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The Growth of Public Spending

1. annual balanced budget

2. the swedish budget of cyclically-balanced budget

3. the CED plan

4. formula flexibility

5. the managed compensatory program

1. wagner's law

2. perkinson' law

Budget Program for Stability and Employment

Somers' Principle of Government Expenditures

1. Principle of Minimum Expenditure

2. Principle of Minimum Interference with Private Enterprise

3. Principle of Maximum Employment

4. Principle of Maximum Advantage

6. Further Development Strides, 1960-1970

The Decontrol Program

  • program for the gradual lifting of exchange and import controls
  • 4 year transition period
  • transfer the functions of allocating foreign exchange from an administrative body to the operations of an impersonal free market
  • International Monetary Fund
  • Central Bank Circular 289

Philippine Public Finance

  • 5. The Early Years of the Republic
  • (1) development of budgeting in the Philippines (2) duties and functions of two agencies which significally influence the management of our public finances - Bureau of Treasury and General Auditing Office
  • Jones Law
  • Revised Budget Act of 1954, Republic Act no.992
  • Bureau of Treasury-Central Bank in 1948
  • General Auditing Office
  • Central Bank of the Philppines

1. Pre-Spanish Period

  • monarchial form of government
  • datus or rajas
  • buiz

Accelerated tremendously due to the following reasons:

1. growth in population

2. inflation

3. increased demand of economic and social development projects

Government Expenditures by Functions

1. to promote a desirable level of employment

2. to promote a desirable level of output

3. to promote a desirable level of income and its proper distribution

4. to promote a more desirable level of prices

various developments (1949-1951)

1. imposition or imports from consumer to capital goods

2. licensing of all imports

3. imposition of selective credit controls

4. adoption of flexible system of exchange controls

2. Spanish Period

  • tributes or taxes for survival and benefit
  • tariff duties: (1) specific duties on all imports (2) surtaxes for harbor improvements (3) ad valorem taxes on imports (4) consumption taxes on certain imports (5) miscellaneous charges (6) export duties
  • Internal revenue taxes: (1) industrial taxes (2) urban taxes (3) stamp taxes (4) sale of certificates of registration (5) public domain
  • Centarlized budget
  • impositon on higher tax - 16 percent on corporate net income
  • specific taxes on distilled spirits and fermented liquors
  • 20 percent on income not exceeding P100,000
  • 28 percent on income exceeding P100,000
  • 17 percent on foreign exchange sold by the Central Bank

Influence of Governmental Decision-Making on Expenditures

Romualdez, Yoinco and Casern

-individual choices of expenditures program

The tax was expected to achieve objectives:

1. act on the expensive aggregate demand by reducing the disposable income of individuals and business firms;

2. stabilize fiscal operations by making available a portion on the international reserve by raising the cost of imports and services purchased abroad

3. The Coming of Americans

  • Income tax law
  • rates and excemption of the 1916 U.S income tax law
  • normal tax rate was 2 percent
  • National Internal Revenue Code, Commomwealth Act No. 4666
  • Annual budget of the government
  • Prosecute Development Projects
  • Tax Excemption Law
  • Economic Development Projects
  • Retail Trade Nationalization Law
  • Laurel-Langley Agreement

Expenditures by functions

1. social development expenditures

2. economic development expenditures

3. national defense

4. general government

5. debt services expenditures

The Development of the Public Finance in the Philippine Setting

4. The Japanese Occupation

  • new or radically increased sales and luxury taxes and license fees were imposed
  • war notes was resorted to in running the government

The Department of Finance

Executive department of the Philippine government responsible for the:

formulation, institutionalization and administration of fiscal policies, management of the financial resources of the government, supervision of the revenue operations of all local government units, the review, approval and management of all public sector debt, and the rationalization, privatization and public accountability of corporations and assets owned, controlled or acquainted by the government.

Warfare

Expenditures connected with the preparation, conduct and aftermath of war

The Beginning of Public Finance in the Philippines

The Emergence of Mercantilism

Public:

  • Those that cannot be satisfied through the working of the market because their enjoyment by and any individual consumer is indipendent of his payment and contribution.
  • Taxation, printing money, borrowing, or through the sale of assets and services.
  • Determines first the expenditures needs, and then looks around for possible ways of financing them.

Private versus Public Finance

Private:

  • Private wants are those that can be satisfied through the mechanism of the market because their enjoyment can be made subject to price payments.
  • Cannot avail itself of taxation and printing money as means of raising revenue
  • Starts from the income side; determines income and additonal resources from borrowing, and then proceeds to individual expenditure items.

Merit wants

  • Are those that are subject to the exclusion principle and are satisfied by the market within the limits of the effective demand
  • Satisfaction is provided for through the government budget, over and above what is provided for through the market paid for by private buyers.

Social wants:

  • Satisfaction should be subject to the principle of the principle consumer sovereignity; resources should be allocated in reponse to the effective demand of consumers.

