Personal Services Profile of the National Government Philippines)

8/3/2019 Personal Services Profile of the National Government Philippines)

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Personal Services Profile of the National Government

By

Ms. Gisela C. Lopezand Mr. Rolando U. Toledo

April 18, 2005

Abstract

Personal Services accounted for 6.1 percent of GDP during 1986-2005

(simple average). As a percent share of the total budget, it accounted for31.8 percent for the same period. It also accounted for 38.1 percent of total

revenues net of privatization proceeds during the period under consideration.

Given existing resources, the national government, if it grants a salary

increase, will be faced with a decision to either raise the deficit or cut other

non-interest expenditures.

The views expressed are those of theauthor(s) and do not necessarily representthose of the Department of Budget andManagement.


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2

Personal Services Profile of National Government Employees

Introduction

It has been almost four years now since the last salary increase for

government workers. The issue on salaries and wages both in the private and

public sectors has been put to the fore given recent developments such as

increasing inflation rates, the much anticipated negative impact of the VAT

measure on prices of commodities, recent and future increases in power

rates, and the spiraling oil prices in the world market. All these have negative

impact on the incomes of all employees. At the government sector, there has

been pressure to provide an across-the-board salary increase of P3,000 peremployee. This has been the stand of COURAGE (2000) when the

government announced the implementation of a five percent salary increase

for 2001.

During the launching of the Department of Budget and Managements

(DBMs) 1ST Procurement Service and 1ST Government Employees

Commissary in Mindanao in Davao City, the DBM Secretary announced that

the government is ironing out a proposed l0% salary increase for state

workers (Palacio 2004, p.1). However, it was emphasized that due to fiscal

constraints, any salary increase should have accompanying revenue measures

duly legislated by Congress.

Salary upgrading is usually aimed at ensuring that employees are paid

higher salaries, better motivated and thereby, becoming more efficient in the

performance of their duties. This supports the argument that a higher or

competitive salary is one of the major considerations in order to recruit quality

personnel, encourage productivity and avoid corruption.

Moreover, any salary increase in the public sector may affect the wage

policy of the private sector. Conversely, any increase in the wages of private

sector employees may also affect the wage policy of the government sector.


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3

Heller and Tait (1983, p. 6) in a study on government pay indicated that a

principal motive for analyzing the size of government is the belief that

government employment and wage policies have critical implications for wage

determination throughout the economy. The same authors (Heller and Tait

1983, p. 6) further indicated that the larger the government share of

employment, the more likely it is to dominate wage rates and awards not only

for public sector employees but for the private sector as well, and thus to

have a significant degree of leverage.

This paper focuses on the trends of Personal Services (wage

expenditures) of the national government particularly in relation to existing

revenues of the national government. It presents the impact of certain salary

increase scenarios. It also presents the trends in manpower of the national

and local governments and government corporate sector. However, it only

looks at the wage expenditure profile of the national government (excluding

government owned and/or controlled corporations or GOCCs) at the

aggregate level.

The paper does not distinguish between skill groups, between

occupational groups and between sectoral groups in the bureaucracy. It does

not deal with compression ratios as well as present statistics by department.

One major limitation of the study is the dearth of information and studies

relative to private sector pay. Another limitation is the absence of pensions

data earlier than 1997. Hence, in the discussions, distinction is made between

PS with pensions and PS without pensions whenever relevant. Otherwise, PS

definition, which is inclusive of pensions, is being used.

Revenue and Expenditure Trends

The budget deficit, which is largely due to low revenue collections, is the

major reason why a general salary increase cannot be granted to government

employees at this time. Figure 1 shows the gaping difference between

expenditure and revenues. Revenue as a proportion to GDP has been falling

since the Asian crisis in 1997 until 2003 where the free fall was arrested


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4

through the implementation of solely administrative measures. Revenue effort

has fallen from as high as 19.9 percent of GDP in 1994 to 14.4 percent in

2004.

Cognizant of the fiscal situation, revenue measures through legislativemeans have been deemed very imperative. Thus, some P80.0 billion worth of

legislative tax measures were included in the Medium Term Philippine

Development Plan (MTPDP) as part of the current administrations strategy to

address the fiscal problems. These are enumerated in detail in one of the

sections of this paper.

