Fiscal Policy in the Philippines

Introduction

The fiscal health of the Philippines has improved significantly over the past decade.
Notwithstanding the dividends from reforms, challenges remain for the Philippines on
the fiscal side. Policy coordination, primarily through the Development Budget
Coordinating Committee (DBCC), has helped to reduce the need for policy sterilization.

However, some concerns have been raised by about the reduced issuance of
government securities as well as possible interest rate repression. Meanwhile, sufficient
liquidity in the domestic economy has ensured that the crowding out of private offerings
is not an immediate concern.

Further reforms on public debt management are needed to promote efficiency, further
develop the capital market and enhance overall financial stability.

What is Fiscal Policy?

Fiscal policy refers to the "measures employed by governments to stabilize the

economy, specifically by manipulating the levels and allocations of taxes and
government expenditures.

Fiscal measures are frequently used in tandem with monetary policy to achieve certain
goals. In the Philippines, this is characterized by continuous and increasing levels of
debt and budget deficits, though there have been improvements in the last few years.

The Philippine government’s main source of revenue are taxes, with some non-tax
revenue also being collected. To finance fiscal deficit and debt, the Philippines rely on
both domestic and external sources.

Fiscal policy is the government’s policy on the generation of its resources through
taxation and/or borrowing, as well as the setting of the level and allocation of
expenditures. It is the objective of the government to pursue and maintain sound fiscal
policy. This is possible through the establishment of an efficient, equitable and
progressive revenue system. Moreover, the government is committed to adopt a

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spending strategy consistent with the macroeconomic development targets and sectoral
priorities.

What are the components of the fiscal policy?

There are three components of fiscal policy: revenue policy, expenditure policy and debt
management policy.

What is the revenue generation policy?

Revenue is defined as cash flow which does not increase the liability of the government.
Revenues of the government include both domestic and external revenue, and
borrowings.

Government's policy in raising revenues is rooted on the "ability to pay” concept.

Revenue generation must be equitable and efficient. It must be administratively feasible
to implement, and projections should be realistic. Revenues can be raised
administratively or legislatively. There are two objectives why government raises
revenues. One is to increase or raise revenue collections and second for regulatory
purposes.

What are the sources of revenue?

There are two general sources of revenue, namely, tax and non-tax.

1. Tax Revenues are compulsory charges or levies imposed by government on

goods, services, transactions, individuals, entities and others, arising from the
sovereign power of state. Examples of these are the income tax, sales tax, and
import duties.
2. Non-tax Revenues are collected from sources other than compulsory tax levies,
including those collected for direct services rendered by government agencies to
the public. They can also arise from the government's regulatory and investment
activities. Examples cover fees and charges, Treasury income, privatization
proceeds and foreign grants.

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Basically, the government views expenditures as a tool for effectively implementing
public policy. Funds are disbursed for the efficient delivery of services to the public and
to help in economic growth by supporting priority sectors. The government allocates
funds in the most efficient and effective way to ensure rational and equitable resource
allocation.

The bulk of government expenditures come mainly from taxes. The government
ensures that the level of expenditures is consistent with the approved surplus/deficit
program for the year.

What is debt management policy?

It is the policy of the government to attain a manageable debt level. This is one where
the country can afford to pay its maturing liabilities as scheduled.

Normally, borrowings are incurred to finance development projects. Recently, however,

borrowings are now used as budget support for various government programs and
projects, such as the utilization of Overseas Development Assistance (ODA). The
government incurs borrowing therefore to fund priority programs and projects.

What is the fiscal position of the government?

The fiscal position of the government reflects the government's financial condition for
the year. This summarizes total revenue collections and expenditures, and the resulting
surplus or deficit.

The fiscal position of the government may result in a balanced budget, a budgetary
surplus or a budgetary deficit. A balanced budget is achieved if government revenues
equal the approved level of expenditure. If the government's projected revenue is more
than its projected expenditure, then the government will have a surplus. However, if the
government revenue is less than its expenditures, then the government is said to be in
deficit.

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What comprises the public sector?

The public sector is composed of the national government, the local governments; the
Bangko Sentral ng Pilipinas, the social security institutions and the government owned
and/or controlled corporations. These sectors complement each other and they
collectively employ their capabilities to speed up development. In preparing the fiscal
program, all the financial transactions of these sectors are summed up to generate the
consolidated public sector resources.

