MODULE 1

OVERVIEW OF PUBLIC ADMINISTRATION

Objectives:
After studying this module, you should be able to:
 Differentiate the concepts embodied in Public Fiscal Administration, and
 Examine the suggested analytical framework for the course.

Introduction

Public fiscal administration is about the finances of the public sector, how these
are administered and how these affect or promote the general well being of citizens. It
may sound to be a boring topic. Incidentally, you may be one of those who do not leave
home until you have finished reading the daily newspaper. And perhaps on the morning
that you enrolled in PM 231, you came across some news items which are very relevant
to our stay. Take a look at this one:
*1998 National Budget: P55B Set Aside for Pork Projects."
Legislators can't simply shake off their pork barrel habit. A total of P55 billion had been
set aside for the pork barrel projects of members of Congress this year. The amount is
189 percent more than the P19 billion pork barrel the members of Congress enjoyed
last year. The amount accounted for 10 percent of the P546-billion proposed 1998
budget. The pork barrel consisted of the P30.5 billion already found in the budget
Malacañang submitted to Congress in July and the P24.5 billion legislators "realigned"
from this year's debt service payment
This news item came out on January 14, 1998 in the Philippine Daily Inquirer. It is about
the P55 billion pork barrel fund set aside for the projects of the members of Congress.
Pork barrel, usually spent on infrastructure projects. is said to be a source of kickbacks
of congressmen, senators, governors, mayors and public works officials.

True or not, the issue is a budgetary as well as a political issue (or perhaps more of the
latter). The news had it that the pork barrel consisted of the P30.5 billion already found
in the proposed budget Malacañang submitted to Congress in July 1997 and the P24.5
billion which the legislators realigned from the 1998 debt service allocation.

This and other budgetary issues will have to be dealt with by the Estrada Administration.
Politics aside, we have to examine the purpose of the pork barrel allocation. How is the
money distributed and utilized? Disregarding the political party affiliation of the
legislators and elected local officials, what criteria are used in allocating the pork barrel
funds? Is project implementation a responsibility of legislators? What may have caught
your attention in the news item is the amount of allocation. What kind of projects can be
carried out with P55 billion? Who will be benefited?
The questions we have just raised are concerns in fiscal administration. We want to
know how government money is generated. Where the government gets the money is
no less important as how it spends the money.

WHAT IS PUBLIC FISCAL ADMINISTRATION?

You probably have an idea at this point of the definition and scope of public fiscal
administration. Public fiscal administration (PA) refers to the-formulation,
implementation and evaluation of policies and decisions on taxation and revenue
administration, resource allocation, budgeting and public expenditure, borrowing and
debt management, accounting and auditing (Brines, 1996:2). PFA can be viewed as a
system: its parts work in harmony with each other towards the achievement of common
goals. As a system. PEA is composed of the environment, structures and systems,
processes and personalities involved in formulating, implementing and evaluating Fiscal
policy.

There's a lot of stuff in that definition. So why don't we try to define each word in ¡he
phrase public fiscal administration'. The term public can be viewed within a broader or a
limited context. It can mean the whole government sector. As noted in the course guide,
the government sector is comprised of the national government, government owned or
controlled corporations, government financing institutions, local government units. In
this manual, whenever we talk of the government, We are referring to the national
government. We distinguish one component of the public sector from the other to
emphasize the different roles they play in the economy.

The term public can also mean the people whom the government serves. The people
are sometimes called beneficiaries, or more specifically the voters, the taxpayers, the
youth, the farmers, the urban poor, and so on (see the section on the analytical
framework for additional comments on this).

Fiscal in the phrase public fiscal administration refers to fiscal polices. Fiscal policies
are the instruments used by the government to achieve its objectives and goals.(Fiscal
policies provide the direction to government activities, and, depending on the kind of
policy adopted, serve to encourage and promote private economic activities, Fiscal
policies are closely linked with other policy instruments of government, such as
monetary and price policy, trade, investment and wage. Together, these government
policies govern its operations and relationship with the private sector (Boncodin,1992:1).

