D E V E L O P E D B Y : P U P C S S D D E PA R T M E N T O F E C O N O M I C S

PART D
GOVERNMENT BUDGETING AND
EXPENDITURES POLICY
Learning Outcomes
This chapter will discuss the approaches and techniques of budgeting in the Philippines and resource
mechanisms of public goods. At the end of the chapter, the students will be able to iIdentify the
approaches and techniques in budgeting being adopted by the government, demonstrate awareness
and appreciation on how the government prepares its annual budget for allocation and distribution of
resources, participate in the cycle of budgeting process, apply economic tools in project evaluation and
appraisal for choosing the best alternative intervention for efficient use of government resources, and
raise vigilance in accountability of government resources by all stake holders.

Government Budgeting greater than the amount the government spends

Government budgeting is the critical exercise of on public welfare. A surplus budget denotes the
allocating revenues and borrowed funds to attain financial affluence of a country. Such a budget
the economic and social goals of the country as can be implemented at times of inflation to reduce
embodied in the Philippine Development Plan. aggregate demand.
The preparation of the annual budget is provided
in the Philippine Constitution, Art. VI Sec. 29 that The surplus budget policy is important to
no money shall be paid by the Treasury except encourage economic growth. The less the
in pursuance of an appropriation made by law.” government borrow from the public, the lesser
This provision of the Constitution also establishes the pressure on interest and inflation rates and
the need for all government entities to undergo the more funds are made available in the financial
the budgeting process to secure funds for use in market. Such funds may be used by businessmen
carrying out their mandated functions, programs to build factories, hire workers, buy equipment and
and activities. open more employment opportunities. By keeping
more funds in the hands of the private sector
A government budget is an annual financial rather than competing for credit, the government
statement which outlines the estimated helps make financing available for families who
government expenditure and expected government want to own homes, buy cars, or support their
receipts or revenues for the forthcoming fiscal children’s education. The government also needs to
year. Depending on the feasibility of these generate a budget surplus to repay the huge debt
estimates, budgets are of three types -- balanced it has accumulated over the years. The reduction
budget, surplus budget and deficit budget. of the national budget debt will correspondingly
lessen government’s requirements for interest
a. Balanced Budget and principal payments. This becomes important
A government budget is said to be a balanced particularly during periods of rising interest rates
budget if the estimated government expenditure and unstable exchange rates.
is equal to expected government receipts in a
particular financial year. Advocated by many c. Deficit Budget
classical economists, this type of budget is based A government budget is said to be a deficit
on the principle of “living within means.” They budget if the expected government revenues is
believed the government’s expenditure should not less than the estimated government expenditure
exceed their revenue. in a particular financial year. In this situation, the
government actions may be as follows:
b. Surplus Budget
A government budget is said to be a surplus • The government borrows money either from
budget if the expected government revenues foreign sources or from the domestic capital
exceed the estimated government expenditure market which increases the debt stock of the NG
in a particular financial year. This means that and its debt servicing requirements.
the government’s earnings from taxes levied are