What are the fiscal institutions in the government?

The fiscal policies and program are formulated and implemented by the following:

 Development Budget Coordination Committee

 Implementing agencies
 Congress
 Commission on Audit

What is the task of the Development Budget Coordination Committee (DBCC)?

The Development Budget Coordination Committee (DBCC) is the Committee tasked to

estimate revenues and recommend sources of financing. It determines and
recommends the annual government expenditure program and the sectoral and activity
ceilings, including the allocation between operating and capital outlay expenditures. As
a fiscal body, it formulates policies governing revenues, expenditures and debt
management. The DBCC is composed of the NEDA Director-General, a representative
from the Office of the President, the Governor of the Bangko Sentral ng Pilipinas, and
the Secretaries of Finance and Budget and Management. The Secretary of Budget and
Management serves as the Chairman.

Assisting the DBCC is the Executive Technical Board (ETB), composed of technical staff
of the same entities.

The Bangko Sentral ng Pilipinas (BSP) is primarily responsible for policy direction over
money, banking, and credit. It provides controls in the supply of and demand for money
through bonds and borrowings. It promotes and maintains monetary stability and the

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convertibility of the peso. Moreover, the BSP supervises the operations of banks and
exercises regulatory powers pursuant to RA No. 7653.

The Bureau of the Treasury (BTr) is the principal custodian of all national government
funds. It manages the cash resources and services public debts from domestic or
foreign sources, among others.

The Department of Budget and Management (DBM) is responsible for formulating and
implementing the national budget and ensuring the efficient and sound utilization of
government funds and resources.

The National Economic and Development Authority (NEDA) is the planning agency of
the government. It is responsible for formulating annual and medium-term public
investment programs. It programs official development assistance in the form of grants
and concessional loans from foreign governments and multilateral agencies.

What are the respective roles of the implementing agencies in fiscal policy
setting?

In order to effectively carry out fiscal policies, government agencies help in developing
and firming up macro fiscal policy at the micro level. Agencies mandated to raise
revenues include the Bureau of Internal Revenue, Bureau of Customs, Land
Registration Commission, and other regulatory offices. The Bureau of Treasury is
mandated to manage debt policy. The rest of the agencies implement the expenditure
policies.

What is the role of Congress in fiscal policy setting?

The legislative bodies provide the legal framework for the implementation of fiscal
policies. They ensure that fiscal policy is not only sound but also implementable and
realistic. They see to it that the level of macroeconomic indicators and parameters are
achievable given present economic conditions.

What is the role of the Commission on Audit (COA)?

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The Commission on Audit (COA) ensures that agencies abide with the generally
accepted rules and regulations in implementing their functions. The COA is also the
agency that prepares the annual financial report of the government.

In what way can the budget be considered a fiscal policy instrument and a
development tool?

The budget is the primary instrument for the implementation of the government's policy.
It sets the direction and pace of economic growth and development. During recession,
the government is expected to pump prime the economy. However, in better times, the
government is expected to give way to private participation and initiatives. As such, the
budget can serve as an effective development tool and not just as a control mechanism.
The budget must address critical priorities and thrusts of the government.

What is the planning and budgeting cycle?

Both planning and budgeting undergo a cycle. It begins with preparation and ends with
accountability or assessment. Ideally, the planning cycle runs as follows.

At the start is the review process of existing plans. Then the government undertakes
actual planning. Initially this is done at the planning office of an agency, then it is
deliberated at the higher decision levels. It is finally brought to the macro level. After
plans are firmed up, next come mobilization, allocation and identification of resources.
Then follows the implementation of the planned activities.

The budgeting cycle, on the other hand, starts from budget preparation, then budget
legislation, followed by budget execution. The final phase is budget accountability.

The budget preparation stages are as follows:

 Issuance of a budget calendar

 Agency preparation/deliberation
 Technical budget hearings
 Setting of agency budget levels

What are the linkages involved between planning and budgeting?