1. stimulate expansion of domestic industries, commerce and exports and to limit inports

2. maintain a favorable balance of foreign trade and net inflow of treasure or the money metals

3. to keep within the country a large, glowing flow of spending and demand for all domestic products, ensuring the fullest use of the country's manpower and productive resources

4. maintain at high levels the selling prices and sales volumes of the country's businessmen

  • Flourished in the seventeenth and the eighteenth century
  • reflections of the concept of national wealth and power
  • imposition of economic measures designed to secure political unification and national power
  • Satisfaction of Human Wants
  • Production, Distribution, and Consumption of goods and services
  • Major points of distinction between public and private: (1) differences between public and private wants, (2) financial means available, and (3) budgeting procedure practiced.

Deficit Financing for Stability and Full Employment

1. offsetting depression and likely to be of temporary character

2. compensating inadequacy of private partnership investment and likely to be of quasi-permanent character

3. defense expenditure

the concept of pump-priming

- injection government funds into the income stream quantities and unproper circumstances in order to reverse the trend of anticipations and generate recovery

compensatory spending in the long run

-undertaken by the government to offset the efficiency in private spending

short-run compensatory spending

-offset the inadequacies in private spending during periods of falling prices and rising unemployment

-incurring expenditures in excess of revenue

1. Budget Division

2. Accounting Division

3. Payroll Services Division

4. System Division

5. Management Division

6. Cash Division

Financial Management Service of DepEd

Expenditure for Education

"This allotment is one mandatory investment which we can't overlook... significant role in developing human resources to accelerate our social and economic progress"

-Pres. Ferdinand Marcos

Social Development Expenditures

-development of the country's most valuable resources, human resources

-human capital

Basic Premises of Public Spending Policies

Marshalling of the government funds

Beveridge

state in which the number of vacant jobs is always greater than the number of unemployed men, not slightly fewer jobs

income tax and corporate tax

-basis for national revenues

sales tax and/or income tax

-basis for states revenues, and income

property tax

-the basis for municipal and country revenues

Some Theories on Government Spending

Government Budgeting in the Philippines

government budget

-legal document that is often passed by the legistature and approved by the chief excutive or president.

Budget Authorization

As a general rule, the proposed appriation bill does not pass without amendment or change.

Before second reading

  • discussed and debated -House of representatives
  • sponsorship speech-Chairman of the Committee on Appropriation
  • subsequently printed in the second reading is then printed
  • Copies distributed to the House members *three calendar days prior to the third reading
  • third and last reading
  • passed by the house, signed by the speaker and attended to the Secretary of that Chamber, transmitted to the senate

The senate committee on finance consists of 17 members, 10 come from majority paty, 6 minority party, independent plus 3 ex official members

  • practice and minor differences are readily resolved
  • deliberation
  • special session of Congress
  • Bureau of Printing-both House is signed
  • enrolled copy sent to the President
  • approves the bill-becomes the bill- implemented by the government
  • President (House of Representative)
  • First Reading-copies (Speaker of the House of Representatives-Committee of Appropriation)

*after a month

  • Receipt of President's budget-circular letter-submit written budget jurisdiction, annual reports, and personal plantillas (budget plantillas)
  • Budget hearings

3 conditions of full employment

1. Adequate Total Outlay

2. Controlled Location of Industry

3. Organized Mobility of Labor

  • sub-committee system
  • public hearing-state of the nation's economy (Secretary of Finance, Auditor General, Governor of the CBP, Chairman of National Economic, Development Council)
  • National Treasurer
  • respective proposals (department secretaries, bureau chiefs, budget officers, accounting officers)

*after three weeks

  • executive session and drafting of general appropriation bill

major process of sound budgeting:

1.formulation of a money and work plan, or budget preparation

2. enactment of an appropriation bill to effect this plan, or budget execution

3. execution of financial plan by the executive and administrative officials, or budget execution

*auditing

estimates the covering the multifarious needs of a government-checking against recorded expenditure data-calculation of income-preparation-support measure-adoption of budget-enactment of the bills-execution of the budget

Budgetary Procedures

Foundation of the Budget System in the Philippines

Provison and Production of Public Goods

Republic Act 6400

-line-item budget into a preformance-type act

From 1902-1916

Executive Secretary to the Governor General merely compiled the budget request of all government agencies for transmittal to the Legislature.

Commonwealth Act No.426/ Budget Act of 1937

Budget Commission

-authority to investigate and study the oraganization and functions of all agencies of the government and to make recommendation thereon.

Jones law of 1916

executive type budget

Budget-Making

Relative costs of private versus public production, the capacity and willingness of the private sector to undertake production, natural monopolies, decreasing cost of industries, and non-economic variables- the community's attitude toward direct government production of goods and services, and certain areas that are strategic to the security of the state.

