2015 BUDGET BRIEFER

SEPTEMBER 2014 NO. 2014-01

DIMENSIONS OF THE 2015

NATIONAL GOVERNMENT BUDGET The Executive dubs the proposed 2015 National Budget as "A Budget for Inclusive and Sustained Development". This is in recognition by the Aquino administration that "growth alone cannot solve poverty" but that the country's unprecedented growth needs to be translated to real and tangible benefits for the poor. The budget is a powerful policy tool through which government redistributes gains from the country’s growth. The allocation of public funds is critical in enabling disadvantaged areas to catch up with more developed provinces/regions, in providing equal opportunities to basic social services, and in creating jobs that increase household incomes and improve living conditions. According to the President’s Budget Message, the 2015 budget focuses on four areas namely: (1) economic expansion and job creation, (2) social protection and social service, (3) climate change adaptation and mitigation, and (4) good governance and anti-corruption. Consistent with the Philippine Development Plan (2011-2016) Midterm Update, the Budget Priorities Framework for 2015 adopts the geographic focus areas1—and calls on agencies to suit their service delivery strategies according to the specific needs of the priority provinces. For 2015, the President submitted to Congress an expenditure program amounting to P2,606 billion which is P341.4 billion or 15.1% higher than the current year's P2,265 billion budget. In real terms, the proposed budget will grow by 11.7% which is still a marked improvement compared with the 6% and 9% real growth in spending in 2013 and 2014, respectively. The proposed P2,606 billion budget is equivalent to 18.4% of the country’s gross domestic product (GDP). This is slightly higher than the programmed spending of 17.7% in 2014. On the average (2012-2013), the Philippine economy grew at 7% so that an expanded base (GDP) along with improvements in tax collection has allowed NG work on a bigger budget pie. However, based on the Asian Development Outlook (ADO-2014), the country’s NG spending is still low compared with other ASEAN nations. Average NG spending (2011-2013) of the

This paper was prepared by Pamela Diaz-Manalo with the research assistance of Arlene Lopez-Tuazon. The author benefitted from the valuable inputs of Acting Director General Romulo E.M. Miral, Jr and Director Dina de Jesus-Pasagui of the CPBRD. 1 Forty four (44) priority provinces are clustered into three: (1) Category 1 - provinces with high poverty magnitude where more jobs must be created; (2) Category 1 – provinces with high poverty incidence which require adequate social safety nets, and (3) Category 3 – provinces that are most vulnerable to shocks and disasters.

2015 BUDGET BRIEFER CONGRESSIONAL POLICY AND BUDGET RESEARCH DEPARTMENT

CPBRD / 2015 BUDGET BRIEFER 2

Philippines is 16.4% of GDP which is lower than that of Indonesia (17.9%), Thailand (18.1%), Brunei (23%), Myanmar (23.8%), Malaysia (26%), Lao PDR (26.8%), and Vietnam (29.5%).2 Next year's budget is going to further expand NG's primary expenditures3 from P1,887 billion (2014) to P2,206.6 billion. Net of debt burden (interest payments and net lending4), the 2015 budget is expected to be up by 16.9%—even faster than the rate at which the NG budget as a whole is going to grow. Note that the growth in primary spending is also more than three percentage points higher than the growth of 13.8% in 2014. After coming from a slow growth of 1.7% in 2010, primary expenditures has been on an upward trend except in 2013 when growth was slower at 11.4%.

FIGURE 1

TOTAL NG EXPENDITURES VS. PRIMARY EXPENDITURES

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Source of basic data: Budget of Expenditures and Sources of Financing (BESF) As a ratio to GDP, the NG budget (net of debt burden) has steady been rising from 13% in 2010 to 15.6% by 2015. Figure 1 shows a narrowing gap (albeit slow) between primary expenditures and total NG expenditures. This is a positive development considering that the productive part of the budget increases at a much greater amount vis-à-vis the nominal increments in debt service. Essentially, more public funds are being utilized to support NG's socio-economic goals. On per capita basis, NG spending based on primary expenditures is projected to increase by P2,816 from P18,884 in 2014 to P21,700 in 2015. The increment is considerably higher than in the past two years (2013 and 2014) when per capita spending increased by P1,462 and P1,997 respectively.

2The figures for the Philippines may be slightly different using the BESF data, but ADO data are presented here for purposes of comparison with other countries. 3 Primary expenditures refer to total NG expenditures less interest payments and net lending. 4Net lending are advances given to GOCCs for the servicing of government guaranteed corporate debt during the year (net of repayments on such advances).


SOURCES OF APPROPRIATIONS The proposed obligation program amounting to P2,606 billion will come from two sources—i.e., P1,739.8 billion programmed new appropriations and P866.2 billion automatic appropriations. The provision for a one-year validity of the 2014 GAA was originally approved in Congress, but a conditional veto was exercised by the President following the calamities/crises that hit the country during the last quarter of 2013. Appropriations for capital outlays (CO) and maintenance and other operating expenses (MOOE) under the 2014 GAA are valid for two years. Depending on whether the 2014 appropriations will be fully obligated within the year, no continuing appropriations will be carried over for 2015. Roughly 42% of the total programmed new appropriations in 2015 goes to personal services (PS). A total amount of P730.9 billion will be used to pay for salaries, pensions, and other personnel benefits. Meanwhile, two major items namely the Internal Revenue Allotment (P389.9 billion) and interest payments (P372.9 billion) are automatically appropriated. These two alone already consume 29.3% of the total obligation program. The combined total of automatic appropriations and PS amounts to P1,597.2 billion. This essentially means that about 61.3% of the total expenditure program are mandatory expenses5 over which Congress effectively has no flexibility to realign or adjust.

TABLE 1 BUDGET LEVEL BY SOURCE OF APPROPRIATIONS, 2015

Particulars Level

(in Billion Pesos) % Share to Total

Obligation Program

Programmed New Appropriations 1,739.8 66.8 of which: Personal Services 730.9 28.0

Automatic Appropriations 866.2 33.2 of which:

Interest Payments 372.9 14.3 IRA 389.9 15.0

Sub-Total, Obligation Program 2,606.0 100.0 ADD: Unprogrammed New Appropriations 123.1

Total Appropriations 2,729.1

Source of basic data: Budget of Expenditures and Sources of Financing (BESF), 2015 However, it has been observed that many government agencies fail to fill up their vacant plantilla positions in spite of available appropriations. Based on the Staffing Summary for 2015, unfilled positions have been growing since 2013. NG reports a total of 154,019 unfilled positions or 11.1% of total permanent positions in 2013. Total unfilled positions are even higher at 185,644 (12.95%) in 2014 and at 188,383 (13.1%) in 2015. 5 Computation of mandatory expenses covers all PS, including the Miscellaneous Personnel Benefit Fund (MPBF) and the Pension Gratuity Fund (PGF). Note that under the 2015 NEP, the MPBF and the PGF can be used for deficiency in appropriations for programs and projects of agencies in the Executive Branch, subject to rules on savings and augmentation.


Considering the declining share of debt service to total NG budget, the allocative portion of the budget has in fact grown bigger in recent years. From 26% in 2010, the discretionary part of the budget has consistently expanded to 39% by 2015. This gives more room to adjust the budget depending on decisions to upscale, downscale or abolish certain programs and activities6. It may be noted that under the Performance Informed Budget (PIB), allocations for each program/activity/project (PAP) are attached to agency targets, major final outputs and outcomes (MFOs). Any adjustments or realignments by Congress on the proposed National Expenditure Program (NEP) may also require corresponding refinements in agency targets or deliverables. For more effective budget reviews under the PIB, it is important that performance indicators of agencies will have some geographic disaggregation (at least at the regional level). Moreover, since agency budgets are prepared and presented by PAPs, reporting of actual expenditures should likewise be in the same form so as to provide Congress and other oversight bodies an easier track on the actual funds expended to different programs/projects. On top of the P2,606 billion obligation program, the President also submitted a total of P123.1 billion in Unprogrammed Appropriations. The approval by Congress provides a standby authority to spend for items under Unprogrammed Appropriations provided—(1) the revenue collection in any one of the identified non-tax sources has exceeded the original revenue target, (2) there are new revenue collections, and (3) there are newly approved loans for foreign-assisted projects (FAPs). In the 2014 GAA, amounts authorized under the Unprogrammed Fund can be released only when the revenue collections exceed the original revenue targets submitted by the President to Congress. This provision puts greater fiscal discipline on NG, particularly the keeping of the deficit within target. Windfall revenues from one source does not automatically give NG the authority to spend for unprogrammed items but could be used to compensate for shortfalls in other revenue sources. Of the total Unprogrammed Appropriations, P99.1 billion are for CO and roughly P24 billion will go to MOOE. The bulk of the Unprogrammed Appropriations (43.8%) amounting to P53.9 billion will be used as equity for the buy-out of the Metro Rail Transit Corporation (MRTC). Upon full payment of the equity value buy-out of the MRTC, all NG obligations (e.g., for the payment of equity rental and maintenance fees, administrative cost, special repairs and systems insurance) under the build-lease-and-transfer agreement between the DOTC and MRTC will cease. Other relatively higher allocations under Unprogrammed Appropriations include the following: (1) Risk Management Program, P30 billion; (2) Support for Infrastructure Projects and Social Programs, P20 billion; and (3) AFP Modernization Program, P10 billion. The allocation for the

6 Under the zero-based budgeting approach, selected government programs are evaluated to determine its effectiveness and impact. The results of such studies should be able to input into the budget preparation, and can be the basis for legislators in its budget decisions.


Risk Management Program shall be used to cover commitments and NG obligations in the concession agreements relative to the Public-Private Partnership (PPP) projects. SECTORAL ALLOCATION The proposed NG spending for 2015 shows that the social and economic services sectors will continue to receive higher shares of the budget. While social services at P967.9 billion takes more than one-third (37.2%) of the total budget, the allocation for economic services at P700.2 billion (26.9%), in fact, grew faster from 14.8% in 2014 to 18.1% next year. Allocation for social services has been growing significantly but, now, at a slower rate compared with the 20.3% growth in 2013 (see Table 2).

