Development of Development of Philippine Fiscal Policy Philippine Fiscal Policy

OUTLINE OF PRESENTATIONOUTLINE OF PRESENTATION

Definition of ConceptsDefinition of ConceptsDOF MandateDOF MandateFiscal AccountsFiscal AccountsReform and Advocacy Agenda Reform and Advocacy Agenda The Budget CycleThe Budget CycleRole of the Private SectorRole of the Private Sector

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Definition of ConceptsDefinition of Concepts

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Definition of Public Policy:Definition of Public Policy:

- - generally the principled guide to generally the principled guide to action taken by the administrative action taken by the administrative or executive branches of the state or executive branches of the state with regard to issues in a mannerwith regard to issues in a manner consistent with law and institutional consistent with law and institutional customs. customs.

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Public Policy (Continued):Public Policy (Continued):

- - a system of courses of action, a system of courses of action, regulatory measures, laws and regulatory measures, laws and funding priorities promulgated funding priorities promulgated by a governmental entity or its by a governmental entity or its representatives.representatives.

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Fiscal Policy Fiscal Policy ::

- - a government policy with regard a government policy with regard to its resource generation and to its resource generation and spending activities.spending activities.

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Fiscal Consolidation:Fiscal Consolidation:

- a determined effort to bring down the - a determined effort to bring down the budget deficit.budget deficit.

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Two Components of Fiscal Policy:Two Components of Fiscal Policy:

1. Revenue component – Obtaining funds for government operation by collecting taxes, fees and charges and/or borrowing

2. Expenditure component – Spending of funds to provide goods and services

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DOF MandateDOF Mandate

Formulation, institutionalization and administration of fiscal policies;

Generation and management of the financial resources of government;

Supervision of the revenue operations of all local government units;

Review, approval and management of all public sector debt, domestic or foreign;

Rationalization, privatization and public accountability of corporations and assets owned, controlled or acquired by the government.

Under Executive Orders 127, 127A and 292Under Executive Orders 127, 127A and 292

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Two Major Fiscal Agencies:Two Major Fiscal Agencies:

The Department of Finance (DOF) is responsible for the preparation of the annual and medium-term revenue program

of the government .

The Department of Budget and Management (DBM) manages the expenditures side.

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The Fiscal AccountsThe Fiscal Accounts

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Basic Elements of Fiscal AccountsBasic Elements of Fiscal Accounts

RevenuesRevenues

ExpendituresExpenditures

FinancingFinancing

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EXPENDITURES: ( interest payments, personnel services, infra, allotment to LGUs)

FINANCING: External (official development assistance, commercial loans) Domestic (T- Bills, T-Notes, T-Bonds, Bank Loans)

Components of Revenues, Components of Revenues, Expenditures and FinancingExpenditures and Financing

(Philippine Fiscal Accounts)(Philippine Fiscal Accounts)

REVENUES: Tax Revenues: BIR, BOC, Other Offices (e.g. Environmental Tax, Immigration Tax, Travel Tax) Non-Tax Revenues: ( privatization, fees and charges, dividend from GOCCs, grants for projects/programs )

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Modes of FinancingModes of Financing

Domestic BorrowingDomestic Borrowing Central Bank (monetization)Central Bank (monetization) Bank Financing ( mostly gov’t corporate Bank Financing ( mostly gov’t corporate

sector borrowings)sector borrowings) Non-bank Financing (e.g. gov’t. securities: Non-bank Financing (e.g. gov’t. securities:

T-Bills; T-Notes & T-Bonds)T-Bills; T-Notes & T-Bonds)

Foreign BorrowingForeign Borrowing Official (Bilateral); Multilateral (IMF, World Official (Bilateral); Multilateral (IMF, World

Bank) and Commercial LoansBank) and Commercial Loans

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FISCAL DEFICIT Creates Macroeconomic FISCAL DEFICIT Creates Macroeconomic Impact Impact - - Depends on how it is financedDepends on how it is financed

InflationInflationInterest RatesInterest Rates““Crowding Out” EffectCrowding Out” EffectExternal PositionExternal Position

- reduced reserves, increased debt, potential BOP problem

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2012 NG Fiscal Program2012 NG Fiscal Program

In Billion Pesos2010 2011 2012 Growth Rate

Actual Program Program (2012/2011)