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• The government borrows money from the Bangko 3. Functional Classification – The budget is
Sentral ng Pilipinas; or, classified on a functional basis like functions,
programs, projects and activities.
• The government withdraws funds from its cash
balances in the Treasury. 4. Organization – Budget formulation addresses
the organizational structure, managerial and
Budgeting Approaches and Techniques administrative procedures of the programs/
projects/activities.
Planning-Programming-Budgeting
5. Evaluation – The mechanism for evaluation of
System (PPBS) performance on the basis of financial and physical
The Planning-Programming-Budgeting System performances to monitor, and take corrective
(PPBS) is a concept that stresses the importance actions, if necessary.
of establishing a strong linkage between planning
and budgeting. It emanates from the policy of Each of these phases consists of a distinct but
the government to formulate and implement a related function in the overall conduct of the affairs
national budget that is an instrument of national of the organization.
development, reflective of national objectives,
strategies and plans. Under the PPBS concept, 1. Planning is an analytical activity carried out to
the budget is anchored on the degree by which aid in the selection of the organizations objectives
the accomplishment of economic plans and the and then to examine courses of action that could
attainment of target contained in the Medium-Term be taken in the pursuit of the objectives. Planning,
Philippine Development Plan (MTPDP) and the in effect, poses the question of whether some
Medium-Term Public Investment Program (MTPIP) particular course of action would contribute more
are supported. to the attainment of the organization’s goal than its
various alternatives.
PPBS is an integrated management system
that places emphasis on the use of analysis for 2. Programming is the function that converts plans
program decision making. The purpose of PPBS into a specific action schedule for the organization.
is to provide management with a better analytical Programming consists of developing detailed
basis for making program decisions, and for resource requirements and the actions needed to
putting such decisions into operation through implement plans.
an integration of the planning, programming and
budget functions. Program decision making is a 3. Budgeting is the activity concerned with the
fundamental function of management. It involves preparation and justification of the organization’s
making basic choices as to the direction of an annual budget. The function of budgeting is to
organization’s effort and allocating resources secure sufficient funds to put the program into
accordingly. This function consists first of defining operation.
the objectives of the organization, then deciding on
the measures that will be taken in pursuit of those 4. Operations consists of the actual carrying out
goals, and finally putting the selected courses of of the organization’s programs. Preparing for
action into effect. operations is the object of all the other phases.
An organization can be viewed in a simplified way 5. Evaluation is the function that evaluates the
as carrying out its functions through five basic and worth of operating programs. Through program
sequential phases: (1) planning, (2) programming, evaluation the worth of programs in attaining
(3) budgeting, (4) operations, and (5) evaluation. goals is measured and appraised. The result of
evaluations is used to modify current operations, if
1. Specification of Objectives – The objectives of indicated, or in planning future programs.
the programs are to be specified is consistence
with the long-term goals in quantitative terms as PPBS provides an opportunity for identifying
far as possible. the program alternatives through the conduct
of program implementation reviews and use the
2. Systemic Analysis – The possible alternative results for the next planning and budgeting cycle.
projects to achieve the program objectives are
analyzed in a systematic way with the use of cost-
benefit and cost-effectiveness analysis. Line Item Budgeting
The basis of which are the objects and

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expenditures such as salaries and wages, being instituted by the Department of Budget
travelling expenses, freight, supplies, materials, and Management through the annual cash-based
equipment etc. Line Item Budgeting emphasizes appropriations. This limits budget implementation
listing of objects for itemized expenditure such as to just one year and any unused obligations
personnel, supplies, and equipment without much shall be reverted to the National Treasury. This
regard for the purpose of programs or projects for is a logical progression from limiting the validity
which such items are proposed. This budgeting of the budget in 2017 and 2018 from two years
system offers a simple and reliable means of to just one year. In the cash-based budgeting
anticipating expenses for the budget year. It saves all appropriations for infrastructure capital
time and effort in budget preparation, as much of outlays, including subsidy releases to GOCCs for
the necessary data is readily available. infrastructure projects, as well as maintenance and
other operating expenses (MOOE) and other capital
Performance Budget outlay items, can be obligated before actual award
A performance budget is one that reflects both of these projects, upon which the allotted amounts
the input of resources and the output of services will be disbursed for payments to contractors and
for each unit of an organization. This type of suppliers.
budget is commonly used by government bodies
and agencies to show the link between taxpayer “The completion of construction, inspection,
funds and the outcome of services provided by acceptance and payment for infrastructure-related
the national government agencies and the local capital outlays shall be made not later than Dec.
government units. 31, 2021, while the delivery, inspection, acceptance
and payment for MOOE and other capital outlay
Zero-Based Budgeting items shall not be later than June 30, 2021. Also,
Budgets are not connected to the prior year’s “amounts appropriated under the fiscal year
spending. This prevents “embedding” of existing 2020 GAA as financial assistance to LGUs [local
spending in the cost base. It allows spending levels government units] released during the fiscal year
to be set based on the necessary activities of a shall be available for disbursement for the purpose
function, rather than historical trends. Requires specified until Dec. 31, 2021. This reform shall be
more work than legacy programs to understand undertaken to ensure that every Peso must lead
activities and cost structure. to the actual delivery of projects and programs for
the achievement of the goals aimed to ramp up the
country’s economic growth rate from 7% in 2018 to
Cash-Based Budgeting 8% in 2022, pushing the country into upper-middle
Budget appropriated in the past are on obligation- income status by 2022, while reducing poverty
based budgeting system which allowed release, incidence from 21.6% in 2015 to 14% in 2022.
obligation and actual spending of funds within
a two-year period. Budget system reforms is

