Debt incl. Contingent Liabilities

However, the gains in the tax effort proved to be temporary given no apparent improvement in tax administration in 2007-2009, the transitory nature of revenue impact of the amendment of the excise tax rates on sin products under RA 9334, and programmed reduction in the corporate income tax rate starting in 2009 under RA 9337. Consequently, the tax-to-GDP ratio deteriorated persistently from 13.7% of GDP in 2006 to 12.2% in 2010. Furthermore, when privatization proceeds are netted out, total revenue effort of the national government, likewise, decreased in 20072010. On the other hand, total national government spending (when measured relative to GDP) expanded from 16.5% of GDP in 2008 to 17.7% of GDP in 2009 and 16.9% in 2010, largely because of the government’s expansionary fiscal stance in response to the 2008 global financial and economic crisis.

2

As a result, the fiscal deficit went up once again from 0.2% of GDP in 2007 and 0.9% in 2008 to 3.7% in 2009 and 3.5% in 2010. Moreover, the national government incurred small primary deficits in 2009 and 2010, indicating that the government had to borrow some more in order to cover its interest payments. As a result, outstanding debt of the national government rose from 53.9% of GDP in 2007 to 54.7% of GDP in 2008 and 54.8% in 2009 before declining to 52.4% in 2010 (Figure 2). If contingent liabilities were included, total outstanding debt went up from 60.9% of GDP in 2007 to 61.7% in 2008 and 62.4% in 2009 before contracting to 58.5% in 2010. The Bureau of Internal Revenue (BIR) exhibited creditable progress towards improving its tax effort in 2011, despite the fact that no new tax measures were implemented during the first two years of the Aquino II administration. Thus, BIR tax effort went up from 9.1% of GDP in 2010 to 9.5% in 2011 and 10.0% in 2012 (Table 1). Similarly, non-tax revenue effort went up from 1.3% of GDP in 2010 to 1.6% in 2011-2012. In contrast, the Bureau of Customs failed to show similar success in improving its tax effort as BOC collections contracted from 2.9% of GDP in 2010 to 2.7% in 2011 and 2012. Nonetheless, overall revenue effort of the national government rose from 13.4% in 2010 to 14.0% in 2011 and 14.5% in 2012 as the expansion in BIR tax effort and non-tax revenue effort swamped the contraction in BOC tax effort in 2010-2012. On the other hand, national government expenditures were significantly lower than programmed in 2011 largely because of delays in the implementation of projects as the new administration reviewed and at times even cancelled the contracts of many infrastructure projects 2, and partly because of lower interest payments due to the lower-than-projected foreign exchange rate and interest rate. To wit, national government expenditures stood at 16.0% of GDP in 2011, more than 1.2 percentage points of GDP lower than programmed and 0.9 percentage point of GDP lower than the 2010 level 3. National government expenditures continue to be below the programmed level in 2012, albeit to a smaller degree than in the previous year. To wit, actual national government expenditures was equal to 16.8% of GDP in 2012 compared to the programmed level of 17.4% of GDP (Table 1). Thus, the government was able to trim down the fiscal deficit to 2.0% of GDP in 2011 (more than 1 percentage point lower than the 3.1% level that was originally programmed) and 2.3% of GDP in 2012 (lower than the programmed level but higher than the 2011 level). Consequently, outstanding national government debt was cut from 52.4% of GDP in 2010 to 50.9% in 2011 but increased to 51.4% in 2012 (Figure 2).
A PCIJ report showed that efforts to improve the procurement process at the DPWH yielded significant cost savings (Landingin 2012). For instance, it found that the contract price for some 14 projects that cancelled in July 2010 and which were subsequently re-bidded was on average 34% lower than the original cost. The report also found indications that the bidding/ procurement process at the DPWH has become more competitive. In particular, the study reveals that the average number of bidders for projects worth PhP 50 million and more rose from 1.3 under the Arroyo administration to 4.4 under the Aquino administration while that for projects worth less than PhP 50 million increased from 1.3 to 2.4. Also, the difference between the authorized budget ceiling (ABC) and the lowest bid for larger projects went up from 4% under the Arroyo administration to 11% under the Aquino administration while the difference between the ABC and the lowest bid for smaller projects rose from 1% to 5%.
3 2

National government underspending (i.e., spending below the programmed level) in 2011 has contributed to the lackluster economic growth during that year. 3

Table 1. National Government Fiscal Position, 2010-2013 Actual Actual 2010 Particulars (PhP B) Revenues Tax Revenues BIR BOC Other Offices Non-Tax Revenues of which: BTr Income Privatization 1,207.9 1,093.6 822.6 259.2 11.8 113.9 54.3 0.9 (% GDP) 13.4 12.1 9.14 2.9 0.1 1.3 0.6 0.0 2010

BESF Program 2011 a/ (PhP B) 1,411.3 1,273.2 940.0 320.0 13.2 138.1 69.0 6.0

BESF Program 2011 (% GDP) 14.5 13.1 9.7 3.287 0.1 1.418 0.7 0.1

Actual 2011 (PhP B) 1,359.9 1,202.1 924.1 265.1 12.8 157.6 75.2 0.9

Actual 2011 (% GDP) 14.0 12.3 9.49 2.723 0.1 1.619 0.8 0.0

Actual less Program (PhP B) (51.4) (71.2) (15.9) (54.9) (0.4) 19.6 6.3 (5.1)

BESF Program 2012 (PhP B) 1,560.6 1,427.4 1,066.1 347.1 14.2 133.2 63.3 2.0

BESF Program 2012 (% GDP) 14.8 13.5 10.1 3.3 0.1 1.3 0.6 0.0

Actual 2012 (PhP B) 1,534.9 1,361.1 1,057.9 289.9 13.3 173.8 84.1 8.3

Actual 2012 (% GDP) 14.5 12.9 10.0 2.7 0.1 1.644 0.8 0.1

Actual less Program (PhP B) (25.7) (66.4) (8.2) (57.2) (0.9) 40.6 20.8 6.3

BESF Program 2013 (PhP B) 1,780.1 1,651.3 1,238.6 397.3 15.4 128.9 57.4 2.0

BESF Program 2013 (% GDP) 15.3 14.2 10.6 3.4 0.1 1.1 0.5 0.0

Author 's Author 's b/ Projections Projections Difference 2013 2013 2012 (PhP B) (% GDP) 1,789.7 1,598.2 1,245.7 337.9 14.7 191.6 92.7 2.0 15.4 13.7 10.7 2.9 0.1 1.6 0.8 0.0 9.6 (53.1) 7.1 (59.4) (0.7) 62.7 35.3 0.0

Disbursements of which: Interest Payments Net Lending Total Disbursements less interest Overall Surplus/ (Deficit) Primary Surplus/ (Deficit) a/ b/

1,522.4 294.2 9.3 1,228.1 (314.5) (20.2)

16.9 3.3 0.1 13.6 (3.5) (0.2)

1,711.3 321.6 23.0 1,389.7 (300.0) 21.6

17.6 3.3 0.2 14.3 (3.1) 0.2

1,557.7 279.0 18.1 1,278.7 (197.8) 81.2

16.0 2.9 0.2 13.1 (2.0) 0.8

(153.6) (42.6) (4.9) (111.0) 102.2 59.6

1,839.7 317.7 23.0 1,522.1 (279.1) 38.5

17.4 3.0 0.2 14.4 (2.6) 0.4

1,777.8 312.8 27.4 1,465.0 (242.8) 70.0

16.8 3.0 0.3 13.9 (2.3) 0.7

(62.0) (4.9) 4.4 (57.1) 36.3 31.4

2,021.1 333.9 26.5 1,687.2 (241.0) 92.9

17.3 2.9 0.2 14.5 (2.1) 0.8

2,021.1 333.9 26.5 1,687.2 (231.4) 102.5

17.3 2.9 0.2 14.5 (2.0) 0.9

0.0 0.0 0.0 0.0 (9.6) (9.6)

based on 2012 BESF Difference = Author 's projections less BESF targets

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National Government Fiscal Program for 2013. The President’s Budget assumes that the BIR tax revenues will grow from PhP 1.06 trillion in 2012 to PhP 1.24 trillion in 2013. In contrast, this paper projects BIR collections to reach PhP 1.26 trillion in 2013 (Table 1). This higher projection assumes that the BIR is able to improve its tax effort by another 0.4 percentage points of GDP in 2013 in the same manner it did in 2011 and 2012. It also takes into account the passage of the amendments to the excise tax law on sin products which is expected to yield an additional revenue of PhP 34 billion in 2013. 4 The President’s Budget projects that BOC collections will reach PhP 397 billion or 3.3% of GDP 5 in 2013. In contrast, this paper projects BOC collections to be equal to Php 338 billion or 2.9% of GDP, equal to actual BOC effort in 2010. The President’s Budget projects non-tax revenues to be equal to PhP 129 billion or 1.1% of GDP in 2013. In comparison, this paper projects non-tax revenues of the national government to be equal to PhP 192 billion or 1.6% of GDP, equal to the actual tax effort in 2011 and 2012. In summary, this paper projects total national government revenues to be equal to PhP 1.8 trillion (or 15.4% of GDP) in 2013. This number is PhP 9.6 billion higher than the BESF’s projection. As a corollary, this paper projects that the fiscal deficit is PhP 9.6 billion lower than that of the BESF at PhP 231 billion (or 2.0% of GDP). 6 Fiscal sustainability in the medium term. Fiscal deficits per se are not bad. However, persistently large fiscal deficits may lead to fiscal instability. This is so because as government debt accumulates over time, interest payments on the debt may increase as the government pays interest not only on debt that it had in the past but also on the new debt that was issued to cover the deficit of the current year. This development results in even larger fiscal deficits and even higher levels of government debt stock, thus leading to an explosive situation where fiscal deficit feeds on itself. In this subsection, the sustainability of the fiscal policy is evaluated in terms of its ability to stabilize the ratio of government debt to GDP. Anand and van Wijbergen (1989), Catsambas and Pigato (1989) and Fedelino et al. (2009) have established that the change in the debt-to-GDP ratio depends on the interrelationship amongst the GDP growth rate, the domestic real interest rate, the rate of inflation, the foreign interest rate, the exchange rate, the stock of domestic and foreign government debt at the start of the period, and the primary deficit. The said relationship suggests that the higher the domestic real interest rate and the lower the GDP growth rate, the more likely is the rise in the debt-to-GDP ratio. Similarly, the higher the foreign interest rate, the higher the
4

It should be emphasized that the BESF revenue projections were reckoned relative to higher GDP growth projections for both 2012 and 2013. The BESF assumed that GDP will grow in nominal terms by 10.3% in 2012 and by 11.3% in 2013. As it turned out, GDP actually grew by 8.6% in nominal terms in 2012. In comparison, this paper assumes that GDP will grow by 6% in real terms while inflation is assumed to be equal to 4% in 2013. Thus, GDP is projected to grow by 10.2% in nominal terms in 2013. This ratio is reckoned relative to the BESF’s GDP projection. Note that the figure shown in Table 1 is higher because of the lower GDP projection used in this paper. This paper takes the expenditure projection of the BESF for 2013 as a given.

5

6

5

depreciation of the exchange rate. The lower the domestic inflation rate, the greater is the tendency of the debt-to-GDP ratio to increase. The debt sustainability analysis that was undertaken for this paper suggests that if the overall tax effort gradually improves to 16% of GDP in 2016, and if aggregate national government expenditures gradually expands to 18% of GDP in the same year as indicated in the government’s medium term fiscal program, national government debt-to-GDP ratio will contract from 51.4% of GDP in 2012 to 41.7% in 2016 while the fiscal deficit is maintained at about 2% of GDP in 2014-2016. In more specific terms, if the overall revenue effort were to increase by 0.2 percentage point of GDP yearly in 2014 onwards after rising by 0.9% of GDP in 2013 following the enactment of the new sin tax law, and if non-interest expenditures were to rise by 0.3 percentage point of GDP in 2014 onwards while assuming that (i) GDP will grow by 6% in 2013, 5.5% in 2014 and 5% yearly in 2015-2017, (ii) inflation remains steady at 4% yearly in 2013-2017, (iii) interest rate on government debt stays at the 2012/2013 level and (iv) the foreign exchange rate stays at PhP 41.50 to the dollar, then the level of fiscal deficit will initially rise from 1.2% of GDP in 2013 to 2.0% of GDP in 20142017 (Table 2). Despite said increase in the overall fiscal deficit during the period, the national debt stock is projected to exhibit a downward trajectory, going down 51.4% of GDP in 2012 to 47.5% in 2013 and 40.3% in 2017.
Table 2. Debt Sustainability Simulation, 2013-2017 2011 actual Assume: NG total revenues (in billion pesos) 1,359.9 % to GDP 14.0 Non-interest expd (in billion pesos) % to GDP Interest payments (in billion pesos) % to GDP 1,278.7 13.1 279.0 2.9 2012 actual 1,534.9 14.5 1,465.0 13.9 312.8 3.0 2013 projected 1,789.7 15.4 1,687.2 14.5 333.9 2.9 2014 projected 1,990.9 15.6 1,895.9 14.8 344.5 2.7 2015 projected 2,203.8 15.8 2,119.2 15.2 360.1 2.6 2016 2017 projected projected 2,438.9 16.0 2,367.5 15.5 377.2 2.5 2,698.7 16.2 2,643.6 15.9 396.3 2.4

Implied fiscal deficit & NG outstanding debt: 197.8 Fiscal deficit (in billion pesos) % to GDP 2.0

242.8
2.3

140.8
1.2

249.6
2.0

275.5
2.0

305.8
2.0

341.2
2.0

NG outstanding debt (in million pesos) 4,951.2 5,437.1 5,530.5 5,780.0 6,055.5 6,361.4 6,702.6 % to GDP 50.9 51.4 47.5 45.2 43.4 41.7 40.3 a/ assumes NG total revenues will increase to 16% of GDP in 2016% ; non-interest expenditures to be equal to 14.5% of GDP in 2013 rising by 0.35% of GDP every year from 2014 onwards; GDP will grow by 6% in 2013, 5.5% in 2014 and 5% yearly in 2015-2017; inflation remains steady at 4% yearly in 2013 onwards; average interest rate on government debt to be equal to the average in 2012 and 2013; foreign exchange rate to be equal to PhP 41.50 to the dollar in 2013-2017

Alternative simulations show that the debt-to-GDP ratio will start to rise by 2016 after declining from 51.4% of GDP in 2012 to 47.8% in 2015 if there is a simultaneous reduction in the GDP growth rate by 1 percentage point, a 2 percentage point increase in interest rate and a PhP 2 depreciation in the foreign exchange rate given the revenue and expenditure program described above. On the other hand, if any of the aforementioned shocks were to occur singly, debt sustainability will still be attained, albeit the debt-to-GDP ratio will be higher than shown in Table 2.