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Effective planning and budgeting linkages are crucial. Plans indicate the objectives,
policies and strategies of the government. Budgets are the mechanisms through which
the government raises and allocates resources. Plans which are not reflected in
budgets are substantially irrelevant. Budgets which do not operationalize a consistent
expenditure strategy will not lead to the better use of public resources.

All told, it is important that plans are linked with budgets, and this requires close
coordination between NEDA and DBM. Too often though does actual resource
allocation turn out quite different from what was planned. It is important therefore for
these oversight agencies to seriously reconcile plans and budgets. Even Congress is
accused of piling up unfunded legislation.

The latest initiative for linking planning and budgeting is the Medium-Term Expenditure
Framework. One of its components is the Sector Effectiveness and Efficiency Review
(SEER). This exercise aims to determine the appropriateness of PAP vis-a-vis target
outcomes and organization mandates. It provides a quick feedback on the effectiveness
and efficiency of agency programs. It helps rationalize a) the inclusion of new projects in
the budget, and b) the process of budget cutting.

What is fiscal planning?

The government undertakes an annual fiscal plan that includes budgetary requirements.
Some comment that due to the volatility of the economy, it is difficult to project the
future, so budgetary fiscal scenarios seem unrealistic. However, it is still important that
the government embarks on long-term fiscal planning. This will insure long-term stability
and progress.

As part of budgetary reform, there is now support for a longer budget framework. Since
1999, DBM has worked for the installation of a Medium Term Expenditure Framework
(MTEF). The budget will continue to be approved on an annual basis. However,
proposed appropriations will be defined within the context of a six-year macroeconomic
plan, a three-year prioritized public investment program, and a three-year costing of
agency programs, projects and activities. This will ensure that the future financial

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implications of new spending and savings decisions in any given year are consistent
with the medium term fiscal targets.

What is sectoral planning?

The major sectors are social services, economic services, general public services,
defense, net lending, and debt service. Normally, the social services sector garners the
lion's share of the budget followed by the economic services sector.

Under the present set up, sectoral planning is not yet in place. Planning is still done
either by agencies or by levels of government. The sectoral plans just present the
aggregates of the individual agency plans. In the same manner the allocation by sector
also aggregates individual agency budgets. Initial identification of sectoral plans and
programs are contained in the President’s Budget of Expenditures and Sources of
Financing.

What comprise the social services sector?

The expenditures for social services include agency programs, projects and activities in
the following areas of concern: (1) education, culture and manpower development; (2)
health; (3) social welfare and employment; (4) housing; and (5) the Comprehensive
Agrarian Reform Program.

What comprise the economic services sector?

The sector includes the following: (1) natural resources; (2) agriculture and agrarian
reform; (3) trade and industry; (4) tourism; (5) power and energy; (6) water resource
development and flood control; (7) communications, roads and other transportation; and
(8) other economic services

Revenues and Funding:

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  Tax Revenue

Tax collections comprise the biggest percentage of revenue collected. Its biggest
contributor is the Bureau of Internal Revenue (BIR), followed by the Bureau of Customs
(BOC).

 Income Taxes

Income tax is a tax on a person's income, wages, profits arising from property, practice
of profession, conduct of trade or business or any stipulated in the National Internal
Revenue Code of 1997 (NIRC), less any deductions granted. Income tax in the
Philippines is a progressive tax, as people with higher incomes pay more than people
with lower incomes.

 E-VAT

The Expanded Value Added Tax (E-VAT), is a form of sales tax that is imposed on the
sale of goods and services and on the import of goods into the Philippines. It is a
consumption tax (those who consume more are taxed more) and an indirect tax, which
can be passed on to the buyer. The current E-VAT rate is 12% of transactions. Some
items which are subject to E-VAT include petroleum, natural gases, indigenous fuels,
coals, medical services, legal services, electricity, non-basic commodities, clothing, non-
food agricultural products, domestic travel by air and sea.

 Tariffs and Duties

Second to the BIR in terms of revenue collection, the Bureau of Customs (BOC)
imposes tariffs and duties on all items imported into the Philippines. According to
Executive Order 206, returning residents, Overseas Filipino Workers (OFW’s) and
former Filipino citizens are exempted from paying duties and tariffs.

 Non-Tax Revenue

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Non-tax revenue makes up a small percentage of total government revenue (roughly
less than 20%), and consists of collections of fees and licenses, privatization proceeds
and income from other state enterprises.