Fig. 1. National Government Fiscal Position, 1986-2004

12

14

16

18

20

22

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

percentofGDP

Expenditure Revenue

Source: DBM

Disaggregating revenues into tax and nontax collections, the chart

below shows the declining trends as percent of GDP (Fig. 2). These revenue

collection trends impact largely on the ability of the national government to

grant salary increase.

deficit


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5

Fig. 2. Tax and Nontax Collections, 1986-2004

0

2

4

6

8

10

12

14

16

18

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

(percentofGD

P)

Tax Non-Tax

Source: DOF

As a share of GDP however, expenditure trends on an obligation basis

have been erratic (Fig. 3). The highest was registered in 1990 and the second

in 2000.

Fig. 3. Expenditure Trend, 1986-2004

17

18

19

20

21

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

(percentofGDP)

Source: DBM

The increase in government expenditures is largely due to the growth

of interest expenditures and transfers to local government units (LGUs),

rather than in the core areas of government. The breakdown by sectoral


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6

categories shows that interest expenditures are squeezing other sectors

starting 1998 (Fig. 4).

Fig. 4. Sectoral Allocation of National Government Expenditures,

1986-2004

0

10

20

30

40

50

60

70

80

90

100

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

(percen

tdistribu

tion

)

Economic services Social servicesDefense Gen. Public ServiceInterest Payments and Net Lending

Source: DBM

In contrast, economic services share has been declining in nominal

terms since the Asian crisis.

Trends in Manpower

Given limited resources and the growth in the share of interest expenditures

and transfers to LGUs, the national government has sustained its policy of

limiting the creation of permanent, casual and contractual positions over the

years to contain manpower growth in the public sector (Fig. 5). The

implementation of austerity measures, which include the freeze hiring policy,

has been undertaken to help contain government manpower.

For 2005, the number of authorized positions is at 1,150,681. This

level reflects a slight reduction in the total number of authorized positions

compared to 2004 of 1,150,730.


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7

Fig. 5. Authorized Positions in the National

Government, 1996-2005

950000

1000000

1050000

1100000

1150000

1200000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

0

1

2

3

4

5

(inpercent)

Number of authorized positions Growth rate

Source: DBM

Aggregating employees at the national and local governments and

corporate sector, for 2005, the number of authorized positions is at 1,636,213

(Table 1).

Based on the projected population, public servant (inclusive of national

and local government positions) to population ratio in 2004 is 1:51. For 2005,

the ratio is likewise set a 1:51.

Table 1. Number of Authorized Positions, 2004-2005Particulars 2004 2005

National Government* 1,150,730 1,150,681LGUs** 390,561 390,561GOCCs*** 94,971 94,971

Total 1,636,262 1,636,213Memo items:Projected population*** 82,663,561 84,241,341Civil servant:population ratio 1:51 1:51

Sources: * DBM

** CSC data as of December 1999

*** NSO Data

Trends in Personal Services or Wage Expenditures

Hewitt and van Rijckeghem (1995 cited IMF 1983) defined wage expenditures

as all salaries, bonuses, and cash allowances to workers contained in current


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8

expenditures for service rendered including payments to military personnel.

Other literatures also use wage bill defined as the sum of wages and salaries,

which consist of all payments in cash but not in kind, to employees in return

for services rendered, before deduction of withholding taxes and employees

pension contributions paid to civilian government and armed forces (Radwan

2000).

In this paper, these terms are used interchangeably with Personal

Services. It excludes non-monetary benefits such as free meals and expected

future benefits such as pensions. It excludes non-monetary benefits such as

free meals. However, as mentioned earlier, expected future benefits such as

pensions are included due to the absence of a more disaggregated data

particularly for years earlier than 1997.

Allocation for Personal Services (PS) remains as one of the biggest

single expenditure item in the governments budget next only to interest

payments, at least for 2005. For the period 1986-2005, its average share is at

31.8 percent (Fig. 6).

Fig. 6. PS Share to Revenue/Budget

-

50.00

100.00

150.00

200.00

250.00

300.00

350.00

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

PS

-

8.00

16.00

24.00

32.00

40.00

48.00

56.00%

Personal Services % to Revenues % to NG Budget

Over the years, the allocation for PS had grown at an average rate of

11.1 percent, growing faster than the growth of the total budget and total

revenue at the rate of 9.8 percent and 9.5 percent, respectively.


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In 1998, PS grew by 14.8 percent over the 1997 level. Its highest

share was registered at 38.2 percent in 1998 when the Salary Standardization

Law II (SSL II) was implemented. The implementation of SSL II required

about P90.0 billion from 1994 to 1997.

