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I wish to congratulate the UP Economics Towards Consciousness (UP ETC) for aiming for both academic excellence and active politicization of its members and the broader UP community. Indeed, UP students must excel academically and at the same time be politically aware and active, both on and off campus.

Bilang mga iskolar ng bayan, kailangan ninyong maglingkod sa bayan at magbantay ng bayan ngayon at sa hinaharap. Hence, it is imperative that you are politicized and fully aware of the burning issues that the nation confronts. For this reason, I am happy that you are interested in the 2008 national budget or the proposed General Appropriations Act for FY 2008. The GAA is the most important traditional law that Congress enacts or is constitutionally mandated to pass annually. There are times, however, that Congress fails to pass the national budget or Congress passes the General Appropriations Bill after the end of the current fiscal year. In such cases, the General Appropriations Act of the previous year is deemed reenacted.

We need not underscore the importance of the GAA for we all know that it: 1) provides the budgetary anchor for the operation of the national government; 2) propels the implementation of priority programs and projects; and 3) defines the parameters and directions of national policies with funding support.

The national budget is the government’s estimate of its income and expenditures. It is based on the amount the government decides it will spend during the year and the sources of funds, either from revenues or from borrowings or from both, with which to finance such expenditure.

The national budget is the financial translation of the programs and projects that best promote the development of the country.  Through the budget, the government can put into action its plans and policies.

The national budget also serves a stabilizing role.  It pump primes the economy. It pumps up the economy, that is, when the economy is in a recession or slump. When private sector activity is weak at a given time, pace and term, the government, through its budget speeds up and increases its spending. The intention is to stimulate demand for goods and services whose production will create more jobs.

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 stance. 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 social services.  Through various social programs, especially those targeted for the poor, the government provides immediate relief to the needy and extend better opportunities for self-help, livelihood and employment.

The national budget allocates funds for the implementation of various programs and projects, the operations of government offices, which include the  payment of salaries of government employees,  and the payment of public debts.

Expenditures may increase or decrease depending on the government’s policy of how much resources it will inject into the economy.  The more the government intends to raise the country’s level of development, the more expenditures rise.

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

There are two main sources of funds for our national budget. These are (1)  revenues, and (2) borrowings:

Revenues consist of tax and non-tax collections:

Tax collections are sourced from the Bureau of Internal Revenue, the Bureau of Customs and other offices such as the Land Transportation Office (for motor vehicle tax), and the Department of Justice (for Immigration Tax)

Non-Tax revenues include fees and service incomes of various government agencies, foreign grants, including the proceeds from the sale of transferred, surrendered and privatized assets

Borrowings come from domestic and foreign sources.  Domestic borrowings are sourced from the auction of Treasury Bills, notes and bonds.  Foreign borrowings, in turn, are classified either as project and program loans being offered by foreign creditors such as the Asian Development Bank (ADB) and the World Bank (WB).  Project loans are foreign loans obtained to finance  a specific project, such as the building of roads and bridges, while program loans are multi-purpose foreign loans for the enhancement of a specific sector and are conditional on basic changes in certain economic, monetary or fiscal policies, among others.

The national government has to provide for the requirements of capital projects, such as roads and bridges that are important to the attainment of our development objectives.  In effect, capital outlays are investments for continuous economic activities and for future expansions.  They generate local production and income.
Relying only on domestic or local resources to finance such projects will limit our government’s capability to provide the needed financial 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.

Moreover, the absence of a long-term domestic capital market and the limited savings in the country render 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 is imperative for our national government to use borrowing proceeds solely to finance carefully selected capital projects supportive of the country’s development goals.  Wisely chosen and efficiently implemented, these projects are expected to build up the productive capacity of our economy and eventually pay back the loans obtained.

We now go to our main course – the “Budget Process” with emphasis on the legislative budget process.

