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Public Finance Cycle

A Process
by

Karl Cheng

on 30 November 2012

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Transcript of Public Finance Cycle

Formulation
of
fiscal policy Generation of revenue
from taxation
and other sources Expenditure of funds
through the
national budget Public Borrowings Accountability Public Finance Cycle A Process Public Finance -Refers to the income and outgo of the governments in the pursuit of national objectives.

-It involves the inflow of financial resources in the form of taxes and other revenues, and the outflow of such resources in the form of expenditure to finance goods and services. Fiscal Policy Fiscal policy refers to policies on taxation, and other revenue, expenditure, and borrowings which is intended to promote the stabilization and development of the economy. Now a days, “FISCAL AND MONETARY POLICY” is used as a single concept though it has a different aspect of economic policy but have related impact. Fiscal and monetary policy have been crafted in response to requirements of stabilization, and subsequently, and in accordance with the structural adjustment programs (SAPs) negotiated by the International Monetary Fund (IMF). On the other hand, monetary policy is generally understood to be that which influences the level of money supply in the economy. The formulation of fiscal and monetary policy made a huge part of economic and social development but not limited to socio-cultural and political. Generation of Revenue Revenues refer to all cash inflows of the national government treasury which are collected to support government expenditures but do not increase the liability of the NG. A tax is a compulsory contribution mandated by law and exacted by the government for a public purpose. The major tax collecting agencies of the national government are the Bureau of Internal Revenue and the Bureau of Customs. Non-tax revenues refer to all other impositions or collections of the government in exchange for services rendered, assets conveyed, penalties imposed, etc. Taxes on income and profits are imposed on all taxable income earned or received by a taxpayer, whether as an individual, as a partnership, or as a corporation, during a particular period of time, usually lasting one year. Taxes on domestic goods and services are imposed on the use or sale of locally manufactured goods as well as local services availed of within the domestic territory. Taxes on international trade and transactions include import and customs duties, and other international trade-related collections of the government. Taxes on property are imposed on the ownership of wealth or immovable property levied at regular intervals and on the transfer of real or personal property. Other taxes primarily include collections from the motor vehicles tax, immigration tax and forest charges. What are the government's current efforts to improve tax collections? The national government has continuously expended an all-out effort to strengthen its revenue-generating capability through legislative and administrative reforms. Recently, the government came up with a comprehensive measure to overhaul the tax system to bring in badly needed revenues for the government. Called the Comprehensive Tax Reform Program (CTRP), the new tax measure has three principal components, namely, a) income tax reform; b) excise tax reform; and, c) fiscal incentives reform. What are the government's current efforts to improve tax collections? The CTRP aims to widen the tax base, simplify the tax structure to minimize leakages, undeclared revenues, overstated deductions and corruption to make the system more elastic and easier to administer. MAJOR CLASSES OF TAX REVENUES Expenditure of Funds - National Budget Expenditure of Funds - National Budget A budget is a plan of financial operation composed of estimate or proposed expenditure for a given period or purposed and the proposed means of financing them. The principal activities of government are normally controlled by a system of budget. 2013 National Budget President Noynoy Aquino has approved a budget of P2.006 trillion for 2013. 10.5 percent higher than 2012 budget of P1.816 trillion. The premised on a revenue assumption of P1.780 trillion in absolute terms. (Reference : http://www.dbm.gov.ph/dbm_publications) OVERVIEW AND DIMENSIONS
OF THE
2013 BUDGET Table 1: The 2013 Budget by Sector By Sector The biggest share of 34.8 percent is allocated for Social Services, while Economic Services accounts for the second biggest at 25.5 percent. Meanwhile, the share of the Debt Burden on the budget, at 16.6 percent, has decreased from 18.3 percent. By Expense Class Capital Outlays (CO) will increase by 15.7 percent to P380.0 billion from P328.3 billion this year. Together with P29.8 billion in subsidies to government-owned or -controlled corporations (GOCCs) for infrastructure projects, the total allocation for CO will hit P409.8 billion in 2013.

Current Operating Expenditures (COE) account for P1.6 trillion or 79.7 percent of this proposed Budget. This allocation funds increases in Personal Services (by 8.0 percent) to support the full year implementation of the Salary Standardization Law III and the hiring of teachers, nurses, airport and security personnel, policemen, and other needed public servants; and in Maintenance and Other Operating Expenditures (MOOE; by 17.5 percent) due to the expansion of social programs.

Meanwhile, the share of Local Government Units (LGUs) in the National Budget will increase by 9.7 percent to P318.1 billion due to improved revenue collections in 2010, the base year for computing the Internal Revenue Allotment (IRA) of LGUs for 2013. Table 2: The 2013 Budget by Expense Class Table 3: Top 10 Departments 2013 National Budget Presidential Decree No. 1177 (PD 1177) which prescribes the budget process and provides for the automatic appropriation of, among other things, the debt service. This decree, promulgated by the late President Ferdinand E. Marcos during his autocratic regime and continue to dictates fiscal processes even under the present democratic system. Revenues For 2013, the National Government will raise P1.78 trillion in revenues equivalent to 14.9 percent of GDP and higher by 14.1 percent from the revised program for 2012. This increase, however, does not include the revenue impact of pending reforms in the sin tax regime, and the rationalization of fiscal incentives.

