By: Rakim L. Perez BSBA 3B

Course Outline:•What is Public Finance?

•Public Finance Cycle• Formulation of Fiscal Policy• Generation of Revenue from Taxation and Other Sources• Revenues• Tax• Non-tax revenue• Tax on income and profits• Taxes on international trade and transactions• Other taxes• Major classes of tax revenues

Course Outline:•Expenditures of funds through the National and Local Budget• Phases on budgetary procedures in National• Budget Preparation and Presentation• Budget Authorization and legislation• Budget execution and operation• Budget accountability• Public Borrowing• Accountability• Government Budgeting

Course Outline:•Deficit Financing•Public Liability•Role of COA•Government Corruption•Anti-Corruption

Public Finance• Refers to the income and outgo of the governments in the pursuit of national objectives.• It involves the inflow of financial resources in the form of taxes and other revenues, and the outflow of such resources in the form of expenditure to finance goods and services.

Public Finance Cycle

Public Finance Cycle 1. Formulation of Fiscal Policy

Fiscal Policy•Fiscal Policy refers to policies on taxation, and other revenue, expenditure, and borrowings which is intended to promote the stabilization and development of the economy.•Now a days, “Fiscal and Monetary Policy” is used as a single concept though it has a different aspect of economic policy but have related impact.

Fiscal Policy•The formulation of fiscal and monetary policy made a huge part of economic and social development but not limited to socio-cultural and political.

Public Finance Cycle 2. Generation of revenue from taxation and other sources

Generation of Revenue•Revenues refer to all cash inflows of the national government treasury which are collected to support government expenditures but do not increase the liability of the NG.•A tax is a compulsory contribution mandated by law and exacted by the government for a public purpose. The major tax collecting agencies of the national government are the Bureau of Internal Revenue and the Bureau of Customs.

Generation of Revenue:Revenue Sources of Central Gov’t

Generation of Revenue: Tax Revenue

◦Is the income that is gained by governments through taxation.

Two Sources of Tax Revenue:Direct TaxesIndirect Taxes

Generation of Revenue: Direct Taxes

◦ The term direct tax generally means a tax paid directly to the government by the persons on whom it is imposed.

Sources of Direct tax:Income Tax Corporate TaxWealth TaxInterest TaxSecurities Transaction Tax

Generation of Revenue: Merits of direct Tax:Equity CertaintyCreates Public ConsciousnessRelatively ElasticAnti-inflationary

Generation of Revenue: Demerits of Direct Taxes:Tax EvasionInconvenientNarrow CoverageAffects Capital FormationEffects on Willingness And Ability to work

Generation of Revenue: Indirect Taxes

◦Is one in which the burden can be shifted to others. The Tax payers is not the tax bearer/. The impact and incidence of indirect taxes are on different persons. An indirect tax is levied on and collected from a persons who manages to pass it on to some other person or persons on whom the real burden of tax falls. For e.g. commodity taxes or sales tax etc. are indirect Taxes.

Generation of Revenue: Sources of Indirect Taxes:

◦ Central Excise Duties◦ Customs Duties◦ Service Tax◦ Other Taxes and Duties◦ Taxes of Union TerritoriesMerits of Indirect Taxes:UniversalityInfluence on pattern of ProductionWide CoverageMay not affect Motivation to work and

SaveSocial Welfare

Demerits of Indirect Taxes:High Cost of Collection Increase Income InequalitiesLack of Social ConsciousnessAffects ConsumptionInflationary

Generation of Revenue•Non-tax Revenues refer to all other impositions or collections of the government in exchange for services rendered, assets conveyed, penalties imposed, etc.

Generation of Revenue•Taxes on income and profits are imposed on all taxable income earned or received by a taxpayer, whether as an individual, as a partnership, or as a corporation, during a particular period of time, usually lasting one year. Taxes on domestic goods and services are imposed on the use or sale of locally manufactured goods as well as local services availed of within the domestic territory.

Generation of Revenue•Taxes on international trade and transactions include import and customs duties, and other international trade-related collections of the government. Taxes on property are imposed on the ownership of wealth or immovable property levied at regular intervals and on the transfer of real or personal property.•Other taxes primarily include collections from the motor vehicles tax, immigration tax and forest charges.

Major Classes of tax Revenues

Other sources

Taxes on international Trade and

Transactions

Taxes on Domestic goods

and services

Taxes on property

Taxes on income and

profits

Revenue

Public Finance Cycle 3. Expenditures of Funds through the National Budget

Expenditure of Funds- National Budget•A budget is a plan of financial operation composed of estimate or proposed expenditure for a given period or purposed and the proposed means of financing them.•The principal activities of government are normally controlled by a system Budget.