Government budgeting is undertaken using a process that consists of four (4) phases, namely:

 

1. Budget Preparation
2. Budget Legislation or Authorization
3. Budget Execution or Implementation
4. Budget Accountability or Review

 

BUDGET PREPARATION – refers to the formulation of estimates of revenues and expenditures by the executive departments and agencies.

BUDGET LEGISLATION OR AUTHORIZATION – pertains to the whole range of legislative action on the budget leading to the enactment of a general appropriations law for a given fiscal year.

BUDGET EXECUTION OR IMPLEMENTATION – covers allotment of appropriations by the central budget authority to, and the incurrence of obligations by, the spending departments and agencies of government.

BUDGET ACCOUNTABILITY  OR REVIEW – involves in essence the reporting of actual performance against plans or targets.

We shall skip the budget preparation, budget execution and budget accountability phases since these are the functions of the executive branch. We shall now focus on the budget legislation or authorization.

How does the budget become a law? (An Overview)

The President submits the overall budget to Congress in the form of a detailed National Expenditure Program or NEP, accompanied by a Budget of Expenditure and Sources of Financing or BESF, the President’s Budget Message and a Staffing Summary.

In Congress, the proposed budget goes first to the House of Representatives, which assigns the task of initial budget review to the Committee  on Appropriations.

The House Committee on Appropriations summons the different national agencies of the government including GOCCs to explain and justify their budget.  The proposed budget is then presented  to the House for plenary consideration as the General Appropriations Bill or GAB.

From the House of Representatives, the budget bill goes to the Senate and is referred to the Senate Committee on Finance.  The Senate Committee on Finance likewise invites the various agencies to explain their respective budgets as contained in the budget bill.  The Committee then proposes amendments to the House Budget Bill for plenary consideration by the Senate.

To thresh out differences and arrive at a common version, a Bicameral Conference Committee (Bicam) is created composed of members coming from the Senate and the House of Representatives.

Once a common budget bill has been approved or ratified by both Houses voting separately, it is submitted to the President for signing into law. The law is known as the General Appropriations Act.

The following slides show the Committee activities during budget legislation. – from the conduct of Committee Budget Briefings/Hearings up to the signing of the GAA.

MOTHER COMMITTEE LEVEL
This is the presentation of macroeconomic assumptions and policies adopted in the formulation of the proposed budget by the Executive.  The Committee also deliberates on the proposed budget of the various departments of the national government on a department-wide basis.

MACROECONOMIC LEVELS
The Development Budget Coordinating Committee (DBCC) presents the macroeconomic assumptions adopted in the formulation of the proposed budget, and the valuation of the actual and proposed revenues to finance the proposed expenditure program.

The heads of the fiscal and monetary planning bodies and revenue generating agencies are summoned to present the macroeconomic assumptions adopted in the formulation of the proposed budget.  These agencies are the DBM, NEDA, DOF and other concerned agencies.

BUDGET HEARING BY DEPARTMENT
The heads of the various departments and their senior staff are summoned to present and justify their budgetary proposals on a department-wide level.  This is also where the oversight review of the previous year’s budget of each department is undertaken.  Policy matters are discussed with the concerned departments and agencies.

SUB-COMMITTEE LEVEL
This is the second stage in the evaluation of the agency budget estimates/proposals.  Executive departments are invited the second time around to appear before the sub-committees to present and justify their budgets on an agency-by-agency basis.  Each Committee Vice-Chair is assigned a Sub-Committee and specific agency assignment and is responsible for the conduct of budget hearings of agencies under his/her sub-committee.  All the sub-committees conduct hearings simultaneously.  The Vice-Chairs are assisted by the technical staffs of the Committee on Appropriations.

Printing of the General Appropriations Bill (GAB) for First Reading

The Committee technical staff initially encodes the GAB usually composed of about 1,500 pages, based on the National Expenditure Program (NEP) submitted by the Executive.  The encoding is done by  department/agency/bureau/office, including  government owned and/or controlled corporations.

