Module 7- Public Fiscal Administration

AB Political Science and Public Administration (Central Philippine University)

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 Module 7

PUBLIC FISCAL ADMINISTRATION

THE CONCEPT OF PUBLIC FISCAL ADMINISTRATION

It refers to the formulation, implementation, and evaluations of policies and decisions on

taxation and revenue administration, resource allocation, budgeting, and public expenditure;
public borrowing and debt management; and accounting and auditing (Briones, 1983)

Other definition of fiscal administration, also called public finance, refer to it as “the
inflow and outflow of government” or branch of economics that deals with the income and
expenditures of government and their impact on the economy (Briones 1993)

Public finance is the study of the role of the government in the economy.

WHAT IS FISCAL POLICY?

The very heart of the public fiscal administration is the formulations of fiscal policies
adopted by government to generate resources through taxes and borrowing’s and to use
resources promote public welfare.
Fiscal Policy is the mix of policies on taxation, expenditures and borrowing for the
achievement of government objective.
FISCAL POLICY- Is “one course of action that government follows to stabilize the
national economy by adjusting levels of spending and taxation (Grolier Family encyclopaedia
p.293)
Fiscal policies are decisions made by government concerning, for example:
● What taxes will it impose to generate funds?
● On whom will the taxes be imposed? On the business? Landowners? Importers? Or on all
Citizens?
● What form taxes will be imposed? Direct or Indirect?
● In term of expenditures, what sector in government will be development? Defense?
Borrowings?
In the Philippines Fiscal Policy this is characterized by continuous and increasing levels of debt
and budget deficits, though there have been improvements in the last few years.
The Philippines government’s main sources of revenue are taxes, with some non-tax revenue
also being collected. To finance fiscal deficits and debt, the Philippines relies on both domestic
and external sources.

THEORIES ON FISCAL POLICY

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1. Keynesianism- wheN demand in the economy is too low, the government should pump
money into the economy by spending more that it collects in taxes-running a deficit In United
States of America, the “democrats” often this approach, and the “republicans” often dislike this
approach.

2. Supply- Side Tax Cuts- the economy will improve with less government interference
and therefore the government should lower regulations.
-lower tax would create incentives for private investment and purchasing
-greater economic activity will then produce more tax revenue.

3. Reaganomics- refers to the ideas promoted by pres. Reagan of U.S in the 1980’s.
a. Deregulation- remove laws/ rules/ regulation that will restrain industries.
b. Increase military spending led to a large deficits and the increase in national debt.
c. Cut tax rates- (income and capital gains)
d. Lower inflation
Over-all effects- stimulated economy, unemployment decrease, business activity increase but
deficits increased.

Public Finance Institutions:

Department of Finance (DOF) (Filipino: Kagawaran ng Pananalapi) is the executive

department of the Philippine government responsible for the formulation, institutionalization and
administration of fiscal policies, management of the financial resources of the government,
supervision of the revenue operations of all local government units.

The Bureau of Local Government Finance or BLGF is the Department of Finance’s arm
directly responsible over the fiscal and financial affairs of local government.

The Department of Budget and Management formulates the overall resource application
strategy to match the government’s macro-economic policy.

The Bureau of Internal Revenue (BIR) (Filipino: Kawanihan ng Rentas Internas) is an

attached agency of Department of Finance. BIR collects more than one-half of the total revenues
of the government. The powers and duties of the Bureau of Internal Revenue are:

Land Bank of the Philippines (LBP) is a financial institution wholly owned by the Philippine
National Government. It was created under the Agrarian Reform Law enacted by Congress in
1963. Later, LBP became the first universal bank by charter with expanded commercial banking
powers to sustain its social mission of spurring countryside development. The bank is directly
under the administrative supervision of the Department of Finance (DOF). As a bank, it is under
the regulatory supervision of BSP. It is audited by the Commission on Audit.

