CHAPTER 1

INDIVIDUALS AND
GOVERNMENTS

BY: KRISTOFFER JEM N. SALVA, MBA

What is Public Finance?
Public Finance is the way of managing the public funds in the economy of the country which
plays the most important role in the development and growth of the nation both domestically as
well as internationally and it also affects every stakeholder of the country whether that
stakeholder is a citizen or not.

Objectives of Public Finance

What is government budgeting?
Government budgeting is the critical exercise of allocating revenues and borrowed funds to attain
the economic and social goals of the country. It also entails the management of government
expenditures in such a way that will create the most economic impact from the production and
delivery of goods and services while supporting a healthy fiscal position.
What is budget preparation?
NEDA – DOF - DBCC - Budget Call - Agencies - DBM - submission to Congress

The budget preparation phase starts with the Development Budget Coordination Committee (DBCC). It
is headed by the DBM Secretary and its members are the Secretary of Finance, the NEDA Director-
General, and the Bangko Sentral Governor, with the Office of the President for general oversight.

The NEDA provides the over-all macro-economic assumptions with which budgetary levels are to be
determined. They involve the projected Gross National Product (GNP) real growth rates, inflation rates,
91-day treasury bill rates, foreign exchange rates, population growth, and other economic parameters.

The Department of Finance (DOF), the Bureau of the Treasury, the Bureau of Internal Revenue and the
Bureau of Customs help the DBCC in determining the sources of financing. They project the revenues
that will be generated for the budget year as well as the borrowings that may have to be tapped.

The DBCC determines the overall economic targets, expenditure levels, the revenue projection, deficit
levels and the financing plan. It submits them to the President and the Cabinet for approval.
Once these are approved, the DBM issues the Budget Call. This requires agencies to prepare their
budgets in accordance with the said guidelines, macro-economic assumptions, and ceilings. The DBM
spells out guidelines, procedures, and timetables.

Agencies undertake their own internal consultations. They rank programs, projects and activities using
the capital budgeting approach. Then they submit their budget estimates, taking into account their own
priorities and those of the national government.

The DBM then conducts technical budget hearings where agencies defend and justify their proposals.
Organizational and budgetary issues are clarified.

The proposed expenditure programs are confirmed by the agency heads.

The DBM consolidates the budget proposals and then submits them to the Cabinet where the budget
is discussed with the President.

Once the budget is approved by the President and the Cabinet, the President submits it to Congress.
This must be done no more than thirty days after the opening of its regular session, as required under
the Constitution.
What is budget legislation?
House of the Representatives - Senate of the Philippines - Bicameral Conference Committee - GAA

The President submits to Congress the National Expenditure Program (NEP), the Budget of
Expenditures and Sources of Financing (BESF), and the President's Budget Message. The BESF is
the document which reflects the annual budget and the estimates and sources of financing. The
document is presented by the Executive branch to the Legislative branch.

The proposed budget is first reviewed by the Committee on Appropriations of the House of
Representatives. The Committee summons the agencies to justify their budgets, with the DBM
assisting and providing technical inputs. The Appropriations Committee then presents to the House
body the proposed budget and passes it at the Third Reading.

This then goes to the Senate Finance Committee for another round of hearings and deliberations. The
Committee presents the proposed amendments to the House Budget Bill to the Senate for approval.

Then a Bicameral Conference Committee, composed of members of both Houses, is convened to

resolve differences. The committee arrives at a common version, and it is then submitted to the
President.
If there are items which he/she disagrees with, then the President can exercise line-item veto power. The
President then signs it into law as the General Appropriations Act.

The law contains the new appropriations in terms of specific amounts: for salaries, wages and other personnel
benefits; for maintenance and other operating expenses; for capital outlays, all authorized to be spent by the
government for a given year.

The approved budget becomes effective on the first day of the budget year concerned, or when it is signed by
the President, whichever comes later.
What is budget execution?
issuance of allotment releases - cash release program

It is at the budget execution stage that the expenditure program is implemented. Allotments are
issued, chargeable against the regular agency budgets. It is also at this stage where agencies may
submit requests for availment from SPFs. Agencies are often required to submit additional reports
and documents to support their requests.

Cash releases are made to agencies to cover obligations that are current or carried over from the
previous year. However, not all allotment releases require the issuance of Notice of Cash Allocation
releases or NCAs. Examples of these are debt service, customs duties and taxes, the conversion of
liability to equity, or the subsidy to government corporations. The Cash Release Program is also
based on actual obligations of an agency, as reported in the quarterly trial balance submitted to
DBM. Hence, it will not issue NCAs for unobligated balances of allotments.
What is budget accountability?
performance indicators - assessment of agency performance
The accountability phase is the final phase of the budget process. This is when the agencies report
their actual physical and financial performance.

The assessment of the physical achievements of an agency is aided by performance indicators.

These are yardsticks for determining how well an agency has accomplished its objectives. They
measure outcome, output, process efficiency and client satisfaction. They may be quantitative or
qualitative in nature.

At this phase, the Commission on Audit (COA) figures prominently in the assessment of agency
performance. The COA is the government body tasked with looking at the legality, propriety and
accuracy of government financial transactions. The COA has auditors assigned to each government
agency and it has regional offices to review these transactions. Those that are considered excessive,
inappropriate or illegal are not passed in audit. COA can recommend means for setting them right, if
such is still possible. Trial balances of agencies, which are submitted to DBM and COA on a quarterly
and annual basis, report how agencies use up their allotments and cash allocations.
Functions of Public Finance
There are three main functions of public finance as follows –

The Allocation Function

There are two types of goods in an economy – private goods and public goods. The allocation
function deals with the allocation of such public goods. The government has to perform various
functions such as maintaining law and order, defense against foreign attacks, providing
healthcare and education, building infrastructure, etc.

The Distribution Function

There are large disparities of income and wealth in every country in the world. These income
inequalities plague society and increase the crime rate of the country.
In public finance, primarily three measures are outlined to achieve this target –

1. A tax-transfer scheme or using progressive taxing

2. Progressive taxes can be used to finance public services

3. A higher tax can be applied to luxury goods or goods that are purchased by the high-income
group

The Stabilization Function

Every economy goes through periods of booms and depression. It’s the most normal and
common business cycles that lead to this scenario. However, these periods cause
instability in the economy.
About The Government
The Philippines is a republic with a presidential form of government wherein power is equally divided among its
three branches: executive, legislative, and judicial. The government seeks to act in the best interests of its
citizens through this system of check and balance.

The Legislative branch is authorized to make laws, alter, and repeal them through the power
vested in the Philippine Congress. This institution is divided into the Senate and the House of
Representatives.

The Legislative Branch enacts legislation, confirms or rejects Presidential appointments, and has
the authority to declare war.
The Executive branch is composed of the President and the Vice President who are elected by
direct popular vote and serve a term of six years. The Constitution grants the President authority to
appoint his Cabinet. These departments form a large portion of the country’s bureaucracy.

The executive branch carries out and enforces laws. It includes the President, Vice President,
the Cabinet, executive departments, independent agencies, boards, commissions, and committees.

The Judicial Branch holds the power to settle controversies involving rights that are legally
demandable and enforceable. This branch determines whether or not there has been a grave abuse
of discretion amounting to lack or excess of jurisdiction on the part and instrumentality of the
government. It is made up of a Supreme Court and lower courts.

The judicial branch interprets the meaning of laws, applies laws to individual cases, and decides if
laws violate the Constitution. The judicial power shall be vested in one Supreme Court and in such
lower courts as may be established by law.

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