FISCAL POLICY

IN THE
PHILIPPINES:
Focus on the Revenue
Component

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 Outline of Presentation

I. DOF Mandate
II. What is Fiscal Policy?
II. Importance of Sound Fiscal Policy
III. Characteristics of Sound Fiscal Policy
IV. Fiscal Policies Being Implemented
V. Key Challenges
VI. Role of the Private Sector

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DOF Mandate

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 Under Executive Orders 127, 127A and 292
 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. 4
The DOF is responsible for the preparation
of the annual and medium-term revenue
program of government.

Department of Budget and Management

- EXPENDITURES

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What is Fiscal Policy?

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Fiscal Policy is manifested in the government’s
policies on revenues and expenditures.
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
If expenditures are larger than the funds
received by the government, results in
deficit.
In contrast, government runs a surplus if
revenues are bigger than spending.
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Importance of Sound Fiscal Policy

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Sound fiscal policy is key to achieving
macroeconomic stability, and critical for
sustained growth and poverty reduction

Unsound fiscal policy, on the other

hand, can lead to inflation, crowding
out, uncertainty and volatility

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Sound fiscal policies result to a
stronger and less vulnerable fiscal
position

 Ability to face “shocks”

– Global financial crisis

– Natural disasters
– Contingent liabilities becoming due

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A strong fiscal position enhances the
competitiveness of the economy

Greater access to capital markets;

More foreign direct investments (FDIs);
More receptive to free trade and its benefits;
Increased income-generating opportunities.

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Characteristics of a Sound Fiscal Policy

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Sound fiscal policy is characterized by:
Efficient and effective resource generation
Productive and meaningful expenditure program
Sustained and manageable level of public debt
Strong, transparent and accountable government
owned and controlled corporations (GOCCs)
Ability to address new emerging issues

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Fiscal Policies

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Mobilizing resources
Robust tax and non-tax revenue collections
– Equitable tax structure
– Efficient administration machinery

Plug leakages (tax evasion, smuggling)

Reduce distortions (less of redundant incentives

or unproductive government subsidies)

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A productive and meaningful spending
program
In infrastructure (roads, airports, irrigation,
power) and in human capital (education, health,
social services to the vulnerable sector – poor,
disabled, seniors)

Large shares of nondiscretionary spending (e.g.

interest payments) can force cuts on higher-
quality discretionary spending

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A sustainable and manageable level of
public debt
The government can continue to service its
debts without a steep tax increase or a reduction
in spending

Market expectation is that government has the

continued ability to generate resources to service
its debts
The structure of the public debt is reasonable -
long maturities, optimum mix of currencies that
minimizes the impact of currency movements

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Building a strong financial position,
and promoting transparency and
accountability in the operations of
GOCCs
The GOCCs’ performance affects the
government’s consolidated public sector
position

GOCCs should not rely on government

infusions (subsidies, tax exemptions) but
should be self-sufficient

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Addressing new, emerging issues

Climate change; environmental concerns

Capital market development

Governance

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Key Challenges

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Maintaining fiscal support while securing fiscal
sustainability

 More resources for infrastructure development and

better social services

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Role of the Private Sector

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 Private Sector Participation in Promoting
Socio-Economic Development

Improve tax compliance

Provide inputs in monitoring the use of taxes

Work closely with government

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Thank you…
 FISCAL POLICY
IN THE
PHILIPPINES:
Focus on the Revenue
Component
A presentation for

Public Finance (Economics 151) Class

Alternative Class Learning Experience (ACLE)

University of the Philippines

Manila
July 17, 2013