TABLE 2 EXPENDITURE PROGRAM BY SECTOR, 2012-2015

Sector Level (in Billion Pesos) % Share to Total Growth Rates 2012 2013 2014 2015 2012 2013 2014 2015 12-13 13-14 14-15

Economic Services 490.2 516.7 593.1 700.2 26.8 25.9 26.2 26.9 5.4 14.8 18.1 Social Services 592.2 712.1 841.8 967.9 32.4 35.6 37.2 37.1 20.3 18.2 15.0 Defense 74.4 87.8 89.5 115.5 4.1 4.4 4.0 4.4 18.1 1.9 29.0 General Public Services 332.0 341.7 362.6 423.1 18.2 17.1 16.0 16.2 2.9 6.1 16.7 Net Lending 27.4 16.6 25.0 26.5 1.5 0.8 1.1 1.0 (39.4) 50.1 6.2 Debt Service 312.8 323.4 352.7 372.9 17.1 16.2 15.6 14.3 3.4 9.0 5.7

TOTAL 1,829.0 1,998.4 2,264.6 2,606.0 100.0 100.0 100.0 100.0 9.3 13.3 15.1

Source of basic data: BESF, 2014 & 2015 All sectors (at the aggregate level) are expected to enjoy some increases in 2015. Next year’s NG budget of P2,606 billion is higher by P341.4 billion—of which P126.1 billion (36.9%) and P107.1 billion (31.4%) of the total increment will go to social and economic services, respectively. Meanwhile, the allocations for defense and general public services are expected to grow significantly compared to previous years. Growth in spending for defense in 2015 is projected to be high at 29% after a considerably low growth of 1.9% in 2014. Allocation for general public services has been steadily growing from only 2.9% in 2013 to about 16.7% in 2015. While net lending and debt service (interest payment) also grew nominally, the increments for these budget items in 2015 are relatively low compared to other sectors—thus, reducing its overall share to total budget. Net lending accounts for 1.1% of total expenditures in 2014, and was further reduced to 1% or P26.5 billion in 2015. Likewise, the share of interest payments-to-total budget has consistently declined from 20% in 2010 to 16.2% in 2013. By 2015, interest payments amounting to P372.9 billion account for a much smaller share (14.3%) of the NG budget. NG debt as a percent of GDP has been on a downward trend from 54.8% in 2009 to 49.2% in 2013. As of April 2014, total NG outstanding debt (excluding contingent) amounts to P5.6 trillion.


TABLE 3 NET LENDING, 2012-2015

(AMOUNTS IN BILLION PESOS)

Particulars 2012 2013 2014 Jan-June 2015

Program 23.0 14.5 11.0 26.5 Advances [a] 37.0 29.2 6.6 - Less: Repayments [b] 9.6 12.5 0.2 - Actual [a-b] 27.4 16.6 6.5 -

Repayment Rate [b/a] 25.9 43.0 2.9 -

Sources of basic data: Cash Operations Report and BESF Net lending is treated as automatic appropriations similar to interest payments. In effect, Congress has no control over its utilization and much more over the approval of GOCC loan agreements that will have to be guaranteed by the National Government. Table 3 shows that actual net lending in 2012 and 2013 exceeded the original program. This may indicate problems in cash flows of GOCCs or their inability to repay/settle NG advances. Repayment rate is low at 25.9% and 43% in 2012 and 2013, respectively. Although GOCC advances in January-June 2014 is low at P6.6 billion compared with P11 billion as programmed, repayment was dismal at 2.9%. Full-year program for net lending in 2014 is P25 billion. This is projected to be higher at P26.5 billion in 2015.

TABLE 4

CONTRIBUTION TO GROWTH IN NG EXPENDITURES BY SECTOR, 2011-2015

Sector 10-11 11-12 12-13 13-14 14-15

Economic Services (1.0) 7.9 1.4 3.8 4.7 Social Services 8.8 3.0 6.6 6.5 5.6 Defense (1.4) 0.2 0.7 0.1 1.1 General Public Services 1.4 2.0 0.5 1.0 2.7 Net Lending 0.6 0.6 (0.6) 0.4 0.1 Debt Service (1.0) 2.1 0.6 1.5 0.9

TOTAL 7.3 15.8 9.3 13.3 15.1

Source of basic data: BESF, 2014 & 2015 The contribution of each sector to the overall budget growth indicates the development priorities of government for a given fiscal year. For three consecutive years (2013-2015), the social services sector contributes the highest to the aggregate growth in NG expenditures even as its contribution declined by a percentage point to 5.6% in 2015. Meanwhile, the economic services sector continues to gain greater importance as its share to budget growth increases from 1.4% in 2013 to 4.7% in 2015. It may be noted that economic


services contributed half (7.9%) of the growth in NG spending in 2012 due to a huge budgetary support of about P72.1 billion for the Power Sector Assets and Liabilities Management Corporation (PSALM). Henceforth, spending for the power and energy sector has declined in favor of hefty increases for Communications, Roads and Other Transportation. The defense sector which is going to increase by 29% in 2015 contributes 1.1% to the total budget growth. This is a marked improvement from a negligible 0.1% contribution in 2014. General Public Services will grow by 16.7% and is expected to account for 2.7% of the aggregate growth in NG expenditures. This is the highest contribution of the sector in five years (2011-2015). ECONOMIC SERVICES Next year’s (2015) budget sets aside a total of P700.2 billion or about 26.9% for economic services. This sector continues to receive funding priority particularly on account of huge increments for the Communications, Roads and Other Transportation sub-sector. For 2015, NG intends to spend as much as P339.4 billion for Communications/Roads—i.e., it will grow by 30.3% due to a net increase of P78.9 billion from the 2014 expenditure level of P260.5 billion. Significant budgetary increments under this sub-sector can be traced to the following: DPWH (P70.4 billion), DOTC (P7.5 billion), DOST (P4.2 billion) for Information and Communications Technology Office, and a fresh allocation for the Light Rail Transit Authority (P2.8 billion). On the other hand, the Rehabilitation and Reconstruction Program which was allocated a sum of about P8 billion in 2014 will get a much lower allocation of only P398 million.

TABLE 5 ECONOMIC SERVICES EXPENDITURE PROGRAM, 2012-2015


Agriculture, Agrarian Reform 88.2 94.2 112.1 109.3 18.0 18.2 18.9 15.6 6.8 19.0 (2.5)

Natural Resources & Env’t 17.3 25.5 25.4 23.6 3.5 4.9 4.3 3.4 47.4 (0.5) (6.9)

Trade and Industry 6.5 6.5 7.5 6.1 1.3 1.3 1.3 0.9 0.3 14.8 (18.4)

Tourism 4.9 5.2 3.7 4.3 1.0 1.0 0.6 0.6 6.4 (28.7) 15.5

Power and Energy 80.0 29.8 14.3 9.3 16.3 5.8 2.4 1.3 (62.7) (52.2) (35.1) Water Resources Dev’t and

Flood Control 22.6 27.1 29.4 39.4 4.6 5.2 5.0 5.6 19.8 8.7 34.0 Communications, Roads

and Other Transportation 158.2 207.4 260.5 339.4 32.3 40.1 43.9 48.5 31.1 25.6 30.3

Other Economic Services 16.8 15.2 20.6 32.3 3.4 2.9 3.5 4.6 (9.6) 35.8 56.4

Subsidy to LGUs 95.7 105.8 119.5 136.5 19.5 20.5 20.2 19.5 10.6 13.0 14.1

TOTAL 490.2 516.7 593.1 700.2 100.0 100.0 100.0 100.0 5.4 14.8 18.1

Source of basic data: BESF, 2014 & 2015


Aside from subsidy to LGUs (P136.5 billion) and Other Economic Services (P32.3 billion), two other sectors namely the Water Resources Development and Flood Control (P39.4 billion) and Tourism (P4.3 billion) will also get additional funding in 2015. The spending program for Water Resources Development and Flood Control will grow by 34% from P29.4 billion in 2014 to P39.4 billion in 2015 primarily for projects that will be implemented by the Department of Public Works and Highways (DPWH). Meanwhile, the expenditure program for Tourism will increase by some P577 million to P4.3 billion in 2015—with the increment of about P380.6 billion going to the Tourism Promotions Board, and some P250.5 billion to the DOT-Office of the Secretary. Even as the budget for Tourism grows by 15.5%, it is unable to match the spending levels for the sector in 2012 and 2013. Note that Other Economic Services which will grow by 56.4% are shares of LGUs from national taxes under Allocations to Local Government Units (ALGU). Infrastructure-related sectors (particularly Communications/Roads and Water Resources Development and Flood Control) are expected to enjoy relatively huge increases, but four other sub-sectors under economic services will have budget cuts in 2015. These are the following: (1) Agriculture and Agrarian Reform, (2) Natural Resources and Environment, (3) Power and Energy, and (4) Trade and Industry. After a considerable increase of P17.9 billion (19%) in 2014, the budget for Agriculture and Agrarian Reform slightly declines by 2.5% to P109.3 billion due to cuts in the allocations for the Department of Agriculture (DA-OSEC), Department of Agrarian Reform (DAR), and the Rehabilitation and Reconstruction Program. Allocation for DAR was reduced by P9.8 billion to about P5.6 billion next year, but another P5 billion is allocated for land distribution under the social services sector. The 2015 budget for DA-OSEC (P39.5 billion) is significantly lower by about P23.9 billion than its 2014 level. However, relatively huge increments are made for the National Irrigation Administration (NIA)7 and the Philippine Coconut Authority (PCA). The NIA budget increases by P27.8 billion from only P1.1 billion to P28.8 billion in 2015. Similarly, the PCA budget grows by 71.4% to P4.1 billion next year. NG also provides additional resources for fisheries through the Bureau of Fisheries and Aquatic Resources (BFAR) which will get P6 billion or 22.5% more than its current budget, and the Philippine Fisheries Development Authority (PFDA) with a fresh allocation of P534 million. Meanwhile, total proposed allocation for Natural Resources and Environment in 2015 amounts to P23.6 billion. This is lower by roughly P1.8 billion or 6.9% than the current year's level largely due to a similar amount of cut in the budget of the DENR-OSEC. NG also reduced the budget

7In previous years, the budget for the National Irrigation System (NIS) and the Communal Irrigation System (CIS) implemented by NIA was lodged in the budget of DA. The transfer of NIA to the Presidential Adviser for Food Security and Agriculture Modernization (PAFSAM) effectively removed the corresponding allocation for NIA from DA-OSEC.