Cash-Based Budgeting
DBM says that cash-based
budgeting has several
advantages. One, it streamlines
government work & prioritizes
the agenda of each agency
(planning will be given greater
importance & done ahead of
schedule). It also focuses on
accountability & faster service
delivery (improved procurement,
faster implementation,
immediate awarding of contracts
at the start of the year). Projects
should now be implementation-
ready before getting in the NEP
(more feasibility studies, detailed
engineering designs, & research
will be done). (Source: www.dbm.
gov.ph)

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Government and the Budget Cycle

Budget, as defined by DBM, means allocating revenues and borrowed funds to attain the economic and social
goals of the country // entails the management of government expenditures in such a way that will create the most
economic impact from the production & delivery of goods & services while supporting a healthy fiscal position. It has
four (4) stages, starting from preparation, authorization, execution, and the final step is accountability. Read more
about our budget in: www.dbm.gov.ph.

The annual preparation of the budget involves 4 To ensure close coordination on real, fiscal
phases as shown in the inner box of the National monetary and external sectors of the economy, the
Budget Cyclem, namely: budget preparation, Bangko Sentral ng Pilipinas (BSP) was invited to
budget legislation, budget execution and attend as a Resource Institution to the DBCC. As a
accountability. While the execution of the current’s resource institution, the BSP is responsible for the
year budget is ongoing, the preparation for the monetary measures and policies.
next fiscal year overlaps during the year. Each
phase has steps to follow on schedule in order to Resource Mechanism for Public Good
cope with the timeline for the proposed budget Sources of government funds come from tax
would be submitted to Congress as prescribed by and non-tax revenues. The non-tax revenues are
The Constitution. As a starter, the Development generated from income of government operations,
Budget Coordination Committee (DBCC) issues sale of assets, grants and aid, borrowings from
the macroeconomic parameters and procedures domestic and foreign financial institutions.
to guide agencies in preparing their respective
proposed budget. The DBCC is composed of the At the local government levels, there are distinct
following members: classes of potential revenue sources. These
include the following with respective examples of
• Department of Budget and Management – revenue sources:
resource allocation and management
• Dpartment of Finance – revenue generation and • Land-based tools -basic real property tax, Special
debt management Education Fund-SEF Real Property Tax, Land
• National Economic and Development Authority- Transfer Tax, Idle Land Tax, Public Land Use Tax,
overall macroeconomic policy Land Investment
• Office of the President – Presidential oversight

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• Community activity-based tools – business tax, Cities 23%

community tax, franchise tax, tax on business Municipalities 34%
of printing and publication, professional tax, Barangays 20%
amusement tax, annual fixed tax on delivery trucks Total 100%
or vans, fishery rentals, fees and charges, service
fees and charges III. Distribution of IRA
The distribution of shares of individual provinces,
• Infrastructure-based tools – special levy, toll feesf cities and municipalities shall be made on the basis
or charges, public utility charges of the following formula:

• Debt-based tools – debt financing, financial Factor Percentage

investments Population 50%
Source: National Statistics Office (NSO)
• Revenue sharing tools – share in mining, fishery, Proclamation Order
and forestry taxes; share in the gross sales or taxes
of government -owned and controlled corporations, Land Area 25%
and congressional funds Source: Lands Management Bureau (LMB) Official
Masterlist of Land Area
The local government units also get an automatic
appropriation from the Internal Revenue Allocation Equal Sharing 25%
(IRA) as among the major sources of funds in
accordance with the criteria for determining the Total 100%