6

3.

EXPENDITURE PROGRAM

The President’s Budget Message for 2013 very clearly states that the 2013 Budget is an empowerment budget. It views the 2013 budget as “a crucial step in the government’s pursuit of good governance – governance that will give our impoverished countrymen the opportunity to lift themselves out of their situations.” To this end, it envisions that the budget will empower the people, particularly the poor, by creating more opportunities for public participation in governance; by investing significantly in the people’s capabilities, by prioritizing funding for public services that educate the youth, ensure a healthier citizenry, provide jobs and empower each Filipino to participate in economic activity. The 2013 National Expenditure Program is said to further cement the administration’s commitment to the President’s Social Contract with the Filipino people which was forged in 2010. The Social Contract (as operationalized by Executive Order No. 43) defines five key result areas (KRAs): (i) transparent, accountable and participatory governance, (ii) poverty reduction and empowerment of the poor and vulnerable, (iii) rapid, inclusive and sustained economic growth, (iv) just and lasting peace and rule of law, and (v) integrity of the environment and climate change adaptation and mitigation. The 2013 National Expenditure Program is also said to sustain the administration’s resultsorientation. To support this, it adopts the program budgeting approach. Under this approach, it has identified a number of strategic programs that cuts across sectoral concerns of departments and agencies and whose funding and implementation require greater coordination, cooperation and collaboration. To complement the program budgeting approach, government continues to apply the zero-based budgeting (ZBB) approach to foster increased efficiency and effectiveness in government spending. In particular, the ZBB is used to weed out wasteful programs and direct government funds to programs, activities, and projects (PAPs) that will benefit the Filipino people most. With the implementation of the 2013 National Expenditure Program, government also hopes to improve and consolidate its performance budgeting and performance management system. First, Administrative Order No. 25 (“Creating an Inter-Agency Task Force on the Harmonization of National Government Performance Monitoring, Information and Reporting Systems”) aims to streamline and simplify all existing monitoring and reporting requirements and processes into a single Results-Based Performance Management System (RBPMS). Second, the Department of Budget and Management (DBM) will deepen the implementation of the Organizational Performance Indicator Framework (OPIF) by requiring all departments and agencies to review and recast, if necessary, their major final outputs (MFOs) and performance targets, so as to better link them with the strategic objectives of the Social Contract. Third, government has also adopted a performance-based incentive system that aims to reward the good performance of public servants, thereby giving them more impetus to pursue excellence in their respective jobs. Fourth, the General Appropriations Act (GAA) will serve as the budget release document starting with the implementation of the 2013 budget. This move is aimed at minimizing delays in project implementation due to bottlenecks in the processing of requests for the release of allotments. In line with this, government agencies have been advised to conduct pre-procurement activities in the fourth quarter of 2012, in anticipation of Congress’ approval of this proposed Budget so that

7

contracts can then be awarded on the first working day of the following fiscal year. Fifth, all appropriations will have a validity of one year starting in 2013. This measure is meant to improve the predictability of the budget execution process as the system moves away from a policy that allows the carry-over of appropriations for maintenance expenditures and capital outlays to the following fiscal year. Sixth, the administration introduced the bottom-up budgeting approach (BUB) in order to provide the grassroots with a voice in the allocation of public funds. Under the BUB, the 609 poorest municipalities were asked to develop Local Poverty Reduction Action Plans with local communities and civil society organizations in their jurisdictions. These plans were then submitted to the national budget for inclusion in the 2013 budget. A total of 593 of these municipalities submitted plans for communitydetermined, anti-poverty interventions (such as agriculture and fisheries support, potable water supply, public healthcare, and basic education) worth a total of P8.37 billion. 3.1. Spending Priorities in the Proposed President’s Budget for 2013

The proposed national expenditure program (NEP) for 2013 under the President’s Budget amounts to PhP 2.0 trillion. About 62% of the proposed expenditure program for 2013 will be funded from new appropriations for various departments and agencies as well as for special purpose funds 7. The remaining 38% will be funded from automatic appropriations 8. However, a total of PhP 117.5 billion is proposed as unprogrammed appropriations (i.e., standby spending authority) in case the national treasury collects more than the revenue targets (Table 3).
Table 3. 2013 National Budget Program (in million pesos) Amount New General Appropriations Departments and Agencies Special Purpose Funds Total, New General Appropriations Less: Unprogrammed Appropriations Total, Programmed New Appropriations Automatic Appropriations Total Expenditure Program
Source: 2013 National Expenditure Program

% dist.

959,927 408,402 1,368,329 117,548 1,250,781 755,219 2,006,000

62.4 37.6 100.0

The proposed expenditure program for 2013 is PhP 190 billion (or 10.5%) higher than the PhP 1.8 trillion expenditure program for 2012 (Table 4). Of this amount, more than half (PhP 100.5 billion or 53.1%) is allocated for the social services sectors, a clear indication of the high priority given by the administration to education, health and social services, in general. In contrast, PhP 49.4 billion (or 26.1%) is earmarked for the economic services sectors.
7

Special Purpose Funds include the Miscellaneous Personnel Benefits Fund (MPBF), Retirement Benefits Fund (RBF), Priority Development Assistance Fund (PDAF), Budgetary Support to Government Corporations (BSGC), and Allocation to Local Government Units (ALGU).

8

Automatic appropriations refer to appropriations programmed annually or for some other period prescribed by law, by virtue of outstanding legislation which does not require periodic action by Congress. They include debt servicing (i.e., interest payments and net lending); internal revenue allocation (IRA), government contribution for employees’ retirement and life insurance premiums, special accounts in the general fund, grant proceeds, and donations.

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Table 4. Comparative Analysis of National Expenditure Program, by Sector, 2011-2013 Level (in million pesos) 2011 2012 b/ 2013 b/

Difference (in million pesos) 2011-2012 2012-2013 235,983 25,814 17,685 3,515 4,665 540 (536) 64 (5,682) 653 6,527 (1,618) 24,981 21,848 7,139 11,305 (15,312) 10,459 451 (17,021) 17,472 120,168 54,111 190,000 49,361 12,700 2,507 5,599 708 (10) 1,324 (477) (694) 28,430 (725) 100,528 65,522 10,730 8,034 16,241 1,163 13,655 14,393 (737) 24,498 795

Growth rate 2011-2012 2012-2013 14.9 9.8 39.5 22.5 33.1 10.8 (43.8) 2.9 (32.5) 609.8 4.2 (27.6) 6.6 8.5 17.6 19.3 (68.5) 10.2 0.2 (14.1) 14.3 38.0 19.4 10.5 17.1 20.3 13.1 29.9 12.8 (1.5) 59.0 (4.0) (91.3) 17.5 (17.1) 25.0 23.6 22.5 11.5 231.2 1.0 5.6 13.9 (0.5) 5.6 0.2

Difference - % dist a/ 2011-2012 2012-2013 129.8 14.2 9.7 1.9 2.6 0.3 (0.3) 0.0 (3.1) 0.4 3.6 (0.9) 13.7 12.0 3.9 6.2 (8.4) 5.8 0.2 (9.4) 9.6 66.1 29.8 100.4 26.1 6.7 1.3 3.0 0.4 (0.0) 0.7 (0.3) (0.4) 15.0 (0.4) 53.1 34.6 5.7 4.2 8.6 0.6 7.2 7.6 (0.4) 12.9 0.4

GRAND TOTAL Total economic services Agriculture Agrarian reform Natural resources Industry Trade Tourism Power & energy Water resources devt. Transportation & communication Other economic services Total social services Education Health Soc. security, labor/ emp., & soc. welfare serv. Housing & community devt. National defense Total public services Public administration Peace and order Others NEC Debt service MEMO ITEM: IRA Grand total - debt service Grand Total-debt service-LGU share Defense & peace & order Infrastructure a/ as % of total expenditure net of debt s ervice

1,580,017

1,816,000

2,006,000

262,214
44,752 15,596 14,089 4,987 1,225 2,181 17,482 107 155,927 5,869

288,028
62,437 19,111 18,754 5,527 689 2,245 11,800 760 162,454 4,251

337,389
75,137 21,618 24,354 6,235 678 3,569 11,323 66 190,884 3,526

377,685
256,152 40,654 58,542 22,337 102,249

402,665
278,000 47,794 69,847 7,025 112,708

503,193
343,522 58,524 77,881 23,266 113,871

242,931
120,575 122,355

243,382
103,554 139,828

257,037
117,947 139,090

315,942
278,996

436,110
333,107

460,608
333,902

286,944 1,301,021 1,023,773 224,604 173,516

273,310 1,482,893 1,184,028 252,535 175,013

302,304 1,672,098 1,382,059 252,961 202,273

(13,635) 181,872 160,255 27,931 1,498

28,994 189,205 198,031 426 27,259

(4.8) 14.0 15.7 12.4 0.9

10.6 12.8 16.7 0.2 15.6

(7.5) 100.0 88.1 15.4 0.8

15.3 100.0 104.7 0.2 14.4

b/ allocation for Mis cellaneous Pers onnel Benefits Fund and Pens ion and Gratuity Fund are dis tributed to the various agencies in direct proportion to their 2011 breakdown acros s agencies Source of bas ic data: Budget of Expenditures and Sources of Finance

9

The remaining 21% of the increase in the aggregate expenditure program net of debt service is allocated to public administration (7.6%), other sectors not elsewhere classified including the Internal Revenue Allotment (12.9%), and national defense (0.6%). Social services sectors. The growth rate in the aggregate allocation for all the economic services sectors in 2013 (25%) is fastest among the major expenditure groups. As indicated earlier, the social services sectors combined have the biggest share in the overall increase in the aggregated expenditure program in 2012. Education The education sector has the largest share in the increment in the total expenditure program of the national government net of debt service in 2013. To wit, national government spending on the education sector is programmed to increase by PhP 65.5 billion (or 23.6%) from PhP 278.0 billion in 2012 to PhP 343.5 billion in 2013. The increase in the programmed spending on the education sector accounts for 34.6% of the aggregate increase in total obligations program net of debt service in 2013 (Table 4). The bulk of the additional allocation earmarked for the education sector (PhP 53.4 billion or 81%) is meant for the Department of Education (DepEd), making it the top gainer among the various departments in the 2012 Expenditure Program. Thus, the budget of the DepEd is programmed to rise from PhP 238.8 billion in 2012 to PhP 292.7 billion in 2013 (Table 5a). 9 The increased allocation for the DepEd in 2012 (as in the previous year) is directed at closing the shortages in crucial resources needed to deliver quality basic education, including an allocation of PhP 15.7 billion for classroom construction, and PhP 15.3 billion for the hiring of 61,500 new teachers, and increased school MOOE. The PhP 53.4 billion increase in the proposed budget of DepEd in 2012 is more than twoand-a-half times the increase in its budget in 2011. Given the sustained support given to the DepEd, significant gains have been achieved in closing the input gaps (teachers, textbooks, seats, in particular) in public elementary and secondary schools. However, the classroom deficit remains to be addressed completely. Despite the huge increases in the DepEd budget in recent years, the Philippines’ total allocation for basic education (which is estimated to be equal to 2.5% of GDP in 2012) still compares unfavorably with those of its neighbors in Southeast Asia. 10

These numbers are inclusive of the automatic appropriation for the retirement and life insurance premium of personnel, the share of the department in the miscellaneous personnel benefits fund including the amount earmarked for the salaries of unfilled positions, the allocation for classroom construction included in the budget of the Department of Public Works and Highways. Indonesia, Malaysia, Thailand and Vietnam are estimated to spend 4.1% of GDP on the average in 2002-2007 on basic education (World Bank 2010).
10

9

10

Table 5a. Top Gainers in 2013 National Expenditure Program, Selected Agencies (continuation) Level (in million pesos) Difference (in million pesos) 2011 2012 b/ 2013 b/ 2011-2012 2012-2013

growth rate 2011-2012 2012-2013 6.6 8.5 9.1 (0.9) 14.1 17.6 46.6 19.3 28.4 6.1 (68.5) (71.8) 0.0 0.2 (14.1) 32.5 (3.6) 29.2 33.3 14.3 7.1 (2.2) (1.3) 38.0 (4.8) 19.4 25.0 23.6 22.4 34.9 59.8 22.5 25.0 11.5 14.8 22.3 231.2 279.6 100.0 5.6 13.9 62.9 13.2 75.7 12.9 (0.5) 6.5 11.2 12.8 5.6 10.6 0.2

Total Social Services Education DepEd SUCs CHED Health DOH Soc. Security, Labor/ Emp., & Soc. Welfare Serv. DSWD DOLE Housing & Com. Devt. NHA NHMFC Total Public Services Public Administration DILG ARMM National Statistics Office COA Peace and Order Bureau of Fire Protection Bureau of Jail Management and Penology Judiciary Others, n.e.c. IRA Debt Service

377,685 256,152 218,817 27,999 2,003 40,654 30,223 58,542 38,037 2,363 22,337 20,001 500 242,931 120,575 3,307 12,932 1,430 5,430 122,355 8,936 5,679 14,114 315,942 286,944 278,996

402,665 278,000 238,800 27,751 2,286 47,794 44,308 69,847 48,855 2,508 7,025 5,631 500 243,382 103,554 4,382 12,469 1,848 7,237 139,828 9,566 5,551 13,934 436,110 273,310 333,107

503,193 343,522 292,218 37,442 3,654 58,524 55,370 77,881 56,072 3,067 23,266 21,373 1,000 257,037 117,947 7,138 14,110 3,247 8,168 139,090 10,186 6,171 15,722 460,608 302,304 333,902

24,981 21,848 19,983 (249) 283 7,139 14,085 11,305 10,817 144 (15,312) (14,370) 0 451 (17,021) 1,075 (463) 418 1,807 17,472 630 (127) (180) 120,168 (13,635) 54,111

100,528 65,522 53,418 9,691 1,368 10,730 11,063 8,034 7,217 560 16,241 15,742 500 13,655 14,393 2,755 1,641 1,399 931 (737) 620 619 1,787 24,498 28,994 795

a/ as % of total expenditure net of debt service b/ allocation for Miscellaneous Personnel Benefits Fund and Pension and Gratuity Fund are distributed to the various agencies in direct proportion to their budgets for personal services Source of basic data: Budget of Expenditures and Sources of Finance

