THE NATIONAL BUDGET

NATIONAL BUDGET - financial expression of approved programs and projects the government

PROGRAM – a major purpose for which a government entity is established and includes all functions and activities devoted
to the accomplishment of this purpose

Project – a subdivision of a program covering a homogenous group of activities and describes the work to be done

Activity – a definable segment of a project

PUBLIC EXPENDITURE MANAGEMENT (PEM) - an approach that ensures resource allocation is results-based, and
that government is accountable for its performance

OBJECTIVES:

1. Aggregate Fiscal Discipline – spend within its means

2. Allocative Efficiency – Spend On The Right Priorities
3. Operational Efficiency – ensure the best value for the people’s money.

THREE PILLARS

1. Medium-Term Expenditure Framework (MTEF) – Link policy, planning and budgeting over the medium-term.
Employs a three-year rolling budget approach
2. Organizational Performance Indicator Framework (OPIF) - Links government expenditure priorities with
desired outcomes and agency performance.
3. Zero-Based Budgeting Approach (ZBB) – close review and evaluation of major ongoing programs and projects

Budgeting enables the government to manage its scarce resources to support priority programs and projects for promoting
economic growth and providing public services

BUDGETING - a part of the process of assigning financial resources to organizational units so that they can carry their
plans and of scheduling the use of these resources and the results to be achieved outlined in the plan; planning and controlling

PURPOSES OF BUDGETING

1. Tool of Accountability – government agencies are responsible for the management of programs for which the funds
are appropriated.
2. Tool of Management – it specifies either directly or indirectly, the cost, time and nature of expected results.
3. Instruments of economic policy

a. Indicates the direction of the economy since it expresses intentions regarding the utilization of resource;
b. Leads to the determination of national growth and investment goals;
c. Promotes macroeconomic balance in the economy;
d. Reduces inequalities;
e. Permits quick and meaningful measurement of its impact on the national economy as a whole.

ADVANTAGES OF BUDGETING

1. Action is based on study.

2. Cooperation is secured in the entire organization.
3. Policies are established.
4. Programs of 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. Wastes are prevented.

INCOME, EXPENDITURES, DEFICIT

NATIONAL BUDGET - government’s estimated income and planned expenditures in a given year.

GOVERNMENT’S INCOME - taxes (income tax, value-added tax, etc) and non-tax revenues (fees and charges,
privatization proceeds, etc)
EXPENDITURES - programs, activities, projects, purchase of goods and services, among others, that the government will
spend on to achieve its socio-economic development objectives.

FISCAL DEFICIT - income is insufficient to finance expenditures

COVERAGE

NATIONAL BUDGET - covers the totality of the budgets of national government agencies – not only those of the
Executive branch, but also of Congress, the Judiciary and other Constitutional bodies.; covers the budgetary support given
by the national government to local government units (LGUs), in particular, the Internal Revenue Allotment (IRA); as well
as to government-owned ot controlled corporations (GOCCs) and government financial institutions (GFIs).

COMPONENTS

The National Budget for a given year is composed of the following:

o NEW GENERAL APPROPRIATIONS – legislated by Congress and enacted by the President every
fiscal year as the General Appropriations Act (GAA). The GAA enacts both programmed and
unprogrammed general appropriations.

1. programmed appropriations – supported by corresponding resources

2. unprogrammed appropriations – can only be executed when the government attains a revenue
windfall (i.e. above target)

o AUTOMATIC APPROPRIATIONS – under specific laws, certain types of expenditures (e.g. debt
interest payments, LGUs IRA) are automatically set or appropriated.

o CONTINUING APPROPRIATIONS – appropriations previously enacted by Congress in the previous

years’ GAA and which continue to be valid. Currently, appropriations for capital outlays and
maintenance and other operating expenditures have a validity of two years.

Section 4 of the Revised Budget Act provides that the budget shall consist of two parts:

1. Current Operating Expenditures; and

2. Capital Outlay.

Fundamental Principles of Fiscal Operations

1. No money shall be paid out of any public treasury or depository except in pursuance of an appropriation law or
other specific statutory authority;
2. Government funds or property shall be spent or used solely for public purposes;
3. Trust funds shall be available and may be spent only for the specific purpose of which the trust was created;
4. Fiscal responsibility shall, to the greatest extent, be shared by all those exercising authority over the financial
affairs, transactions, and operations of the government agency;
5. Disbursements or disposition of government funds and property shall invariably bear the approval of the proper
officials;
6. Claims against government funds shall be supported with complete documentation;
7. All laws and regulations applicable to financial transactions shall be faithfully adhered to; and
8. Generally accepted principles and practices of accounting as well as of sound management and fiscal
administration shall be observed, provided they do not contravene existing laws and regulations.

