Bringing the “Public” back into “Public Finance”Ronald U. Mendoza, Ph.D.Associate Professor of Economics

BRINGING THE “PUBLIC” BACK INTO “PUBLIC

FINANCE”

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EFFICIENCY + TRANSPARENCY

= ACCOUNTABILITY

BOC: DEVELOPMENTAL AGENCY?

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EXAMPLE: KUMPIT TRADE IN THE SOUTH

Source: Villanueva (2013)

• Annual income of up to P132M (Tawi-Tawi) and P396M (Sulu), or a total of P528M, from cross-border illicit trade

• This shadow economy constitutes 0.52% of the ARMM economy (measured by GRDP).

• Nationally, between 2002 and 2011, the government lost an estimated P1.3 trillion in taxes and duties due to smuggling.

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BOC: DEVELOPMENTAL AGENCY?

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BOC: DEVELOPMENTAL AGENCY?

Net Sincerity Ratings in Fighting Corruption (Selected Agencies)

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BOC: DEVELOPMENTAL AGENCY?

Composition of BOC Collections

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BOC: DEVELOPMENTAL AGENCY?

Share of BOC Revenues in Total Government Revenues

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40 CENTAVOS OUT OF EVERY 1 PESO REVENUE

LOSTAn Illustration of the Growing Gap Between Actual Total Revenue and Potential

Total Revenue

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Revenue Loss from Trade Misinvoicing Juxtaposed Against 2015 Public Spending

BOC: DEVELOPMENTAL AGENCY?

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Revenue Loss from Trade Misinvoicing (in % of actual total BOC revenues)

BOC: DEVELOPMENTAL AGENCY?

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INCREASING TRANSPARENCY AND

ACCOUNTABILITY

• Transparency in key information on BOC operations• “Crowd-sourcing” data gathering, fact-checking, and

analytical inputs• “Third-party monitor” serving as “demand side” for

sustaining reforms

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BUDGET AND SPENDING REFORMS

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BUDGET AND SPENDING REFORMS

• Results-based Budgeting• Open Government Initiative• Grassroots Participatory Budgeting• Performance-Informed Budgeting• Additional proposals:

– District Development Councils– People’s Fund– EITI

RESULTS-BASED BUDGETING

• Medium-Term Expenditure Framework (MTEF, 2007)

• Organizational Performance Indicator Framework (OPIF, 2007)

• Zero-Based Budgeting (ZBB)/ Program Evaluation (2010)

• Results-Based Performance Management System (RBPMS)

• Performance-Based Incentive System (PBIS)

OPEN GOVERNMENT INITIATIVE

National Government Expenditures, Obligation Basis,

By Sector (2013)

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GRASSROOTS PARTICIPATORY BUDGETING

Fiscal Year 2015 Grassroots Participatory Budgeting (PHP billions)

Agency Amount Budgeted (PHP billions)DILG 5.75DA 4.28LGSF 2.79DSWD 2.72DEPED 1.49DOH 1.47DTI 0.61DOLE 0.44DOT 0.35DENR 0.32TESDA 0.30NIA 0.18NEA 0.10DOE 0.08

1,590 local government units involvedTotal Amount = PHP 20.9 billion (0.8% of proposed 2015 budget)

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PERFORMANCE-INFORMED BUDGETING

Example: PNP Indicators and Targets in the GAA 2014

Selected Performance Indicators

Targets

% of crime incidents responded to within 15

minutes

100%

% of most-wanted persons arrested

5% increase

% change in crime rate 5% reduction

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PERFORMANCE-INFORMED BUDGETING

Example: DSWD Indicators and Targets in the GAA 2014

Selected Performance Indicators TargetsNumber of individuals assisted 5,488,237

Number of crisis situation beneficiaries

281,079

Number of requests for assistance processed within 24 hours

100%

% of persons assisted in last 3 years found ineligible

5%

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PERFORMANCE-INFORMED BUDGETING

Example: DOST Indicators and Targets in the GAA 2014

Selected Performance Indicators

Targets

% of projects evaluated at least twice in last 2 years

95%

% of projects in last 3 years with findings published or

used commercially

70%

Number of firms assisted 1841

WHY BRING THE “PUBLIC” BACK INTO “PUBLIC

FINANCE”?

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EFFICIENCY + TRANSPARENCY

= ACCOUNTABILITY

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Comments welcome at POLICYCENTER@AIM.EDU.

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IMPROVING EQUITY IN TAX POLICY

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Country Tax Rate for Highest Income

Bracket (%)

Tax Rate for Lowest Income

Bracket (%)

VAT Rates (%)

Vietnam 35 5 10

Thailand 35 5 7

Philippines 32 5 12

Indonesia 30 5 10

Malaysia 26 2 6

Myanmar 25 5 5

Laos 24 5 10

Cambodia 20 5 10

Singapore 20 2 7

Tax Rates for ASEAN Countries

IMPROVING EQUITY IN TAX POLICY

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IMPROVING EQUITY IN TAX POLICY

• 5.7M taxpayers paid their income taxes in 2012.

• Of which, around 17% falls under the middle class (P64,317 – P787,572 annual income)

Income Range (annual income)

% of total taxpayers % of total income tax revenue contribution

Lower Class Below P64,317 79.99% 0.15%

Middle Class P64,317 – P787,572 18.14% 18.13%

Upper Class P787,572 and above 1.87% 81.72%Source: Virola et. Al (2013). Will the Recent Robust Economic Growth Create a Burgeoning Middle Class...”

Bureau of Internal (Revenue Data on Income Tax Filers 2012), Bureau of Treasury

IMPROVING EQUITY IN TAX POLICY

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# of taxpayers

Total tax intake per income group

Tax due per unit (annual)

Lower Income Class

4,072,153 P1.85M P45.40

Middle Income Class

923,186 P22.50B P24,362

Upper Income Class

10,584 P101.40B P1.1M

• Total income tax revenues comprises 15% of total government revenues collected

Source: Virola et. Al (2013). AIM Policy Center calculations using BIR data

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Estimated Tax Revenues from Existing Tax Regime and Tax Proposals

IMPROVING EQUITY IN TAX POLICY

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CITIZCAN: DEMAND SIDE OF BOC REFORMS