CHAPTER 3

THE NATIONAL GOVERNMENT BUDGET

(Revised April 2021)

LEARNING OBJECTIVES:

At the end of the Chapter, a student shall be able to:

a) Know what the national government budget is;

b) Know the purposes and advantages of budgeting;
c) Know the kinds of budget
d) Know the national budget system/process;
e) See the face of the national budget in conformity with Performance-Informed
Budgeting;
f) Know what PREXC (Program Expenditure Classification) is;
g) See an actual approved budget of different government agencies;
h) Identify the Programs and Sub-Programs of certain national government agencies;
and
i) Prepare an estimate of the requirements for Personnel Services (PS) of an agency.

GOVERNMENT BUDGET

A government budget is a plan for financing the government activities of a fiscal year
prepared and submitted by a responsible executive to a representative body whose approval
and authorization are necessary before the plan can be executed. It is a plan of financial
operation embodying an estimate of proposed means of financing them. It is a program that
guides all activities relating to collections and expenditures and in the framework of the
accounts by which the transactions affecting such collections and expenditures shall be
recorded.

As such, a government budget should comprehend the complete fiscal program for the
ensuing fiscal year and as an essential information document, it should present a detailed
exposition of the revenues and expenditures of the government for the past and ensuing years
and should furnish not only definite information regarding the general character, purpose and
amount of government expenditures but also detailed data regarding the cost entailed in
maintaining particular units of organization and in performing particular activities.

A budget document is the instrument used by the budget making authority to present a
comprehensive financial program to the appropriating body. It usually consists of three parts:

1. budget message - message from the budget making authority together with a summary of
the proposed expenditures and the means of financing them;

2. schedules - these schedules support the summary and show in detail the proposed
expenditures and other data used in making the estimates; and

Chapter 3 – The National Government Budget (Revised April 2021)

3. drafts of appropriations, revenues and borrowing measures necessary to put the budget into
effect.

PURPOSES OF BUDGETING

 establishes in advance the objective and end result of the budget period;
 provides a means of coordinating the activities of the various sub-divisions and
departments of the business (government)
 provides a period-to-period basis of comparison to show whether the plan is being
realized and if not realized, indicate when changes must be made if current objectives
are to be obtained
 to serve as a basis of orderly management of public finances.

ADVANTAGES OF BUDGETING

1. Action is based on study.

2. Cooperation is secured in the entire organization.
3. Policies are established.
4. Programs or activities are related to expected or available resources and economic
conditions.
5. Balanced programs are developed.
6. Coordinated effort is attained.
7. Operations are controlled.
8. Weaknesses in the organization are revealed.
9. Waste is prevented.

PUBLIC FINANCIAL MANAGEMENT (PFM) IN RELATION TO GOVERNMENT

BUDGETING

An effective Public Financial Management (PFM) hopes to achieve the following:

a. “Spending within means”, or aggregate fiscal discipline – resources should be

used in a planned and deliberate medium-term strategy within the aggregate resource
constraints.

b. “Spending on the right priorities”, or allocative efficiency – spending should be

aligned with socio-economic priorities, spelled out in the Philippine Development Plan
(PDP).

c. “Spending with value-for-money”, or operational efficiency – all public goods

and services must be provided at the most reasonable cost and considers the absorptive
capacity of the agency given the shift to the one-year validity of appropriations.

Chapter 3 – The National Government Budget (Revised April 2021)

KINDS OF BUDGET

1. As to Nature

a. Annual Budget – a budget which covers a period of one year. It is the basis of an
annual appropriation.

b. Supplemental Budget – a budget which purports to supplement or adjust a previous

budget which is deemed inadequate for the purpose for which it is intended. This is the
basis for a supplemental appropriation.

c. Special Budget – a budget of special nature and generally submitted in special forms
on account of the fact that itemizations are not adequately provided in the
Appropriations Act or that amounts are not at all included in the Appropriations Act.