for the Power and Energy sector by 35.1% to P9.3 billion in 2015. The P5 billion budgetary cut can be traced to the marked reduction in budgetary support to the National Electrification Administration (NEA). Subsidy to NEA has steadily declined from P17.2 billion (2013) to P7.7 billion (2014), and further down to P2 billion in 2015. On the other hand, the Department of Energy (DOE) which accounts for almost half of the budget for the Power and Energy sector gets a minimal increase (P372 million) for an allocation of P4.5 billion in 2015. The allocation for the Energy Regulatory Board (ERB) will also be increased but at a relatively higher rate (89%)—thus, bringing its 2015 budget (P417.3 million) closer to the 2013 level. It may be noted that while the allocation for the power and energy sector has been declining, an additional P974 million from the fees/revenues collected from the exploration, development and exploitation of energy resources shall be used to finance energy resource development and exploitation programs and projects pursuant to Presidential Decree No. 910 and Republic Act 7638. The expenditure program for the Trade and Industry sector will decrease by 18.4% from P7.5 billion in 2014 to P6.1 billion in 2015. Significant reductions can be traced to the DTI-OSEC and the Metals and Industry Research and Development Center whose budgets were reduced by 18.8% to P3.3 billion, and by 62% to a meager P190.6 million, respectively. Total budgetary support to corporations under this sector also declined by 44.8% to P784.6 million inspite of increases in subsidies to the economic zone and free port authorities in Aurora and Zamboanga City. No allocation for 2015 is provided for the Cagayan Economic Zone Authority, Cottage Industry Technology Center, and the Small Business Corporation. SOCIAL SERVICES In support of NG's commitment to inclusive development, the social services sector will continue to get the biggest portion (37.1%) of the budget pie in 2015. It will increase by 15% from P841.8 billion to P967.9 billion primarily due to huge increments for education and social security, welfare and employment. All sub-sectors under social services are expected to grow except for Housing and Community Development which will be cut by 39.2% to P10.3 billion. Allocation for land distribution stays at P5 billion as in the past two years (2013-2014). Close to half (46.5%) of the total allocation for the social services sector goes to Education, Culture and Manpower Development. The proposed budget for this sub-sector amounts to P450.2 billion which is P67.1 billion more than that in 2014. It may be noted that as the education budget consistently increases nominally, the growth rate has also been steadily rising from 9.8% in 2012 to 17.1% in 2013, and further up to 17.5% by 2015. The breakdown of the allocation for Education, Culture and Manpower Development shows that about three-fourths goes to the Department of Education (DepEd) primarily to DepEd-OSEC—the budget of which grew by P37.8 billion (12.6%) to P336.8 billion in 2015. Significant increments were also


traced to allocations for state universities and colleges (SUCs) and the Miscellaneous Personnel Benefits Fund (MPBF) which will grow by 21.8% and 120.7%, respectively. On the other hand, the budget for the Commission of Higher Education (CHED) dramatically drops by 55.6% from P8 billion to P3.6 billion in 2015.

TABLE 6 SOCIAL SERVICES EXPENDITURE PROGRAM, 2012-2015


Education, Culture, and Manpower Development 279.4 327.0 383.1 450.2 47.2 45.9 45.5 46.5 17.1 17.1 17.5

Health 52.4 56.9 90.5 94.6 8.9 8.0 10.8 9.8 8.5 59.2 4.5 Social Security, Welfare and

Employment 145.2 177.3 218.0 261.4 24.5 24.9 25.9 27.0 22.2 22.9 19.9

Land Distribution (ARF) 0.0 5.0 5.0 5.0 0.0 0.7 0.6 0.5 21,639.1 - -

Housing & Community Dev’t 12.0 32.2 16.9 10.3 2.0 4.5 2.0 1.1 169.3 (47.4) (39.2)

Other Social Services 2.1 1.8 1.9 2.2 0.4 0.3 0.2 0.2 (12.9) 3.1 14.4

Subsidy to LGUs 101.1 111.9 126.4 144.2 17.1 15.7 15.0 14.9 10.6 13.0 14.1

Total 592.2 712.1 841.8 967.9 100.0 100.0 100.0 100.0 20.3 18.2 15.0

Source of basic data: BESF, 2014 & 2015 Note: 0 = less than P0.1billion or less than 0.1% For 2015, NG allocates for Social Security, Welfare and Employment the amount of P261.4 billion which is P43.4 billion or 20% higher than the current year’s spending level. The increment in the allocation for this sub-sector can be traced primarily to—(1) the Department of Social Welfare and Development (DSWD-OSEC) whose budget increases by P25.6 billion, and (2) the Pension and Gratuity Fund which increases by P20.1 billion. It may be noted that the growth rate in the budget for Social Security, Welfare and Employment between 2012 and 2014 was kept within 23% to 25%. NG allocates a total of P94.6 billion for the health sector. The allocation for 2015 is slightly higher by P4.1 billion, but a minimal growth of 4.5% from 2014 has resulted in a lower share (3.6%) in the total NG expenditure program. Note that the health budget has steadily rose from P13.9 billion in 2005 to P56.9 billion in 2013, but it was in 2014 that NG significantly increased the health budget by 59.2% to P90.5 billion. In 2014, health spending accounts for 4% of the total NG budget. The net increment for health can be traced to increases in the allocations for the Department of Health (DOH-OSEC, P2.8 billion) and the MPBF (P1.5 billion). On the other hand, the allocation for Rehabilitation and Reconstruction Program for the health sector has been reduced from P400 million in 2014 to P20 million next year. Among the sub-sectors under social services, only Housing and Community Development gets a budget cut in 2015. Allocation for housing was reduced to P10.3 billion from P16.9 billion—with a huge cut of about P6.3 billion in the National Housing Authority budget. The Home Guaranty Corporation which got P500 million each for 2013 and 2014 has no allocation for 2015.


DEFENSE The proposed expenditure program for 2015 sets aside P115.5 billion for defense. In 2014, it accounts for almost 4% of the total NG budget, but the 29% growth in the defense budget will increase its share to 4.4% in 2015. Total budgetary increment for the defense sector amounts to P26 billion—of which P17 billion will go to the Department of Defense (DND), particularly to the Armed Forces of the Philippines GHQ and AFP Wide Service Support Unit. A hefty increase for the AFP is made in support of the Revised AFP Modernization Program which was allocated only P5 billion in 2013 and in 2014, but which will be significantly higher at P20 billion next year. The MPBF for the defense sector is also expected to grow by P9.5 billion to P17.4 billion next year. GENERAL PUBLIC SERVICES The allocation for General Public Services amounting to P423.1 billion accounts for 16.2% of the total proposed budget for 2015. Expenditures for General Public Services are projected to increase by P60.5 billion or 16.7% which is significantly higher than the growth rates in the past two years. More than half of the budgetary increment (P34.7 billion) will go to General Administration which has been allocated a total amount of P150.1 billion. Meanwhile, allocation for Public Order and Safety (P141.9 billion) is only about P7.5 billion higher than its spending level in 2014. Allocation for Public Order and Safety posted a much higher growth of 16.8% or an increment of P19.3 billion in 2014.

TABLE 7 GENERAL PUBLIC SERVICES EXPENDITURE PROGRAM, 2012-2015


General Administration 128.0 132.5 115.4 150.1 38.5 38.8 31.8 35.5 3.6 (12.9) 30.1

Public Order and Safety 113.9 115.1 134.4 141.9 34.3 33.7 37.1 33.5 1.0 16.8 5.6

Other Gen. Public Services 13.6 9.4 17.1 21.9 4.1 2.8 4.7 5.2 (30.5) 81.8 27.8

Subsidy to LGUs 76.5 84.6 95.6 109.2 23.1 24.8 26.4 25.8 10.6 13.0 14.1

Total 332.0 341.7 362.6 423.1 100.0 100.0 100.0 100.0 2.9 6.1 16.7

Source of basic data: BESF, 2014 & 2015 OBJECT OF EXPENDITURES The 2015 NEP includes P1,919 billion for current operating expenditures (COE), P660.5 billion for CO, and P26.5 billion for net lending. Table 8 shows that while COE has been growing nominally since 2012, its share to overall NG budget has been declining in favor of capital outlays. Current operating expenses shall cover goods and services that will be used for the conduct of normal government operation during the budget year. About P761.7 billion or


39.7% of the total proposed COE are for PS, P458.1 billion for MOOE, P372.9 billion for interest payments, and P311.9 billion as allotment to LGUs (part of IRA). The breakdown of personal services shows that P331.5 billion or 43.5% of total PS (P761.7 billion) will be used to pay for salaries and wages of both civilian and uniformed personnel. A comparison of the 2014 and 2015 expenditure program shows that while all items under PS will enjoy varying levels of budgetary increments in 2015, the following will have reduced their shares to total PS budget: (1) salaries and wages, (2) allowances, (3) pension benefits, and (4) retirement and life insurance premiums (RLIP). In particular, the share of salaries/wages will decline by 5.2 percentage points from 48.7% in 2014 to 43.5% in 2015. On the other hand, increase in shares can be traced to bonuses (from 7.4% to 11%) and other personnel benefits (from 8.4% to 10.8%).

TABLE 8 EXPENDITURE PROGRAM BY EXPENSE CLASS, 2012-2015

Particulars Level (in Billion Pesos) % Share to Total NG Budget Growth Rates

2012 2013 2014 2015 2012 2013 2014 2015 12-13 13-14 14-15

Current Operating Exp. 1,415.6 1,531.8 1,721.2 1,919.0 77.4 76.7 76.0 73.6 8.2 12.4 11.5 Personal Services 556.1 611.8 662.6 761.7 30.4 30.6 29.3 29.2 10.0 8.3 15.0

MOOE 264.0 300.0 415.5 458.1 14.4 15.0 18.3 17.6 13.6 38.5 10.3

Allotment to LGUs (IRA) 218.6 241.8 273.2 311.9 12.0 12.1 12.1 12.0 10.6 13.0 14.1

Interest Payments 312.8 323.4 352.7 372.9 17.1 16.2 15.6 14.3 3.4 9.0 5.7

Subsidy 64.0 54.8 17.3 14.4 3.5 2.7 0.8 0.6 (14.4) (68.4) (16.6)

Capital Outlays 386.0 450.0 518.5 660.5 21.1 22.5 22.9 25.3 16.6 15.2 27.4 Infrastructure 215.7 306.9 442.3 562.3 11.8 15.4 19.5 21.6 42.3 44.1 27.1

Corporate Equity 77.5 12.0 2.3 1.4 4.2 0.6 0.1 0.1 (84.5) (81.1) (39.9)

Special Shares to LGUs 9.8 6.7 9.5 27.9 0.5 0.3 0.4 1.1 (32.0) 42.1 195.2

Other Capital Outlays 58.3 97.2 33.7 68.9 3.2 4.9 1.5 2.6 66.7 (65.3) 104.3 Capital Transfer to LGUs

(IRA) 24.6 27.2 30.7 - 1.3 1.4 1.4 - 10.6 13.0 (100.0)

Net Lending 27.4 16.6 25.0 26.5 1.5 0.8 1.1 1.0 (39.4) 50.1 6.2

TOTAL 1,829.0 1,998.4 2,264.6 2,606.0 100.0 100.0 100.0 100.0 9.3 13.3 15.1

Source of basic data: BESF, 2014 & 2015 NG has steadily increased its spending for capital outlays since 2012. From P250.6 billion in 2011, CO significantly went up the following year to P386 billion. By 2015, NG places its capital expenditures at P660.5 billion. In terms of share to total NG budget, CO has also been on an upward trend from 15.9% in 2011 to 25.3% in 2015, while COE has been declining from 83% to 73.6% in the same period. Lower COE shares are primarily due to cuts in subsidy and relatively smaller increments in interest payment vis-à-vis other major expenditure items. The bulk of the capital outlay (85.1%) in 2015 amounting to P562.3 billion will be spent for infrastructure development. This type of investment is necessary to create enabling environments for business that should be able to produce job opportunities to address problems


of high unemployment and under-employment. A policy brief of the International Labor Organization (ILO) on the impact of infrastructure spending to employment states that a USD 1 billion spending for large projects in advanced countries can generate around 28,000 jobs. The impact is greater in developing countries—i.e., the same amount of spending for infrastructure can yield up to 200,000 direct jobs (as was the case in Latin America).8 NG has been investing more to improve the country's infrastructure. With hefty increases, infrastructure outlay grew from P306.9 billion in 2013 to P562.3 billion in 2015. As a ratio to the country’s GDP, infrastructure spending was at 2.7% and 3.4% in 2013 and 2014, respectively. Next year, NG intends to further upscale the budget for infrastructure to 4% of GDP, bringing it closer to the international benchmark of 5%. According to the Global Competitiveness Report (2013-2014), the country’s infrastructure competitiveness ranking remains weak at 98th place out of 148 countries surveyed.9 It still lags behind Malaysia (25th), Indonesia (82nd), and Thailand (61st) although the latter slid 12 notches from its previous ranking.