The GAB is filed with the Bills and Index Division for First Reading.  The Speaker refers it to the Committee on Appropriations for appropriate action.

Sponsorship and Plenary Deliberations on the GAB

The GAB is scheduled for floor deliberations.  The deliberations, scheduled the whole day starts at 9:30 a.m. up to late evenings. However, it can extend up to the wee hours of the next morning.

Approval on Second Reading of the GAB

Historically, during the previous Congresses, a practice was adopted wherein a small Committee was organized and authorized to accept and approve individual amendments without exceeding the total new appropriations approved by the House.

The small Committee has as its members the Chairman and  the Vice Chairs of the Committee on Appropriations, representatives from the Minority and Majority parties and the Committee on Rules.

Turno en Contra speeches will be delivered by Members who wish to convey the pros and cons on the GAB.

After the turno en contra, the GAB will be voted and approved on second reading.

Amendments, Finalization and Printing of the GAB for Third Reading

After all the individual amendments are submitted (deadline for submission is announced beforehand), the small Committee meets again in executive session to consider and approve all amendments on the GAB.

The Members and the technical staff review and evaluate all requests, realignments and other possible amendments including the proposed special and general provisions.

The approved amendments are then incorporated in the GAB.

The GAB is printed anew for consideration on third reading

Approval of the GAB on Third Reading

Pursuant to the Rules of the House, the printed copy of the bill shall be distributed to the Members three days before the approval on third reading except when the President certifies to the necessity of its immediate enactment,  in which case it can be voted upon immediately with the yeas and nays entered in the journal.  Each Member is given the privilege to explain his/her vote on the proposed bill.

Transmittal of the Third Reading Copy to the Senate

The GAB as approved on third reading is transmitted to the Senate for consideration.

Bicameral Conference Committee

Depending on how fast the Senate and the bicameral conference committee act on the budget, the GAB should be approved by the start of the new fiscal year.

During the Bicameral Conference Committee, the Conferees of both the Senate and the House settle their differences in executive sessions.  Unless these differences are settled, the Bicam is in a deadlock situation.  If the deadlock is not settled until the end of the year and remains unsettled even the following year, then the preceding year’s budget is reenacted and becomes in force until a new budget law is enacted.

Approval of the Bicameral Conference Committee Report

After a common general appropriations bill is agreed upon by the Bicameral Conference Committee, the Conference Committee Report is ratified by each House

Finalization and Printing of the Enrolled Copy of the GAB

All amendments as approved by the Bicam are incorporated in the GAB.  The proposed bill is now ready for final printing.  The final print of the GAB is called the enrolled copy of the General Appropriations Bill

Signing of the GAB into law otherwise known as the General Appropriations Act (GAA)

The enrolled copy of the GAB is then forwarded to the President for signing into law, without prejudice to the exercise of his/her item-veto power.  The measure becomes the General Appropriations Act upon signing.

The President is given thirty (30) days within which to study and approve the GAB, with or without veto of particular items thereof.  If the President does not act on the bill within this period, it shall automatically become a law even without his/her signature.  If he/she vetoes it, the Congress may override such veto by 2/3 vote of each House voting separately. The approved bill shall then become a law.

The General Appropriations Act is more than a compendium of figures. It is a clear statement or restatement of national policies. It is a measure through which Congress influences the policy orientation of the Executive Department. It is a statute whose significance is underscored not only by the amounts allocated therein but also by the appropriations excluded or expunged therefrom.

In your invitation letter, you indicated that you are also interested in how the 2008 budget differs from previous government budgets:

• The GAB for FY 2008 in the House of Representatives was reported out for plenary consideration in record time; as Chairperson of the House Appropriations Committee I delivered my sponsorship speech on 3 October 2007; and the Bicam report was ratified by the House and the Senate on 28 January 2008.
  