The Budget as the Framework of the Accounts

BUDGET - an estimate of the proposed expenditures for specified purposes and embodies the means of financing
them during the same period; provides the means for controlling the estimated amounts to be raised as well as the
proposed amounts to be spent for specified objects; a program that guides all activities relating to collections and
expenditures; the framework of the accounts by which the transactions affecting such collections and expenditures
shall be recorded

Linkage between Government Budgeting and State Accounting

ACCOUNTING SYSTEM - provides the essential information needed to make resource allocation decisions, monitor
budgetary performance, and assess the effectiveness of operations
BUDGET - provides the framework within which transactions should be recorded, classified and summarized in the
accounting system to permit comparison of actual results with budgeted standards
A substantial output of the accounting system pertains to accountability reports needed to monitor performance in the
execution and accountability phases of the budgetary process

Kinds of Budgets

1. AS TO NATURE
a. Annual Budget – a budget which covers a period of one year
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
c. Special budget – a budget of special nature and generally submitted in special forms

2. AS TO BASIS
a. Performance Budget – a budget emphasizing the programs or services conducted and based on functions, activities
and projects which focus attention upon the general character and nature of the work to be done, or upon the services
to be rendered, rather than the things to be acquired
b. Line-Item Budget – a budget the basis of which are the objects of expenditures such as salaries and wages,
travelling expenses, freight, etc.

3. AS TO APPROACH AND TECHNIQUE

a. Zero-Based Budgeting – a process which requires systematic consideration of all programs, projects and activities
with the use of the defined ranking procedures; activities are analyzed and presented in “decision packages” or key
budgetary inclusions
Zero-based - yearly analysis, evaluation and justification of each activity, project or program, starting from a “zero”
performance and budgeting level; does not accept the prior year’s budget as a starting point for analysis
b. Incremental Approach – a budget where only additional requirements need justification
c. Capital Budgeting Approach - a budgeting technique which consists of a two-tiered strategy, as follows:
c.1 Setting a baseline budget that will correspond to the minimum level of operating requirements
c.2 Prioritization of the allocable balance (i.e. what is left of the budget ceiling after deducting the baseline
budget) among the proposed projects and programs of agencies.

Agency baseline – the cost of performing regular agency functions, excludes the costs of non-recurring programs

Government-wide baseline – the budget impact of decisions or policies enunciated by the government that require priority
funding
Examples are:
a. Proposed salary adjustment
b. Miscellaneous personnel benefits, including retirement benefits
c. Mandatory allocations to local governments
d. Projected level of support to GOCCs
e. Estimated provisions for contingencies due to calamity, foreign exchange fluctuations and other adjustments

FAPs baseline – the budgetary requirements, of ongoing programs/projects with foreign financial assistance.

Priority Program/Project Fund - the remaining balance after deducting the baseline budget requirements of the national
government.

4. OTHER FORMS OF BUDGET

a. Regional budgeting – a budget prepared consistent with the regional organization of the national government
b. Long-term budget – a budget prepared for a four or five year period or longer
c. Key Budgetary Inclusions – refer to the financial commitments of agencies pertaining to a budget year; maintained
for the purpose of (1) controlling major financial commitments so that funds are not misappropriated or to prevent
juggling of funds, (2) to disclose the funds and have a clear picture of the expenditures; and (3) to track down a
mandatory obligations and insure funding of priority projects.

NATIONAL BUDGET SYSTEM - consists of the methods and practices of the government for planning, programming
and budgeting; include the adoption of sound economic and fiscal policies and the execution of the programs and projects
geared towards the accomplishment of political, economic and social objectives; primary concern is the availability and
use of money to provide the services required or expected from the government.

The two principal objectives of the current budget system are:

 To carry out all government activities under a comprehensive fiscal plan

 To provide for a periodic review and disclosure of the budgetary status

Legal Basis of the Budget System - Budget Reform Decree or PD No. 1177

The Budget Reform Decree requires the following:

1. The formulation of the budget that supports the national development plan and reflects the objectives and strategies of
the plan;
2. The preparation of the budget within the context of the total resources of government
3. The preparation of the annual budget as an integral part of a long-term plan and long-term budget program;
4. The specification of multi-year requirements in each state of the budget process;
5. The preparation of the budget at the regional level, consolidation and review at the department and central levels
6. The implementation and timing of major development projects and the determination of expenditure levels
7. Analysis of budget estimates on a zero-base approach
8. Limiting the time allotted for debate on the budget by the legislative body, thereby ensuring that the budget is approved
before the start of the fiscal year; and
9. Adoption of a management information system for effective performance monitoring and financial evaluation and the
development of standard costs for units of work measurement, in order to effectively evaluate agency programs.