TABLE 9

INFRASTRUCTURE OUTLAYS, 2013-2015 (IN BILLION PESOS)

Particulars Levels, in Billion Pesos % Share to Total 2013 2014 2015 2013 2014 2015

Buildings and Structures 79.5 88.2 101.3 25.9 20.0 18.0 Flood Control and Drainage 16.7 34.7 47.0 5.4 7.9 8.4 Roads and Bridges 108.6 177.6 243.4 35.4 40.2 43.3 Water Management 31.9 29.0 37.5 10.4 6.5 6.7 Research & Development 0.2 1.7 4.6 0.1 0.4 0.8 Power & Comm. Infra 15.7 9.9 5.2 5.1 2.2 0.9 Governance - 2.1 4.4 - 0.5 0.8 Non-Road Transport Infra 14.4 29.9 33.0 4.7 6.8 5.9 Others * 0.01 - - 0.0 - -

Special Purpose Funds 40.0 69.1 85.9 13.0 15.6 15.3

DepEd School Bldg Program 0.2 1.0 - 0.1 0.2 - NDRRMF 0.7 7.1 7.1 0.2 1.6 1.3 RRP - 16.3 0.8 - 3.7 0.1 PDAF (various projects) 0.6 - - 0.2 - - LGUs 38.6 44.7 78.0 12.6 10.1 13.9

IRA 33.3 37.6 78.0 10.8 8.5 13.9 Others 5.3 7.1 - 1.7 1.6 -

Grand Total 306.9 442.3 562.3 100.0 100.0 100.0

* Unclassified project under DOJ Note: 0 = less than 0.1% Source of basic data: BESF 2013

8The study entitled “Investments in Infrastructure: an Effective Tool to Create decent Jobs” was also cited in the National Budget Memorandum No. 119 (issued 27 December 2013) on the Budget Priorities Framework for the Preparation of the FY 2015 Agency Budget Proposals. 9The Philippines also ranked 98th out of 144 countries in the Global Competitiveness Report 2012-2013.


Table 9 shows that NG continues to prioritize spending for roads and bridges. For two consecutive years (2014 and 2015), allocations for roads and bridges have increased in increments of at least P65.8 billion. Its share to total infrastructure outlay has steadily grown as well from 35.4% in 2103 to 43.3% in 2015. It is not certain how much of these projects will involve major repairs and rehabilitation of existing roads, and how much are for the construction of new roads that can improve access and connectivity between farms and markets, and of rural communities to development/commercial centers. Other significant outlays for infrastructure in 2015 include those for buildings and structures (P101.3 billion), flood control and drainage (P47 billion), and water management (P37.5 billion). It may be noted that allocations for research & development (P4.6 billion) and for infrastructure governance (P4.4 billion) are going to get relatively huge increments—i.e., more than double that of the 2014 expenditure levels. Non-road transportation infrastructure will also increase from P29.9 billion to P33 billion in 2015. Total infrastructure outlays also include the P78 billion allocation to LGUs (as part of the IRA). Note that no allocation is provided for School Building Program under Special Purpose Funds (SPFs), but infrastructure outlay for buildings and structures includes a total of P54.5 billion for DepEd—of which P47.2 billion is for the construction and/or completion of school buildings, technical vocational laboratories, and water/sanitation facilities. COST STRUCTURE Table 10 shows that P1,064.3 billion or close to half (48.2%) of the 2015 expenditure program (net of debt burden) will support operations or programs involving direct production of goods and delivery of services, and direct regulation. About 45.8% or P1,010.7 billion are intended for projects which are either locally-funded or foreign-assisted. The remaining 6% or P131.6 billion accounts for NG’s general overhead cost. It includes expenditures for—(1) general administration and support (GAS) that deals with the provision of overall administrative management, and (2) support to operations for the provision of staff, technical and/or substantial support to agency programs (but not the production or delivery of goods/services). While it appears that (in terms of share to total budget) general overhead was substantially low in 2014 and 2015 compared with that of operations and projects, it was observed that lump sum funds like Pension and Gratuity Fund (PGF), Miscellaneous and Personnel Benefits Fund (MPBF), Tax Expenditures, and International Commitments Fund are classified under locally-funded projects when they are being proposed. However, they are likely reclassified as general overhead cost (under GAS or support to operations) as they form part of the actual spending of recipient agencies during the budget year.

The actual figures for 2011-2013 would show that general overhead consumes a bigger portion of the budget pie than as programmed for 2014 and 2015. It may be noted that locally-funded


projects accounted for 52.7% of the national expenditure program in 2013 (as proposed) while general overhead was at 6.9%. Actual figures for the same year shows that total spending for locally-funded projects accounted for 39.3% and general overhead was high at 18.4%. On a positive note, it was observed that proposed spending for operations (share to total) as presented in the NEP is on an upward trend (from 38.4% in 2012 to 48.2% in 2015), and that the actual shares of operations are higher than originally proposed.

TABLE 10 COST STRUCTURE OF THE NG BUDGET

(NET OF DEBT BURDEN), 2011-2015

Particulars Levels, in Billion Pesos % Share to Total 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

General Overhead 198.6 212.5 304.3 116.9 131.6 15.5 14.3 18.4 6.2 6.0 Gen. Admin & Support 168.4 181.6 261.6 77.6 84.9 13.1 12.2 15.8 4.1 3.8 Support to Operations 30.2 31.0 42.7 39.3 46.8 2.4 2.1 2.6 2.1 2.1

Operations 555.8 731.1 675.0 973.0 1,064.3 43.3 49.1 40.7 51.6 48.2 Projects 528.5 545.1 679.0 797.1 1,010.7 41.2 36.6 40.9 42.2 45.8

Locally-Funded 493.0 512.7 652.5 752.6 940.9 38.4 34.4 39.3 39.9 42.6 Foreign-Assisted 35.6 32.4 26.5 44.6 69.8 2.8 2.2 1.6 2.4 3.2

TOTAL 1,283.0 1,488.8 1,658.3 1,887.0 2,206.6 100.0 100.0 100.0 100.0 100.0

Source of basic data: BESF 2013-2015 Total allocation for projects in 2015 amounts to P1,010.7 billion—of which P940.9 billion are locally-funded and P69.8 billion are foreign assisted (FAPs). FAPs are financed through loan proceeds (P47.5 billion), peso counterpart (P22.2 billion), and grant proceeds (P142 million). Below are the agencies with relatively higher FAPs: DPWH(P25.2 billion)

Highways (P21.6 billion) Flood Control (P3.6 billion) DSWD for KALAHI-CIDSS (P17.5 billion) DOTC(P14.1 billion)

Light Rail Transit (LRT) Line 1 Cavite Extension (P4.8 billion) Light Rail Transit Line 2 East Extension (P2.4 billion) Philippine Ports and Coast Guard Capability Development Project (P1.9 billion) Puerto Princesa Airport Development Project (P1.6 billion) DA (P7.6 billion)

Philippine Rural Development Project (P7.3 billion) NIAfor Irrigation Projects (P2.3 billion) Energy (P2.7 billion)

Market Transformation Through Introduction of Energy Efficient Electric Tricycle (Etrike)


MAJOR PROGRAMS10 The 2015 National Expenditure Program identifies priority convergence programs essential to achieving rapid growth and inclusive development. Table 11 presents the different programs clustered under four major objectives, namely: (1) Human Development and Poverty Reduction, (2) Economic Development, (3) Climate Change Adaptation, and (4) Good Governance and Anti-Corruption. Note that PAPs of departments may contribute to more than one major program, hence, the amounts are not totalled at the cluster level. Major programs under the Human Development and Poverty Reduction Cluster are critical in translating the "inclusiveness" of the 2015 budget. The social component of the budget should be able to provide opportunities to address the uneven conditions among Filipinos in terms of basic needs such as health, education, and housing. NG has identified four key programs under this cluster: (1) Education Program (P424.4 billion), (2) Pantawid Pamilyang Pilipino Program (4Ps – P116.8 billion), (3) Universal Health Care Program (P87.4 billion), and (4) Housing for the Resettlement from Danger Areas (P8.6 billion). About 80% (P339.3 billion) of the budget for the Education Program will support major programs and activities of the DepEd. These include the provision of basic educational facilities (e.g., construction of 31,728 classrooms), the creation of 40,566 teaching/non-teaching positions, the procurement of about 70.5 million textbooks, and the grant of subsidy to about 1.1 million students under the Government Assistance to Schools and Teachers in Private Education (GASTPE – P8.4 billion), among others. Under the 4Ps, P64.7 billion goes to the DSWD for conditional cash transfers (CCT) to an estimated 4.3 million poor families. The CCT also aims to cover 7,009 homeless street families, about 166,000 families from the indigenous peoples, and close to 4,000 itinerants. NG also allocates under the 4Ps the amount of P17.8 billion for DepEd and P25.1 billion for the DOH. According to the President's Budget Message, about 50% or two million families under the CCT program will be uplifted from survival to subsistence. Another 6% or 300,000 families will move up from subsistence to self-sufficiency. A whole amount of P87.4 billion for the Universal Health Care Program practically represents the budget for the DOH-OSEC. This is to provide for the coverage of more than 15.4 million indigents under the National Health Insurance Program, and for Preventive and Promotive Health Programs involving the immunization of children, family health and responsible parenting, TB control and treatment of public health diseases.

