Gloria Macapagal-Arroyo

President of the Republic of the Philippines 2001 - 2010

Understanding the National Budget

The Two Goals of a Budget

As honey attracts bees, the National Budget draws attention from many people the moment, as stipulated in the Constitution, it is approved by Congress on the President's recommendation. The attention takes basically two forms, one supportive of the budget, saying it is reflective of national priorities; and the other critical of it, arguing that this or that item is "too small," an indication of the President's "neglect" of that particular concern. To promote intelligent discussion, this Note seems necessary.

Beyond the commonsensical fact that the budget is for the administration of a government, there is little that is firmly acknowledged about budgets, what they are for, how much they must be, what concerns must be covered by them, or with how much. Science does not provide any answer. For the answer is simply "it depends." It depends on the budget maker's preference or "goals" if you may. These days the goals of most governments, including our own, are redistributive, i.e., to redistribute income from the "rich" to the "poor," and developmental, i.e., to promote and accelerate national development. The Philippine National Budget must be evaluated on those terms.

Evaluating the Philippine Budget

The first question to ask is: is the National Budget redistributive? To answer yes, it must be shown that the revenue side, consisting of taxes and non-taxes, is "progressive", i.e., that it represents collections from pertinent members of society that are absolutely and relatively higher for the "rich" than for the "poor." On the expenditure side, it must be shown that expenses are "regressive," i.e., that more are spent on the "poor" than on the "rich."

The answer to whether the Philippine Budget is redistributive is an unequivocal yes-- because its taxation system is progressive while its expenditure system is regressive. But of course the budget can be made even more redistributive, by sharpening the progressivity of the tax system -- and/or intensifying the regressivity of the expenditure system --through, for instance, increased allocation for public education, health, and social welfare..

Is the Budget developmental? Yes, it is, as it allocates increasing amounts to infrastructure, investments, and production even as it does so on balance with increasing allocations for social development. A delicate case of fine tuning is involved here, of course.

When budgets must confront immense and rapidly increasing needs in the face of slowly increasing revenues, but must avoid deficits, any rate of increase in any given item exceeding the rate of increase of total expenditures must necessarily require a corresponding proportional decrease in another item.

Budget critics who say that the allocation for education or for livelihood or for other concerns (all populist favorites) must be increased should also say where to take the money from or whether taxes must be increased. If they say nothing on these linked topics, they are guilty of either pushing partisan interests or dictating their own individual preferences on the government.

On the Budget Deficit

On the budget deficit. Several occurences, global and local, are relevant in understanding this excess of expenditures over revenues. Firstly, the US induced international financial meltdown and the subsequent economic recession slowed down the growth of our economy, from 7.1 percent per annum in 2007 to 3.8 percent in 2008 and 2.0 percent in 2009, severely slowing down the increase in actual tax and non-tax collections over this period. Secondly, Ondoy and Pepeng conjoined with the international recession to require a blown up stimulus package for assisting our stricken people and re-energizing our economy, thereby dramatically increasing the expenditure side of the budget.

The deficit that in 2010 is approaching P300 billion is not an inconsequential matter. It can lead to a stoppage of investment and growth; and to a culture of dependency and instability. However, without jeopardizing national goals it can be solved within three fiscal years by a clear-minded government.

A Need for Continuing Debate

The two issues of redistribution and development through the budget are worthy of national debate at all times. Responsible citizens must participate in this debate. There are many issues that we should address including, for instance, increasing individual and corporate taxes without killing the goose that lays the golden egg; making the value added tax (and other sales taxes) less regressive by increasing the exemptions for items consumed directly by low income members of our society; abolishing or privatizing non-performing government assets, including government owned and controlled corporations that are continuously bleeding the budget without making any perceptible contribution to national progress, etc.

Our National Budget must grow to underwrite our expanding needs. Intelligent discussion is needed to help us attain that goal.