Expenditure of Funds- National Budget

Budgetary Procedures: 1. Preparation and Presentation

◦ This phase covers the estimation, determination and translation of government revenues, priorities and activities.

◦ Government entities prepare their budgets for the year to be submitted to the Department of Budget and Management (DBM) for review.

◦ The DBM then consolidate all budgets to form a government wide3 budgeting estimate, the ‘NATIONAL BUDGET’.

◦ This shall be submitted to the president for final approval.

Budgetary Procedures: 2. Budget authorization and Legislation◦Involves the submission of the national government budget to the legislative body for review, deliberation, and formulation of an appropriation bill to be forwarded to the president for approval and signature.

Budgetary Procedures: 3.Budget Execution and Operation◦Covers the implementation of the various operational aspect of the budget.

◦Such as release of allotments to the various agencies, the continuing review of the fiscal position, and other related activities.

Budgetary Procedures: 4. Budget Accountability◦Involves the evaluation of expenditures and performance against the predetermined budget.

◦Obligation incurred, personnel used and work accomplished are compared with the plans and goals of various agencies submitted at the time their respective budget is prepared.

Budgetary Procedures: 4. Budget Accountability◦Accomplished by the heads of the various agencies who review the performance of their respective agency;

◦And the commission on Audit (COA) who examines the operations of the agency.

Government Budgeting: A budget deficit is incurred when expenditures exceed taxes and other revenues for a year. And a budget surplus occurs when all taxes and other revenues exceed expenditures for a year. Though unbalanced means both surplus or deficit budget, a number of economists refer to deficit budget as unbalanced budget. Keynes has supported this principle arguing that along with the higher government expenditure, there will be multiplier effect in the economy.

Elements of Budget:◦ Close to reality- despite being an estimate, it should be based on reality primarily on the basis

of the experience of the previous year.◦ Simple and obvious- since this is a public document, all who are interested should easily get

the required information after looking on it.◦ Flexibility- not only income and expenditure estimates are there but also the policies and

programs of the government. Thus, should have the quality of flexibility.◦ Single fund- a single fund of the government should be established there for all revenues and

expenditures.◦ Extensive- should be in detail about each item of revenue and expenditure.◦ Publicity- it is made public and all the stakeholders are free to comment on this.◦ Annularity- prepared for one year fiscal year.

Government Budgeting:

Government Budgeting:

Public Finance Cycle: 4. Public Borrowings

Public Borrowings: Public Borrowings refer to funds obtained from repayable sources, such as loans secured by the government from financial institutions and other sources, both domestic and foreign, to finance various government projects and activities.

Public Borrowings: The government borrows from any of the following reasons:To finance national government deficits;To obtain foreign exchange;To secure financing at more favorable terms than the opportunity

cost of revenues;To take advantage of benefits attached to the funds, e.g.

technology; and,To balance the timing of resources with the project gestation and

repayment of benefits

Public Borrowings:•Public debt includes obligations incurred by the government and all its branches, agencies, and instrumentalities, including those of government monetary institutions.•It consists of all claims against the government which may be payable in goods and services, but usually in cash, to foreign governments or individuals or to persons natural or juridical.

Public Borrowings: Obligations maybe:

◦ Purely financial, e,i. loans or advances extended to the Philippine government, its branches, agencies and instrumentalities;

◦ Services rendered or goods delivered to the government for which certificates, notes or other evidence of indebtedness have been issued to the creditor; and

◦ For external debt such as claims of foreign entities, securities held in trust, non-bonded debts and obligations of the Philippines government to the International Monetary Fund (IMF).

Public Finance Cycle: 5. Accountability

Functions Of COA The Commission has the power, authority and duty to examine, audit and settle all accounts and expenditures of the funds and properties of the Philippine government. Towards that end, it has the exclusive authority to define the scope, techniques and methods of its auditing and examination procedures. It also may prevent and disallow irregular, unnecessary, excessive, extravagant or unconscionable expenditures, or uses of government funds and properties.

Role of COAExamine, audit and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property owned or held in trust by, or pertaining to, the government.

Promulgate accounting and auditing rules and regulations including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant or unconscionable expenditures, or uses of government funds and properties.

Submit annual reports to the President and the Congress on the financial condition and operation of the government.

Role of COARecommend measures to improve the efficiency and effectiveness of government operations.

Keep the general accounts of government and preserve the vouchers and supporting papers pertaining thereto.

Decide any case brought before it within 60 days.

Performs such other duties and functions as may be provided by law.