2. Approaches in Budgeting

1) Cash-Based Budget – this approach in budgeting shall be used in the preparation of

the FY 2019 Budget Proposals as required under National Budget Memorandum No. 129
dated January 3, 2018 (Subject: National Budget Call for FY 2019). For FY 2019, there
was a plan to shift from a multi-year obligation-based budget to an annual cash-based
budget. The aim is to change the basis of measuring the budgetary performance of
agencies from one based on obligations or commitments, to one based on the payments
made for goods and services actually delivered. However, the proposal did not earn the
nod of Congress.

2) Performance-Informed Budget (PIB) – A budget prepared using the budgeting

approach that uses performance information to inform Congress and the public about
the outputs and outcomes an agency is committing to deliver. (A more detailed
discussion is presented in a separate section.)

3) Bottom-up Budgeting (BUB) – is a budgeting approach which ensures that the

prioritized list of programs and projects required by poor cities/municipalities are
incorporated into the 2016 indicative budget levels of participating agencies. It
promotes responsiveness of agencies to and ensure convergence of the services of
departments/agencies/GOCCs to the needs of the poorest LGUs and communities. It
also strengthens the capacity of the LGUs to plan, budget and execute programs.

THE NATIONAL BUDGET SYSTEM/BUDGET PROCESS

The national budget system consists of the methods and practices of the government for
planning, programming and budgeting. It includes the adoption of sound economic and fiscal
policies and the execution of programs and projects geared towards the accomplishment of
political, economic and social objectives. Its primary concern is the availability and use of

Chapter 3 – The National Government Budget (Revised April 2021)

money to provide the services required or expected from the government. The declaration of
policy on the government budget states:

Section 1. Title XVII, Chapter I of Executive Order 292, the Revised

Administrative Code of 1987 -

“The national budget shall be formulated and implemented as an

instrument of national development, reflective of nation objectives and plans;
supportive and oriented towards the achievement of explicit objectives and
expected results, to ensure that the utilization of funds and operations of
government entities are conducted effectively; formulated within the context of a
regionalized government structure and within the totality of revenues and other
receipts, expenditures and borrowings of all levels of government and of
government-owned or controlled corporations, and prepared within the context
of the national long-term plans and budget programs of the government.”

The budget process, in a nutshell, consists of the following phases:

BUDGET PREPARATION

This phase includes the estimation of government revenues, the determination of

budgetary priorities and activities within the constraints imposed by available revenues and by
borrowing limits and the translation of approved priorities and activities into expenditure levels.
Estimates are prepared by the various agencies of government, which are submitted to the
DBM. The latter reviews all budget estimates to insure that the proposals are in conformity
with the Presidential policy and that estimated expenditures are within the amount of the
anticipated revenues. DBM then consolidates all estimates and recommends to the President
who makes the final decision as to the contents of the budget. Once finalized by the President,
it is then submitted to the Legislature as basis for the preparation of the annual appropriations
act.

LEGISLATIVE/BUDGET AUTHOR-IZATION

This phase involves the legislative review and approval of the budget. The legislature
reviews the budget proposal of the President and formulates a general appropriations bill. Once
the bill is finally approved in Congress, it is forwarded to the President for approval.

In the Office of the President, the items of the appropriations are compared with the
items proposed in the President’s budget. Additional items and increases in amounts requested
may be vetoed by the President. If approved by the President, the appropriation bill becomes a
law.

Chapter 3 – The National Government Budget (Revised April 2021)

BUDGET EXECUTION OR OPERATION

This phase covers the operations aspects of budgeting such as (National Budget
Circular No. 463 dated January 20, 1999):

a. evaluation by DBM of the agency’s Work and financial plan;

b. agencies recognizing their appropriations and allotments based on the GAA
c. release by DBM of the Special Allotment Release Orders (SARO) for items of
expenditures which need SAROs;
d. release of the Notice of Cash Allocation;
e. obligating expenditures;
f. liquidating or paying expenditures;
g. continuing review of government fiscal policies;
h. preparation and submission of budget accountability reports (BARs)
i. preparation and submission of fiscal accountability reports (FARs)

BUDGET ACCOUNTABILITY

This phase is concerned with the tracking and monitoring of actual expenditures,
revenue, assets and liabilities of government agencies. It is particularly involved in the
evaluation of expenditures and performance. Obligations incurred, personnel utilized and work
accomplished are compared with the plans and targets of agencies forwarded at the time their
respective budgets were prepared. These are carried out by top management in their review of
the performance of agencies under their jurisdiction and by the COA which examines accounts
and operations of departments and agencies to ensure economic, efficient, and effective use of
government resources.