Administration in the phrase public fiscal administration refers to the formulation,

implementation and evaluation of the government fiscal policies. Specifically, the
administration aspect involves tine fiscal processes of planning what tine government
wants to achieve, collecting taxes and raising revenues, borrowing, allocating the
revenues to meet the needs and demands of the people, spending and examining
whether every cent of public funds has been spent properly based on generally
accepted accounting and auditing rules. The administration of fiscal policies includes an
examination of their effect on the supply of and demand for public or social goods, on
income distribution, on price and employment levels, and on the overall achievement of
our own concept of development.

It is important to note that public fiscal administration in the Philippine context proceeds
from the prevailing scio-economic and political conditions, and directed towards the
promotion of the general welfare - that is, the welfare of the poor and the avowed
beneficiaries of development (Heller, 1955; Briones,-1996: 95).

POLITICS AND FISCAL ADMINISTRATION

While we talk of the separation of administration from politics, the administration of fiscal
policies actually takes place within a political system. It means that public fiscal
administration is a dynamic field of study; it does not exist in a Vacuum. It is part of a
larger system and is influenced by forces of society. Public fiscal administration and the
political process are dynamically interrelated and in influence each other in a continuing
fashion. That is, fiscal policies influence, as much as they are influenced by, the political
process.

While administration can be distinct from politics, the boundaries are actually fluid and
sometimes overlap. The legislature, in addition to rule making, is engaged in policy
implementation. This is most pronounced in the administration of pork barrel funds. The
executive branch, on the other hand, is into the formulation and recommendation of
urgent policy measures for congressional deliberation and approval. Aside from
Congress, other actors or government agencies are directly involved in fiscal policy
formulation, implementation and evaluation. The Department of Finance and its
attached agencies, the Bureau of Internal Revenue and the Bureau of Customs, play
lead roles in the implementation of policies on taxation and tariffs. The Bureau of
Treasury is the custodian of government funds. The Department of Budget and-
Management (DBM) leads the formulation of expenditure policy as well as public
borrowing. The National Economic and Development Authority (NEDA) as the central
planning body is also a major player in fiscal public formulation review and assessment.
The medium-term plan that the NEDA prepares prescribes the programs, projects and
activities of government and how these are prioritized and financed. The above
agencies constitute the Development Budget Coordination Committee, which formulates
the policy framework for the national budget. The Bangko Sentral ng Pilipinas (BSP) is
likewise a major actor in the fiscal policy process to ensure that monetary policies and
targets are in consonance with fiscal policy decisions.

The impact of external forces on domestic policies cannot be discounted. International

lending and grant-giving agencies and institutions have for the past thirty years stark
influences on fiscal policy administration, Multilateral institutions such as the
International Monetary Fund, the World bank and the Asian Development Bank give
advice on fiscal and other policies of government and they expect their advice to be
strictly followed. On the other hand, the Philippine government had turned to these and
other credit-giving institutions for much needed financing before and after the debt crisis
of 1983. The IMF alone had given its advice to countries which heavily borrowed during
the 1970s and played a very influential role in the shaping of Philippine fiscal policy for
the past three decades.

ANALYTICAL FRAMEWORK

PUBLIC FISCAL ADMINISTRATION AND PUBLIC FINANCE

Given the above definition and scope of the course, let me put all things together in a
frame work that we may use in our study.

Public finance and fiscal administration are closely related areas of study. Both walk
about revenues and expenditures. Still, we can draw a clear dividing line between them.
In public finance, a subject. area in the field of economics, we deal with the revenues
and expenditures of the government and their impact on the economy. However, it is
not concerned with the practicalities of public agency organizations. In public fiscal
administration (PFA), we also talk about government revenues and expenditures and
their impact on the economy. Beyond this /PFA encompasses the practical aspects of
fiscal governance such as revenue collection, preparation of budgets, budget allocation
and spending, management of debt, and auditing of accounts, among others.

Thus, public fiscal administration deals with, but is not restricted to, the issues covered
by public finance. One might say that public finance deals with certain issues at a rather
broad, conceptual level, while fiscal administration is more concerned with the
implementation and practicalities of these concepts. Some people may misunderstand
(public Finance to be confined only to financial issues, but in fact it is also concerned
with such "real" problems as economic incentives, aggregate employment and inflation.