On the other hand, the aggregate budget for State Universities and Colleges (SUCs) is programmed to rise by PhP 9.7 billion in 2013, primarily in support of the requirements for the Roadmap for Higher Education Reform, increased allocation for MOOE, and the higher salaries and wages under SSL3. In addition, an increase of another PhP 1.4 billion is available under the budget of the Commission of Higher Education for a program that will enhance the research and ICT capabilities of SUCs. Under consideration is the phasing out of SUCs programs that are not part of their mandates, or those that are duplicative. At the same time, the normative funding formula for SUCs is currently being revised to better promote and reward quality instruction, research and extension services and improve the mechanism for public financing of research in universities, an important public good produced in higher education institutions. Health In 2013, national government spending on the health sector is programmed to increase by PhP 11 billion from its 2012 level. In particular, the allocation for the Department of Health

11

(DOH) is programmed to increase by 25% from PhP 44.3 billion in 2012 to PhP 55.4 billion in 2013, making the DOH the fifth largest gainer among the various government departments in the 2013 National Expenditure Program (Table 5a). Arguably, the higher budget support for the DOH in 2013 reflects the administration’s focus on advancing public health and universal health care. The Health Facilities Enhancement Program (HFEP) accounts for the bulk (or PhP 8.5 billion) of the increase in the DOH budget in 2013. Thus, the allocation for the HFEP increases from PhP 5.1 billion in 2012 to PhP 13.6 billion in 2013. The HFEP is meant to be used for the rehabilitation and construction of 2,243 RHUs and 403 Provincial and District hospitals, and so as improve the delivery of basic health services nationwide. As indicated in Manasan (2011a), the importance of the upgrading of rural health units (RHUs) and barangay health stations (BHSs) to serve as basic emergency obstetric and neonatal care (BEmONC) facilities, and upgrading of selected LGU provincial and district hospitals to serve as comprehensive emergency obstetric and neonatal care (CEmONC) facilities, is premised on the need to treat every delivery as an emergency case and the importance of facility-based deliveries in reducing the maternal mortality rate. The upgrading of RHUs/ BHSs and selected LGU hospitals is also expected to improve their “gatekeeping” function and, thereby, reduce hospital patient case load at the tertiary level (Manasan and Cuenca 2010). At the same time, the HFEP is best seen as a critical component of the DOH health care financing strategy (DOH 2010) (i) by enhancing the ability of national government and LGU health facilities to provide quality and appropriate services that are responsive to the priority health needs of their catchment population, and (ii) by enabling them to operate on a more sustainable basis by securing appropriate PhilHealth accreditation. The 2013 National Expenditure Program also increases the budget for the operation of DOH hospitals by PhP 1.5 billion. Of this amount, some PhP 800 million is on account of special hospitals while PhP 700 million is on account of DOH regional hospitals. Thus, the aggregate budget of special hospitals will increase by 24% while that of DOH regional hospitals will rise by 15% in 2013. On the other hand, the budget of the local health assistance including public health program support is increased by PhP 1.8 billion in 2013. Thus, the allocation for this budget item will increase by 170% during the year. Meanwhile, the allocation for the Doctors to the Barrios and Rural Health Practice Program is increased by more than PhP 1 billion in 2013. This move will allow the DOH to deploy 131 doctors, 22,500 nurses and 4,379 midwives to rural health centers and government hospitals. Also, the budget support for the Indigent or Sponsored Program of the National Health Insurance Program is increased by PhP 500 million in 2013. This will allow the DOH to fund the annual premium subsidy of the PhP 5.2 million indigent families identified under the National Household Targeting System (NHTS). It is notable that part of the additional revenues that will be generated from the recently enacted reformed sin tax law will be used to cover the health insurance premium of the families of some 5.6 million informal sector workers in partnership with LGUs.

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Housing and community services Some 8.0% of the total increment in the national government expenditure program net of debt services in 2013 will go to housing and community development services. In particular, the budgetary support for the National Housing Authority (NHA) will increase by PhP 15.7 billion in 2013, making the NHA the fourth biggest gainer from the 2013 National Expenditure Program (Table 5a). Thus, the budgetary support for the NHA will post an almost four-fold increase to PhP 21.7 billion in 2013 from PhP 5.6 billion in 2012. Some PhP 10 billion of the budgetary support for the NHA is intended for the resettlement of an estimated 20,000 informal settlers living in danger zones (e.g., creeks, rivers and esteros). As such, said program is an essential component of the government’s disaster risk reduction and management program. The plan is to provide in-city multi-storey housing structures to informal settler families on government-owned land in Rizal, Paranaque, Malabon, Caloocan, Pasig, Valenzuela and Las Pinas. Also, PhP 4.9 billion will be used for the resettlement of another 33,000 informal settler families affected by infrastructure projects and living in danger zones in Metro Manila and other areas. On the other hand, PhP 5.6 billion will be allocated for the housing program for military and police personnel. Social security, labor/employment and social welfare services The allocation for the social security, labor/employment and social welfare services sector is programmed to increase by PhP 8 billion in 2013. About 90% of this amount is accounted for by the Department of Social Welfare and Development (DSWD) whose budget will increase by PhP 7.2 billion in 2013 (Table 5a). This makes the DSWD the eighth biggest gainer in the 2013 National Expenditure Program. Close to 70% of the increase in DSWD’s budget in 2013 is due to the Pantawid Pamilyang Pilipino Program (4Ps). The allocation for the 4Ps is programmed to increase by PhP 5 billion from 39 billion in 2012 to PhP 44 billion in 2013. The increase will allow the expansion of the program’s coverage from 3.1 million families in 2012 to 3.8 million families in 2013. While the initial studies on the impact of the 4Ps indicate that the program has been successful in improving school attendance and demand for basic health services among beneficiaries (e.g., Manasan 2011b; Chaudhury et. al. 2013), other studies indicate that the inclusion error in the implementation of the program is not as low as earlier anticipated (Reyes 2012). The budget for the Self-Employment Assistance – Kaunlaran (SEA-K) Program will increase by PhP 1.7 billion in 2013. This amount will be used to provide livelihood opportunities to 4Ps beneficiaries to prepare them for the eventual graduation from the program. The 2013 NEP includes an allocation of PhP 1.5 billion for the implementation and monitoring of the department’s component of the Payapa at Masaganang Pamayanan (PAMANA) program. The PAMANA, an inter-agency program led by the Office of the Presidential Adviser for the Peace Process (OPAPP), is a framework for peace building, reconstruction and development in conflict affected areas which aims to reduce poverty and vulnerability in those areas by improving governance and empowering communities. The

13

DSWD component involves livelihood activities in 845 barangays and the construction of 989 Core Shelter Units. Economic services sectors. The PhP 49.4 billion increase in the allocation for all the economic sectors as a group in 2013 accounts for 26% of the total increment in the national expenditure program net of debt service (Table 4). This amount is about double the increase in aggregate budget for all the economic services sectors combined in 2012, indicating increasing importance currently being given for the economic services sectors. Thus, the combined allocation for all the economic services sectors is programmed to rise from PhP 288 million in 2012 to PhP 337 million in 2013. Agriculture The allocation for all the agencies belonging to the agriculture sector as a group will increase by PhP 12.7 billion in 2013, lower than the budget increment of PhP 17.7 billion in 2012 (Table 4). Thus, the national government’s expenditure program for the agriculture sector in 2013 (PhP 75.1 billion) is 20% higher than that in 2012 (PhP 62.4 billion). Department of Agriculture More than half of the PhP 12.7 billion increase in the allocation for the entire agriculture sector is attributable to the Department of Agriculture (DA). In more specific terms, the budget of the DA is programmed to increase by PhP 6.8 billion in 2013, making it the ninth largest gainer from 2013 National Expenditure Program (Table 5b). Close to 30%, the increase in DA’s budget in 2013 (or PhP 2 billion) is allocated for farm-tomarket roads, with the budget for this item rising from PhP 5 billion in 2012 to PhP 7 billion in 2013. On the other hand, PhP 1.6 billion will go to the restoration, rehabilitation and construction of irrigation systems. Thus, the allocation for irrigation will rise from PhP 25.8 billion in 2012 to PhP 27.4 billion in 2013. At the same time, the National Expenditure Program for 2013 proposes an increase of about PhP 1.2 billion for National Rice Program and PhP 573 million for National Corn Program. As noted in Manasan (2011), the increased funding for farm-to-market roads is consistent with the findings of empirical studies which have established the importance of market infrastructure, like farm-to-market roads, in improving the profitability of agricultural producers by linking production areas to markets [e.g., Fan et al. 2000 as cited by David et. al. (2012)]. On the hand, the higher budget support given to irrigation is aligned with the findings of earlier studies [e.g., David (2003), World Bank (2007)]. However, these studies also highlight the need for governance reforms (including greater cost recovery and transfer of management systems to farmers) aimed at making the irrigation sector more efficient. In contrast, the proposed increases in the budgetary allocation for commodity-specific production support programs may need to be revisited. As indicated in Manasan (2012), government expenditures on these programs in the past went to the provision of private goods such as fertilizers, hybrid seeds, postharvest facilities and equipment, farm

14

machineries, livestock and others. David et. al. (2012) argues that expenditures for production support must be limited to those that address market failures like lack of access to formal financial markets by small producers and non-viability of crop insurance. In contrast, subsidies for postharvest facilities and equipment, farm machineries, hybrid seeds, fertilizers, agricultural chemicals and animal distribution which are all private goods are more difficult to justify.
Table 5b. Top Gainers in 2013 National Expenditure Program, Selected Agencies Level (in million pesos) 2011 2012 b/ 2013 b/ Difference (in million pesos) 2011-2012 2012-2013 235,983 25,814 17,685 21,982 (270) 70 3 640 3,515 7,530 4,665 4,910 31 540 (160) 64 109 (5,682) 7,576 (13,184) 6,527 4,981 190,000 49,361 12,700 6,829 1,567 1,000 1,000 556 2,507 2,507 5,599 2,869 2,029 708 730 1,324 897 (477) (4,512) 2,780 28,430 26,520 growth rate 2011-2012 2012-2013 14.9 9.8 39.5 80.4 na 61.5 9.9 115.8 22.5 65.0 33.1 45.7 3.3 10.8 (6.1) 2.9 7.6 (32.5) 589.5 (83.7) 4.2 4.1 10.5 17.1 20.3 13.8 na 544.2 2,906.8 46.6 13.1 13.1 29.9 18.3 211.4 12.8 29.7 59.0 57.8 (4.0) (50.9) na 17.5 20.9

GRAND TOTAL Total Economic Services Agriculture DA BFAR PCIC ACPC Philippine Coconut Authority Agrarian Reform DAR Natural Resources DENR NAMRIA Industry DTI Tourism DOT Power & Energy DOE NEA Transportation & Communication DPWH

1,580,017 262,214 44,752 27,356 3,362 114 31 553 15,596 11,581 14,089 10,742 929 4,987 2,616 2,181 1,443 17,482 1,285 15,753 155,927 122,005

1,816,000 288,028 62,437 49,338 3,092 184 34 1,193 19,111 19,111 18,754 15,651 960 5,527 2,455 2,245 1,552 11,800 8,861 2,569 162,454 126,986

2,006,000 337,389 75,137 56,167 4,659 1,184 1,034 1,749 21,618 21,618 24,354 18,520 2,988 6,235 3,185 3,569 2,450 11,323 4,350 5,349 190,884 153,505

a/ as % of total expenditure net of debt service b/ allocation for Miscellaneous Personnel Benefits Fund and Pension and Gratuity Fund are distributed to the various agencies in direct proportion to their budgets for personal services Source of basic data: Budget of Expenditures and Sources of Finance

The proposed DA budget for 2013 includes a new item, the implementation and monitoring of projects under the PAMANA program. The allocation for the PAMANA program under the DA budget amounts to PhP 1.3 billion. Other agriculture agencies The increment in the budgets of other agencies belonging to the agriculture sector were also significant in 2013. These include the Bureau of Fisheries and Aquatic Resources (BFAR), the Agricultural Credit Policy Council (ACPC), the Philippine Crop Insurance Corporation, and the Philippine Coconut Authority (Table 5b). The increases in the budgets of these agencies in 2013 appear to have a bias in favor of assisting subsistence farmers and fisherfolks. For instance, the increase in allocation for the BFAR is equal to PhP 1.6 billion on account of the implementation of the National Fisheries Program which will prioritize subsistence fisherfolks. In comparison, the increase in the allocation for the Philippine

15

Coconut Authority is equal to PhP 556 million, mainly on account of the coconut planting/ replanting project and coconut fertilization project which are meant to directly benefit small farmers registered in Registry System for Basic Sectors in Agriculture (RSBSA). Meanwhile, the allocations for the ACPC and the PCIC are augmented by PhP 1 billion each in 2013. The PhP 1 billion increase in the budget of the ACPC is meant to be transferred to GFIs to be used exclusively for the establishment of a flexible credit facility for the benefit of small farmers registered in the RSBSA. On the other hand, that for the PCIC shall be used exclusively for the crop insurance premium of subsistence farmers and agrarian reform beneficiaries. Agrarian Reform The allocation for the Department of Agrarian Reform is programmed to increase by PhP 2.5 billion in 2013. This amount is largely on account of land acquisition and distribution whose budget will increase from PhP 9.4 billion in 2012 to PhP 13 billion in 2013 (Table 5b). Environment and Natural Resources The allocation for the environment and natural resources sector is programmed to increase by PhP 5.6 billion in 2013. Some PhP 2.8 billion of the increase in the sector’s allocation in 2013 is meant for the Department of Environment and Natural Resources (DENR). This will increase the total allocation for the DENR by 18% from PhP 15.7 billion in 2012 to PhP 18.5 billion in 2013 (Table 5b). In particular, the allocation for the department’s National Greening Program will increase from PhP 2.2 billion in 2012 to PhP 5.0 billion in 2013. With this budget, the DENR targets to plant 150 million seedlings in 300,000 hectares, up from the 128,559 hectares planted in 2011 and the target of 215,000 hectares in 2012, with the long-term goal of increasing forest cover to 30% of the total land area from only 24% in 2003. On the other hand, the allocation for the National Mapping and Resource Information Authority (NAMRIA) is programmed to increase by PhP 1.5 billion in 2013. This amount is intended for the implementation of the Unified Mapping Project which aims to produce topographic maps for the 18 major river basins that will serve as inputs to hazard mapping for disaster risk reduction and management. Power and energy The allocation for all the agencies belonging to power and energy sector combined is programmed to decline by PhP 477 million in 2013 because of decline in the Department of Energy’s use of income from the collections of fees and revenues from the exploration, development and exploitation of energy resources in 2012. However, the allocation for the National Electrification Authority (NEA) is programmed to increase by PhP 2.8 billion in 2013(Table 5b). This amount will be used to finance the government’s Rural Electrification Program.