BUDGET ADJUDICATION

This process is “coined” by Prof. Leonor Magtolis-Briones during her talk at the Ateneo
de Davao University after the Supreme Court ruled on the unconstitutionality of the Priority
Development Assistance Fund (PDAF) and the Disbursement Acceleration Program (DAP). This
is the stage where our courts of justice intervene on the interpretation of fiscal measures
implemented by the Executive Branch of Government.

Chapter 3 – The National Government Budget (Revised April 2021)

 DETAILED DESCRIPTION OF EACH OF THE BUDGET PROCESS
(written by then DBM Secretary Salvador Enriquez)

The following section will describe in detail what happens in each of the stages of the
budget process.

HOW IS GOVERNMENT BUDGET UNDERTAKEN?

Government budgeting is undertaken using a process that consists of four (4) phases,
namely: budget preparation, budget legislation or authorization, budget execution or
implementation and budget accountability or review.

HOW IS THE NATIONAL BUDGET PREPARED?

Budget preparation starts with the determination of budgetary priorities and activities
guided by our national development plan, within the ceilings or constraints imposed by available
revenues and borrowing limits.

The Development Budget Coordination Committee (DBCC) determines the over-all

expenditure levels, the revenue projection, the deficit levels and the financing plan. The DBCC
submits these to the Cabinet and to the President of the Philippines for approval.

The DBCC is composed of the Budget Secretary as Chairman and the Economic Planning
Secretary, the Central Bank Governor and the Finance Secretary as members. It is assisted by
an Executive Technical Board.

After the expenditure levels, revenue projection, the deficit level and the financing plan
have been approved by the President and the Cabinet, the DBM issues a BUDGET CALL, a
document reminding the different agencies in the government to prepare their respective
budgets in accordance with approved overall budget ceilings and parameters. Upon the receipt
of the budget call, the agencies are also expected to have already started conducting their own
internal budget consultations to firm up and fit in their departmental plans and priorities for the
specific year with the overall sectoral development strategy of government, as laid down in the
Medium-Term Development Plan.

The DBM then holds consultations with agencies on the allocation of the sectoral and
subsectoral expenditure ceilings set by the DBCC. This consultation is for the purpose of setting
indicative expenditure ceilings of departments and component agencies including attached
corporations which will be used in the preparation of their official budget estimates. The
consultations also minimize the possibility of bloated agency budget proposals as well as allow
agencies greater flexibility in prioritizing their funding requirements.

The agencies issue guidelines to the regional offices which are expected to conduct
regional budget hearings, the hearing panel, which includes the RDC and representatives from

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non-government organizations (NGOs), reviews the program, priorities and plans of their region
and incorporates these into their budget proposals.

The regional offices submit their RDC-approved budget to their respective head offices
in Manila which, in turn, collate all the regional budget proposals submitted by their different
regional offices all over the Philippines and consolidate these into a single agency budget
proposal of the department.

The DBM conducts consultations-workshops with Regional Development Councils (RDCs)

and department heads on their criteria for the allocation of the agency budget to their regional
offices. The intention is to ensure that the regional distribution of the national budget is
consistent with the development plans and direction of the regions. This is in line with the
allied policies of decentralization and creating greater popular participation in government
concerns.

The DBM then undertakes a series of review activities to evaluate the merits of the
budget proposals and determine areas where possible cuts could be made. The objective is to
make the overall expenditure level consistent with that determined by the DBCC and approved
by the President.

The result is an overall budget that is presented to the Cabinet for deliberation and
subsequent submission to the President for approval.

HOW DOES THE BUDGET BECOME A LAW?

The President submits the overall budget that he approved to Congress in the form of a
detailed Expenditure Program accompanied by the Budget of Expenditures and Sources of
Financing, the President’s Budget Message, and the Regional Allocation of the Expenditure
Program.

In Congress, the proposed budget goes first to the House of Representatives, which
assigns the task of initial budget review to its Appropriations Committee.