Total Revenues % of GDP

1,207.913.4%

1,411.314.2%

1,568.514.2%

11.1%

Tax Revenues % of GDP

1,093.612.1%

1,273.212.8%

1,445.513.1%

13.5%

BIR

BOC

Other Offices

822.6

259.2

11.8

940.0

320.0

13.2

1,066.1

365.1

14.2

13.4%

14.1%

7.6%

Non-Tax Revenues % of GDP

114.3

1.3%

138.1

1.4%

123.0

1.1%

-10.9%

BTr Income

Fees and Charges

Privatization

Grants

54.3

58.6

0.9

0.4

70.0

62.1

6.0

0.0

51.8

69.3

2.0

0.0

-26.0%

11.6%

-66.7%

Expenditure 1,522.4 1,711.3 1,854.5 8.4%

Surplus / (Deficit)

% of GDP

(314.4)

-3.5%

(300.0)

-3.0%

(286.0)

-2.6%

-4.7%

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In Billion Pesos2010

Actual2011

Program2012

ProgramGrowth Rate

(2012/2011)

Total Surplus/(Deficit) % of GDP

(362.8)-4.0%

(241.4)-2.6%

(234.0)-2.1%

-3.1%

NG (314.5) (300.0) (286.0) -4.7%

CB Restructuring (7.7) (6.1) (6.1) -0.2%

14 MNFGCs (71.0) (42.0) (28.0) -33.3%

SSIs 39.3 39.2 30.9 -21.2%

BSP (63.7) 1.0 1.0 0.0%

GFIs 7.9 11.2 11.6 3.5%

LGUs 33.5 36.9 40.3 9.2%

Adjustments 13.3 18.4 2.4 -87.1%

Consolidated Public Sector Financial PositionConsolidated Public Sector Financial Position

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Consolidated Public Sector Financial PositionConsolidated Public Sector Financial Position% of GDP

ProgramProgram

(234.0) (362.8) (240.1) (206.6)

-3.0

-4.0

-2.1

-500.0

-400.0

-300.0

-200.0

-100.0

0.0

100.0

2009 2010 2011 2012

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

P Billion

-2.6

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NG Outstanding DebtNG Outstanding Debt

5,523.3

4,705.64,718.2

4,396.6

54.8

52.451.3

4,000.0

4,500.0

5,000.0

5,500.0

6,000.0

2009 2010 2011 2011 2012

40.0

45.0

50.0

55.0

60.0

P Billion % of GDP

ActualJan-Apr

Program Program

…will decrease to 50.2% of GDP

50.250.9

5,053.4

Sovereign Credit Ratings:Sovereign Credit Ratings:

MOODY’S: MOODY’S: Upgraded to Ba2 (June 15, 2011)

FITCH: FITCH: Upgraded to BB+ (June 23, 2011)

S&P: S&P: Upgraded to BB (November 12, 2010)

Sovereign Credit Ratings:Sovereign Credit Ratings:

MOODY’S: MOODY’S: Upgraded to Ba2 (June 15, 2011)

FITCH: FITCH: Upgraded to BB+ (June 23, 2011)

S&P: S&P: Upgraded to BB (November 12, 2010)

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NG Financing ProgramNG Financing Program

0%

20%

40%

60%

80%

100%

2009 2010 2011 2011 2012

56%66%

74%

52%

75%

44%34%

26%

48%

25%

Domestic Foreign

ActualJan-May

Program Program

..increasingly focus more on domestic sources

Reform and Advocacy AgendaReform and Advocacy Agenda

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Policy ReformsPolicy Reforms

Deficit-Neutral (PAYGO) Bill

Fiscal Incentives Rationalization (FIR)

Sin Tax Reform + Universal Health Care

NFA Reform

PAGCOR/PCSO Privatization

Anti-smuggling Law

Rationalization of VAT Exemptions

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Good Governance Advocacy:Good Governance Advocacy:

BIR -- Run Against Tax Evaders (RATE)

BOC – Run After The Smugglers (RATS)

DOF – Revenue Integrity Protection Service (RIPS)

BIR – Oplan Kandado

The Budget CycleThe Budget Cycle

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BudgetBudget::

Action plan of government activities and programs

Financial plan which reflects and supports national objectives, strategies and programs

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Budget CycleBudget Cycle

BudgetPreparation

BudgetAccountability

BudgetExecution

BudgetLegislation

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Allocation by Sector, 2008-2010Allocation by Sector, 2008-2010(In billion pesos)(In billion pesos)

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Role of the Private SectorRole of the Private Sector

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Private Sector Participation in Promoting Private Sector Participation in Promoting Socio-Economic DevelopmentSocio-Economic Development

Improve tax compliance

Provide inputs in monitoring the use of taxes

Work closely with government

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Thank Thank you…you…

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Development of Development of Philippine FiscalPolicyPhilippine FiscalPolicy

By

RICARDO P. TOQUEROFiscal Policy and Planning Office

DEPARTMENT OF FINANCEManila

A presentation for

UNIVERSITY OF THE PHILIPPINES mANILA August 3, 2011