16

Transportation and communication The 2013 National Expenditure Program proposes a PhP 28.4 billion increase in allocation for all the transportation and communication agencies combined over the 2012 level (Table 4). Over 90% of this amount (or PhP 26.5 billion) is on account of the Department of Public Works and Highways (DPWH), making the department the third largest gainer among the various government departments in the 2013 National Expenditure Program (Table 5b). In particular, the allocation for national arterial and secondary roads will increase by PhP 23 billion while that for flood control projects will increase by PhP 3.5 billion in 2013. The higher allocation for road construction and maintenance supports the department’s program to complete the pavement of national arterial and secondary roads and bridges by 2016. On the other hand, the higher allocation for flood control contributes to the government’s disaster risk reduction and management. As indicated in Manasan (2012), “the higher priority given to the infrastructure sectors under Aquino II is consistent with the need to increase funding for basic infrastructure to help ensure more inclusive growth. Economic theory suggests that increased public infrastructure investment exerts a positive influence on economic growth by increasing the productivity of other factors of production (including labor and private capital). This is especially true when the initial stock of infrastructure assets is low. Moreover, public infrastructure investments is said to crowd-in private investments, thereby resulting in a higher private investment rate, precisely because of the higher returns to private investment resulting from higher factor productivity cited above. On the other hand, improved public infrastructure is conjectured to magnify the improvements in health and education outcomes from higher health and education investments by making it easier for individuals to attend schools and seek health care.” Public services sectors. The expenditure program for all public services sectors combined will increase by PhP 13.7 billion in 2013 relative to its 2012 level (Table 4). The agencies under the public services sector that will receive significantly higher allocations in 2013 relative to their 2012 levels are: Department of Interior and Local Government (increment of PhP 2.8 billion, of which PhP 600 million is for the PAMANA program and PhP 250 million for LGU Challenge Fund 11), Judiciary (increment of PhP 1.8 billion), ARMM (increment of PhP 1.6 billion of which PhP 500 million is due to the ARMM Social Fund for Peace and Development, PhP 500 million is for infrastructure projects), National Statistics Office (increment of PhP 1.4 billion largely for the Census of Agriculture and Fisheries) and Commission on Audit (increment of PhP 931 million). (Table 5a) Other sectors, not elsewhere classified. The increase in the allocation for other sectors, not elsewhere classified, is mainly due to the PhP 29 billion increase in the Internal Revenue Allotment (IRA) in 2013.

Said fund is meant to encourage LGUs to adopt good governance. In particular, it will augment resources of 516 LGUs which are able to attain a “Seal of Good Housekeeping” in various areas of governance.

11

17

3.2.

The 2012 National Expenditure Program in Longer Term Perspective

Aggregate national government spending. The aggregate national government expenditure program of PhP 2.0 trillion in 2013 is equal to 17.2% of the projected gross domestic product (GDP) for the year. Total national government spending in 2013 is imperceptibly higher than the 2012 level but lower than average spending during the administrations of Ramos (17.7%) and Estrada (18.5%) [Figure 3 and Appendix Table 1]. This is perhaps to be expected given the fiscal consolidation that is programmed under the government’s medium term fiscal framework which aims to reduce fiscal deficit from 2.6% of the GDP in 2012 to only 2.0% of GDP in 2013.
Figure 3. Aggregate National Government Expenditures, as a Percentage of GDP, 19752013
25.00 Marcos 20.00 Aquino I Ramos Estrada Arroyo
Aquino II

Percent of GDP

15.00

10.00

5.00

0.00

Grand Total

Debt Service

Transfers to LGUs

Grand Total less Debt Service

Grand Total less Debt Service less Transfers to LGUs

National government debt service in 2013 is considerably lower compared to earlier periods primarily because of persistent downward trajectory of national government debt stock in 2004-2012. Furthermore, the continuing appreciation of the peso and decline in interest rates has a positive impact on debt service. In particular, debt service accounts for 16.6% of the national expenditure program in 2013, lower than the 18.3% budget share in 2012 and the average posted during the past four administrations - Aquino I (29.5%), Ramos (20.0%), Estrada (19.6%) and Arroyo (24.5%) [Figure 4 and Appendix Table 2].
Figure 4. Budget Share of Debt Service and Transfers to LGUs (%), 1975-2013
35.00 Marcos 30.00 Aquino I Ramos Arroyo Aquino II

Estrada

25.00

Percent (%)

20.00

15.00

10.00

5.00

0.00

2012 Prelim
2012 Prelim

Transfers to LGUs

Debt Service

18

2013 NEP

1975

1976

1977

1978

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1980

1981

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2010

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2013 NEP

1975

1976

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1979

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1981

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As a result, debt service is projected to be equal to 2.9% of GDP in 2013, lower not only relative to its 2012 level (3.2%) but also relative to the average during the Aquino I administration (5.0%), the Ramos administration (3.5%), the Estrada administration (3.6%) and the Arroyo administration (4.2%) [Figure 3 and Appendix Table 1]. Consequently, the expenditure program (when measured in terms of total national government expenditure net of debt service) appears to be slightly more expansionary in 2013 compared to the situation during the Ramos and Arroyo administrations. To wit, total national government expenditure net of debt service is programmed to be equal to 14.4% of GDP in 2013, higher than the 2012 level (14.0%) and the average registered during the administrations of Ramos (14.2%) and Arroyo (12.9%) but lower than the average during the Estrada administration (14.9%) [Figure 3 and Appendix Table 1]. Furthermore, non-mandatory expenditures (i.e., total expenditures less interest payments and transfers to LGUs) is even more expansionary than total expenditures net of debt service because intergovernmental transfers to LGUs remains steady at the 2012 level of 2.6% of GDP in 2013, down from 3.1% in 2009 and 3.0% in 2010 and 2011. Thus, non-mandatory expenditures is programmed to be equal to 11.8% of GDP in 2013, higher than the 2012 level (11.4%) and the average during the administrations of Marcos (11.6%), Aquino I (11.2%), Ramos (11.7%) and Arroyo (10.1%) but just about equal to the average during the Estrada administration [Figure 3 and Appendix Table 1]. Allocation across major expenditure groups. The present government’s overarching goal as stated in the Philippine Development Plan is inclusive growth (NEDA 2011). The Plan defines inclusive growth as sustained, rapid growth that is broadly shared, i.e., growth that benefits the majority of the citizenry. Such growth is envisioned to result in reduced poverty and increased employment. The Plan identifies the key strategies that will help achieve inclusive growth: (i) improved infrastructure support, (ii) equal access to human development; and (iii) effective and responsive social safety nets. The 2013 National Expenditure Program supports the abovementioned strategies by supporting interventions that are biased in favor of the poor and vulnerable even while it gives priority to the basic infrastructure necessary for the country to attain rapid, inclusive and sustained economic growth. As such, the very strong bias towards the social services sectors that characterized the 2011 and 2012 expenditure programs has been tempered resulting in a more balanced distribution of the budget between the social services sectors and the economic services sectors. Nonetheless, the social services sectors continue to have the biggest budget share among the major expenditure groups in 2012 as was the case in the past three administrations – Ramos, Estrada and Arroyo. The share of all the social services sectors combined in total national government expenditure net of debt service in 2013 (30.1%) is not only higher than that in 2012 (27.2%) but is also higher than the average set during the administrations of Marcos (22.0%), Aquino I (29.4%), and Arroyo (26.4%) [Figure 5 and Appendix Table 3]. In contrast, the share of all the economic services sectors as a group in total national government expenditure net of debt service in 2013 (20.2%) is higher than its 2012 level (19.4%) but is lower than the average set during the administrations of Marcos (46.6%), Aquino I (34.3%), Ramos (26.1%), Estrada (23.1%) and Arroyo (23.1%).

19

As in previous administrations since Ramos, the “others, n.e.c.” 12 group ranks third among the major expenditure groups in terms of share in total expenditure net of debt service. To wit, the “others, n.e.c.” group will receive 27.5% of the national government budget net of debt service in 2013, lower than its 29.4% share in 2012 but higher than the share of this expenditure group in past administrations (Figure 5 and Appendix Table 3).
Figure 5. Percentage Distribution of National Government Expenditures Net of Debt Service, by Major Expenditure Group, 1975-2013
60.00 Marcos 50.00 Aquino I Ramos Estrada Arroyo
Aquino II

40.00

Percent (%)

30.00

20.00

10.00

0.00

Total Economic Services Total Public Services

Total Social Services Others n.e.c.

National Defense

Starting with the Ramos administration, total public services ranks fourth among the major expenditure groups in terms of share in total expenditures net of debt service. National government spending on all the public services sectors as a group is programmed to account for 15.4% of total government expenditure net of debt service in 2013. This figure is lower than its 2012 level (16.4%) and the average during administrations of Aquino I (17.3%), Ramos (18.0%), Estrada (16.5%) and Arroyo (18.8%) despite the implementation of SSL III (Figure 5 and Appendix Table 3). On the other hand, national defense receives the lowest budget share among the major expenditure groups since the Ramos administration and this trend continues up to the present. The share of national defense in total government expenditures net of debt service is programmed to be equal to 6.8% in 2013, lower than its 2012 level (7.6%) and the average during all previous administrations, namely, Marcos (13.8%), Aquino I (10.1%), Ramos (7.7%), Estrada (6.9%) and Arroyo (8.2%) (Figure 5 and Appendix Table 3). Social services sectors. National government spending on all the social services sectors combined is programmed to increase to 4.3% of GDP in 2013 from 3.8% of GDP in 2012. Because of the sustained high priority accorded to the social services sectors under the
The “others, n.e.c.” group includes transfers to LGUs (which accounts for 95%-97% of the group’s budget share in the years after the passage of the Local Government Code of 1991), the pork-barrel funds of legislators or Priority Development Assistance Fund (PDAF), unallocated budgetary support to government corporations, and tax expenditures fund. After budget execution, however, the allocation for the last three aforementioned items is distributed to the other expenditure groups/sectors once the actual utilization of the said funds is known. Consequently, the programmed allocation for the “others, n.e.c” group tends to be larger than the actual expenditure obligations after budget execution.
12

20

2012 Prelim

2013 NEP

1975

1976

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Aquino II administration, national government spending on these sectors in 2013 as a percentage of GDP is markedly higher than the average set during the administrations of Marcos (2.7%), Aquino I (3.5%), and Arroyo (3.4% of GDP). However, national government spending on the social services sectors when expressed as a percentage of GDP in 2013 compares unfavorably with the average registered during the Estrada administration (4.7%) [Figure 6 and Appendix Table 1]. This occurred not only because of the higher budget share of these sectors but also because of the larger expenditure pie during these administrations.
Figure 6. National Government Expenditures on Social Services Sectors, as a Percentage of GDP, 1975-2013
6.00 Marcos 5.00 Aquino I Ramos Estrada Arroyo
Aquino II

4.00

Percent of GDP

3.00

2.00

1.00

0.00

Education

Basic education

Total Social Services

Health

Soc. Security, Labor/ Emp., & Social Welfare Services

The programmed level of national government spending on the education sector as a whole in 2013 (2.9% of GDP) represents an improvement from the 2012 level (2.6% of GDP) and the average posted during the administrations of Marcos (1.7%), Aquino I (2.5%), and Arroyo(2.6%) (Figure 6 and Appendix Table 1). However, it is lower than the average registered during the administrations of Ramos (3.1%) and Estrada (3.4%). On the other hand, national government spending on basic education rose from 2.5% of GDP in 2011 to 2.6% of GDP in 2012. In contrast, national government spending on basic education in 2013 (2.9% of GDP) represents an improvement over the 2012 level (2.6%) and the average during all previous administrations, namely Marcos (1.3%), Aquino I (2.1%), Ramos (2.5%), Estrada (2.7%) and Arroyo (2.2%). Consequently, real per capita spending on basic education (in 2000 prices) is projected to rise from PhP 1,490 in 2012 to PhP 1,719 in 2013, markedly higher than the average attained during all previous administrations. In like manner, real per capita spending on the entire education sector is programmed to grow from PhP 1,727 in 2012 to PhP 2,014 in 2013, creditably higher than the average levels registered during all previous administrations (Figure 7 and Appendix Table 4). Despite these gains in national government spending on the education sector in 2013, the Philippines continues to suffer in comparison with other Southeast Asian countries like Indonesia, Malaysia, Thailand and Vietnam (Table 6).

21

2012 Prelim

2013 NEP

1975

1976

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1979

1980

1981

1982

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1984

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2011

3,500

Figure 7. Real Per Capita National Government Expenditures on Social Services Sectors, 1975-2013 (in 2000 prices)
Marcos Aquino I Ramos Estrada Arroyo
Aquino II

3,000

in 2000 pesos

2,500

2,000

1,500

1,000

500

0

Education

Basic education

Total social services

Health

Soc. Security, Labor/ Emp., & Social Welfare Services

Table 6. Government spending on education sector in selected countries, 2000-2011 as % of total spending as % of GDP 2000 2006 2011 2000 2006 2010 Philippines 17.4 14.2 16.3 3.3 2.4 2.6 Indonesia Malaysia Thailand Vietnam
Source: UNESCO

11.5 a/ 26.7 31.0

17.2 19.6 25.0

17.1 20.5 22.3 19.8

b/ c/ b/ d/

2.5 a/ 6.0 5.4

3.6 4.7 4.3

3.0 6.3 3.8 5.3

b/ c/ b/ d/

a/ 2001; b/ 2010; c/ 2009; d/ 2008

Meanwhile, national government spending on health is projected to be equal to 0.45% of GDP in 2012 and 0.50% of GDP in 2013. The latter figure is higher than the average set during the administrations of Ramos (0.45%), Estrada (0.43%) and Arroyo (0.29%) but is lower than the average posted during the administrations of Marcos (0.54%) and Aquino I (0.63%). 13 As a result, real per capita spending on health is projected to increase from PhP 297 in 2012 to PhP 343 in 2013 (Figure 7 and Appendix Table 4). It is laudable that the 2013 level is higher than the average levels registered during the administrations of Ramos, Estrada and Arroyo. On the other hand, national government spending on social security, labor/employment and social welfare services is projected to rise from 0.66% of GDP in 2012 to 0.67% of GDP in 2013. Perhaps as a result of the greater importance given to social protection during the present administration, the level of national government spending on social security, labor/employment and social welfare services in 2013 is markedly higher than the average during the administrations of Marcos (0.14% of GDP), Aquino I (0.3%), and Arroyo (0.44%) (Figure 6 and Appendix Table 1). At the same time, real per capita spending on social security, labor/employment and social welfare services is projected to rise from PhP 434 in
13

National government spending on the health services sector declined after the devolution of basic health services following the enactment of the Local Government Code in 1991.