 The Bureau of Treasury

The Bureau of Treasury (BTr) manages the finances of the government, by attempting
to maximize revenue collected and minimize spending. The bulk of non-tax revenues
comes from the BTr’s income. Under Executive Order No.449, the BTr collects revenue
by issuing, servicing and redeeming government securities, and by controlling the
Securities Stabilization Fund (which increases the liquidity and stabilizes the value of
government securities) through the purchase and sale of government bills and bonds.

 Privatization

Privatization in the Philippines occurred in three waves: The first wave in 1986-1987,
the second during 1990 and the third stage, which is presently taking place. The
government’s Privatization Program is handled by the inter-agency Privatization Council
and the Privatization and Management Office, a sub-branch of the Department of
Finance.

 PAGCOR

The Philippine Amusement and Gaming Corporation (PAGCOR) is a government-

owned corporation established in 1977 to stop illegal casino operations. PAGCOR is
mandated to regulate and license gambling (particularly in casinos), generate revenues
for the Philippine government through its own casinos and promote tourism in the
country.

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 Taxation, Borrowing, and Spending

DUTERTENOMICS: Fiscal Issues on Revenue and Spending

In a briefing by members of the Development Budget Coordination Committee (DBCC)

before the Senate committee on finance, the Duterte administration expects tax
revenues to grow by 12.7 percent in 2019 on the back of the projected collection
growths, by the Bureau of Internal Revenue (BIR) and Bureau of Customs (BOC), of a
respective 13.1 percent and 11.3 percent for next year.

From January to June this year, total revenue collections reached PHP1.41 trillion,
which is 20 percent higher than the same period last year and exceeded the target by 8
percent or PHP105.7 billion, Dominguez said in a statement Tuesday.

“This administration is committed to long-term fiscal sustainability. Be assured we

continue to exercise fiscal responsibility and maintain sound fiscal policies to support
higher and more inclusive growth,” Dominguez said during the DBCC briefing on
President Rodrigo Duterte’s proposed 2019 national expenditure program. “Fiscal
strategy remains to be prudent, sustainable, and supportive of the government’s
development objectives.”

To generate additional revenue streams that will enable the government to sustain its
massive infrastructure buildup and increased spending on human capital development,
Dominguez said the Duterte administration will push for the passage into law of the rest
of the packages under its comprehensive tax reform program (CTRP).

He said the government aims to raise PHP3.2 trillion in revenues in 2019, including
about PHP181.4 billion from tax reform, which will help sustain its strong fiscal
performance and aggressive spending plan through 2022.

Dominguez said this revenue goal is equivalent to 16.5 percent of the gross domestic
product, which is an improvement from the 15.6 percent attained in 2017 and this year’s
target of 16.2 percent.

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The projected amount of PHP181.4 billion will come from the Tax Reform for
Acceleration and Inclusion Act, as well as from the proposed tax amnesty program and
adjustments in the Motor Vehicle Users Charge, which comprise Package 1B of the
Duterte administration’s CTRP.

Booming economy

The Philippine economy is far from being sick. As of the first quarter of 2018, the
country’s gross domestic product (GDP) stood at 6.8%. This is one of the fastest growth
rates in the Asia-Pacific.

But UP economics professor Emmanuel de Dios said that economic managers should
not rejoice so quickly, as this is still short of the government's target range of 7% to 8%.

Moreover, other countries like Laos and Cambodia had already breached 7% years ago.

Duterte's Build, Build Build (BBB) program is also lifting several sectors.

During the first quarter of 2018, the public sector's construction activities grew by 25%.
Private sector construction also grew at 7%. According to the National Economic and
Development Authority (NEDA), the government has maintained its spending targets for
infrastructure development.

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Economic managers committed to accelerate public infrastructure spending from 5.1%
of the country's GDP in 2016 to 5.4% in 2017, with an increase in funding allocation of
P101.76 billion based on the General Appropriations Act (GAA). The government has
slightly raised the country's deficit ceiling to sustain the BBB's momentum.

However, securing the rest of the funds for the P8-trillion infrastructure push continues
to be a challenge.

Duterte has also revamped the country's tax reform plan for the infrastructure
push.