  
• The House Committee on Appropriations broke tradition after it approved on 17 September 2007 the participation of bona fide people’s organizations (POs) and non-government organizations (NGOs) in public hearings on the GAB. Accordingly, on 28 September 2007, the Committee heard the presentation of an “alternative budget” by Social Watch and the Freedom from Debt Coalition and took note of their recommendations.
  
  The traditional practice of solely limiting budget briefings and hearings to heads and representatives of government departments and agencies is an incomplete process. The people, who are the ultimate beneficiaries of sufficient budgetary allocations, or the casualties of meager or absent allotments, should be given the opportunity to be heard through their non-elective and alternative representatives in the PO and NGO community.
  
  
• Likewise we have revived an abandoned tradition of empowering the various Vice-Chairpersons of the Committee to conduct hearings at the sub-committee level. It is at this stage that the nitty-gritty of the proposed budgetary allocations comes under the Committee members’ scrutiny for eventual retention, augmentation, disallowance, reduction or realignment.

As Chairman of the Committee on Appropriations, I have pursued some of my steadfast advocacies in the crafting of the General Appropriations Bill. Two of these are the deflation of debt service and the comprehensive management of the population growth rate, which is presently 2.36% per annum and among the highest in the world.

I have repeatedly said in many fora that the twin problems besetting the country are both escalating: the spiraling debt service payments both for principal amortizations and interest payments which has a combined total of P598.188 billion for 2008 (P269.847-B for interest payments and P328.341-B for principal amortization) or 48.77% of the total national of and off budget expenditures (22% for interest payment and 26.77% for principal amortization), and the exploding population which now totals almost 90 million Filipinos, ranking the Philippines as the 12th most populous country in the world.

For the first time in almost a decade, the debt service allocation for interest payments was cut, paving the way for augmenting the appropriations for (1) health, (2) education, (3) agriculture, (4) social welfare, (5) infrastructure, (6) local governance and development, (7) justice and the judiciary, (8) labor and employment, (9) energization, (10) environment, and (11) public safety and security, among others.

The reduction in interest payments for foreign loans totaled P25.9 billion and consisted of the following:

• P15.9 billion corresponding to savings as a result of the appreciation of the peso with the exchange rate recomputed at P41.00 to a dollar from a high assumption of 48:1 in the NEP or a P7.00 differential. (Savings of P2.272 billion is generated for every peso appreciation);

• P5 billion in suspension of interest payments for loans which are challenged as fraudulent, tainted and/or useless pending the Executive’s renegotiation of the loans or their eventual condonation; and

• P5 billion in premature allocations for interest payments for program loans and bond issuances still in the pipeline.

In addition to the debt service cut, proposed appropriations for slow-moving projects, excess allocations and other miscellaneous allotments totaling P12.638 billion were likewise slashed.

The total cuts amounting to P38.5 billion were realigned to the budgets of the following agencies and programs, among others, to increase their respective appropriations as originally proposed in the NEP:

• Basic and higher education was increased by P4.829 billion for a total new appropriations of P158.602 billion;
• Health was increased by P5.790 billion for a total new appropriations of P25.847 billion;
• Agriculture was increased by P1.872 billion for a total new appropriations of P29.161 billion;
• Infrastructure was increased by P12.982 billion for a total new appropriations of P94.729 billion ;
• Justice and the judiciary was increased by P1.236 billion for a total combined new appropriations of P16.570 billion;
• Social welfare and development was increased by P.165 billion for a total new appropriations of P4.848 billion;
• Local governance and development was increased by P3.500 billion for a total new appropriations of P16.253 billion;
• Public safety and security was increased by P.859 billion for a total new appropriations of P53.242 billion;
• Labor and employment was increased by P.236 billion for a total new appropriations of P6.272 billion;
• Energization was increased by P.600 billion for a total new appropriations of P.922 billion;
• Environmental protection was increased by P.184 billion for a total new appropriations of P8.118 billion; and
• Sports development was increased by P.059 billion for a total new appropriations of P.360 billion;

Aside from infrastructure development, the health, education and agriculture sectors were the biggest beneficiaries of the bicameral augmentation with respective increases of P5.790 billion, P4.829 billion and P1.872 billion.