FISCAL POLICY AND MONETARY POLICY

Fiscal policies refer to the combination of policies on taxation, expenditures, borrowing,

budgeting, accounting and auditing adopted by the government to achieve its
objectives. Sometimes, fiscal policies are referred to as budgetary policies. They are the
end product of fiscal administration as well as tools to achieve general welfare
objectives, and are very much shaped and influenced by the political process. This is so
because fiscal administration takes place within a political system.

On the other hand, monetary policy is concerned with the control of the aggregate
supply of money (cash in pockets and balances in-bank-accounts) in the economy, and
is monitored and shaped primarily by the central bank. As to the impact of fiscal and
monetary policies on the economy, there is no clear dividing line. For • example, a
decision to incur a budget deficit (a matter of fiscal policy) will generally require
domestic borrowing through the issuance of treasury bills, which affects the money
supply (monetary policy).
COMPONENTS OF THE PUBLIC SECTOR

It is important to identify the components of the public sector in our study of public fiscal
administration. The public sector is composed of the following: the national government;
the local government units (LGUs), the government-owned or controlled corporations
(GOCCs); and the government financing institutions (GFI). References are made in this
manual to the whole public sector as in the case of the consolidated public sector
deficit. In taxation, we refer to national government taxes as well as local government
taxes as two distinct classifications of taxes. The General Appropriations Act is also
called the national government budget. GOCCs, GFIs, and LGs have their own distinct
and separate budgets. However, the national budget does contain subsidies, transfers,
and/or allotments to government corporations, financing institutions and local
governments.

PUBLIC FISCAL ADMINISTRATION IN DEVELOPING COUNTRIES

All throughout the course, we emphasize the significant variations in fiscal systems that
exist between countries at varying or contrasting levels of development. The fiscal
systems of developing countries differ from those of the developed countries. Among
the underdeveloped, less developed, or developing economies, differences in fiscal
systems stem from the level of economic development, the historical experience, the
scars and traumas of wars and the process of colonization, the politico-economic
relationships that are maintained even after a developing country gains politiçal
independence, and many other factors that come to bear on the development of
countries.

Countries may be classified into two broad categories: the developed and the
developing. Without discounting the wide variances among countries within each
category, it can he said that the developed countries have goals and objectives that are
quite different from those of the developing countries. The ultimate goal, for instance, of
developing countries, is to achieve development, or narrowly, industrialization. The
developed countries are more concerned with maintaining growth and economic
stability.

In our study of public fiscal administration in the Philippines, we take into consideration
the fact that the Philippines is a developing country. Poverty incidence (the proportion of
the population whose annual per capital income falls below the annual per capita
poverty threshold) in the country is estimated in 1991 at 40.7% of the 68 million
population. Agriculture is the dominant sector, and farming remains a major form of
livelihood.

We also take as given the fact that we have a democratic society and a mixed
economy. A mixed economy is a hybrid of two types of economic systems - free
enterprise and centrally planned. Market competition and an efficient price system or
the forces of supply and demand govern a free enterprise economy. A centrally planned
economy is one wherein production, distribution, employment and consumption are not
left to the workings of the free market but are managed through central government
planning.

The Philippine economy is characterized as a free market or capitalist system. The

economy relies primarily on private enterprises and the price system in the allocation of
goods and services. On the other hand, the government intervenes in economic
activities through budgetary provision of social goods and services and the operation of
a number of government-owned or controlled corporations. The government is unitary in
form and is headed by a president. The 1987 Constitution promotes local autonomy.
The central government devolved certain public services to local governments in 1992,
and in the process defined the scope of centrally-provided public services.

GRAPHICAL ANALYTICAL FRAMEWORK

I have developed the graphical framework with the intention of having a tool to facilitate
our study of the role of fiscal policy, and its contribution to the shaping, implementation
and realization of the country's vision and goals of development. The assumptions and
premises contained in all module discussions proceed from the framework in Figure 1.
The formulation of the framework is inspired by the framework of Brines (1996: 96).