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The Development Bank of the Philippines (Filipino: Bangko sa Pagpapaunlad ng Pilipinas),
commonly known by its initials, DBP, is a state-owned development bank. DBP services various
sectors of Philippine society, from farmers to businessmen. Although the Philippines has an
economy largely dependent on agriculture, DBP aims for national development through
financing the various business and economic sector that keep the Philippine economy afloat.

The Bangko Sentral ng Pilipinas (BSP) -the country’s central monetary authority. The BSP
enjoys fiscal and administrative autonomy from the National Government in the pursuit of its
mandated responsibilities.

The Philippine National Bank was established as a government-owned banking institution on

July 22, 1916. Its primary mandate was to provide financial services to Philippine industry and
agriculture and support the government’s economic development effort.

The Commission on Audit is an independent constitutional commission established by the

Constitution of the Philippines. It has the primary function to examine, audit and settle all
accounts and expenditures of the funds and properties of the Philippine government.

Sources of Taxation

● National internal revenue Taxes:

a.) Income tax
b.) Estate tax
c.) Value-added tax
d.) Other percentage taxes(on hotels, motels and others, on caterers on
carriers and keepers of garages’ on dealers in securities and lending
investors, on franchises, on overseas communication; on banks and
non-banks financial incendiaries; on finance companies: on insurance
companies; on amusements; and on winnings.
e.) Excise taxes on certain goods
f.) Documentary stamp tax
g.) Other miscellaneous taxes as are or hereafter may be impose by law
and collected by the bureau of internal revenue

● National Taxes impose by special laws

a.) Customs duties (PD 1464)
b.) Residence taxes (PD No. 231)
c.) Sugar adjustment taxes (CA No. 567)
d.) Taxes of narcotic drugs (RA no. 953)
e.) Special education funds tax(RA no. 5447)

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 f.) Science funds tax (PD No.5448)
g.) Travel tax (PD No. 1183)
h.) Private motor vehicle tax (EO No. 43)
i.) Energy taxes PD No. 844 and 845 and BP Blg. 36)
What is Zero Base Budgeting?

Zero-Base Budgeting Type

The agency justifies the entire appropriation request for the fiscal year as if the programs are
entirely new, instead of justifying only the increase requested above the previous year’s
appropriation. The agency is therefore obliged to defend all programs every year and rank
these in terms of priority using the ratio between cost and benefit criterion. This method
provides opportunity for top management to re-evaluate the need for on-going programs,
compare these with the proposed and the prioritized for implementation

Principles of Budgeting

a. Annuality
• Provides time frame long enough for budget decisions to be implemented but short
enough to allow for reasonable accuracy in revenue and expenditure forecasts.
• The period covered by budget estimates/authorizations.
• The time for executing the budget and for the parliamentary authorizations to be
valid.

b. Unity
● All governmental agencies and all financial transactions should be covered by the budget
submitted to and vetoed by the government.
● The budget should cover the totality of the State’s financial activities, encompassing both
current and capital budgets.
● Should also include the impact of government credit transactions (direct loans & loan
guarantees)
• Universality
• All resources of the state should go into common fund and be used for all
expenditures.

c. Balance
● Revenues and expenditures should exactly be equal.
● Means of disciplining government budgeting.
Purposes of budgeting

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 ● A Political Statement
● A means for Policy Implementation
● A Means for Legal Control
● A Source of Public Information
Budget: as a Political Statement

Presents the government’s social and economic objectives, the priorities assigned to competing
demands for government action and the purposes for achieving the government’s objectives.

Budget: as a Means for Policy Implementation

Provides guidelines for spending agencies to carry out programs reflecting policy decisions
while adhering to standards of economy and efficiency.

Budget: as a Means for Legal Control

The ultimate purpose of safeguarding the use of public funds, the process of budget formulation
and execution are subject a wide range of constitutional provisions, continuing laws and
procedural regulations- with the goal of preventing the abuse of power and the improper use of
public funds.

Budget: as means for Public Information

On past, current and prospective government activities, provides a basis for holding government
accountable for its actions and results.