10 The President’s Budget Message for 2015 and the presentation material of DBM Sec. Abad during the DBCC budget hearing held last 6 August 2014 at the House of Representatives were utilized to provide details (e.g. program targets, number of beneficiaries, and estimated impact) on the programs discussed in this section.


TABLE 11 MAJOR PROGRAMS, 2015 1/

(IN BILLION PESOS)

Particulars Amount

Human Development and Poverty Reduction Cluster

Pantawid Pamilyang Pilipino Program 116.83

Universal Health Care Program 87.38

Housing for Resettlement from Danger Areas 2/ 8.59

Education Program 424.39

Economic Development Cluster 2/

Transport Infrastructure Program 227.60

of which:

Road Transport 181.57

Air Transport 13.28

Rail Transport 16.85

Maritime Transport 5.14

Agricultural Development Program 86.07

Manufacturing Resurgence Program 239.83

Tourism Development Program 35.20

Climate Change Adaptation Cluster

Disaster Mitigation 58.08

Good Governance and Anti-Corruption

Digitization of Financial Management Operations 1.03

1/ Programs, activities, projects (PAPs) may contribute to more than one major program—thus, amounts should not be totaled.

2/ Excludes corporate funds of participating GOCCs Source: BESF 2015

Under the Economic Development Cluster, NG identifies four priority programs relating to—(1) Manufacturing Resurgence (P239.8 billion), (2) Transport Infrastructure (P227.6 billion), (3) Agricultural Development (P86.1 billion), and (4) Tourism (P35.2 billion). The contribution of the DPWH to all programs (except for agricultural development) is substantial, potentially on account of the need for road upgrading and construction of new roads/bridges to provide ease in transport of goods/people, and to improve connectivity for industries/SMEs and tourism. The tourism industry plays a big role in generating more employment. Next year's budget for tourism aims to employ 6.3 million workers, and its projected share to GDP (5.7%) is valued at P974 billion. Of the total worth of PAPs for Manufacturing Resurgence and Transport Infrastructure, DPWH accounts for more than 91% and 76%, respectively. The package of projects for Transport Infrastructure includes P181.6 billion for roads and P16.9 billion subsidy for railways. According to the President’s Budget Message, the rehabilitation of railways could reduce transfer time by 50% and transport cost by 8.5%. It could also lessen logistic costs of goods/services from 23% to 25%, and generate time savings equivalent to P54 billion. Some programs supportive of


manufacturing include the promotion and development of MSMEs, design and development of plans for industries by the DTI, and DOST-R&D Projects and Small Enterprise Technology Upgrading that will generate 12,681 jobs and service 1,841 firms. In support of the industries, the Training for Work Scholarship Program (TWSP) under TESDA gets an allocation of P2 billion which is 42.5% more than that in 2014. The TWSP will provide training to 210,526 workers in agri-fishery, business process outsourcing (BPO-ICT), tourism, semi-conductor and electronics, and automotive. Meanwhile, funding support for Agriculture Development will primarily come from two sources—DA (P40.1 billion) and agriculture-related GOCCs (P43.3 billion), particularly NIA. The 2015 budget supports DA programs on rice (P7 billion), corn (P2.3 billion), high value crops (P2.2 billion), livestock and poultry (P1.5 billion), and fisheries (P4.6 billion). It also provides for PCA’s coconut program (P4.1 billion), irrigation (P26 billion), and farm to market roads (P14.5 billion). NG intends to cover 20,650 hectares with new irrigation and drainage system, and rehabilitate existing ones in 23,200 hectares. Irrigation improvement among the top 33 rice-producing provinces is expected to help achieve a target production of 4.48 metric tons of rice per hectare. Investments in agriculture is geared towards increasing the productivity of the agriculture and fisheries sector to 3.5%-4.5% growth in gross value added (GVA) by 2016, as well as, improving the lives of 1,685 million poor farmers and 346,345 poor fisherfolk. Total allocation for Disaster Mitigation amounts to P58.1 billion—of which close to 80% (P45.8 billion) supports the various infrastructure projects of the DPWH. This could potentially provide for more-resilient public infrastructure in support of the Administration’s intent to “build back better” after recent natural catastrophes hit the country. Finally, NG prioritizes the Digitization of Financial Management Operations which has a combined allocation of P1 billion from the DOST (P728.8 million), DBM (P294 million), and DOF (P12 million). REGIONAL ALLOCATION Net of the allocations for the Central Office (P496.3 billion) and for programs/projects of nationwide application (P671.5 billion), the total regional budget amounts to P1,438.1 billion or about 55.2% of the P2,606 billion proposed NG expenditure program. Table 12 shows the regional grouping based on the gross regional domestic product (GRDP)11 quartile where the poorest regions include the following: ARMM, CARAGA, and Regions IV-B and II. On the other hand, the richest regions include NCR, and Regions IV-A, III, and VII.

11 The projected gross regional domestic product (GRDP) was computed using the average GRDP (2011-2013), and applying the average share of each region to the national GDP for 2014 and 2015 as provided under the BESF for FY 2015. Population projections were based on the growth of regional populations in 2012- 2013.


TABLE 12 REGIONAL ALLOCATION FOR 2015 BY GRDP QUARTILE

REGION In Billion Pesos Per Capita Allocation

Projected GRDP IRA Agency* Total Regional

Budget1/ Level (in PhP) Rank

Poorest

ARMM 126.0 18.0 27.0 45.1 12,867 8

CARAGA 161.2 15.4 25.0 40.4 15,418 3

Region IV-B 242.2 17.0 27.3 44.3 14,723 5

Region II 250.3 20.1 28.4 48.5 14,042 6

2nd

Region IX 288.1 16.1 32.6 48.7 12,981 7

CAR 290.2 12.0 20.2 32.2 18,276 2

Region V 292.4 24.3 47.7 72.0 12,304 9

Region VIII 321.7 24.2 42.2 66.4 15,145 4

Region XII 403.3 17.5 32.8 50.3 10,830 13

3rd

Region I 439.2 21.6 38.4 60.0 11,859 11

Region X 547.6 21.0 36.8 57.8 12,138 10

Region VI 564.6 31.7 51.7 83.5 10,963 12

Region XI 576.5 18.7 31.9 50.6 10,270 14

Richest

Region VII 886.2 27.6 43.0 70.7 9,515 15

Region III 1,278.3 37.1 67.5 104.6 9,253 16

Region IV-A 2,363.5 43.0 59.7 102.7 6,992 17

NCR 5,153.1 24.5 435.9 460.4 35,585 1

TOTAL 14,184.3 389.9 1,048.3 1,438.2

* Includes Budgetary Support to GOCCs and Other ALGUs 1/ Total regional budget is net of allocations for Central Offices (P496.3 billion) and for nationwide application (P671.5 billion). Source of basic data: BESF, NSCB and CPBRD for Projected GRDP and Population

On the aggregate, the poorest 25% of regions account for P178.3 billion or 12.4% of the total regional budget. The second poorest group (CAR, and Regions IX, V, VIII and XII) will receive 18.7%, the third group (Regions I, X, VI and XI) with 17.5%, and the richest regions with a bigger chunk of 51.3% of the total budget for the regions. On per capita basis, the regional distribution of the 2015 budget generally favors the poorer regions belonging to the 1st and 2nd groups (except Region XII). Subsequently, the richer regions under the 3rd and 4th groups (except NCR) have relatively lower per capita allocation. NCR is an outlier with P35,585 per capita allocation partly because it hosts the entire budgets of the following offices: Congress, Office of the President, Office of the Vice-President, Congress, The Judiciary, Office of the Ombudsman, Commission on Human Rights, and the Departments of Energy and Foreign Affairs.


TABLE 13 GRASSROOTS PARTICIPATORY BUDGETING (2015)

(IN MILLION PESOS)

Region DILG DA LGSF DSWD DEPED DOH Others TOTAL % Share

Region VII 606.8 419.1 278.7 194.0 102.8 122.7 172.3 1,896.4 9.1 Region VIII 734.8 403.3 231.2 141.4 109.9 77.4 173.7 1,871.8 9.0 Region VI 427.5 383.6 341.9 295.0 107.9 126.3 141.6 1,823.8 8.7 Region IV-A 327.7 386.5 166.9 268.0 165.4 211.9 261.1 1,787.5 8.6 Region V 569.8 306.1 169.2 180.9 125.5 117.3 222.7 1,691.6 8.1 Region III 240.3 397.2 103.5 345.2 213.7 162.9 165.5 1,628.4 7.8 Region I 368.2 371.4 162.6 207.5 175.1 147.1 160.2 1,592.1 7.6 Region X 391.3 219.4 387.9 136.8 49.1 29.7 118.9 1,333.1 6.4 Region II 289.6 235.6 122.0 160.9 82.2 87.4 181.6 1,159.2 5.5 CARAGA 364.0 240.1 70.5 103.7 31.4 45.9 148.7 1,004.4 4.8 Region IX 390.2 162.7 186.5 54.6 49.6 43.6 89.9 977.0 4.7 Region IV-B 366.2 209.8 85.3 96.7 54.5 60.7 94.4 967.5 4.6 CAR 224.1 156.2 374.3 90.4 18.1 34.6 66.8 964.5 4.6 Region XII 181.5 225.3 54.4 145.3 74.2 62.7 139.7 883.0 4.2 Region XI 262.0 150.9 41.8 90.4 33.4 53.1 122.0 753.5 3.6 ARMM - - 3.0 106.5 91.6 50.3 62.4 313.9 1.5 NCR 9.0 15.2 9.3 100.1 9.2 39.3 69.8 252.0 1.2

TOTAL 5,752.8 4,282.5 2,789.1 2,717.4 1,493.5 1,472.9 2,391.4 20,899.6 100.0

Source of basic data: National Expenditure Program 2015

The 2015 proposed expenditure program includes a total of P20.9 billion worth of projects under the Grassroots Participatory Budgeting (GPB) Program12 (previously known as the Bottom-Up Budgeting Approach). Under this program, locally-identified projects are consolidated into the budgets of the different agencies. Almost half of the total GPB budget is accounted by two departments, DILG and DA, with allocations (shares) of P5.8 billion (27.5%) and P4.3 billion (P20.5%), respectively. Another 40% of the total allocation for GPB supports projects under the following agencies/Fund: (1) Local Government Support Fund (LGSF), P2.8 billion; (2) DSWD, P2.7 billion; (3) DepEd, P1.5 billion; and (4) DOH, P1.5 billion. The remaining P2.4 billion is the combined smaller allocations for agencies like the DENR, DOE, DOLE, TESDA, DOT, DTI, NIA, and NEA. The regional breakdown of the allocation for GPB shows that the top three regions that will get higher worth of projects are Region VII (P1.9 billion), Region IIX (P1.9 billion), and Region VI (P1.8 billion). The major hosts of projects for these Visayan regions are DILG, DA and the LGSF. On the other hand, regions with least worth of projects are NCR, ARMM, and Region XI. It was observed that ARMM gets roughly half (P40.9 million) of the DOE worth of GPB