The frame work consists of converging circles. Fiscal policies are located in the inner-
most circle since I consider them to be located at the heart of public fiscal
administration. The Philippine economy is a mixed economy with a government
exercising regulatory and fiscal authority. The inadequacies of the market system - and
the breakdown of centralized economies -- dictate the need for an appropriate measure
of government intervention in economic activities through the application of fiscal policy.

Fiscal policy is shaped by the interaction of internal and external environment. the
internal environment refers to the government, the private sector and the economy
itself. The government is composed of decision making agencies such as he Congress,
the Office of the President and its support agencies, the National Economic and
Development Authority, the Department of Budget and Management, the Department of
Finance, and the Commission on Audit, among others, on one hand. and all revenue
earning and spending units of the government, on the other. The private sector, interest
groups, nongovernment organizations and organized groups in society are part of the
internal environment and therefore influence the shaping of Fiscal policy.

The external environment encompasses the international economy composed-of

international lending institutions - bilateral and multilateral -, international agreements
and economic cooperation such as the General Agreement on Tariffs and Trade
(GATT), World Trade Organization (WTO), Asia and the Pacific Economic Cooperation
(APEC), the Association of Southeast Asian Nations (ASEAN), and the Organization of
Petroleum Exporting Countries (OPEC), and institutions that extend Official
Development Assistance (DA), among others. All these institutions influence the
shaping, formulation, and implementation of fiscal policy in the Philippines.

Fiscal policy is influenced by the external environment. This is shown by the arrow from
the center to the outermost circle to the center. However, it is viewed that-Philippine-
fiscal policy has little if at all, or no influenced on international policies, fiscal or
otherwise. Hence the solid arrow from the outer to line inner circle to denote strong
external influence on domestic policies, and a dotted one from the inner to the outer
circle, to denote the country's absence or weak influence on policies affecting the
international economy.

The external environment is found to have a strong and direct influence on domestic
fiscal policy. This is evident in the tax, expenditure and borrowing policies we have
adopted in the past ten or twenty years, such as the imposition of the value-added tax,
the drastic reduction in government expenditures for social and economic services, the
automatic appropriation for debt service and its retention after more than twenty years
the streamlining of the bureaucracy, and the honor-all-debt policy since the Aquino
administration in 1986.

During the period 1978-1982, for example, public investments expanded rapidly. While
such addition to productive capacity was desperately needed by the sagging economy,
this happened at a time when government revenue performance was deteriorating.
Thus massive foreign borrowing was resorted to, which led to huge fiscal deficits in the
ensuing years. For more than a decade now, the automatic debt service allocations
have preempted from 40% to 60% of the government budget.

Taxation, budgeting, expenditures and borrowing policies were assigned a major role in
halting the economic crisis of 1983, and continue to play a significant role in sustaining
the country's economic achievements. Fiscal policies were utilized to allocate resources
efficiently and effectively, to achieve a more desirable distribution of income and wealth,
to achieve price level and employment stability, and to install the prerequisites to
economic growth and development. You may have some reactions at this point on the
analytical framework depicted on page 9. Indeed there are a number of ways to
approach the subject matter and this is only one way. You may have noticed that the
framework zeroes in on fiscal policies and their administration. Let me add that the
following considerations were taken into account in the development of the framework.

 The fiscal administrative system comes up with fiscal policies to realize desired
objectives;
 The formulation, execution and evaluation of fiscal policies are done within a
political context;
 Fiscal policies, from formulation to evaluation, undergo a process of
politicalization".
 There are actors involved in the process;
 The process takes place within a system which governs how the process works
and how the actors behave; and
  The system is governed by an ideology which represents a composite of the
economic, political and social values of society.

The problem as well as objective is (how) to reconcile the relationship between politics
and fiscal administration in the pursuit of the general welfare. It is important to identify
the constraints and to look for possible solutions and alternatives to make the
relationship more responsive to development objectives and needs of the whole
country.

Prof. Manuel U. Garcia JR.

PREPARED BY