The Budgetary Process

National

Budget Preparation

Budget Legislation

Budget Execution

Budget Accountability

The Budget Process

The budget process is an annual cycle that begins with budget preparation and ends with budget
accountability.

This process is often referred to as a cycle because after budget accountability or review, we
again begin with budget preparation for ensuring year’s budget.

1. Budget Preparation

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 ● Set Macroeconomic Targets
● Issue Budget Call
● Prepare Agency Budget Proposals
● Submit Budget to Congress
● It’s the first stage.
Covers 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 the government, as called for through a budget
call issued by DBM.

These are collated, finalized, and submitted by the President to Congress as basis for the
preparation of the General Appropriations Act.

Development Budget Coordination Committee

NEDA (National Economic Development Authority) - coordinator of development plan

implementation.

DOF ( Department of Finance)- revenue-producing and debt-regulating agency of government.

BSP ( Bangko Sentral ng Pilipinas) - responsible for domestic and international value of peso.

DBM ( Department of Budget and Management) - resource allocation and budget management.

DBCC Tasks

Establish annual expenditure program & ceiling.

Determine allocation of expenditures between COE and CO.
Assess reliability of revenue estimates.
Recommend tax/revenue measures.
Review costs, accomplishment & performance standards.
2. Budget Authorization
The President submits the overall budget to congress in the form of detailed expenditure
program accompanied by the Budget of Expenditures and Sources of Financing; the budget
message of the President, 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 Appropriate Committee. This is in compliance with the
constitutional mandate that all money bills must originate in the lower chamber of the bicameral
legislature. The appropriations committee of the house summons the different national agencies
of government explain and justify their budgetary requests. Based upon the findings after review

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of the budget, the committee may recommend pruning of certain items but may not recommend
any increase in appropriations recommended by the President for the operation of government.
The proposed budget is then presented to the House of Representatives as the general
Appropriations Bill.

After action by the house, the appropriation bill goes to the senate where it undergoes
exactly the same procedure that it has undergone in the house of origin. It is therefore referred to
the Senate Finance Committee which is the counterpart of the appopriations comitee of the
house. The senate finance committee likewise asks the various agencies to explain their
respective budgets as contained in the budget bill. It may endorse the budget as approved by the
lower chamber if it finds no objection to its content.

Once a common budget bill has been approved by both houses, voting separately,
it is submitted to the President for approval into law. It is then known as the General
Appropriations Act, which mandates the Department of Budget and Management, to execute and
implement the expenditure program.

3. Budget Implementation
After the President signs the general appropriation act into law, the Department of Budget
and Management requires the different agencies of government to submit their respective
work and financial work plans. These work plans indicate the monthly breakdown of
agency financial requirements, as well as monthly output targets. On the basis of such
information the Department of Budget and Management programs the release of
government funds.

Based on the plan submitted by the agency, the department of budget and
management releases the allotment release order (ARO) and the corresponding notice of
cash allocation (NCA) as practiced under the modified disbursement system (MDS). The
Allotment Release Order is the authority of the government agency to incur obligations
and enter into contract. However, the Notice of Cash allocation is issued on a monthly
basis corresponding to the financial requirements that agencies indicate their work and
financial plans. The Notice of Cash Allocation specifies the maximum amount of
withdrawal that an agency can make from the bank for the month indicated.

The use of notice of cash allocation enables government to closely

monitor its capital and operations expenditures.

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4. Budget Accountability
- It refers to the evaluation of actual performance and initially approved
work targets, obligations incurred, personnel hired and work accomplished
by comparing all these with the targets set at the time agency budgets
were approved. Performance and cost effectiveness of agencies are
evaluated since no results can be obtained, even with maximum funding,
if agency efficiency is slow and funds are wastefully spent. Detailed
examination of the agency’s book of accounts is also undertaken to ensure
that all expenses have been disbursed in accordance with accounting
regulations and the purpose for which the funds have been authorized.

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