The Tax Reform for Acceleration and Inclusion (TRAIN) law boosted government
revenues by 19% in the first 5 months of 2018. As of writing, tax collections for 2018
continued to exceed 2017's.

The government also ran after tax evaders like Mighty Corporation. Duterte was able to
rake in over P40 billion from the cigarette maker.

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The amount of foreign direct investments (FDIs) flowing into the country also surged to
$8.7 billion during the first 11 months of 2017, surpassing the full-year target of $8 billion
set by the Bangko Sentral ng Pilipinas (BSP). The highest recorded so far under the
Duterte administration was seen in October 2017, where FDIs soared to $1.92 billion.

BSP data showed that bulk of gross equity capital investments came from Singapore,
Hong Kong, Luxembourg, China, and the United States. The central bank attributed the
strong FDI figures to strong investor confidence given the economy's solid
macroeconomic fundamentals and growth prospects.

Our country’s economic roadmap, with emphasis on the spending side.The spending
priorities will help usher in a new era for the Philippine economy, one where it takes its
rightful place as the bright star of Asia.

For quite some time now, the Philippines has enjoyed strong macroeconomic
fundamentals that has enabled it to weather external headwinds. For one, our country is
“the fastest growing country in the fastest growing region in the world” with a growth rate
of 6.9% in 2016, higher than countries such as China (6.7%) and Vietnam (6.2%). First
quarter economic growth was also recorded at 6.4%, broadly in line with government’s
full year target of 6.5% – 7.5% GDP growth rate. Growth is expected to accelerate in the
coming quarters backed by robust consumer spending and stronger government
expenditures, among other growth drivers

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Our first semester performance for 2017 also shows greater potential in achieving our
target at the fiscal front. For one, our disbursement level is gaining momentum, as the
department heads have learned already the ropes of implementing their programs and
projects. National government spending recorded a robust 22.6 percent growth in June
2017, the highest posted so far this year. Disbursement as of the first semester grew by
9.0 percent, much higher than the 6.0 percent growth registered for the first five months
of the year. Expenditures, net of interest payments, for the first semester is even higher
at 10%. Spending is within program, with under spending registering at 0.4 percent only
for the period or about P5.9 billion of the first semester program.

If this trend holds, we expect that under spending, the Waterloo of previous
administrations, will soon be a thing of the past. This information is important to us, and
it should be to you as well, because as you know, making huge investments in
infrastructure and human capital development. This goes to show that the
administration’s political will is not just talk. It really set on delivering on they promises,
and based on this information, we can be optimistic that we will see the investments pay
off sooner rather than later.

Combining implementation efficiency with crucial policy reforms, confident that it will
successfully lay the groundwork for a robust, wealth-generating, and wealth-distributing
Philippine economy.

In line with our commitment to promote rapid and inclusive growth, the plan to achieve
quality GDP growth of 7 to 8 percent in the medium-term, and reduce poverty to 14
percent from 21.6 percent in 2015. By the time of step down, envision the Philippine
economy to be in high-middle income territory.

In order to do this, must have put in place a fiscal policy that will facilitate the
achievement of our medium-term goals.

Expansionary Fiscal Policy

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The increased in planned deficit from 2 to 3 percent of GDP must be plan to sustain this
level until 2022 to finance our spending priorities. This implies a deficit target of P482
billion in 2017 rising to P768 billion in 2022.

The borrowings will have an 80-20 mix, in favor of domestic borrowing. This financing
mix is designed to minimize our exposure to foreign exchange fluctuations and enable
us to better manage our debts.

To assure that despite the deficit trajectory, the budget strategy is sound, appropriate
and sustainable. The debt-to-GDP ratio will continue to fall from 40.6% in 2017 to 38.1%
in 2022: This is because the expect GDP growth to outpace the rise in debt
accumulation. With low and falling debt profile, earn the envy of most developed and
developing countries in the world facing much higher debt-to-GDP ratios.

The borrowings will be complemented by increased revenue collection resulting from

improved tax administration and the new revenue measures proposed by the
Department of Finance (DOF).The House of Representatives has already passed the
phase one of the Tax Reform Package. With the implementation of the tax reform
package in 2018, revenues are projected to increase to P2.84 trillion, equivalent to
16.3% of GDP, and gradually increase to P4.5 trillion or 17.8% of GDP.