Sports development got the highest percentage increase (19.6% or P59 million) to propel Filipino athletes in their quest for gold in the Beijing Olympics in August 2008.

The country’s inordinate population growth rate impedes and constricts our overall socio-economic growth. The problem of a huge population adversely impacts on all indicators of human development like education, health, shelter, employment, food security, and even the environment. Unfortunately, both the Executive and the Legislature in the past have merely given lip service to population management. There is no comprehensive and national policy to contain the population growth rate and the budget for reproductive health has always been miniscule. For the first time in the General Appropriations Act of 2007, a budget of P180 million was allocated for artificial family which could be accessed by local government units since the national government has been prohibited by the Executive to procure and disseminate reproductive health products like condoms, contraceptive pills and injectables. Regrettably, it was only on February 12, 2008 that this amount of P180 million had been released through a belated Special Allotment Release Order (SARO). To compound the problem, even the Commission on Population was not aware of this tardy release to the Department of Health.

For this year, through the initiative of the House of Representatives with the concurrence of the Senate, a total of P2.0 billion has been allocated in the GAA for reproductive health and family planning. P800 million is allocated for reproductive health and family planning seminars to be conducted nationwide by the DOH in coordination wit LGUs to enable women and couples to make an informed choice regarding the family planning method that is best suited to their needs, personal convictions and religious beliefs. The remaining P1.2 billion is appropriated for the purchase of modern natural and artificial family planning methods and devices.

The increases which the House of Representatives have introduced for health, education, agriculture and the environment have addressed the country’s commitment to the attainment of the millennium development goals on eradication of extreme hunger and poverty, achieving universal primary education, promoting gender equality, reduction of infant mortality, improvement of maternal health, combating HIV-AIDS and tuberculosis and ensuring environmental sustainability.

For example, for the first time an allocation of P100 million was appropriated for the prevention and management of HIV-AIDS and another P600 for the prevention and treatment of pulmonary tuberculosis, P400 million of which is with the Department of Health and P200 is with the Department of Education for the treatment of teachers and non-teaching personnel in public schools who are afflicted with tuberculosis and tend to spread the disease to their pupils and students.

I know you are also interested in the difficulties Congress encountered in having the GAB approved. Actually the GAB sailed smoothly in the House of Representatives. I had no difficulty having it approved by both the majority and the minority. Even in the Bicam its passage was relatively easy in view of the following commonalities: 1) both the House and the Senate maintained the budgetary ceiling recommended in the Executive’s National Expenditure Program of P1.227-Trillion. This is recognition that no budget is that huge for the increasing needs and growing expectations of our people; 2) both Houses have excised certain allocations and realigned the cuts principally to augment basic services like education, health, agriculture and infrastructure; and 3) for the first time since 1999, both have cut debt service particularly on interest payments, the budget for which has been included in the new appropriations for Congress to have control over this outlay.

Yesterday, House Speaker Prospero C. Nograles and I as Chair of the House Committee on Appropriations signed the enrolled General Appropriations Bill.

The big question now is will the President sign the proposed General Appropriations Act for FY 2008?

I see no reason why the President will not sign the GAB. The President’s budget of 1.227-Trillion is effectively sustained by Congress. However, a significant portion of it was cut and realigned by Congress in order to infuse more funds into basic services and infrastructure development to provide:

• More investment opportunities
• More stable and productive jobs
• Investment in human resources through education to raise the quality of the public school system by building more classrooms and reducing the shortage in school desks and chairs
• Improved health services by providing the poor greater access to better health services

The P25.9-billion cut in debt servicing is a strong signal that Congress can politically reduce the debt burden in order to channel more funds to infrastructure development and social services to heed the call of the masses. This will also give the Executive the chance to review and revisit the loans that are alleged to be illegal, fraud-tainted and/or useless for eventual condonation.