share of respective local government unit
IV. Computation of Shares
I. Legal Basis The share of each barangay is computed as
Section 284 of RA No. 7160 or the Local follows:
Government Code of 1991, which provides that
LGUs shall have a 40% share from the national Php 80,000 for each barangay with a population of
internal revenue taxes on collection of the third not less than one hundred (100) inhabitants.
(3rd) fiscal year preceding the current fiscal year;
and Section 285 which provides the manner of The balance is allocated as follows:
allocation to the LGUs.
Population 60%
Section 286 of RA No. 7160 provides that the share Equal Sharing 40%
of each local government units shall be released Total 100%
without need of any further action, directly to the
provincial, city, municipal or barangay treasurer, as V. Uses of Fund
the case may be, on a quarterly basis within five (5)
days after the end of each quarter, and which shall o To fund basic services and facilities pursuant to
not be subject to any lien or holdback that may be Section 17 of the Local Government Code of 1991
imposed by the national government for whatever particularly those which have been devolved by the
purpose (actually, the allotment for IRA is released National Government.
comprehensively but cash allocation is released
monthly, 80% of IRA share of LGUs on or before the o To fund development projects as identified in the
8th day of the month and the remaining 20% on or LGUs Annual Investment Plan (Section 287 of the
before the 24th day of every month). LGC directs LGUs to set aside not less than 20% of
their IRA for development projects).
Section 4 of RA No. 9358 or the Supplemental
Appropriation for FY 2006 provides that future local
government share in the national internal revenue VI. Release Procedure
taxes or IRA shall henceforth be automatically
appropriated. o BIR submits to DBM certification of collections
made and 40% share of LGUs.
II. Formula or Computation o DBM verifies with BTr collections remitted and
computes the share of LGUs based on codal
LGUs % Allocation formula as provided under Section 285 of RA No.
Provinces 23%

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7160, the Local Government Code. given below based on the General Appropriations
Act 2020 for the total budget of the national
o DBM Central Office (CO) programs the amount government and specific to an agency/state
and releases the allotment comprehensively to the university.
DBM Regional Office (RO) at the start of the year.
By sectoral allocation:
o DBM CO issues the Notice of Cash Allocation • Social services
(NCA) monthly for deposit with the Government • Economic services
Servicing Banks of DBM ROs. Subsequently, the • General Public Services
DBM RO issues the funding check for credit of IRA • Defense
share to the individual bank account of the LGUs. • Debt Servicing

Source: Internal Revenue Allotment - Department By functional classification

of Budget and Management 2020 • General Administration and Services
• Support to Operations
Classification and Patterns of Philippine • Operations
Expenditures
By expense class
The budget for annual expenditures is classified • Personal Services
into different categories. The budget is presented • Maintenance and Other Operating Expenses
by agency, by sectoral allocation, by functional • Capital outlay
classification and by expense class. Examples are

Budget by Sectoral
Allocation
Budget can be classified based
on the old / traditional method.
This divides expenditure items
into five broad categories or
sectors : economic, social,
general public services, defense,
and debt burden.

(Based on 2019 GAA)

Budget by Expense
Class
Budget can also be classified by
expense class & has four general
classifications of expenditures
: personnel services (PS),
maintenance & other operating
expenses (MOOE), financial
expenses (FinEx), and capital
outlays (CO).

(Based on 2019 GAA)

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GRAPH A GRAPH B
Budget by Geographical
Location
Budget can also be categorised
based on major island groups
(pie graph A); or based on non-
region clusters — nationwide or
central (pie graph B)

(Based on 2019 GAA)

Special Purpose Funds

In the budget, there are also special purpose funds (SPF):

(1) Disaggregated SPF include budgetary support, allocation to

LGUs (shares in taxes, LGSF, MMDA), miscellaneous personnel
benefits, pension & gratuity

(2) Lump-sum funds include NDRRMF, contingent fund, allocation

to LGUs (brgy officials death benefits, share in proceeds of fire
code fees)

(3) Automatic appropriations include IRA, tax expenditure fund,

net lending, interest payments

(Based on 2019 GAA)

STUDENT EXERCISE / ASSESSMENT

Exercise. Examining the General Appropriations Act & National Expenditures Plan
Get copy of the 2017-2019 GAAs & NEP, the PDP and the BLGF SIE. You may download or see this in the
DBM website (www.dbm.gov.ph for GAA and NEP), NEDA website (www.neda.gov.ph for PDP), and the
BLGF-DOF website (www.blgf.gov.ph for the local government statement of incomes and expenditures).

• Choose one topic or policy statement from the PDP. Which budget sector, region, or other
categories is it included?
• Compare the national & local budgets allocated, if there are any, for your topic (i.e. trends—
increase or decrease; larger or smaller; more specific objectives achieved)
• Discuss prioritization & level of support for your topic based on the figures obtained from both
the national & local budgets; do these help address the issues raised by your topic? Why or why not?

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