The tax collection effort in 2013 is expected to reach 13.8 percent of GDP. Tax revenues are expected to grow by 15.7 percent, with BIR and BoC collections increasing by 16.2 percent and 14.5 percent, respectively. Meanwhile, non-tax revenues will be lower at P128.9 billion due to expected lower dividends from GOCCs.

We continue to implement reforms to improve collections and to deter tax evaders and smugglers. With this, we anticipate Congress’ support for these important reform measures: the rationalization of fiscal incentives, reforms in the tobacco and alcohol excise tax system, and the increase in mining excise taxes. If enacted, these will increase our resources for social services. We expect to reduce the fiscal deficit in 2013 to P241.0 billion from this year’s P279.1 billion. To finance this deficit and our outstanding debts, we intend to borrow a total of P757.7 billion, P189.8 billion from foreign sources and P567.9 billion from the domestic market, redefining our foreign-to-domestic borrowing mix to 25:75 from the 2010 ratio of 34:66 to reduce our economy’s vulnerability to external shocks. We expect debt levels to be reduced from about 50 percent in 2011 to 42.4 percent by the end of 2016.

-PRES. BENIGNO S. AQUINO III Deficit and Debt Pnoy Administration continue to adopt measures to further bring down the expenditure as well as the deficit level. tighter allocations for government-owned and controlled corporations;
limits in the increases for utility, communications and supply expenditures;
a ban on the construction of new office buildings except classrooms and public health centers;
a ban on the acquisition of motor vehicles;
a ban on new positions except those for teachers and uniformed and medical personnel;
and keeping contractual and casual employee levels unchanged from this year. Deficit Deficit:
2010 - P325.0 billion
2011 - P300.0 billion
2012 - P279.1 billion
2013 - P241.0 billion Public Borrowings Borrowings refer to funds obtained from repayable sources, such as loans secured by the government from financial institutions and other sources, both domestic and foreign, to finance various government projects and activities. Public Borrowings The government borrows from any of the following reasons:
to finance national government deficits;
to obtain foreign exchange;
to secure financing at more favorable terms than the opportunity cost of revenues;
to take advantage of benefits attached to the funds, e.g. technology; and,
to balance the timing of resources with the project gestation and repayment of benefit Public Borrowings Is the debt crises over?
Government claims that debt crises is already over in the Philippines.

Cited the following indicators;
Total debt stock as a percentage of GNP and as a percentage of exports has been reduce.
The share of concessional debt to total debt stock had increased
Foreign exchange reserves have reached a comfortable level.
Public Borrowings Is the debt crises over? But as to the point of economist, they noted that it maybe true that debt as a foreign exchange problem is becoming manageable. Debt issue remains a fiscal policy problem, in view of the fact that debt payment continue to be a terrible burden of the budget.
Public Borrowings Right now, Japan is our No. 1 Bilateral creditor. Nearly 70% of the total official debt is owned to Japan.
The country debt to Japan is growing rapidly now so much because of new loans but because of revaluation.
Public Borrowings Public debt includes obligations incurred by the government and all its branches, agencies and instrumentalities, including those of government monetary institutions.
It consists of all claims against the government which may be payable in goods and services, but usually in cash, to foreign governments or individuals or to persons natural or juridical. Public Borrowings Obligations maybe: 1) purely financial, i.e., loans or advances extended to the Philippine government, its branches, agencies and instrumentalities;
2) services rendered or goods delivered to the government for which certificates, notes or other evidence of indebtedness have been issued to the creditor; and
3) for external debt such as claims of foreign entities, securities held in trust, nonbonded debts and obligations of the Philippine government to the International Monetary Fund (IMF). Accountability Accountability is defined as a condition in which individuals who exercise power are constrained by external means and by internal norms. It refers to the institution of checks and balances in an organization thru which an administrator accounts for his stewardship of resources or authority.
The political-administrative continuum means that elected officials are politically accountable to the electorate or their constituencies who voted them to their positions. These elected officials are held responsible thru regular elections and other means, i.e. recall and referendum. Appointive public officials answer to the people thru the elected officials who appointed them and directly to the public whom they serve. Accountability Types of Accountability: Individual accountability – public employees are answerable for the responsible, efficient and effective performance of their tasks.
Accountability of administrators – for their stewardship of the administrative authority, resources and information placed at their disposal as leaders of public organization. Accountability Types of Accountability: Political accountability – of institutions that must answer for their organizational mandate and functions, particularly as they form part of the incumbent government strategy for national development.
Accountability of national leaders – elected national leadership must answer for the performance in pursuing their programs of government and their use of national resources, given the authority, power and resources vested in them by their constituency
Accountability Philippine Administrative Structure: Constitutional bodies: 1) constitutional commissions - CSC, COA, COMELEC; 2) constitutionally created/mandated special bodies – CHR and Ombudsman
Executive Departments
GOCCs (wholly-owned or at least 51%)
Chartered institutions (created by law)
LGUs
A Process on Public Finance Cycle Reported by: Betonio, Elimary
Berioso, Kierstie
Cerico, Cassandra Bea
Cheng, Karl Richmond
Decena, Mariel Ms. Maria Lucy Cabalit END
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