This House Committee summons the different national agencies of the government to
explain and justify their budget. The proposed budget is then presented to the House body as
a bill, the General Appropriations Bill.

From the House of Representatives, the budget bill goes to the Senate and is referred to
the Senate Finance Committee. The Senate Finance Committee likewise asks the various
agencies to explain their respective budgets as contained in the budget bill. It then proposes
amendments to the House Budget Bill to the Senate body for approval.

To thresh out differences and arrive at a common version, a Conference Committee is

created composed of members coming from both Houses.

Once a common budget bill has been approved by both Houses voting separately, it is
submitted to the President for signing into law. It is then known as a General Appropriations

Chapter 3 – The National Government Budget (Revised April 2021)

Act, which mandates the DBM, as the staff arm of the President, to execute or implement the
expenditure program.

HOW IS THE BUDGET IMPLEMENTED?

After the President signs the General Appropriations Act into law, the DBM requires the
different agencies of government to submit their respective work and financial plans (WFPs).
These WFPs indicate the monthly breakdown of agency financial requirements, as well as
monthly output targets. On the basis of such information, the DBM programs the release of
government funds.

The General Appropriations Act now serves as a “release document”, which means that
allotment advices needed not be issued by the DBM.

Under the Modified Disbursement System (MDS), DBM releases the corresponding
Notice of Cash Allocation (NCA). This is based on (1) the financial requirements that agencies
indicate in their ABM and based on (2) the cash available in the Bureau of the Treasury (BTr).

The Department of Finance (DOF), through the BTr and the DBM have to coordinate so
that cash releases of the DBM will depend on the revenue collected by the DOF. This will
tighten fund management and help in controlling the budget deficit.

Before the start of the year, the BTr submits to the DBM the annual disbursements of
the ensuing year. The DBM, for its part, furnishes the BTr the Annual Program of Monthly Cash
Allocation Releases. The DOF and the DBM then meets every month to confirm or to adjust the
estimated cash availability and to program NCA releases for the following month. In the event
that the estimated cash balance of the government reaches a level where the budget cuts in
the programmed NCA releases can not be avoided, the DBM implements proportionate across
the board budget reductions. Government agencies, however, continue to determine the
prioritization of disbursements provided that they set aside the amount necessary for the
payment of salaries and other mandatories.

The DBM issues the NCA directly to Agency Central Offices/Regional Offices and to
specific Provincial Offices/operating units. The DBM also furnishes the Government Servicing
Banks (GSBs) and the BTr with copies of NCAs issued. In turn, a government agency uses a
check provided by the BTr to withdraw from their accounts in GSBs or to issue an Authority to
Debit Advice (ADA), whichever is applicable.

The BTr then replenishes the agency accounts daily with the amount corresponding to
the amount of negotiated checks submitted to the GSBs.

PERFORMANCE-INFORMED BUDGETING
(lifted from “Budget ng Bayan” of www.dbm.gov.ph)

The National Budget is the financial blueprint of a country’s development plan.

Cognizant of its vital role in national development, the DBM under the Aquino Administration

Chapter 3 – The National Government Budget (Revised April 2021)

has sought to ensure that public resources are managed more efficiently and with the greatest
degree of discipline.

In the preparation of the proposed National Budget for fiscal year 2014, the DBM
pushed for the adoption of a new approach to budgeting. It introduced performance-informed
budgeting (PIB) which required government agencies to strengthen the link between planning
and budgeting and to simplify the presentation of the budget.

With the adoption of the PIB as a budgeting scheme, the government is changing the
face of the budget. Previously a mass of numbers and line items without a clear story on where
funds are going, the National Expenditure Plan and the General Appropriations Act beginning in
FY 2014 will show the link between the funds allocated for government programs and the
projected results and outcomes of these.

Before the adoption of the PIB, the face of the Budget looks like this:

The new face of the National Budget will no longer contain an extensively detailed line
item documents, but a budget that presents performance information aligned to planned
resources that promises to be understandable and accessible to the people.

Chapter 3 – The National Government Budget (Revised April 2021)

 The new, revamped GAA will present non-financial performance information together
with the allocated resources for the different programs, activities and projects (PAPs). These
information were used by the DBM to evaluate department and agency proposals during the
budget preparation process.