Special Provisions

annual general appropriation act

two forms:

1. incorporated in the appropriation language for individual program

2. incorporated separately in the general appropriation act with either agency wide or department wide application

general provisions

specify the conditions, limitations and/or qualifications governing the use of funds by all agencies

Appropriation

-segment(project)

-budgetary presentation

-kind of activity performed, geographical distriburtion, nature or character of work, clientele serve, types of services, processes

Constitutional Provisions on Budgeting

"The President shall submit within fifteen days of the opening of each regular session of Congress a budget of reciepts and expenditures, which shall be the basis of the general appropriations bill. The Congress may not increase the appropriations recommended by the President of the operation of the government, as the Congress and the Judicial Department. The form of the budget and the information that it should contain shall be prescribed by law."

Six fund categories:

1. All fund Combined

2. General funds

3. Special Funds

4. Reparation Funds

5. Fiduciary Funds

6. Bond Funds

Budget

-summary of results, recommendation and outstanding features which are taken up in the President's budget message to the Congress

Summary Statement of Public Debt

1. Borrowing by Nature and Purpose

2. Status of Public Debt Retirement

Budget Operations Service

Concepts of Public Finance

Contents of the Budget

Budget Year

fiscal year for which the budget estimates are being prepared

Legislative-Executive Relationship

1. The six budget operation divisions instruct advice and assist bureaus and offices in budget preparation and expenditure control

2. The Budget Planning Stuff studies improvements in the basic budget system; develops methods and techniques for adequate budget view; prepares instructions on the submission of agency budget estimates; designs the budget document and assists in the training of budget examiners

1. investigations of several committees

2. detailed amendments of existing laws

3. continuous scrutiny of administration by the standing legislative committees

4. requirement of periodic or special reports describing executive performance

5. resolutions of inquiry requesting information from executive departments

6. the appropriations committees which have been the chief response

Organization of the Budget of Commission

Actual Data available for use whenever past year figures are requires

Current Year

fiscal year in progress at the time the estimates for the budget year figures are required

budget officer is designated in each department or agency

Budgetary Data

Three fiscal year, past year, current year, and budget year

Past year-last completed fiscal year, ending just prior to the time that budget estimates are prepared

3. The Legislative Service Reviews all the legislative proposals prepared by executive agencies, conducts legal researches and renders opinions for the Commisssioner; and prepares drafts of executive and administrative orders

Budget includes as appendices the revenue bills proposing additional sources of funds and other appropriation acts to cover the budget proposal

4. The Fiscal Policy Staff reviews the economic trends and relationship affecting and affected by government income and expenditures; the impact of government fiscal policies on the economic growth of the country and on the achievement of a judicious balance between taxation and borrowing

Four major units:

1. Budget Operation Service

2. Management Service

3. Wage and Position Classification Office

4. National Accounting Office

  • appointed by the President
  • Department of Budget and Management-responsible for the improvement of government organization and management, analysis, and coordination of legislation, and coordination and improvement of Philippine Statistics.

Budget document separates the current operating expenditures from the capital outlays, making it easy to locate the cost of running the government proper and the cost of a capital improvement

Wage and Position Classification Office

  • modifies and revises plans
  • conducts periodic surveys
  • responsibilities and qualification requirements of any position
  • makes an initial allocation of position to classes and performs the subsequent allocation of new positions and reallocates existing position

Management Service

  • Continuing services on effective organization and administration
  • recommends standard and procedured for adoption by agencies in their management practices for use in the conduct of training programs

National Accounting Service

  • Keeps the control books of accounts of the National Government
  • operates the IBM in connection with the preparation of treasury warrants for the various personnel and pensioners of the National Government
  • formulates and install accounting operations of the various entities of National Government

Safeguards against overspending of appropriated funds are provided for in several sections which call for a balanced budget, an allotment system, and the creation of budgetary reserves.

Public Finance and the Changing Role of Government

Budget Control is now regarded as a means for getting things done rather than as a peso limit beyond which money would not be spent

Revenues to cover ordinary expenses plus part of capital outlays

"Obligations"

concentrates on financial commitments rather than on expenditures or payments

Performance type of budgeting

The New Budget System

The study of economic aspects that arise in the operations of the public budget.

Three seperate but independent functions:

1. Allocation

2. Distribution

3. Stabilization

Allocation Section

  • Provision of goods and services to satisfy public wants
  • Determine what goods and services are to be produced, the method of production involved, who is going to pay, and by how much for such goods and services

The sub-budget of the allocation sector would determine:

1. what goods and services to provide

2. whether such goods or services be produced directly by the government or the control/supervision/management of private production would be sufficient for production

3. how the government should finance such goods and services

Distribution Section

  • Determination and attainment of a "proper" state of income distribution
  • what the "proper" state of political process

Stabilization Section

  • concerned with the maintining a high level of resource utilization
  • full employment of all factors of production and a stable value of money.

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