(Article IX-D of the 1987 Philippine Constitution)

AccountabilityThe Philippine Constitution emphasizes the importance of accountability in the government. Article XI simply and bluntly begins: “Public office is a public trust,” before it adds that officials and employees should serve the people with “responsibility, integrity, loyalty and efficiency.”

Accountability In the government budget cycle, accountability is laid down by the need for government agencies and departments submit to submit quarterly and monthly income statements; statements of allotment, obligations and balances along with other financial reports and documents for audit - a formal process whereby the authenticity, accuracy and reliability of financial accounts or transactions are checked and approved.

Accountability There are several kinds of audit:

◦ Financial Auditing wherein financial transactions and accounts are checked to ensure the submitting government agency has complied with the rules and regulations, specifically the pre-agreed and govern

◦ Performance Auditing whereby one is looking at the systems of the agency to assess it has delivered on its institutional purpose and mandate by linking the budgets with results or results-based budgets.

◦ internal audit, as the name suggests, an internal check on agency systems and processes.◦ External Auditing involves an outside audit body being brought in to look at the agency. ◦ Pre-auditing refers to auditing by agencies before approval of transactions while post-

auditing is auditing by an independent body after.

Accountability Government accountability agencies

◦The Philippine government has agencies mandated to ensure accountability and transparency on its overall operations. These agencies are: The Office of the Ombudsman, Sandiganbayan, Presidential Anti-Graft Commission, the Civil Service Commission and primarily, for the purpose of this paper, the Commission on Audit.

Accountability Office of the Ombudsman The Office of the Ombudsman (Ombudsman) is mandated by the Constitution as “protectors of the people who shall act promptly on complaints filed against officers or employees of the government including members of the Cabinet, local government units and government-owned and controlled corporations and enforce their administrative, civil and criminal liability in every case where the evidence warrants in order to promote efficient service by the government to the people.”

The Ombudsman does not only cover officials and employees of the government, but also private individuals who have participated or “in conspiracy” with them in the filed complaints.

Accountability Sandiganbayan

The Sandiganbayan, or the government’s anti-graft court, is mandated by the 1973 and 1987 Constitutions. It covers criminal and civil cases against graft and corrupt practices and other offenses committed by public officers and employees with Salary Grade 27 and above, including those in local government units and government-owned or controlled corporations, which are related to their official duties as determined by law.

Presidential Anti-Graft Commission

The Presidential Anti-Graft Commission (PAGC) is mandated by Executive Order No. 12 to assist the President in the campaign against graft and corruption. It investigates and conducts hearings of administrative cases and complaints against Presidential appointees in the Executive Branch with Salary Grades 26 and higher including members of the Armed Forces of the Philippines and Philippine National Police of directed by the President, government-owned and controlled corporations and public officers, employees and private persons in conspiracy with alleged public officials.

Accountability Civil Service Commission

The Civil Service Commission (CSC) is the central personnel agency of the government and is tasked in the recruitment, building, maintenance and retention of a highly-competent and professional workforce. It is also one of the three independent commissions established by the Constitution with adjudicative powers to render final disputes and personnel actions on Civil Service. It covers all national government agencies, local government units and government-owned and -controlled corporations.

Commission on Audit

The Commission on Audit (COA) is the constitutional commission mandated to be the supreme audit institution of the government. It has jurisdiction over national government agencies, local government units, government-owned and controlled corporations and non-government organizations receiving benefits and subsidies from the government.

Characteristics of CorruptionCorruption always involves more than one person.

On the whole, it involves secrecy.

Entails mutual obligation and benefit.

Corrupt practices are usually given some legal justification.

It involves deception

In any form, it is a betrayal of the public trust.

It rests on a contradictory dual function.

It violates the duty and responsibility within the civic order.

The Philippine SettingCorruption in the Philippines is endemic and metastatic

Income side: use of government power to extort money.

Expenditure side: malversation of public funds.

Some Dynamics:◦ It encourages corrupt high ranking officials to remain corrupt.◦ At the lower level, it frustrates younger officials◦ The problem is so entrenched that it creates a vicious cycle with various naunces

Corruption Philippines suffers from widespread corruption, means of corruption include graft, bribery, embezzlement, backdoor deals, nepotism, and patronage.

According to a World Bank study in 2006, corruption in the Philippines is considered to be the worst among East Asia’s leading economies and the country has sunk even lower among those seen to be lagging in governance reforms. The 2009 Corruption Perceptions Index published by global watchdog Transparency International, showed that the situation in the country had improved slightly but still remained serious.