Instead of being immediately confronted with line-item after line-item, PAPs will be
grouped according to the Major Final Outputs (MFOs) that departments/agencies seek to
achieve. This way the budget that goes into a particular PAP is linked directly to the output it
intends to achieve.

The following is the new face of the National Budget after adopting the PIB Structure:

Chapter 3 – The National Government Budget (Revised April 2021)

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Chapter 3 – The National Government Budget (Revised April 2021)
With the new face of the GAA, the National Government hopes to achieve that “ May kwento
sa bawat kwenta.”

National Budget Memorandum (NBM) No. 123 dated January 28, 2015 was issued as a
“BUDGET CALL FOR FY 2016”. The NBM gives the Specific Guidelines in the Preparation of FY
2016 Agency Budget Proposals and Other Budgetary Items. Likewise, the standard forms are
also included in this NBM.

If you want to read more on the National Budget, go to www.dbm.gov.ph and select
"Budget ng Bayan".

PROGRAM EXPENDITURE CLASSIFICATION (PREXC)

The next phase of the PIB is the PREXC, which was introduced to agencies in 2014 and
2015 through a series of briefings and hand holding exercises to restructure the agency budget
along programs and identify output and outcome performance indicators for each program or
sub-program.

PREXC restructures an agency’s budget to group all recurring activities as well as

projects under appropriate programs or key strategies. This way, performance information and
costs are assigned at the program level, rather than at the agency and Major Final Output
levels, which is the format of the budget back in 2017 which was considered less informative of
the strategies done to accomplish agency mandates and priorities.

PREXC thus enables various stakeholders to better manage the public expenditure
management process through programs and sub-programs of the agencies. It does not replace
the line-item budget structure. Rather, it groups the line items more coherently under
programs and sub-programs; and adds performance information which should enable program
managers, legislators, and the general public to better understand the purpose of the
expenditure and who should benefit from it.

The FY 2021 Budget of the Commission on Audit is reproduced in the

succeeding pages to illustrate how PREXC is done. After this discussion, each
student is expected to do the following activities:

a. Refer to the 2021 General Appropriations Act (www.dbm.gov.ph);

b. Select one agency and extract its Programs and Sub-Programs (excluding the
Outcome Indicators and Output Indicators) –you have to coordinate with
your other classmates to avoid duplication of agencies;
c. Submit the document to your instructor as an output for a Preparatory
Assessment; and
d. Provide your classmates with e-copy of the budget of the agency that you
have chosen.

Chapter 3 – The National Government Budget (Revised April 2021)

Chapter 3 – The National Government Budget (Revised April 2021)
Chapter 3 – The National Government Budget (Revised April 2021)
Chapter 3 – The National Government Budget (Revised April 2021)
 Based on the budget of COA, the following are the Programs and Sub-Programs of the
Commission on Audit:

PROGRAMS
Government Auditing Program
Government Accountancy Program
Government Financial Adjudication
Program
SUB-PROGRAM/S
• National Government Auditing Sub-Program
• Corporate Government Auditing Sub-Program
• Local Government Auditing Sub-Program
• Special Audit Sub-Program
• Technical Services and Systems Audit Sub-Program
none
none

REVIEW QUESTIONS

1) Name at least three items that the national annual budget contains.
2) Name and define two major classifications of expenditures.
3) Describe briefly the four phases of the budget process.

REFERENCES:

1) Budget Call for the Current Year

2) Government Accounting Manual for National Government Agencies
3) General Provisions of the Current Year’s General Appropriations Act
4) Presidential Decree No. 1177, otherwise known as an Act Revising the Budget Process in
Order to Institutionalize the Budgetary Innovations of the New Society National Budget
Circular No. 440 dated January 30, 1995 issued by the Department of Budget and
Management [Subject: Adoption of a Simplified Fund Release System (SFRS)]
Executive Order No. 77 (Prescribing Rules and Regulations and Rates of Expenses and
Allowances for Official Local and Foreign Travels of Government Personnel)
5) DBM Publication (can be downloaded from www.dbm.gov.ph):
a. PREXC
b. 2021 People’s Enacted Budget

Chapter 3 – The National Government Budget (Revised April 2021)