22

2012 Prelim

2013 NEP

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2012 to PhP 457 in 2013, higher than the average levels posted during all previous administrations. Economic services sectors. National government spending on all the economic services sectors combined is programmed to increase from 2.7% of GDP in 2012 to 2.9% of GDP in 2013, a reversal of the downward trend in 2010-2011 (Figure 8 and Appendix Table 1). Despite the said increase in the national government spending on all the economic services sectors as a group, the 2013 level is still significantly lower than the average levels set during all the previous administrations, namely Marcos (5.7% of GDP), Aquino I (4.1%), Ramos (3.7%), Estrada (3.4%), and Arroyo (3.0%).
Figure 8. National Government Expenditures on All Economic Services Sectors and All Infrastructure Sectors, as a Percentage of GDP, 1975-2013
8.00 Marcos 7.00 6.00 5.00 Aquino I Ramos Estrada Arroyo
Aquino II

Percent of GDP

4.00 3.00 2.00 1.00 0.00

Total Economic Services

Infrastructure

In like manner, national government spending on infrastructure is projected to go up from 1.66% of GDP in 2012 to 1.74% of GDP in 2013, substantially lower than the average during all previous administrations, namely Marcos (3.22%), Aquino I (2.24%), Ramos (2.22%), Estrada (2.17%) and Arroyo (1.82%). The level of spending on public infrastructure in 2013 is, thus, just about a third of the 5.0% of GDP benchmark that the World Bank (2005) estimates middle income countries in East Asia need to spend on public infrastructure in order to meet their needs.

4.

REVENUE PROGRAM

Total national government revenues net of privatization proceeds reached a peak of 17.2% of GDP in 1997 (Figure 9). Subsequently, overall revenue effort of the national government deteriorated persistently up to 2004 with total national government revenues net of privatization proceeds dropping to 13.6% of GDP in that year. This decline largely mirrors the collapse in overall tax effort during the period. A partial recovery was evident in total revenue effort in 2005-2006 with the enactment of Republic Act 9334 (amending the excise tax on so-called sin products) and Republic Act 9337 (Reformed VAT Law) in 2005. However, said recovery was brief and total national government revenues effort deteriorated once again to 13.4% of GDP in 2010 after improving to 15.4% in 2006.

23

2012 Prelim

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Manasan (2010) notes that this development is not unexpected altogether as the positive revenue impact of the excise tax amendment and the reformed VAT law have built-in sunset provisions. The reformed VAT law temporarily raised the corporate tax rate to 35% but this rate is scheduled to be reduced to 30% in 2009. On the other hand, the mandated adjustment in excise tax rates on sin products were not enough to keep pace with inflation and, thus, excise tax revenues were eroded in real terms. At the same time, revenue eroding measures have been legislated over the years, including Republic Act 9504 which was passed in early 2008 in order to give some (tax) relief to minimum wage earners. Moreover, evidence of further deterioration in tax administration is evident with respect to the collection of the VAT and excise taxes while the inherent difficulties in collecting taxes from non-wage earners have not been addressed (Manasan 2010).
Figure 9. NG Revenue Effort, 1975-2012
% to GDP 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0

Marcos

Aquino I

Ramos

Estrada

Arroyo

Assessment of revenue performance under the Aquino II administration. The Aquino II administration posted laudable gains in the overall revenue effort since it assumed office. These gains are most pronounced in the case of the BIR. BOC tax effort actually deteriorated in the first semester of 2011 and only partially recovered lost ground in the first semester of 2012. In the case of non-tax revenue effort, improvements were evident in the first and second semesters of 2011 but stagnated in 2012. Moreover, these gains are not enough to fully reverse the decline in national government revenue effort since 1997. In particular, BIR collections increased from 8.8% of GDP in the second semester of 2009 to 8.9% of GDP in the second semester of 2010 (Table 7). Similarly, BIR collections went up from 9.1% of GDP in the entire year of 2010 to 9.5% of GDP in the entire year of 2011, the first year of the Aquino II administration and to 10.0% of GDP in 2012. Despite these improvements, BIR tax effort in 2012 is still lower than the local peak of 10.4% of GDP in 2006 and 2007.

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Total Revenues net of privatization proceeds Bureau of Internal Revenue
Source of basic data: Bureau of Treasury

Tax Revenues Bureau of Customs

24

On the other hand, the performance of the BOC remains lethargic to date under the Aquino II administration. BOC tax effort declined from 2.9% of GDP in 2010 to 2.7% of GDP in 2011 and 2012. Although BOC effort posted a small recovery the first semester of 2012, this improvement was not sustained in the second semester.
Table 7. Recent revenue performance, by Semester, 2007-2011 Tax-to-GDP ratio Growth rate Total Rev Total Tax BIR BOC Non-tax Total Rev Total Tax BIR 3.0 10.4 3.0 2007 16.5 13.5 S1 15.7 13.3 10.3 2.8 2.4 3.5 10.4 3.2 S2 17.2 13.8 15.6 2008 13.6 10.1 3.4 2.0 5.8 12.5 9.1 1.6 11.7 18.5 16.4 3.2 S1 15.7 14.1 10.7 S2 15.5 13.1 9.5 3.5 2.3 1.1 7.2 2.6 2009 14.0 12.2 9.3 2.7 1.8 -6.6 -6.4 -3.6 S1 14.4 12.9 9.9 2.8 1.6 -4.3 -5.1 -3.6 S2 13.6 11.7 8.8 2.7 1.9 -8.8 -7.7 -3.6 2010 13.4 12.1 9.1 2.9 1.3 7.5 11.4 9.6 S1 13.8 12.6 9.4 3.0 1.2 8.4 11.1 7.4 S2 13.1 11.8 8.9 2.7 1.3 6.7 11.7 11.9 2011 14.0 12.3 9.5 2.7 1.6 12.6 9.9 12.3 S1 14.6 12.7 9.8 2.7 1.9 15.2 9.8 13.5 9.2 2.7 1.4 10.1 10.0 11.2 S2 13.4 12.0 1.6 12.9 13.2 14.5 2012 14.5 12.9 10.0 2.7 15.1 13.3 10.3 2.8 1.8 11.6 13.2 13.8 S1 13.2 15.1 S2 14.0 12.5 9.7 2.7 1.5 14.2 GDP g.r.

BOC

Non-tax

24.3 27.0 22.1 -15.3 -10.4 -19.4 17.7 24.7 11.3 2.3 -1.7 6.2 9.3 11.6 7.2

-24.5 -26.0 -23.6 -8.0 3.0 -14.5 -19.6 -13.5 -24.0 38.7 72.2 11.2 10.3 0.9 22.2

12.0 11.5 12.4 4.0 4.1 3.9 12.2 13.7 10.8 8.1 8.9 7.4 8.6 7.9 9.2

Amendment of sin tax law. 14 Cognizant of the need to arrest the decline in the excise tax effort and the perceived health benefits that are likely to arise from increasing excise tax on tobacco products and alcoholic beverages, the amendment of the existing excise tax law on tobacco and alcoholic products is the only revenue measure that the Aquino administration has certified as urgent to date. In principle, the excise tax on sin products is imposed for the purpose of (i) raising revenues and (ii) discouraging the consumption of the tobacco products and alcoholic beverages. It is argued that higher excise taxes on tobacco will “induce some smokers to quit, reduce consumption of continuing smokers, and prevent others from starting” (Sunley 2009). Because the demand for cigarettes is relatively price inelastic, the expectation is that higher taxes will yield higher revenues in the near term while deterring smoking in the longer term. Context and rationale At present, the excise tax on tobacco and alcoholic products follows a multi-tiered schedule that is based on the net retail price (exclusive of VAT and the excise tax itself) of each brand, with cheaper brands being taxed less than the more expensive brands. For instance, the excise tax schedule for cigarettes consists of four tiers referring to low-, medium-, high-, and premium-priced brands while those for fermented liquors and distilled spirits produced from raw materials other than nipa, coconut, cassava, camote, buri palm or sugar cane consist of three tiers each (Table 8).

14

This sub-section is drawn from Manasan and Parel (2013).

25

Table 8. Existing excise tax rates on tobacco and alcoholic products (RA 9334) Date of effectivity 1/1/2005 1/1/2007 1/1/2009 Tobacco i) Tobacco twisted by hand or reduced into a P1/kilo P1.06/kilo P1.12/kilo condition to be consumed ii) Tobacco prepared/ partially prepared with/ P1/kilo P1.06/kilo P1.12/kilo without the use of any machine/instruments iii) Fine-cut shorts, refuse, scraps, etc. of tobacco (provided these are to be exported or used in the P1/kilo P1.06/kilo P1.12/kilo manufacture of other tobacco products (iv) Tobacco specially prepared for chewing so as P0.79/kilo P0.84/kilo P0.89/kilo to be unsuitable for use in any other manner Cigars and cigarettes i) Cigars NRP of P500 or less per cigar 10 % of NRP 10 % of NRP 10 % of NRP P50 +15% of P50 +15% of P50 +15% of NRP in excess of P500 NRP NRP NRP ii) Cigarettes packed by hand (each pack with 30 P2.00/ pack P2.23/ pack P2.47/ pack pieces) iii) Cigarettes packed by machine (each pack with 20 pieces) NRP is below P5 per pack (low-priced) P2.00/ pack P2.23/ pack P2.47/ pack NRP is P5 to P6.50 per pack (medium-priced) P6.35/ pack P6.74/ pack P7.14/ pack NRP is P6.50 to P10 per pack (high-priced) P10.35/ pack P10.88/ pack P11.43/ pack NRP is above P10 per pack (premium-priced) P25.00/ pack P26.06/ pack P27.16/ pack Distilled Spirits i) Produced from sap of nipa, coconut, 11.65/ proof 12.58/ proof cassava, camote, buri palm or sugarcane liter liter ii) Produced in a pot still by small distillers (up to 100 liters/day and 50% alcohol by volume) iii) Produced from raw materials other than above NRP per bottle of 750 ml. volume capacity is less 126.00/ proof 136.08/ proof than P250.00 liter liter NRP per bottle of 750 ml. volume capacity is 252.00/ proof 272.16/ proof P250.00 up to 675.00 liter liter NRP per bottle of 750 ml. volume capacity is 504.00/ proof 544.32/ proof P250.00 up to 675.00 liter liter Wines i) Sparkling wines/ champagne, regardless of proof NRP per bottle is P500 or less 145.6 157.25 NRP per bottle is more than P500 436.8 471.74 ii) Still wines containing 14% or less alcohol iii) Still wines containing over 14% but not over 25% alcohol iv) Fortified wines containing more than 25% of alcohol by volume Fermented liquors (e.g., beer, lager beer, ale, and other fermented liquors) i) NRP per liter is less than P14.50 ii) NRP per liter is P14.50 up to P22.00 iii) NRP per liter is more than P22.00
* NRP is net retail prices net of VAT and excise tax

1/1/2011 P1.19/kilo P1.19/kilo P1.19/kilo P0.94/kilo

10 % of NRP P50 +15% of NRP P2.72/ pack

P2.72/ pack P7.56/ pack P12.00/ pack P28.30/ pack

13.59/ proof liter

14.68/ proof liter

146.97/ proof 158.73/ proof liter liter 293.33/ proof 317.44/ proof liter liter 587.87/ proof 634.9/ proof liter liter

169.83 509.48 20.38 40.76

183.42 550.24 22.01 44.02

17.47 34.94

18.87 37.74

Taxed as Taxed as Taxed as Taxed as distilled spirits distilled spirits distilled spirits distilled spirits

8.27 12.3 16.33

8.93 13.28 17.64

9.64 14.34 19.05

10.41 15.49 20.57

26

The multi-tiered excise tax rate schedule based on the net retail price was first introduced in 1996 with the enactment of Republic Act 8240 and was later amended by RA 9334 which took effect in 2005. The adoption of specific tax rates for excise taxes in lieu of ad valorem rates under RA 8240 15 meant that the specific rates were fixed until amended by Congress thereby reducing the buoyancy of the excise tax system because the specific tax rates are not automatically indexed to inflation. While RA 9334 provided for discrete increases in the tax rate on tobacco and alcoholic products in 2005 and every other year thereafter until 2011, the mandated increases in the excise tax rates between 2005 and 2011 are less than the actual rate of increase in the prices of tobacco and alcoholic products for the most part. At the same time, RA 9334 pegged the classification of the various brands of excisable products for purposes of ascertaining the tax rate that will apply on them on the average net retail price prevailing in October 1, 1996. If the reclassification of brands in accordance with the net retail prices prevailing in 2005 when RA 9334 became effective were allowed, the inadequate adjustment of the specific tax rates relative to inflation would have been mitigated due to bracket creep. For instance, had RA 9334 allowed a reclassification of the various brands of excisable products in line with the market prices prevailing in 2005, most of the cigarette brands that were in existence in 1996 would have been subjected to the tax rate that is applicable to either the next higher tier or the one above the next higher tier in the original schedule found in RA 8240. 16 As it is, the inadequate adjustment of specific tax rates to inflation and the reclassification freeze combined resulted in the erosion of excise tax revenues in real terms. Thus, revenues from the excise tax on tobacco products declined persistently from 0.59% of GDP in 1997 to 0.27% of GDP in 2011. On the other hand, revenues from the excise tax on alcoholic products dipped from 0.50% of GDP in 1997 to 0.23% of GDP in 2011 (Figure 10).