With the combined higher deficit target and tax reform, the government will have
additional fiscal space to finance our huge investments on public infrastructures and
social services.

Government Expenditures are targeted to reach P3.36 trillion in 2018, which is

equivalent to 19.3% of GDP and projected to reach P5.27 trillion, equivalent to 20.8% of
GDP, in the next five years. This rate of government spending will sustain the growth
momentum.

Spending Priority: Golden Age of Infrastructure

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Analysts and academicians have long cited our poor and crumbling infrastructure as a
constraint to growth. Poor infrastructure hampers economic productivity, trade mobility,
and the accessibility of public services.

It is for these reasons that infrastructure development will be the top priority of the
Duterte administration. They intend to spend about P8 to 9 trillion ($160 to $180 billion)
in public infrastructure for the next six years to make up for past neglect and to realize
what they call the “Golden Age of Infrastructure”.

For FY 2017 alone, P858.1 billion, or 5.4 percent of GDP, is allocated for infrastructure
development. The annual infrastructure spending will be ramped up, reaching as much
as 7.3 percent of GDP in 2022. This ambitious spending pattern will allow us to
construct and modernize our roads, bridges, airports, seaports, flood control and
irrigation systems, among other facilities.

In the proposed 2018 budget, infrastructure spending totaled to about P1.1 trillion,
equivalent to 6.3% of GDP and is higher by 27.9% compared to the 2017 budget. This
is proof that we put our money where our mouth is.

Spending Priority: Human Capital Development

Another pressing concern is developing the young population into an agile and
competent workforce. In an aging world, they have a young population whose median
age is about 23 years old. They recognize that this can be an asset or a liability.

True to the commitment in transforming the lives of the Filipino people, they will
continue to invest in human capital development through our banner social programs

This is why the Social Services sector (education, health care, social protection, among
other things) will continue to receive the biggest share in the proposed FY 2018 budget
with P1.42 trillion, a 37.8% share in the overall budget. Some of the major programs
that we are currently funding include the Conditional Cash Transfer Program, the
National Health Insurance Program, our pursuit of Universal Basic Education, and the
full implementation of the K-12 Program.

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The government will sustain this level of support. In fact, the share of social sector
expenditures to GDP is planned to rise from 8.5 % of GDP this year to 9.2% of GDP by
2022.

Budget Reforms

In order to do this, they must utilize the National Budget to the fullest extent authorized
by law. Hence, they will continue to guard against under spending.

Interestingly, last year’s spending pattern shows promise: under spending has narrowed
to 3.6 percent, driven by strong spending for infrastructure and other capital outlays.
This is sharply lower than the 13.3 percent and 12.8 percent deviations observed in
2014 and 2015, respectively. Once the budget reforms gain traction, they expect
government spending rate to improve further. And this has been validated: for the first
semester of FY 2017, actual disbursements is almost equal to program indicating
significant improvements in Budget preparation and utilization.

So, in order to promote greater fiscal transparency, accountability, and prudence in

spending, and improve the country’s Public Financial Management System, below are
some of the budget reforms we have introduced, or will soon to introduce:

First, they have streamlined the release and management of funds, similar to what
implemented in the first tour of duty of Secretary of DBM. The General Appropriations
Act serves as the official fund release document, enabling line agencies to use their
authorized appropriations on the first working day of the fiscal year. As a result, as of
January 3, the first working day of 2017, the DBM has comprehensively released P1.64
trillion, or 83.5 percent of the total P1.968 trillion agency-specific budgets.

Second, they have revised the Implementing Rules and Regulations of the Procurement
Reform Act (RA 9184). This is in response to the misplaced perceptions that
procurement issues have delayed budget implementation, the Duterte administration
has. The revision will quicken the procurement process, make it less vulnerable to
arbitrary delays, and streamline the documentary requirements without sacrificing the
integrity of the process. For instance, they have relaxed the rules in signing, sealing,

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and marking of bids. In the past, procuring entities would disqualify bidders because
one of the hundreds of pages of the bid was not signed. This has led to delays and
anomalies.