12Fund releases shall be subject to with the requirements of Good Financial Housekeeping under the FY 2014 Seal of Good Local Governance and the LGU Public Financial Management Improvement Program pursuant to DBM-DILG-DSWD-NAPC Joint Memorandum Circular No. 4 dated 26 November 2013.


projects (P84.7 million). Also, it may be noted that Regions III and IV-A are consistently among the top three recipients of projects hosted by the DepEd, DOH, DSWD, and DTI. ALLOCATION BY DEPARTMENT Table 14 presents the distribution of the proposed 2015 budget by department. The combined allocation for all departments (P1,411.4 billion) accounts for about 54.2% of the total P2,606 billion expenditure program for 2015. The DepEd gets the highest allocation of P339.3 billion, followed by the DPWH (P300.5 billion), and the DSWD (P109 billion). Aside from relatively bigger budget shares, these three departments are also the ones that will get larger increments in 2015. The DPWH budget will increase by P81.2 billion, while DepEd and DSWD will be higher by P37.7 billion and P25.6 billion, respectively. Other top ten departments that will receive higher allocations in 2015 include the following: DILG (P105.7 billion), DND (P99.6 billion), DOH (P88 billion), DOTC (P54.5 billion), DA (P49.1 billion), SUCs (P43.3 billion), and the ARMM (P25.2 billion). The 2015 NEP increases the DepEd budget by 12.5% to P339.3 billion. Budgetary increments can be traced to the a much higher budget for operations, with significant increments going to the following expenditure items: (1) operations of schools, P15.4 billion; (2) provision of learning resources (e.g., textbooks, science and math equipment, DepEd computerization program), P7.7 billion; and (3) provision and maintenance of basic education facilities, P8.2 billion. Meanwhile, the DSWD budget will increase by P25.6 billion from P83.4 billion in 2014 to P109 billion in 2015. By expense type, additional funding will mostly go to MOOE which will increase from P78 billion to P103 billion in 2015. The allocation for Social Protection Services (P81.9 billion) will continue to get a big chunk of the DSWD budget although the increment in 2015 is minimal at P2 billion. Social Protection Services includes major programs such as— (1) Pantawid Pamilya (P64.7 billion), Social Pension for Indigent Senior Citizens (P4.8 billion), Sustainable Livelihood Program (P4.9 billion), and the Supplemental Feeding Program (P3.4 billion). The CCT program increased marginally by 3% but allocations for community-driven development and pension of indigents senior citizens was substantially increased. Funding for the Sustainable Livelihood Program which will provide livelihood opportunities to poor families through micro-enterprise ventures will be twice higher than the 2014 level. Meanwhile, NG has allocated 53.2% more for the P500 monthly pension of 739,609 indigent senior citizens age 71 and over (President's Budget Message for 2105).


TABLE14 NG EXPENDITURES BY DEPARTMENT

Departments Levels, in Billion Pesos Increase/(Decrease) 2014 2015 Amount %

Department of Education 1/ 301.6 339.3 37.7 12.5 Department of Public Works and Highways 219.3 300.5 81.2 37.0 Department of Social Welfare and Development 83.4 109.0 25.6 30.7 Department of Interior & Local Government 101.5 105.7 4.3 4.2 Department of National Defense 82.5 99.6 17.2 20.8 Department of Health 85.2 88.0 2.8 3.3 Department of Transportation and Communications 47.0 54.5 7.5 16.0 Department of Agriculture 70.1 49.1 (21.0) (30.0) State Universities and Colleges 38.1 43.3 5.3 13.8 Autonomous Region in Muslim Mindanao 20.5 25.2 4.7 22.9

Department of Environment & Natural Resources 23.9 21.3 (2.6) (11.0) The Judiciary 19.3 20.3 0.9 4.9 Department of Science and Technology 12.1 19.4 7.2 59.7 Commission on Elections 2.9 16.9 14.1 487.1 Department of Finance 13.0 14.3 1.3 10.3 Department of Foreign Affairs 12.2 13.0 0.7 6.1 Other Executive Offices 15.9 12.7 (3.1) (19.8) Department of Labor and Employment 12.6 12.1 (0.5) (3.7) Department of Justice 11.8 11.8 0.0 0.1 Congress of the Philippines 11.1 11.1 0.0 0.2 Department of Agrarian Reform 20.4 10.6 (9.8) (48.1) Commission on Audit 8.4 8.2 (0.3) (3.1) National Economic and Development Authority 4.0 6.4 2.4 59.0 Department of Energy 4.1 4.5 0.4 9.1 Department of Trade and Industry 4.5 3.8 (0.8) (17.1) Office of the President 2.8 2.6 (0.2) (7.8) Department of Tourism 2.0 2.2 0.2 7.8 Office of the Ombudsman 1.8 1.7 (0.1) (3.5) Department of Budget and Management 1.0 1.5 0.4 40.9 Civil Service Commission 1.3 1.2 (0.1) (7.7) Presidential Communications Operations Office 1.2 1.0 (0.2) (13.5) Commission on Human Rights 0.3 0.3 (0.0) (1.8) Office of the Vice-President 0.2 0.2 0.0 2.4 Joint-Legislative-Executive Offices 0.0 0.0 (0.0) (30.5)

TOTAL, Departments 1,236.0 1,411.4 175.3 14.2

1/ FY 2014 includes DepEd-School Building Program/Educational Facilities 0 = less than 0.1 billion pesos Source of basic data: BESF 2015

Budgetary increments for DSWD in 2015 can be traced to allocations for locally-funded and foreign-assisted projects. In 2014, locally-funded projects of DSWD amount only to P1.9 billion but this will be higher at P7.2 billion next year, particularly on account of the allocation for the Comprehensive and Integrated Delivery of Social Services (CIDSS - P3.6 billon) under Poverty Reduction. Moreover, NG allocates under the DSWD an amount of P950 million for the


implementation of the socio-economic component of the Normalization Process.13 Unlike in 2014, the proposed DSWD budget for 2015 includes FAPs amounting to P17.5 billion, particularly for the Kapit-Bisig Laban sa Kahirapan-CIDSS: National Community Driven Development Project that will support 6,735 community projects involving 1.5 million households. The DPWH will get a hefty increase of about P81.2 billion—the bulk of which (P79 billion) will be spent for capital outlays. Total CO of the DPWH will increase from P199.8 billion in 2014 to P279.3 billion in 2015. The breakdown of CO for public works shows that highways (roads and bridges) with an allocation of P173.5 billion accounts for over half (P44.1 billion) of the total budgetary increment for DPWH in 2015. Allocation for highways will support the following activities: (1) widening of national roads, construction of by-passes/diversion road and off-carriageway improvement (P43.1 billion); (2) road upgrading (P39 billion); (3) rehabilitation and reconstruction of damaged national roads (P15.1 billion); and (4) construction, major repair, and retrofitting of bridges (P19.6 billion). Meanwhile, NG allocates for flood control projects a total of P44.8 billion in 2015, which is up by P11.2 billion.14 Allocation for the Commission on Elections (COMELEC) will increase substantially from P2.9 billion in 2014 to P16.9 billion in 2015. The increment of about P14 billion is primarily due to allocations for the preparation of national and local elections (P12.6 billion), and the conduct of the Sangguniang Kabataan elections (P936.1 million). Republic Act No. 10632 postponed the SK election (originally set for 28 October 2013) to a date that COMELEC shall determine between 28 October 2014 and 23 February 2015. The postponement was allegedly due to clamors to abolish the SK, and the need for an in-depth study to finally decide on its prospects for abolition and/or reform. On the other hand, the budgets for DAR and DA will be reduced considerably by 48.1% and 30%, respectively. The allocation for DA in 2015 is down to P49.1 billion—about P21 billion lower than its 2014 budget. The significant decline in DA’s budget, particularly of DA-OSEC, can be attributed primarily to the transfer of the irrigation budget to the National Irrigation Administration (NIA) which is now under the supervision of the Presidential Assistant for Food Security and Agricultural Modernization (PAFSAM). Similarly, the DAR budget will be reduced from P20.4 billion to P10.6 billion due to notably lower allocations for foreign-assisted projects (FAPs)15 and operations (particularly for Land Tenure Services). In anticipation of the passage of the Bangsamoro Basic Law (BBL) that will establish the new Bangsamoro Political Entity (in lieu of the ARMM), NG allocates P2.7 billion as support for the

13Quarterly reports are required to be submitted to OPAPP on the status of implementation of the normalization process, including the list of beneficiaries. 14Breakdown of DPWH capital outlays was presented during the agency budget hearing of the House Committee on Appropriations held 12 August 2014. 15The following FAPs of DAR are no longer included in the 2015 NEP: Second Agrarian Reform Communities Project, Mindanao Sustainable Agrarian and Agriculture Development Project, and the Convergence on Value Chain for Rural Growth and Development.


development of the autonomous territory. Of the total allocation, close to P2.5 billion is lodged in the different agencies (i.e., DSWD, DA, TESDA, DepEd, PHIC, and CHED) for the implementation of the Socio-Economic Component of the Normalization Process. Meanwhile, P228 million will go to OPAPP for the Implementation of the Annex on Normalization16 which also includes aspects of security and transitional justice (see Table 15).

TABLE 15

SUPPORT FOR BANGSAMORO DEVELOPMENT (IN MILLION PESOS)

Particulars Amount

I. Socio-Economic 2,462 DSWD 950

Immediate Assistance Auxillary Social Services for PWD Combatants Sustainable Livelihood Program Cash for Work and Cash for Training Construction and renovation of Community Based Infrastructure: (access roads, level 2 water system) DA 880

Agri-enterprise support program Agricultural Development Support Programs: SWIP, FMRs Farm inputs and machineries, Seeds

TESDA Technical Vocational Training 335 DEPED Literacy Program (Alternative Learning System) 231 PHIC PhilHealth Insurance Cards 50 CHED Transformation of MILF Camps: CHED Scholarship Program 16

II. Annex on Normalization 228 OPAPP Implementation of Annex on Normalization 228

TOTAL 2,690

Source: Secretary Abad's presentation to the Committee on Appropriations (06 August 2014) SPECIAL PURPOSE FUNDS Close to half (45.8%) of the total expenditure program for 2015 are considered Special Purpose Funds. Total SPF amounts to P1,194.6 billion—of which P378.6 billion are new programmed appropriations and P816 billion are automatic appropriations. According to the DBM, only P48.1 billion of the total new programmed appropriation remains lump sum and that a greater amount of P330.5 billion have already been disaggregated.17 Under automatic appropriations, IRA (P389.9 billion) and interest payments (P372.9 billion) combined already accounts for 63.8% of total SPF. 16The Annex on Normalization is part of the Comprehensive Agreement on the Bangsamoro (CAB) which provides for mechanisms that will put an end to armed conflict and bring back normalcy in conflict-affected communities in Mindanao. 17Categorization of SPF items in Table 16 was adopted from DBM Secretary Abad’s presentation during the DBCC budget hearing for FY 2015 held last 6 August 2014 at the House of Representatives.