What is a national budget?

NATIONAL BUDGET - the government’s estimate of its income and expenditures; the financial translation of the program
and projects that best promote the development of the country; what the government plans 1) to spend for its programs and
projects and 2) where the money will come from

On what is our national budget spent?

Expenditures by expense class show how much is provided for:

1. Current operating expenditures – appropriations for the purchase of goods and services for the conduct of normal
government operations within a budget year
2. Capital outlays – appropriations for the purchase of goods and services the benefits of which extent beyond the budget
year and which add to the assets of government
3. Net Lending – net advances by the national government for the servicing of government guaranteed corporate debt and
loans outlays by the national government to government corporations; and
4. Debt amortization – contribution to the sinking fund which is utilized for principal repayment of our loans

How may a national budget affect the country’s life?

The national budget also serves as a stabilization role. It pump primes the economy, that is, when the economy is in
recession and private sector activity is weak, the government through its budget speeds up and increases its spending. The
intention is to stimulate demand for goods and purchases and the creation of more job opportunities.

Conversely, during economic booms when the private sector is active and economic growth is high, the government through
the budget assumes a more conservative spending, taxing, and borrowing stance so as not to compete with the private sector
in the demand for goods and credit. The objective is to slow down the rise in interest rates and prices, and avoid overheating
the economy.

Furthermore, the budget serves as a tool for the redistribution of the country’s financial resources. This is most clearly
manifested in the sustained funding for the social services sector. Through various social programs especially those targeted
for the poor, the government hopes to raise the rate of return on human capital; provide immediate relief to the needy; and
extend better opportunities for self-help, livelihood and employment activities.

Why does the budget increase?

Expenditures may increase or decrease depending on the government’s policy of how much it would like to put into the
economy. The more the government intends to raise the country’s level of development, the more expenditure rise.

Furthermore, the maturity of the country’s debt also determines the size of the budget and how it differs from year to year.
When the loans which were incurred in the past fall due, scheduled payments for a given year are included in the year’s
expenditure program. Also, government’s assumption of liabilities of Government Corporation and financial institutions
contributes to the increase in the allocation of debt servicing. These, in turn, increase the budget deficit which contributes
to higher interest payments and a bigger over-all budget.

Commodity price increase equated to inflation also requires that the budget be adjusted so that it would still be able to buy
the quantity of goods and services that the government is aiming for.

What are the major sources for our national budget?

There are two major sources of funds

1. Revenues
a. Tax
 i. Excise tax
ii. License and business tax
iii. Income tax
iv. Import duties
v. Other taxes and duties
b. Non-tax - fees and service incomes of various government agencies, foreign grants
2. Borrowings
a. Domestic borrowings - sources from the auction of Treasury bills, notes and
bonds
b. Foreign borrowings
i. Project loans - foreign loans obtained to finance a specific project
ii. Program loans - multi-purpose foreign loans

Why does the government borrow from foreign sources? Why can’t it make do with what is collected locally.

Relying only on domestic or local resources to finance such projects will limit our government’s capacity to provide this
needed support. If the government takes too large a share of domestic resources, local private demand will have less for
their own projects and activities. As a result, credit will be tight, interest charges will be high and prices of goods and
services will go up.

The absence of a long-term domestic capital market and the limited savings in the country, moreover, render the
domestic resources insufficient to finance the enormous requirements of development. By borrowing from foreign
sources, the government takes advantage of long-term loans which are readily available abroad with lower interest rates in
international capital markets.

It should be emphasized that our national government uses borrowing proceeds solely to finance carefully selected capital
projects supportive of the country’s development goals

ANNUAL PREPARATION, THREE-YEAR PERSPECTIVE

The Philippine Constitution requires the President “to submit to Congress, within 30 days from the opening of every regular
session as the general appropriations bill, a budget of expenditures and sources of financing, including receipts from
existing and proposed revenue measures”.

The annual preparation of the National Budget also ensures that all government spending is reviewed and justified anew
each year. Even so, the government also adopts a three-year perspective (see succeeding section on Medium-Term
Expenditure Framework). This ensures that the National Government remains strategic in managing its resources.