Figure 10. Excise tax revenues as % of GDP
0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 1995 1997 1999 2001 2003 2005 2007 2009 2011

Alcohol

Tobacco

This move was meant to address tax evasion arising from the transfer pricing between the manufacturers of tobacco and alcoholic products and their related marketing arms. This conclusion is based on 2004 retail prices of various brands of cigarettes as cited in dela Cruz (2004) and 2009 retail prices of various brands of cigarettes as cited in Latuja et al. (2010).
16

15

27

By providing manufacturers of excisable product the opportunity to mis-declare higher-priced (and therefore, higher-taxed) brands as lower-priced (and therefore, lower-taxed) brands so as to evade paying the correct taxes, the multi-tier rate structure of the excise tax system may have also contributed to the deterioration of the excise tax effort in 1997 to 2011. For instance, Manasan (2010) noted that a shift towards the production of brands subjected to a lower tax rate and a decline in the volume of production of tobacco products, as measured by the total volume of cigarette removals from the plants reported by cigarette manufacturers to the BIR in 2005 to 2009 are not consistent with the positive growth in personal consumption of tobacco products in real terms as per the National Income Accounts during the same period. Also, the data on volume of removals indicate that cigarette producers reported higher than normal volume of removals in 2004, 2006 and 2008, apparently in anticipation of the mandated increase in specific tax rates in 2005, 2007 and 2009. The current system also distinguishes between the old and new brands. Brands that existed before 1996 are taxed based on their 1996 price while newer brands, including imports, are taxed based on their current prices which tend to be higher. The differential tax treatment of old and new brands results in an uneven playing field for the producers of excisable products with new brands or variants and imported brands being taxed more than locally manufactured older brands. Related to this, the taxation of distilled spirits has been ruled by the WTO to have broken the rules of free trade. The WTO holds that the current excise tax structure of the country discriminates against imported spirits in violation of the General Agreement on Tariffs and Trade (GATT). Tobacco and alcohol excise tax rates in the Philippines are among the lowest not just in Asia but worldwide (Sunley 2009, Nakayama et. al. 2011). Thus, it is perhaps not a coincidence that the Philippines is currently the highest consumer of tobacco in Southeast Asia, where there are 17.3 million cigarette consumers as estimated by the Department of Health. Health advocates also argue that the social costs of cigarette smoking and alcohol consumption in terms of their harmful effects on health are the same regardless of the net retail price of any one brand of the excisable product. From this perspective, a uniform rate makes more sense than the existing multi-tier rate structure. To wit, a uniform rate structure is preferable to a multi-tier rate structure because it eliminates the opportunity for consumers to switch from higher-priced, higher-taxed brands to cheaper, lower-taxed (but just as harmful) brands. Key provisions of Republic Act 10351 In December 2012, President Benigno C. Aquino signed Republic Act 10351 (An Act Restructuring the Excise Tax on Alcohol and Tobacco Products) into law. It imposes a twotier excise tax system on cigarettes and fermented liquor in 2013 to 2016 before shifting to a uniform rate of PhP 30 per pack of cigarettes and PhP 23.50 per liter of fermented liquor in 2017 (Table 10). On the other hand, it levies a hybrid tax of PhP 20 pesos per proof liter of distilled spirits plus 15% of its net retail price. It also provided for a 4% increase in the specific rates yearly starting 2018. Moreover, the law calls for the removal of the price classification freeze.

28

Table 10. Excise tax rates on tobacco and alcoholic products (RA 10351) 2013 2014 2015 2016 Cigarettes NRP is below PhP 11.50 per pack 12 17 21 25 NRP is PhP 11.50 or more per pack 25 27 28 29 Fermented liquor NRP is below PhP 50.60 per liter 15 17 19 21 NRP is PhP 50.60 or more per liter 20 21 22 23

2017 30 30 23.5 23.5

The additional revenue take from RA 10351 is estimated to be PhP 34 billion in 2013, PhP 43 billion in 2014, PhP 51 billion in 2015, PhP 57 billion in 2016 and PhP 64 billion in 2017. Eighty percent of the remaining balance of the said incremental revenues after deducting the 15% of incremental collections from the excise tax on tobacco products that will go to provinces where Virginia tobacco is produced (as mandated under RA 7171) and the 15% of the additional revenues collected from the excise tax on tobacco products that will be allocated among barley and native tobacco producing provinces (as mandated under RA 8240) shall be allocated for the universal health care under the National Health Insurance Program, the attainment of the Millennium Development Goals and health awareness campaigns. On the other hand, the remaining 20% of the remaining balance shall be allocated based on political and district subdivisions for medical assistance and the health facilities enhancement program. RA 10351 appears to have successfully put together the desirable provisions of the House and Senate versions of the sin tax bill. The law has greatly simplified the tax structure by adopting a unitary excise tax rate for cigarettes, fermented liquor and distilled spirits. Such a shift away from the existing multi-tiered tax structure will tend to result in greater ease in tax administration by minimizing the opportunities for mis-classification or mis-declaration of goods and transactions. Furthermore, such a move will tend to minimize the downshifting to cheaper brands thus tending to reduce consumption of tobacco products and alcoholic beverages better. Although RA 10351 does not allow for the automatic indexation of the excise tax rates to inflation, it does allow for a 4% increase in the excise tax rates yearly from 2018 onwards. This change is will not only yield additional revenues in the near term but will also prevent the erosion of excise tax revenues in real terms over the long term. Furthermore, a yearly adjustment in the excise tax rate is preferable over an adjustment that occurs every other year as proposed under the House version because the latter tends to give manufacturers the opportunity to avoid taxes by reporting higher than normal volume of removals in the year prior to the mandated increase in specific rates. Also, by doing away with the freeze on price classification of excisable products, RA 10351 eliminates the preferential tax treatment given to existing brands over new entrants and imports. Such a move tends to level the playing field among the various industry players and enables the country to comply with WTO requirements. On the other hand, the provision of with regards to local content of tobacco products in the Senate version is muted somewhat in

29

the bicameral version which states that “Of the total volume of cigarettes sold in the country, any manufacturer and/or seller of tobacco products must source at least 15% of its tobacco leaf raw materials supply locally, subject to adjustment based on international treaty commitments." While RA 10351 removed the very detailed earmarking provisions found in the Senate version of the sin tax bill, earmarking of the incremental revenues resulting from the proposed amendment to the excise tax law continues to be one of its major features. The arguments against earmarking in the public finance literature are well known. To wit, earmarking is said to lead “to inefficient budgeting, essentially because it creates rigidities in the expenditure allocation process and prevents authorities from smoothly reallocating funds when spending priorities change.” Also, when earmarked funds are off-budget, some loss in budgetary accountability may result because “off-budget often means out of sight and out of mind” (Bird and Jun 2005). However, earmarking may be justified if there is a close link between the payment of earmarked taxes and the benefits accruing to the taxpayer from the favored expenditures as this is consistent with the benefit principle of taxation. But the IMF (2011) points out that “it is difficult to isolate health expenditure on smoking related diseases and finance them by tobacco duties” or taxes (Nakayama et. al. 2011).

5.

FINANCING PROGRAM

Given the emerging fiscal picture for 2011, the debt sustainability analysis that was undertaken in Section 2 indicates that the fiscal deficit targets embodied in the 2012 President’s Budget will result in a consistent reduction of the outstanding debt stock of the national government. Thus, the national government debt stock is projected to decline persistently from 54.8% of GDP in 2009 to 52.4% in 2010, 50.9% in 2011 and 51.4% in 2012 (Figure 2). Given the uncertainties in the international financial market, the financing of the national government aims to (i) shift the national government borrowing mix toward a 25:75 ratio in favor of domestic borrowing, and (ii) extend the maturities of existing debt. These changes are evident in the programmed borrowing mix in 2011-2012. Specifically, net domestic borrowing rose from 55.4% in 2011 to 87.0% in 2012 (Figure 11). Consequently, the share of domestic debt to total national government outstanding debt inclusive of contingent liabilities expanded from 53.5% in 2010 to 54.9% in 2011 and 60.8% in 2012 (Figure 12). At the same time, the country’s debt profile improved as the share of debt with long-term maturities in the total debt stock of the national government increased from 73.6% in 2010 to 86.2% in 2012 while the share of short term debt to total national government debt decreased from 11.2% to 5.1% (Figure 13). The trends described above are expected to persist as the profile of national government borrowing in 2013 continues to be biased in favor of domestic borrowings. To wit, the share of domestic borrowing in total national government borrowing is programmed to be equal to 54.5% in 2013.

30

% of total 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0 -20.0 -40.0

Figure 11. Composition of NG Borrowing (%) 1996-2013

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 prog

Domestic

Foreign

% of total 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 1996 1997

Figure 12. Composition of NG Outstanding Debt (%) 1996-2012

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Domestic

Foreign

31

% of total 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 1996 1997

Figure 13. Distribution of NG Outstanding Debt, by Maturity, 1996-2012

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Short-term

Medium-term

Long-term

6.

CONCLUSION

This study shows that significant improvements in tax efforts, specifically by the Bureau of Internal Revenue (BIR), as well as markedly lower than programmed government expenditures since 2011, have resulted in improved fiscal performance of the country. Fiscal deficits in 2011 and 2012 are lower than the programmed levels, while outstanding national government debt stocks in both years are lower than both the projected levels and the 2010 level. It appears that fiscal deficit target for 2013 can be met, or can even be lower than projected. This is due to the expectation that government revenues will be higher than the projections of the BESF. Although this paper projects the BOC collections and non-tax revenues to be equal to the 2011 and 2012 levels, additional government revenues is expected from BIR collections which is targeted to reach 1.26 trillion in 2013, in contrast to the 1.24 trillion target under the President’s Budget. This can be met provided the BIR is able to improve its tax efforts in the same manner it did in 2011 and 2012, and taking into account the passage of the amendments to the excise tax law on sin products which is estimated to yield an additional revenue of PhP 34 billion in 2013. In line with the government’s goal of a more inclusive growth, a more balanced distribution of the budget between the social services and economic services sectors have characterized the 2013 National Expenditure Program. Nevertheless, the social services sector still account for more than half of the PhP 190 billion increase in expenditure program for 2013. Of the social services, the education sector has the largest share (34.6%) in the increment in the total expenditure program of the national government. However, the budget for basic education still compares unfavorably with those of its neighbors in Southeast Asia. On the other hand, national defense receives the lowest budget share among the major expenditure groups.

32

Finally, this paper highlights the improving debt profile of the country. It is expected that in 2013, the trends in national government borrowing in will continue to be biased in favor of domestic borrowings in 2013.

33

REFERENCES

Anand, R. & van Wijnbergen, S. (1989). Inflation and the financing of government expenditure: An introductory analysis with an application to Turkey. World Bank Economic Review, 3(1), 17-38. Bird, R. and Jun, J. (2005). Earmarking in theory and Korean practice. (Working Paper 0515). Atlanta, Georgia: Andrew Young School of Policy Studies, Georgia State University. Retrieved November 22, 2012, from http://aysps.gsu.edu/isp/files/ispwp0515.pdf Catsambas, T. & Miria P. (1989). The consistency of government deficits with macroeconomic adjustment: An application to Kenya and Ghana. (Working Paper Series 287). Washington DC: World Bank. Retrieved November 2, 2012, from http://econ.worldbank.org/external/default/main?pagePK=64165259&theSitePK=469 072&piPK= 64165421&menuPK=64166093&entityID=000009265_3960928082353 Chaudhury, N., Friedman, J., & Onishi, J. (2013). Philippines conditional cash transfer program impact evaluation 2012. Washington DC: World Bank. Retrieved November 4, 2012, from http://pantawid.dswd.gov.ph/images/philippines_conditional_ cash_transfer_program_impact_evaluation_2012.pdf David, C. C. (2003). Agriculture. In A.M. Balisacan & H. Hill (Eds), The Philippine Economy: Development, Policies, and Challenges, New York: Oxford University Press. David, C. C., Briones R. M., Inocencio, A. E., Intal, P. S. Jr., Geron, M. P. S., & Ballesteros, M. M . (2012). Monitoring and Evaluation of Agricultural Policy Indicators. (PIDS Discussion Paper Series No. 2012-26). Makati: Philippine Institute for Development Studies. Dela Cruz, R. (10 November 2004). The smoking gun. Today. Retrieved November 22, 2012, from http://www3.pids.gov.ph/ris/pitn/today_nov10.pdf Department of Health (DOH). (2010). PhilHealth benefit delivery review: A consolidated report on a review of PhilHealth performance in implementing the National Health Insurance Program. Health Sector Reform Agenda. (HSRA Technical Report). Manila: Department of Health. Fedelino, A., Ivanona, A., & Horton, M. (2009). Computing cyclically adjusted balances and automatic stabilizers. (Technical Notes and Manuals). Washington DC: International Monetary Fund. Retrieved November 5, 2012, from http://www.imf.org/ external/pubs/ft/tnm/2009/tnm0905.pdf.

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Landingan, R. R. (2012, April 8). More open bids, savings up amid project delays. Philippine Center for Investigative Journalism. Retrieved November 2, 2012, from http://pcij.org/stories/more-open-bids-savings-up-amid-project-delays/ Latuja, J., Reyes, I., Sy, D., Dorotheo, U., Prugsamatz, R., Reyes, J. (2010). Philippines tobacco report card. Health Justice Philippines. Retrieved November 22, 2012, from http://healthjustice.ph/attachments/124_Philippines%20Tax%20Report%20Card.pdf Manasan, R. G. & Cuenca, J. S. (2010). Multi-year spending plan for the Department of Health: An update. Report submitted to the Department of Health. Manasan, R. G. (2010). Financing the MDGs and inclusive growth in the time of fiscal consolidation. (PIDS Discussion Paper No.2010-34). Makati City: Philippine Institute for Development Studies. Manasan, R. G. (2011). Analysis of the President’s Budget for 2012. (PIDS Discussion Paper 2011-20). Makati: Philippine Institute for Development Studies. Manasan, R. G. (2011a). Expanding social health insurance coverage: new issues and challenges. (PIDS Discussion Paper 2011-21). Makati City: Philippine Institute for Development Studies. Manasan, R. G. (2011b). Pantawid Pamilyang Pilipino Program and school attendance: early indications of success. (PIDS Policy Notes No. 2011-19). Makati City: Philippine Institute for Development Studies. Manasan, R. G., & Parel, D. K. C. (2013). Amending the sin tax law. (PIDS Discussion Paper 2013-19). Makati: Philippine Institute for Development Studies. Nakayama, K., Caner, S. & Mullins, P. (2011). Philippines: Road map for a pro-growth equitable tax system. (IMF Country Report No. 12/60). Retrieved November 22, 2012, from www.imf.org/external/pubs/ft/ scr/2012/cr1260.pdf National Economic and Development Authority (NEDA) (2011). Philippine Development Plan 2011-2014. Manila: NEDA. Retrieved November 5, 2012, from http://www.neda.gov.ph/PDP/2011-2016/ Reyes, C. M., & Tabuga, A. D. (2012). Conditional cash transfer program in the Philippines: Is it reaching the extremely poor? (PIDS Discussion Paper Series No. 2012-42). Makati: Philippine Institute for Development Studies. Sunley, E. (2009). Taxation of cigarettes in the Bloomberg Initiative countries: overview of policy issues and proposal for reform. Report submitted to the Bloomberg Initiative to Reduce Tobacco Use under a contract from the International Union Against Tubercolosis and Lung Disease. Retrieved from http://tobaccofreecenter.org/ files/pdfs/en/ Cigarette_tax_BIcountries.pdf.