Third, they are also using technology to better fulfill they mandate. The Budget and
Treasury Management System (BTMS), an integrated financial management system for
the national government, is on track for implementation this year.

Fourth, they are pushing to pass a Budget Reform Bill (BRB), which will institutionalize
budget data disclosure, civil society participation in budgeting, and all the necessary
ingredients of a modern budget system. For instance, the Budget Reform Bill will
mandate a budget system that is cash-based, instead of obligation-based. Obligations
are intentions, not expenditures. Hence, the Budget Reform Bill will promote disciplined
execution of the Budget

The Veto Message of the President for the 2017 Budget states that funds must be
obligated within the year, instead of the usual two-year obligation period. Still, this line
item veto is not sufficient. In order to institutionalize the one-year validity of
appropriations, it has to be embedded in the Budget Reform Bill.

The reform bill will also strengthen transparency and accountability in utilizing public
funds by strengthening Congress’ power of the purse.

Finally, another reform is the Rightsizing the National Government Act. This was
certified as a priority bill of the Legislative-Executive Development Advisory Council
(LEDAC) the bill aims to attain effective and efficient delivery of public service by
streamlining the operations in national government agencies. Basically, it will eliminate
the functions, programs and projects which are already redundant or no longer needed;
and reconfigure agencies with overlapping or redundant operations and functions that
result in confusing regulatory rules, duplicating requirements, red tape and inefficient
delivery of public goods and services. The House has approved the Rightsizing Bill, and
is now being deliberated upon in the Senate. They expect its approval by Congress
sooner rather than later.

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Revenue Side: Tax Reform for Acceleration and Inclusion

As mentioned, there is a need to raise additional revenues to finance our development

priorities. This is where the DOF’s Tax Reform for Acceleration and Inclusion (TRAIN)
comes into play.

The Tax Reform package will be instrumental in raising revenue effort, defined as total
revenues as percent of GDP, and ultimately funding our development priorities.

At the same time, there is a pressing need to reform our outdated tax system. A simpler,
fairer, and more efficient tax regime – one that the DOF Tax Reform promises to bring
about – will invite more investments and put more money in the pockets of 99% of the
population.

Among the reforms included in the first tax reform package are: (1) lower personal
income tax rates with fewer brackets, (2) a broader Value-Added Tax Base that retains
only the necessary exemptions, and (3) adjusted excise taxes on oil and automobiles.
Inclusive of the tax administration reforms, the first tax package will net a conservative
P134.0 billion in revenues for 2018.

At the same time, targeted transfers will be put in place to protect the poorest and most
vulnerable sectors that will be affected by the Tax Reform.

So in essence, the Tax Reform package is a win-win proposition. As a matter of fact,

House Bill No. 5636 has been approved in the House of Representatives and soon be
taken up in the Senate.

Conclusion

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Clearly, the Duterte Administration is serious in its pursuit for real change in the
economy and the living standards of the Filipino people.

Right now, the optimism is shared not only by the private sector but also by the
international community. After all, the Philippines is expected to be one of the fastest
growing economies in the fastest growing region in the world.

The adaptive fiscal policy, in tandem with sound macroeconomic fundamentals and
socio-economic interventions, will only boost our development prospects. Soon, they
will get a glimpse of what a modern Philippines would look like – first-world
infrastructure; better trained and flexible labor force; more decent jobs and higher
wages; open, effective and accountable governance.

References:

1. "Bangko Sentral ng Pilipinas – Publications and Research". www.bsp.gov.ph. Retrieved

2015-11-13.
2. The Philippine Economy: Moving Ahead in 2019 – Economic Newsletter" (PDF). Bangko
Sentral ng Pilipinas.
3. The Philippines' External Debt Ratios Remain at Prudent Levels even as External Debt
Rises in the First Quarter 2019 http://www.bsp.gov.ph/publications/media.asp?
id=5039&yr=2019
4. About the Development Budget Coordination Committee
(DBCC)https://www.dbm.gov.ph/index.php/dbcc-matters/about-the-dbcc
5. http://www.neda.gov.ph/executive-order-no-230-reorganizing-the-national-economic-
and-development-authority/ EXECUTIVE ORDER NO. 230 – REORGANIZING THE
NATIONAL ECONOMIC AND DEVELOPMENT AUTHORITY

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