NG allocates for Miscellaneous Personnel Benefits Fund (MPBF) an amount of P118.1 billion which is 120.7% higher than in 2014. The NEP provides the distribution of MPBF for the following purposes: (1) performance-based bonus, P14.6 billion; (2) filling up of unfilled positions, P30.8 billion; (3) creation of new positions, P16.7 billion; and (4) for other personnel benefits including funds for newly filled positions, P56 billion. Except for purpose (4), recipient agencies of the MPBF are identified.

TABLE16 NG EXPENDITURES BY SPECIAL PURPOSE FUNDS

Particulars Levels, in Billion Pesos % Share to NG Budget 2014 2015 2014 2015

I. New GAA 282.6 378.6 12.5 14.5 A. Lump-Sum SPFs 51.3 48.1 2.3 1.8

National Disaster Risk Reduction & Management Fund 13.0 14.0 0.6 0.5 Contingent Fund 1.0 2.0 0.0 0.1 Rehabilitation and Reconstruction Program 20.0 1.0 0.9 0.0 Allocations to LGUs (Special Shares, etc.) 17.3 31.1 0.8 1.2

B. Disaggregated SPFs 231.3 330.5 10.2 12.7 Budgetary Support to Gov't Corporations 46.3 61.3 2.0 2.4 Allocations to LGUs (MMDA) 2.3 2.0 0.1 0.1 DepEd School Building 1.0 - 0.0 - E-Government Fund 2.5 1.0 0.1 0.0 International Commitments Fund 4.8 7.4 0.2 0.3 Feasibility Studies Fund 0.4 - 0.0 - Miscellaneous Personnel Benefits Fund 53.5 118.1 2.4 4.5 Pension and Gratuity Fund 120.5 140.6 5.3 5.4

II. Automatic Appropriations 747.0 816.0 33.0 31.3 Budgetary Support to Gov't Corporations 1.0 1.3 0.0 0.1 Allocations to LGUs (MMDA-RLIP) 0.0 0.0 0.0 0.0 Internal Revenue Allotment (IRA) 341.5 389.9 15.1 15.0 Net Lending 25.0 26.5 1.1 1.0 Customs Duties & Taxes including tax expenditures 26.9 25.5 1.2 1.0 Debt Service Fund - Interest Payments 352.7 372.9 15.6 14.3

Total Special Purpose Funds 1,029.6 1,194.6 45.5 45.8

Memo item: NG Budget 2,264.6 2,606.0

Note: 0 = less than P0.1billion or less than 0.1% Sources of basic data: BESF and NEP 2015, and DBM presentation to the Committee on Appropriations last 6 August 2014. NEP Special Provisions on the MPBF states that it can be used to pay for deficiencies in authorized salaries/allowances/premium, PS for newly established schools (including those created in previous Congresses but were unfunded or partially funded), and for newly created teaching and non-teaching position in the ARMM for 2014. Furthermore, it provides that the MPBF can be used “to augment deficiencies in the appropriations for programs, projects and activities of agencies in the Executive Branch and other special purpose funds, subject to the


rules on savings and augmentation”. Appropriations for PS are considered mandatory expenses and are not subject to cuts during budget authorization, yet they are not spent despite the growing number of unfilled positions. In 2011, unreleased PS appropriations which will lapse at the end of the fiscal year were pooled as savings and realigned for priority programs that require immediate funding.18 The 2015 NEP refers to savings as "portions or balances of any programmed appropriations in [the 2015 GAA] which have not been released or obligated" as a result of discontinuance or abandonment of program, non-commencement of the PAP within the 1st semester of 201519, and decreased cost due to improvement efficiency in implementation. Also, savings may refer to "available balances of appropriations arising from unused compensation and related costs pertaining to (1) unfilled, vacant or abolished positions, (2) non-entitlement to allowance and benefits, and (3) leaves of absence without pay." (Section 67, General Provisions of 2015 NEP) Meanwhile, the NEP defines augmentation as the "act of filling up a deficiency in any existing PAP of an agency from savings in other items of said agency's appropriations…provided that the particulars of the expenditures to be funded from savings are within the scope of the PAP." Furthermore, it clarifies that a deficiency in PAP may only result in case of unforeseen modifications or adjustments in the PAP, and re-assessment in the use, prioritization and/or distribution of resources. In no case shall a non-existent PAP be funded by augmentation from savings (Section 67, General Provisions of 2015 NEP). For 2015, NG allocates a total of P140.6 billion for the Pension and Gratuity Fund (PGF) to pay for—(1) pensions of uniformed personnel and other retirees of the National Government, P68.9 billion; (2) retirement and terminal leave benefits, P69.6 billion; (3) separation benefits and/or incentives, P236.5 million; and (4) monetization of leave credits, P1.9 billion. No further breakdown by agency is available.20 The PGF will also be used to pay for the required NG share in the retirement benefits of personnel devolved to LGUs, as well as for the retirement and terminal leave benefits of employees of GOCCs that are financially unable to pay subject to the submission of a streamlining program and measures that will enhance the efficiency and effectiveness of the GOCC concerned. Like the MPBF, the PGF may be used to augment deficiencies in appropriations for PAPs in the Executive Branch subject to the rules on savings and augmentation. Aside from ALGU (P31.1 billion) under Lump-Sum SPFs, NG allocates a considerable amount of P14 billion for National Disaster Risk Reduction and Management Fund (formerly known as

18 Memorandum of DBM Secretary Abad (dated 12 October 2011) on the FY 2011 Proposed Disbursement Acceleration Program (Projects and Sources of Funds) for approval by the President, includes unreleased PS as fund source for DAP. This memorandum was cited in the Supreme Court Decision involving cases filed under G.R. Nos. 209287, 209135, 209136, 209155, 209164, 209260, 209442, 209517 and 209569. 19 “Non-commencement of the PAP within the 1st semester” as possible condition for declaring savings is introduced only in the 2015 NEP. 20The 2014 GAA provides a more detailed breakdown for pension benefits of uniformed personnel under the DND, DILG, DENR-NAMRIA, and DOTC-Philippine Coast Guard.


Calamity Fund). The NDRRMF is distributed according to the following purposes: (1) aid, relief and rehabilitation services including training of personnel and other pre-disaster activities, P6.2 billion; (2) repair and reconstruction of permanent structures including capital expenditures for pre-disaster operations/rehabilitation, P6.8 billon; and (3) adaptation projects of LGUs and community organization, P1 billion. It can also be used to augment deficiencies in the appropriations for PAPs of agencies subject to the rules on savings and augmentation. The NDRRMF for 2015 can be utilized for relief, rehabilitation and reconstruction activities in connection with natural calamities, epidemics, crises resulting from armed conflicts, insurgency, terrorism and other catastrophes that occurred in 2013 and 2014. Furthermore, it can be tapped to augment the Quick Response Fund (QRF) lodged under the budgets of implementing agencies listed below. On the aggregate, QRFs from the following agencies amounts to P6.5 billion. DSWD-OSEC - P1.3 billion DND-OSEC - P352 million DND-Office of Civil Defense - P530 million DPWH-OSEC - P800 million DepEd-OSEC - P1 billion DA-OSEC - P500 million DOH-OSEC - P500 million DOTC-OSEC - P1 billion NIA - P500 million

Unlike the NDRRMF, the QRF cannot be used for pre-disaster activities. It is intended as a standby fund for relief, rehabilitation and reconstruction of calamity-stricken communities so that the living conditions of people can be normalized as quickly as possible. The QRF can be used for communities stricken by calamities, epidemics, crises and catastrophes that occurred in the last quarter of 2014 and in 2015. It may be noted that while it is prohibited to use the funds for pre-disaster activities, some agencies such as the DSWD, DND, DOH, and DOTC are allowed to tap their respective QRFs for pre-positioning of goods and equipment, medical aids (for DOH), and for transport of goods for pre-positioning by agencies (DOTC). On the other hand, no spending for pre-positioning under the QRF is allowed for the DPWH, DepED, DA, and NIA. The QRF of DA is intended for the provision of seeds and other planting materials, fingerlings and fries, livestocks, and minor repair of small scale irrigation systems. Meanwhile, QRF for the DPWH, DepEd and NIA are for repair, reconstruction and/or replacement of public infrastructure, schoolbuildings/facilities, and irrigation facilities.


BUDGETARY SUPPORT TO GOCCS Total budgetary support for government-owned and controlled corporations (GOCCs) in 2015 amounts to P89.2 billion. This comes in the form of subsidy (P61.3 billion), equity (P1.4 billion), or net lending (P26.5 billion). Subsidy for GOCCs can be used to cover operational expenses that cannot be supported by corporate revenues. It can also be used to cover corporate deficits and losses. On the other hand, equity is a form of NG investment in the authorized capital stock of GOCCs. Next year’s budgetary support to GOCCs is P17 billion higher than 2014 but still much less than the 2013 level. Table 17 shows that NIA alone accounts for 32.3% (P28.8 billion) of the total budgetary support to GOCCs in 2015. It may be noted that allocation for NIA programs/projects used to be appropriated under the DA-OSEC. However, the transfer of NIA supervision to the PAFSAM has effectively removed from DA-OSEC the allocations intended particularly for National Irrigation System (NIS) and the Communal Irrigation System (CIS) in 2015. The combined appropriations for irrigation under NIA and DA in 2014 amounted to about P23.5 billion21—of which NIA only accounted for P1.1 billion. In 2015, the aggregate budget for irrigation is P30.3 billion with only P1.5 billion under DA for the implementation of small-scale irrigation projects. Based on the combined allocation of DA and NIA for irrigation, the total allocation for irrigation in 2015 grew by about P6.9 billion or 29.3%.