35

World Bank (2005). Philippines: Meeting Infrastructure Challenges. Washington DC: World Bank. World Bank (2007). Philippines: Agriculture Public Expenditure Review. (Technical Working Paper No. 40493). Washington DC: World Bank.

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APPENDIX TABLES

37

Appendix Table 1. National Government Expenditures, Obligation Basis, as a Percentage of GDP, 1975-2013

Marcos Aquino I Ramos
1975-85 GRAND TOTAL Total Economic Services Agriculture Agrarian Reform Natural Resources Industry Trade Tourism Power & Energy Water Resources Devt. Transp. & Comm. Other Econ. Services Total Social Services Education o/w: Basic education Tertiary education Health Soc. Security, Labor/ Emp., & Social Welfare Services Housing & Com. Devt. National Defense Total Public Services Public Administration Peace and Order Others n.e.c. Debt Service MEMO ITEM: Transfers to LGUs Grand Total less Debt Service Grand Total less Debt Service less Transfers to LGUs Infrastructure 0.5 12.1 11.6 3.2 0.7 11.9 11.2 2.2 2.5 14.2 11.7 2.2 13.4 5.7 0.8 0.1 0.2 0.2 0.1 0.0 0.7 0.1 2.4 1.0 2.7 1.7 1.3 0.3 0.5 0.1 0.3 1.7 1.4 1.1 0.4 0.7 1.3 1986-92 16.9 4.1 0.7 0.3 0.3 0.1 0.0 0.0 0.3 0.1 1.9 0.4 3.5 2.5 2.1 0.4 0.6 0.3 0.1 1.2 2.1 1.2 0.9 1.1 5.0

Estrada

Arroyo Aquino II
2011-12 16.9 2.8 0.6 0.2 0.2 0.1 0.0 0.0 0.1 0.0 1.6 0.0 4.0 2.7 2.4 0.3 0.5 0.6 0.2 1.0 2.3 1.1 1.3 3.8 3.0 1997 18.3 4.1 0.9 0.3 0.3 0.2 0.0 0.0 0.1 0.0 2.1 0.1 4.9 3.5 2.9 0.5 0.5 0.8 0.1 1.1 2.7 1.4 1.2 2.7 2.9 1998 18.2 3.4 0.6 0.3 0.2 0.1 0.0 0.0 0.1 0.0 2.1 0.0 4.9 3.6 2.9 0.5 0.5 0.8 0.1 1.1 2.7 1.4 1.3 2.7 3.4 1999 17.9 3.3 0.7 0.2 0.2 0.1 0.0 0.0 0.2 0.0 1.9 0.1 4.7 3.4 2.7 0.5 0.5 0.7 0.1 1.0 2.4 1.1 1.2 3.1 3.3 2000 19.1 3.5 0.6 0.3 0.2 0.1 0.0 0.0 0.1 0.0 2.1 0.1 4.7 3.3 2.7 0.5 0.4 0.8 0.2 1.0 2.5 1.2 1.3 3.3 3.9 2001 18.2 3.0 0.6 0.2 0.2 0.1 0.0 0.0 0.1 0.0 1.7 0.0 4.2 3.1 2.6 0.4 0.3 0.7 0.0 0.9 2.5 1.2 1.3 3.1 4.5 2002 17.7 2.4 0.4 0.2 0.2 0.1 0.0 0.0 0.0 0.0 1.4 0.0 4.1 3.1 2.5 0.4 0.3 0.7 0.0 0.9 2.4 1.1 1.3 3.4 4.4 2003 18.1 2.6 0.5 0.2 0.2 0.1 0.0 0.0 0.0 0.0 1.5 0.0 3.7 2.9 2.4 0.4 0.3 0.4 0.1 1.2 2.4 1.1 1.3 3.3 5.0 2004 16.9 2.4 0.4 0.3 0.1 0.1 0.0 0.0 0.1 0.0 1.4 0.0 3.3 2.6 2.1 0.4 0.3 0.4 0.0 1.1 2.2 0.9 1.2 2.9 5.1 2005 16.7 2.1 0.5 0.2 0.1 0.1 0.0 0.0 0.0 0.0 1.1 0.0 3.0 2.4 1.9 0.3 0.2 0.4 0.1 1.1 2.4 1.2 1.2 2.8 5.3 2006 16.7 2.6 0.4 0.2 0.1 0.1 0.0 0.0 0.0 0.0 1.6 0.0 3.1 2.4 2.0 0.3 0.3 0.4 0.1 1.0 2.3 1.1 1.2 2.7 4.9 2007 16.8 3.2 0.6 0.2 0.1 0.1 0.0 0.0 0.1 0.0 2.0 0.0 3.3 2.5 2.1 0.3 0.3 0.4 0.1 1.1 2.4 1.2 1.2 2.9 3.9 2008 17.0 3.7 1.0 0.2 0.1 0.1 0.0 0.0 0.0 0.0 2.1 0.0 3.2 2.4 2.0 0.3 0.2 0.4 0.1 1.0 2.5 1.3 1.2 3.0 3.5 2009 17.9 3.8 0.8 0.2 0.2 0.1 0.0 0.0 0.2 0.0 2.3 0.0 3.5 2.6 2.2 0.3 0.3 0.4 0.1 1.0 2.8 1.4 1.4 3.3 3.5 2010 16.4 3.1 0.8 0.2 0.2 0.1 0.0 0.0 0.0 0.0 1.8 0.0 3.3 2.5 2.1 0.3 0.3 0.4 0.1 1.1 2.4 1.1 1.3 3.2 3.3 2011 16.2 2.7 0.5 0.2 0.1 0.1 0.0 0.0 0.2 0.0 1.6 0.1 3.9 2.6 2.4 0.3 0.4 0.6 0.2 1.1 2.5 1.2 1.3 3.2 2.9

1993-98 1999-2000 2001-10 17.7 3.7 0.7 0.3 0.2 0.2 0.0 0.0 0.2 0.0 2.0 0.1 4.3 3.1 2.5 0.5 0.5 0.6 0.1 1.1 2.6 1.4 1.1 2.6 3.5 18.5 3.4 0.6 0.3 0.2 0.1 0.0 0.0 0.1 0.0 2.0 0.1 4.7 3.4 2.7 0.5 0.4 0.8 0.2 1.0 2.5 1.2 1.3 3.2 3.6 17.1 3.0 0.7 0.2 0.2 0.1 0.0 0.0 0.1 0.0 1.8 0.0 3.4 2.6 2.2 0.3 0.3 0.4 0.1 1.1 2.4 1.2 1.3 3.0 4.2

2012 Prelim 17.2 2.7 0.6 0.2 0.2 0.1 0.0 0.0 0.1 0.0 1.5 0.0 3.8 2.6 2.5 0.3 0.5 0.7 0.1 1.1 2.3 1.0 1.3 4.1 3.2

2013 NEP 17.2 2.9 0.6 0.2 0.2 0.1 0.0 0.0 0.1 0.0 1.6 0.0 4.3 2.9

0.5 0.7 0.2 1.0 2.2 1.0 1.2 4.0 2.9

3.1 14.9 11.8 2.2

2.9 12.9 10.1 1.8

2.7 13.9 11.2 1.7

2.6 15.4 12.7 2.2

2.6 14.8 12.2 2.2

2.9 14.6 11.7 2.1

3.2 15.1 11.9 2.3

3.0 13.7 10.7 1.9

3.2 13.2 10.0 1.4

3.1 13.2 10.1 1.5

2.8 11.8 9.1 1.5

2.7 11.4 8.7 1.1

2.7 11.7 9.1 1.7

2.7 12.9 10.2 2.0

2.7 13.5 10.8 2.1

3.1 14.4 11.3 2.5

3.0 13.1 10.1 1.8

2.9 13.4 10.4 1.8

2.6 14.0 11.4 1.7

2.6 14.4 11.8 1.7

38

Appendix Table 2. Percentage Distribution of National Government Expenditures, Obligation Basis, by Function or Sectors, 1975-2013

Marcos Aquino I Ramos Estrada Arroyo Aquino II
1975-85 1986-92 1993-98 1999-2000 2001-10 2011-12 GRAND TOTAL Total Economic Services Agriculture Agrarian Reform Natural Resources Industry Trade Tourism Power & Energy Water Resources Devt. Transp. & Comm. Other Econ. Services Total Social Services Education Health Soc. Security, Labor/ Emp., & Social Welfare Services Housing & Com. Devt. National Defense Total Public Services Public Administration Peace and Order Others n.e.c. Debt Service MEMO ITEM: Transfers to LGUs Grand Total - Debt Service Grand Total less Debt Service less Transfers to LGUs Infrastructure 4.1 90.6 86.5 24.0 4.3 70.5 66.2 13.2 14.0 80.0 66.0 12.6 16.6 80.4 63.8 11.7 16.8 75.5 58.8 10.6 16.0 82.5 66.5 10.2 14.4 84.1 69.7 12.2 14.3 81.4 67.1 12.0 16.4 81.7 65.3 11.6 16.7 79.4 62.6 11.9 16.4 75.3 58.9 10.3 18.1 75.0 56.8 7.9 17.1 72.6 55.5 8.3 16.3 69.9 53.6 8.8 16.0 68.4 52.4 6.7 15.9 70.3 54.4 10.0 15.9 76.8 60.9 12.2 16.0 79.3 63.3 12.6 17.4 80.6 63.1 14.1 18.0 80.0 62.0 11.2 18.2 82.3 64.2 11.0 100.0 42.3 6.0 0.8 1.6 1.7 0.8 0.3 5.1 0.9 18.0 7.1 20.0 12.5 4.0 1.1 2.4 12.5 10.7 8.0 2.7 5.2 9.4 100.0 24.2 4.2 1.9 1.5 0.8 0.2 0.1 1.8 0.4 11.0 2.1 20.7 14.7 3.7 1.5 0.7 7.1 12.2 6.8 5.3 6.3 29.5 100.0 20.9 3.7 1.6 1.4 0.9 0.1 0.2 1.0 0.2 11.3 0.4 24.1 17.4 2.6 3.5 0.7 6.2 14.4 8.0 6.4 14.5 20.0 100.0 18.6 3.4 1.4 1.0 0.6 0.0 0.2 0.8 0.1 10.8 0.3 25.6 18.2 2.3 4.1 1.0 5.5 13.2 6.3 6.9 17.5 19.6 100.0 17.4 3.8 1.2 0.9 0.5 0.1 0.2 0.3 0.0 10.3 0.1 19.9 15.2 1.7 2.5 0.5 6.2 14.2 6.8 7.4 17.8 24.5 100.0 16.4 3.4 1.0 1.1 0.3 0.0 0.1 0.8 0.0 9.4 0.3 23.8 16.2 2.7 3.8 1.0 6.1 13.8 6.3 7.4 22.4 17.5 1997 100.0 22.2 5.0 1.6 1.9 0.9 0.1 0.2 0.5 0.2 11.4 0.4 26.8 19.3 2.9 4.2 0.4 5.9 14.6 7.8 6.8 14.5 15.9 1998 100.0 18.8 3.2 1.4 1.2 0.5 0.1 0.2 0.4 0.1 11.5 0.2 27.1 19.7 2.5 4.3 0.5 5.9 14.7 7.8 6.9 14.9 18.6 1999 100.0 18.7 3.8 1.2 1.1 0.5 0.0 0.1 1.1 0.1 10.4 0.4 26.5 19.1 2.5 4.2 0.7 5.7 13.3 6.4 7.0 17.4 18.3 2000 100.0 18.5 3.0 1.5 0.9 0.7 0.0 0.2 0.5 0.1 11.2 0.3 24.8 17.4 2.1 4.0 1.2 5.4 13.2 6.3 6.9 17.6 20.6 2001 100.0 16.6 3.1 1.4 1.1 0.4 0.1 0.1 0.7 0.1 9.5 0.2 23.0 17.2 1.8 3.7 0.2 5.1 13.5 6.4 7.1 17.1 24.7 2002 100.0 13.8 2.5 1.3 1.1 0.6 0.1 0.2 -0.1 0.0 7.9 0.1 23.2 17.3 1.9 3.7 0.2 5.3 13.7 6.1 7.6 19.0 25.0 2003 100.0 14.2 3.0 1.4 0.8 0.3 0.1 0.1 0.0 0.0 8.3 0.1 20.4 16.1 1.5 2.3 0.4 6.7 13.3 6.0 7.3 18.1 27.4 2004 100.0 14.1 2.3 1.5 0.7 0.4 0.1 0.2 0.5 0.0 8.3 0.1 19.5 15.3 1.7 2.3 0.2 6.4 12.7 5.4 7.3 17.1 30.1 2005 100.0 12.6 3.1 1.3 0.8 0.4 0.1 0.1 0.2 0.0 6.5 0.1 18.2 14.2 1.5 2.2 0.3 6.4 14.6 7.4 7.2 16.6 31.6 2006 100.0 15.4 2.3 1.2 0.9 0.6 0.1 0.2 0.3 0.0 9.8 0.1 18.6 14.2 1.6 2.2 0.6 6.2 13.9 6.5 7.4 16.3 29.7 2007 100.0 19.3 3.7 1.4 0.8 0.9 0.1 0.2 0.5 0.0 11.6 0.1 19.4 15.0 1.6 2.1 0.7 6.5 14.2 6.9 7.3 17.3 23.2 2008 100.0 21.5 6.0 1.1 0.7 0.8 0.0 0.2 0.2 0.0 12.4 0.1 19.1 14.3 1.4 2.6 0.7 6.2 14.9 7.7 7.2 17.7 20.7 2009 100.0 21.5 4.7 0.9 0.9 0.6 0.0 0.2 0.9 0.1 13.0 0.1 19.5 14.7 1.6 2.5 0.6 5.9 15.4 7.7 7.7 18.4 19.4 2010 100.0 19.1 5.1 1.0 1.0 0.4 0.0 0.1 0.2 0.0 11.0 0.3 20.5 15.4 2.1 2.4 0.5 6.5 14.5 6.8 7.7 19.5 20.0 2011 100.0 16.6 2.8 1.0 0.9 0.3 0.1 0.1 1.1 0.0 9.9 0.4 23.9 16.2 2.6 3.7 1.4 6.5 15.4 7.6 7.7 20.0 17.7