The Philippines ranked 3rd[citation needed] among 180 countries included in the index, up from its previous 141st ranking in 2008. The nation scored 2.4 in the TI index, compared to 2.3 in 2008, which ranked it equal to Pakistan, Bangladesh and the Baltic state of Belarus.[5]

Corruption exists in all levels of the government, especially among high-level civil servants, according to the US Department of State Investment Climate Statement 2013.[6] Companies generally have little confidence in the Philippine judicial system, and this is due to the allegedly incompetent court personnel, corruption and long delays of court cases.[7]

Corruption As of 2012, the Philippines came in at 105 with a 3.4 CPI in Transparency International's list that ranks 176 (tied with Algeria, Armenia, Bolivia, Gambia, Kosovo, Mali, and Mexico), countries and territories based on how corrupt their public sector is perceived to be.

This is better than the Philippines' 129th out of 178,ranking in 2011 with a 2.6 CPI, in Transparency International's list. The CPI score indicates the perceived level of public sector corruption on a scale of 0 - 10, where 0 means that a country is perceived as highly corrupt and 10 means that a country is perceived as very clean.

Transparency International-Philippines said some of the factors that contributed to the Philippines' (2.6) slight jump are the improvement in government service, and cutting red tape.[8]

The Philippines' corruption further declined in 2014 upgrading its ranking on Transparency.org CPI from 94th to 85th in 2013 and 2014, respectively.

CorruptionThere are several types of political corruption that occur in local government. Some are more common than others, and some are more prevalent to local governments than to larger segments of government. Local governments may be more susceptible to corruption because interactions between private individuals and officials happen at greater levels of intimacy and with more frequency at more decentralized levels.

CorruptionTypes of Corruption found in Local Gov’tBribery is the offering of something which is most often money but can also be goods or services in order to gain an unfair advantage. Common advantages can be to sway a person’s opinion, action, or decision, reduce amounts fees collected, speed up a government grants, or change outcomes of legal processes.

Extortion is threatening or inflicting harm to a person, their reputation, or their property in order to unjustly obtain money, actions, services, or other goods from that person. Blackmail is a form of extortion.

Embezzlement is the illegal taking or appropriation of money or property that has been entrusted to a person but is actually owned by another. In political terms this is called graft which is when a political office holder unlawfully uses public funds for personal purposes.

CorruptionNepotism is the practice or inclination to favor a group or person who is a relative when giving promotions, jobs, raises, and other benefits to employees. This is often based on the concept of familism which is believing that a person must always respect and favor family in all situations including those pertaining to politics and business. This leads some political officials to give privileges and positions of authority to relatives based on relationships and regardless of their actual abilities.

Patronage systems consist of the granting favors, contracts, or appointments to positions by a local public office holder or candidate for a political office in return for political support. Many times patronage is used to gain support and votes in elections or in passing legislation. Patronage systems disregard the formal rules of a local government and use personal instead of formalized channels to gain an advantage.

CorruptionThe government is accused of bias in fighting corruption according to the Economists.

THE Philippine police had clapped two senators in jail by June 26th, 2014. Ramon “Bong” Revilla, son of an ex-senator, and Jose “Jinggoy” Estrada, the son of an ex-president, were the first senators to be arrested. The third facing prosecution is Juan Ponce “Johnny” Enrile, a veteran of President Ferdinand Marcos’s regime. If convicted, they may face life imprisonment. All are members of the opposition. They are accused of benefiting from the suspected embezzlement of billions of pesos from the Priority Development Assistance Fund, known as the pork barrel. Each year, the government used to give each of the 24 senators 200m pesos ($4.6m) from the pork barrel, and each of the 290 congressmen 70m pesos. They were meant to spend it on development projects. The effect was to give political dynasties the wherewithal to buy the loyalty of generations of voters, and to give presidents the wherewithal to buy the loyalty of the political clans. Last year the Supreme Court ruled the fund illegal, but only after a newspaper exposed a scheme to funnel money from it to bogus NGOs, which would then give kickbacks to politicians. Investigations cast suspicion on dozens of politicians, including some in government.

Anti-CorruptionThe Coalition Against Corruption (CAC) is an alliance of the academe, business sector, civil society organizations, and Church that fights corruption. Launched on 21 September 2004, its mission is to implement and support counter-corruption projects in the area of procurement reforms and delivery of essential public services.CAC’s goals are to strengthen public participation in governance and to ensure proper use of public funds. The projects supported by CAC include government procurement monitoring, textbook and medicine monitoring, internal revenue allotment (of barangays) monitoring, Priority Development Assistance Fund (Pork Barrel) monitoring, catching the big fish, and lifestyle checks on public officials.

END.Thank You