TABLE 17

RECIPIENTS OF BUDGETARY SUPPORT TO GOVERNMENT CORPORATIONS, 2013-2015

Particulars Levels, in Billion Pesos Growth Rates 2013 2014 2015 13-14 14-15

National Irrigation Administration 2.6 1.1 28.8 (58.9) 2,604.8 National Housing Authority 30.2 11.3 5.0 (62.8) (55.6) National Food Authority 3.6 4.3 4.3 17.3 - Philippine Coconut Authority 5.1 2.4 4.1 (53.5) 71.4 Social Housing Finance Corporation 0.1 3.7 3.7 4,438.4 2.1 Light Rail Transit Authority 1.3 - 2.8 (100.0) - National Electrification Administration 17.2 7.7 2.0 (55.5) (73.9) National Power Corporation 1.1 2.0 2.0 86.8 - Tourism Promotions Board 1.0 1.3 1.6 24.9 30.4 Philippine Crop Insurance Corporation 1.2 1.2 1.2 - - Others 56.5 12.5 7.1 (77.9) (43.1) Sub-Total 120.0 47.2 62.7 (60.6) 32.6 Add: Net Lending 16.6 25.0 26.5 50.1 6.2

GRAND TOTAL 136.6 72.2 89.2 (47.1) 23.5

Source of basic data: BESF 2015

21 Aggregate amounts for irrigation were based on the 2014 GAA and 2015 NEP.


The NEP provides that P22 billion or more than three-fourths (76.5%) of the NIA budget shall be used exclusively as follows: (1) construction of new National Irrigation Systems (NIS) and Communal Irrigation Systems (CIS), P18.7 billion; (2) operating requirements of NIA or as augmentation to its corporate income, P1.1 billion; (3) payment of the Agri-Agra Bonds issued by the National Development Company (NDC) in 2006 and 2009 for the repair/rehabilitation of NIA's irrigation facilities, P1.6 billion; (4) Grassroots Participatory Budgeting projects, P178.7 million; (5) projects in conflict-affected areas identified by OPAPP for the Payapa at Masaganang Pamayanan Program (PAMANA), P2.6 million; and (6) Quick Response Fund for the rehabilitation and restoration of irrigation facilities in areas hit by calamities, P500 million. On top of the P22 billion identified for the purposes above, the amount of P236.8 million is allocated to support the Program Beneficiaries Development Component of the Comprehensive Agrarian Reform Program. Other GOCCs that will enjoy additional subsidies in 2015 include the following: (1) Philippine Coconut Authority (PCA), (2) Tourism Promotions Board, and (3) Social Housing Finance Corporation (SHFC). No subsidy was appropriated for the Light Railway Transit Authority (LRTA) in 2014 but it gets a P2.8 billion allocation next year. Meanwhile, budgetary support for the National Housing Authority (NHA) and the National Electrification Administration (NEA) has been declining since 2013. From P30.2 billion in 2013, subsidy to NHA has been reduced to P5 billion in 2015. Similarly, subsidy to NEA significantly dropped from P17.2 billion to P2 billion in the same period. Budgetary support to the PCA will increase considerably by 71.4% from P2.4 billion to P4.1 billion. Part of the subsidy (P1.5 billion) shall be exclusively used for farm-to-market road projects for coconut lands. Other projects that will be funded by NG subsidy to PCA include: (1) Accelerated Coconut Planting and Replanting Project, P837.8 million; (2) Coconut Fertilization, P424 million; (3) KAANIB Enterprise Development Project, P420.6 million; (4) Agro-Industrial Hubs Project, P308 million; (5) Integrated Pest Management and Control, P250 million; and (6) Smallholders Oil Palm Plantation Development Project, P47.4 million. Priority shall be given to provinces identified in the Integrated Coconut Industry and Poverty Reduction Roadmap of the PCA, the major coconut producing provinces, and those affected by the coconut scale insect infestation. Meanwhile, the NHA budget of P5 billion is expected to fund various housing and resettlement programs as follows: (1) Housing Program for Informal Settler Families (ISF) Residing in Danger Areas in Metro Manila, P3.6 billion; (2) AFP/PNP/BFP/BJMP Housing Program, P100 million; (3) Housing Assistance Program for Calamity Victims, P736.5 million; and (4) Resettlement Program, P577.2 million. The NHA intends to construct a total of 33,641 housing units in 2015. A separate subsidy for the SHFC amounting to P3.7 billion shall be used exclusively for the Community Mortgage Program for the Housing Program of ISF Residing in Danger Areas in Metro Manila.


A much lower allocation of P2 billion for NEA in 2015 will be used primarily for the Sitio Electrification Project (P1.5 billion). The remaining P500 million will support the Barangay Line Enhancement Program (P400 million) and the Sitio Electrification and Barangay Line Enhancement under the PAMANA Program (P100 million). Priority shall be given to sitios with high capability of being energized, and to areas where poverty incidence and the absolute number of indigents are high. ALLOCATION TO LOCAL GOVERNMENT UNITS (ALGU) Total allocation to local government units (ALGU) for 2015 amounts to P422.7 billion—of which P389.9 billion or 92.2% represents the share of LGUs in the total tax collection, otherwise known as the Internal Revenue Allotment (IRA). Table 18 shows an increasing trend in the growth rate of the IRA since 2012. This can be attributed to the country's growing economy and NG’s ability to capture corresponding economic gains through taxes. Tax collection as a ratio to GDP (tax effort) is steadily inching up from 12.1% in 2010 to 13.3% in 2013. Tax effort is projected to be at 14.7% in 2014 and 15.5% in 2015.

TABLE 18 ALLOCATION TO LGUS, 2012-2015

Particulars Levels, in billion pesos Growth Rates 2012 2013 2014 2015 12-13 13-14 14-15

Internal Revenue Allotment 273.3 302.3 341.5 389.9 10.6 13.0 14.1 Metropolitan Manila Development Authority 1.4 3.0 2.3 2.0 115.8 (21.1) (14.7) Special Shares

Tobacco Excise Tax - RA 7171 4.7 3.8 4.8 10.2 (19.5) 26.2 112.0 Tobacco Excise Tax - RA 8240 1.1 0.0 0.8 0.5 (99.4) 12,531.3 (39.5) Utilization and Development of National Wealth 2.2 2.0 2.4 3.0 (6.8) 20.5 24.9 Gross Income Taxes paid by all enterprises w/in

the ECOZONES - RA Nos. 7227,7922,7916 0.1 0.0 0.0 0.0 (98.1) 1,597.9 (23.3) Value Added Tax - RA 7643 0.1 0.0 4.9 10.5 (71.0) 27,480.5 116.1 VAT in lieu of Franchise Tax - RA Nos. 8407, 7593 0.0 0.0 0.0 0.0 (40.1) 38.2 (57.4) Fire Code Fees - RA 9514 - - 0.2 0.2 - - -

Prior Years' Obligation 6.1 6.1 3.6 3.6 0.3 (41.1) - Barangay Officials Death Benefits Fund 0.0 0.0 0.1 0.1 15.7 53.8 - Local Government Support Fund 2.9 - 0.4 2.6 (100.0) - 554.2

TOTAL 291.9 317.3 361.1 422.7 8.7 13.8 17.0

Source of basic data: BESF 2014-2015 Note: 0 = less than P0.1 billion


ALGU also includes shares of LGUs from the collection of specific taxes. The combined share of LGUs amounting to P24.5 billion comes from the Utilization and Development of National Wealth (P3 billion) and from taxes such as the Tobacco Excise Tax22 (P10.7 billion), VAT (P10.5 billion), Gross Income Tax paid by enterprises within the ECOZONES (P24.5 million), VAT in lieu of Franchise Tax (P6.4 million), and Fire Code Fees (P200 million). Next year’s ALGU also includes the amount of P3.6 billion representing Prior Year’s Obligation for the IRA Monetization Program and the Tobacco Monetization Program. The amount of P1.8 billion for the IRA Monetization Program is last of the seven (7) installments of the IRA difference due to a re-enacted budget in 2001 and 2004. During those years, the IRA was not automatically appropriated, hence, the IRA that was released under a re-enacted GAA was that of the previous year’s level. Meanwhile, another P1.8 billion for the Tobacco Monetization Program will take care of the 6th installment of the unreleased LGU shares in excise taxes— (1) from locally manufactured Virginia-type cigarettes for 2002-2009, and (2) from Burley and native tobacco products for 1997-2007. For 2015, NG allocates almost P3 billion as Local Government Support Fund (LGSF) to support various priority programs and projects at the local level. Of the total LGSF, P2.8 billion shall be used exclusively for Grassroots Participatory Budgeting (GPB) projects. The release of funds for such projects shall be subject to compliance with requirements of Good Financial Housekeeping under the 2014 Seal of Good Local Governance and LGU Public Financial Management Improvement Program. SUMMARY The 2015 National Expenditure Program prioritizes the economic and social services sectors on account of declining shares of debt service payments. This essentially provides NG more room to upscale investments in infrastructure, education and social welfare programs—making the budget instrumental in developing human resources for jobs that the economy should be able to create. Infrastructure (particularly roads and bridges) is vital in providing ease in mobility of people and goods, and connectivity for industries and tourism. The challenge is how to ensure that these investments in infrastructure would translate to more long-term job opportunities through new and expanding businesses. There appears to be greater effort to tighten the planning-budget link with the adoption of the geographic focus areas in the Budget Priorities Framework for 2015. However, it is not certain how the agencies have in fact strategically designed their programs according to the needs of the priority provinces. The inclusivity of the NG budget can be reflected in the regional distribution of the budget which generally favors the poorer regions. A more conclusive analysis on the regional allocation of the budget may be conducted if actual spending (on regional basis) is also

22 This amount is an aggregate of LGU shares in tobacco excise tax pursuant to RA 7171 (P10.2 billion), and pursuant to RA Nos. 8240/10351 (P503.9 million).


reported at the end of the fiscal year. Performance information should likewise be disaggregated by geographic areas. On the policy side, it is important that while the 2015 NEP allows the use of certain Special Purpose Funds to augment deficiencies in appropriations for PAPs of agencies, Congress should be able to clearly define the rules on savings and augmentation. This could prevent future debates and confusion in budget implementation processes. REFERENCES Asian Development Bank (2013) Asian Development Outlook 2014. Philippines. Department of Budget and Management (2014) National Expenditure Program for 2015. __________ (2014) Budget of Expenditures and Sources of Financing (BESF) FY 2015. Philippines. Office of the President (2014) The President’s Budget Message for FY 2015. Republic Act No. 10352 (General Appropriations Act for 2013). Republic Act No. 10632 (Postponement of the 28 October 2013 SK Elections). National Budget Memorandum No. 119 issued 27 December 2013 on “Budget Priorities Framework for the Preparation of the FY 2015 Agency Budget Proposals”. National Statistical Coordination Board (NSCB) for population and economic data. Presentation material by DBM Secretary Abad during the DBCC hearing held 6 August 2014. Briefing material of the DPWH as presented in the agency budget hearing held 12 August 2014.

Documents

2015 BUDGET BRIEFER