2012 Prelim 100.0 15.9 3.4 1.1 1.0 0.3 0.0 0.1 0.6 0.0 8.9 0.2 22.2 15.3 2.6 3.8 0.4 6.2 13.4 5.7 7.7 24.0 18.3

2013 NEP 100.0 16.8 3.7 1.1 1.2 0.3 0.0 0.2 0.6 0.0 9.5 0.2 25.1 17.1 2.9 3.9 1.2 5.7 12.8 5.9 6.9 23.0 16.6

15.1 81.7 66.6 9.6

15.1 83.4 68.3 10.1

39

Appendix Table 3. Percentage Distribution of National Government Expenditures Net of Debt Service, by Function or Sectors, 1975-2013

Marcos Aquino I Ramos Estrada Arroyo Aquino II
1975-85 1986-92 1993-98 1999-2000 2001-10 2011-12 Total Economic Services Agriculture Agrarian Reform Natural Resources Industry Trade Tourism Power & Energy Water Resources Devt. Transp. & Comm. Other Econ. Services Total Social Services Education Health Soc. Security, Labor/ Emp., & Social Welfare Services Housing & Com. Devt. National Defense Total Public Services Public Administration Peace and Order Others n.e.c. MEMO ITEM: Transfers to LGUs Grand Total - Debt Service Infrastructure 4.5 100.0 26.5 6.2 100.0 18.8 17.5 100.0 15.7 20.6 100.0 14.6 22.2 100.0 14.1 19.4 100.0 12.4 17.2 100.0 14.5 17.6 100.0 14.8 20.1 100.0 14.2 21.1 100.0 15.0 21.8 100.0 13.6 24.2 100.0 10.5 23.6 100.0 11.5 23.3 100.0 12.6 23.4 100.0 9.8 22.7 100.0 14.3 20.7 100.0 15.9 20.2 100.0 15.8 21.6 100.0 17.5 22.5 100.0 14.0 22.1 100.0 13.3 46.6 6.6 0.9 1.8 1.8 0.9 0.3 5.6 1.0 19.8 7.9 22.0 13.8 4.4 1.2 2.6 13.7 11.8 8.8 3.0 5.7 34.3 6.0 2.6 2.1 1.2 0.3 0.2 2.5 0.6 15.6 3.0 29.4 20.9 5.3 2.2 1.0 10.1 17.3 9.7 7.6 9.0 26.1 4.6 2.0 1.7 1.1 0.2 0.2 1.2 0.3 14.2 0.5 30.1 21.8 3.2 4.4 0.8 7.7 18.0 10.0 8.0 18.1 23.1 4.2 1.7 1.2 0.7 0.0 0.2 1.0 0.1 13.5 0.4 31.8 22.6 2.9 5.0 1.2 6.9 16.5 7.9 8.6 21.8 23.1 5.1 1.6 1.2 0.7 0.1 0.2 0.5 0.0 13.6 0.2 26.4 20.2 2.2 3.4 0.6 8.2 18.8 9.0 9.8 23.5 19.9 4.1 1.3 1.3 0.4 0.1 0.2 0.9 0.0 11.4 0.3 28.8 19.7 3.3 4.6 1.2 7.4 16.7 7.7 9.0 27.2 1997 26.4 5.9 1.9 2.2 1.1 0.1 0.2 0.6 0.3 13.6 0.5 31.9 22.9 3.4 5.0 0.5 7.1 17.4 9.3 8.1 17.3 1998 23.1 3.9 1.7 1.4 0.6 0.1 0.3 0.5 0.1 14.1 0.3 33.3 24.2 3.0 5.3 0.7 7.3 18.1 9.6 8.5 18.3 1999 22.8 4.7 1.5 1.3 0.6 0.0 0.2 1.3 0.1 12.7 0.4 32.5 23.4 3.1 5.1 0.9 7.0 16.3 7.8 8.5 21.3 2000 23.3 3.8 1.9 1.2 0.8 0.0 0.3 0.7 0.1 14.2 0.4 31.2 22.0 2.7 5.0 1.5 6.7 16.6 7.9 8.6 22.1 2001 22.0 4.1 1.8 1.5 0.5 0.1 0.2 0.9 0.1 12.7 0.3 30.5 22.9 2.5 4.9 0.3 6.8 18.0 8.5 9.4 22.7 2002 18.4 3.3 1.7 1.5 0.8 0.1 0.2 -0.1 0.0 10.6 0.2 30.9 23.1 2.6 4.9 0.3 7.0 18.3 8.2 10.1 25.4 2003 19.5 4.1 1.9 1.1 0.4 0.1 0.2 0.1 0.0 11.4 0.2 28.1 22.2 2.1 3.2 0.5 9.2 18.3 8.3 10.0 24.9 2004 20.2 3.3 2.2 1.1 0.6 0.1 0.2 0.6 0.0 11.9 0.2 27.9 21.9 2.4 3.3 0.3 9.2 18.2 7.8 10.4 24.4 2005 18.5 4.6 2.0 1.1 0.5 0.1 0.2 0.3 0.0 9.5 0.2 26.6 20.7 2.2 3.2 0.5 9.3 21.4 10.9 10.5 24.3 2006 21.9 3.3 1.7 1.2 0.9 0.1 0.2 0.4 0.0 13.9 0.1 26.4 20.2 2.2 3.2 0.8 8.8 19.8 9.3 10.5 23.1 2007 25.2 4.8 1.8 1.0 1.1 0.1 0.2 0.7 0.0 15.2 0.1 25.3 19.6 2.1 2.8 0.9 8.5 18.5 8.9 9.5 22.6 2008 27.1 7.6 1.3 0.9 1.0 0.0 0.2 0.2 0.0 15.6 0.1 24.0 18.1 1.8 3.2 0.9 7.8 18.8 9.7 9.1 22.3 2009 26.7 5.8 1.1 1.2 0.7 0.1 0.2 1.1 0.2 16.2 0.1 24.1 18.3 2.0 3.1 0.7 7.3 19.1 9.5 9.6 22.8 2010 23.9 6.4 1.2 1.2 0.5 0.0 0.1 0.2 0.0 13.8 0.3 25.6 19.3 2.6 3.0 0.6 8.1 18.1 8.5 9.6 24.3 2011 20.2 3.4 1.2 1.1 0.4 0.1 0.2 1.3 0.0 12.0 0.5 29.0 19.7 3.1 4.5 1.7 7.9 18.7 9.3 9.4 24.3

2012 Prelim 19.4 4.2 1.3 1.3 0.4 0.0 0.2 0.8 0.1 11.0 0.3 27.2 18.7 3.2 4.7 0.5 7.6 16.4 7.0 9.4 29.4

2013 NEP 20.2 4.5 1.3 1.5 0.4 0.0 0.2 0.7 0.0 11.4 0.2 30.1 20.5 3.5 4.7 1.4 6.8 15.4 7.1 8.3 27.5

18.4 100.0 11.8

18.1 100.0 12.1

40

Appendix Table 4. Real Per Capita National Government Expenditures, Obligation Basis, 1975-2013 (in 2000 prices)

Marcos Aquino I Ramos Estrada Arroyo Aquino II
1975-85 GRAND TOTAL Total Economic Services Agriculture Agrarian Reform Natural Resources Industry Trade Tourism Power & Energy Water Resources Devt. Transp. & Comm. Other Econ. Services Total Social Services Education o/w: Basic education Tertiary education Health Soc. Security, Labor/ Emp., & Social Welfare Services Housing & Com. Devt. National Defense Total Public Services Public Administration Peace and Order Others n.e.c. Debt Service MEMO ITEM: Transfers to LGUs Grand Total less Debt Service Grand Total less Debt Service less Transfers to LGUs Infrastructure 245 5,821 5,576 1,641 285 5,035 4,750 904 1,098 6,235 5,137 990 1,416 6,867 5,452 1,001 1,553 6,966 5,413 959 1,773 9,134 7,361 1,131 1,235 7,192 5,957 1,042 1,183 6,727 5,544 993 1,343 6,680 5,337 947 1,489 7,055 5,566 1,055 1,403 6,446 5,044 880 1,534 6,346 4,812 667 1,530 6,496 4,966 744 1,423 6,117 4,694 770 1,419 6,062 4,643 595 1,457 6,430 4,973 918 1,532 7,395 5,863 1,173 1,602 7,924 6,322 1,255 1,815 8,386 6,571 1,464 1,817 8,058 6,241 1,129 1,850 8,388 6,538 1,119 6,246 2,694 392 61 111 101 39 20 363 61 1,217 329 1,258 784 602 151 253 74 147 870 683 504 179 317 425 1986-92 7,091 1,753 328 127 106 65 14 9 125 32 748 200 1,461 1,044 860 158 263 100 54 524 845 476 369 452 2,056 1993-98 1999-2000 2001-10 7,845 1,640 224 188 108 70 12 14 87 20 884 34 1,851 1,337 1,037 181 200 263 52 486 1,127 630 497 1,130 1,610 8,534 1,586 291 116 84 50 1 16 68 8 924 27 2,184 1,556 1,212 204 199 347 83 473 1,131 541 589 1,493 1,666 9,284 1,578 340 114 82 50 5 14 31 2 926 13 1,863 1,425 1,155 175 156 241 42 569 1,311 626 685 1,645 2,318 2011-12 11,076 1,819 372 115 117 34 5 16 84 2 1,045 28 2,629 1,797 1,536 191 301 423 108 676 1,528 704 824 2,482 1,942 1997 8,547 1,900 426 135 162 76 10 17 46 20 975 34 2,293 1,650 1,265 208 246 361 36 508 1,249 667 582 1,242 1,355 1998 8,261 1,554 265 115 96 44 5 19 34 9 951 17 2,239 1,631 1,272 208 205 358 44 490 1,215 645 570 1,229 1,534 1999 8,177 1,525 314 97 86 39 1 12 88 10 849 29 2,168 1,562 1,214 205 208 340 57 470 1,091 522 569 1,426 1,498 2000 8,890 1,647 269 134 82 60 1 20 48 7 1,000 26 2,200 1,549 1,210 204 190 353 108 476 1,170 560 610 1,560 1,835 2001 8,564 1,421 267 118 94 30 5 11 57 5 817 17 1,968 1,474 1,180 186 158 315 21 439 1,157 551 606 1,461 2,117 2002 8,467 1,165 212 110 93 52 5 13 (5) 0 671 12 1,964 1,468 1,187 193 164 314 18 445 1,162 521 642 1,609 2,121 2003 8,953 1,267 269 123 75 27 5 13 4 1 739 11 1,823 1,443 1,158 185 137 209 34 597 1,191 538 653 1,617 2,457 2004 8,750 1,234 201 133 64 34 4 15 40 (0) 730 13 1,709 1,341 1,069 177 148 203 17 564 1,114 476 638 1,495 2,633 2005 8,868 1,121 276 119 69 33 6 13 17 0 578 9 1,610 1,256 1,012 164 131 195 28 564 1,296 660 635 1,471 2,806 2006 9,143 1,408 210 108 79 59 9 15 23 0 894 9 1,698 1,299 1,044 163 142 204 53 566 1,271 599 672 1,488 2,714 2007 9,626 1,860 358 134 76 83 9 18 49 3 1,121 9 1,871 1,448 1,165 161 153 206 64 628 1,366 661 705 1,670 2,231 2008 9,993 2,146 602 106 73 80 4 16 16 0 1,238 11 1,905 1,434 1,182 161 142 257 72 616 1,490 768 722 1,766 2,069 2009 10,410 2,236 489 92 98 61 5 16 94 15 1,355 11 2,025 1,533 1,245 174 171 260 61 611 1,604 800 803 1,910 2,024 2010 10,070 1,922 515 99 99 40 3 12 17 0 1,112 26 2,062 1,554 1,305 183 213 245 49 655 1,461 686 775 1,959 2,012 2011 10,186 1,691 289 101 91 32 8 14 113 1 1,005 38 2,435 1,651 1,411 181 262 377 144 659 1,566 777 789 2,037 1,799

2012 Prelim 11,282 1,789 388 119 117 34 4 14 73 5 1,009 26 2,502 1,727 1,484 172 297 434 44 700 1,512 643 869 2,709 2,069

2013 NEP 11,760 1,978 440 127 143 37 4 21 66 0 1,119 21 2,950 2,014 1,713 219 343 457 136 668 1,507 691 815 2,700 1,957

1,698 9,212 7,514 1,087

1,772 9,802 8,030 1,186

41

Appendix Table 5. National Government Revenue Effort, as % of GDP, 1992-2012 1975-85 1986-92 1993-98 1999-2000 2001-10 1992 TOTAL REVENUE b/ Total tax BIR BOC Non-tax revenue b/ Source of basic data: BTr 11.5 10.0 6.0 3.6 1.5 14.7 12.2 8.2 3.9 2.2 16.8 14.7 10.7 3.9 1.6 14.6 13.1 10.3 2.7 1.4 14.6 12.7 9.7 2.8 1.6 16.2 13.9 8.9 4.9 1.6

1993 15.9 14.1 8.9 5.0 1.6

1994 17.9 14.5 10.0 4.4 1.6

1995 17.1 14.7 10.0 4.6 1.6

1996 17.1 15.3 10.8 4.3 1.6

1997 17.5 15.3 11.7 3.5 1.6

1998 15.7 14.1 11.4 2.6 1.6

1999 14.7 13.3 10.5 2.7 1.6

2000 14.4 12.8 10.1 2.7 1.6

2001 14.6 12.7 10.0 2.6 1.6

2002 13.8 12.1 9.6 2.4 1.6

2003 14.1 12.1 9.4 2.6 1.6

2004 13.8 11.8 9.2 2.5 1.6

2005 14.4 12.4 9.6 2.7 1.6

2006 15.6 13.7 10.4 3.2 1.6

2007 16.5 13.5 10.4 3.0 1.6

2008 15.6 13.6 10.1 3.4 1.6

2009 14.0 12.2 9.3 2.7 1.6

2010 13.4 12.1 9.1 2.9 1.6

2011 14.0 12.3 9.5 2.7 1.6

2012 14.5 12.9 10.0 2.7 1.6

42

References: 35 World Bank (2005) Appendix Table 2. Percentage Distribution of National Government Expenditures, Obligation Basis, by Function or Sectors, 1975-2013 Marcos Aquino I Ramos Estrada Arroyo Aquino II Appendix Table 3. Percentage Distribution of National Government Expenditures Net of Debt Service, by Function or Sectors, 1975-2013