SSL II aims at rationalizing the compensation structure through the

provision of a single pay plan for all classes of positions and integrates

allowances in the basic salary. It also aims at improving the job design and

career ladders through the reduction of differentiation and position levels and

creation of progressive career paths for highly specialized positions and also

improving salary levels by making government compensation competitive with

that of the private sector. However, some GOCCs were able to get

exemptions from the law through legislation. These include the Bangko

Sentral ng Pilipinas, National Power Corporation, Land Bank of the Philippines,

Philippine Postal Corporation and the Government Service Insurance System.

Hewitt and van Rijckeghem (1995 p. 5) observed that among industrial

countries, wages averaged 15 percent as a share of central government

wages compared to 27 percent for developing countries. The 2005 PS share

of total budget of about 32 percent is higher than the average of developing

countries of 27 percent.

Another round of salary increase was granted in 2000 i.e., a 5.0

percent across-the-board for all employees. Certain occupational groups were

also granted salary increase by way of separate legislations such as the PNP

reorganization law which mandates the increase in salary rates of policemen.

As a share of GDP, PS has hovered at an average of 6.1 percent for the

period 1986-2005, higher than interest payments share of GDP at 4.9 percent

(Fig. 7). Notwithstanding this, its relative involvement in the economy

compares well with the results of a study by Hewitt and van Rijckeghem

(1995 p. 3) which showed that wage expenditures of central governments or

national governments averaged over 7.0 percent of GDP from 1980 to 1990

using unweighted data. It noted that industrial countries averaged about 5.5


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10

percent of GDP compared to developing countries of 7.5 percent. During the

period 1981-1990, the Philippines PS as a percent of GDP averaged at 4.7

percent.

Moreover, the study by Heller and Tait (1983, p. 10) showed thatcentral government wages as a share of GDP registered a higher share in

developing countries (7.9 percent of GDP) than in OECD countries (5.2

percent). The range of wage bill as a share of GDP lies between 4.0 and 8.0

percent of GDP for the period 1976 to 1982.

Fig. 7. Personal Services, 1986-2005

20

25

30

35

40

45

50

19 86 19 87 19 88 19 89 19 90 19 91 1 992 1 99 3 19 94 19 95 1 996 1 99 7 19 98 19 99 2 00 0 2 00 1 20 02 20 03 2 004 20 05

(share

tototalbu

dge

tan

dtotalrevenue

)

0

3

6

9

12

15

18

(percen

to

fGDP)

Revenue Share net of Pension Share to Total Revenues (Net of Priva.)

Share of GDP Share of GDP net of Pension

Source: DBM

Compared with its Asian neighbors such as Indonesia, Malaysia,

Thailand and Singapore, the Philippines PS as a share of GDP is the highest

at 6.5 percent (Fig. 8). The lowest is that of Indonesia at 1.7 percent.


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11

Fig. 8. Personal Services, Selected Asian Countries

4.1

5.5

6.0

1.7

6.5

0

1

2

3

4

5

6

7

Philippines

2003

Indonesia 1999 Malaysia 2003 Thailand 2003 Singapore

2002

(percen

to

fGD

P)

Source: IMF-GFS, DBM

As a percent of tax collections, the Philippines has the highest ratio for

the years 1995 to 2001 compared to Thailand and Singapore (Fig. 9). This

means that for 1995-2001, for every P1 collected, about P0.41 is used to pay

for government employees. Singapore and Thailand on the other hand, used

only about P0.32 and P0.38, respectively.

Fig. 9. Personal Services, Selected Asian Countries, 1995-2001

25

30

35

40

45

50

1995 1996 1997 1998 1999 2000 2001

(percen

ttotaxco

llec

tions

)

Philippines Thailand Singapore

Source: IMF-GFS

PS consists of salaries, wages, entitlements and other

compensation/benefits/allowances. Entitlements include the retirement and


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12

life insurance premiums (RLIP), terminal leave benefits, PAG-IBIG

contributions, medicare premiums and employees compensation insurance

premiums (ECIP). Other benefits include, among others, the following: a)

personnel economic relief allowance (PERA); b) additional compensation

(AdCom); c) representation and transportation allowance (RATA); d) overtime

pay; e) year-end bonus and cash gift; f) clothing and uniform allowance; g)

productivity incentive benefits (PIB); h) honoraria; i) subsistence allowance; j)

laundry allowance; k) quarters allowance; and l) hazard pay.

While government employees only enjoyed a few rounds of salary

increases, there were also improvements in terms of benefits. A matrix

showing benefits given by administration is shown below (Table 2).

Table 2. Allowances and Other Benefits

ParticularsMarcosAdmin.

AquinoAdmin.

RamosAdmin.

EstradaAdmin.

PERA P500 permo. Forappointivepositionswith SG23and below

P500 permo. For allappointivepositions

AdCom P500 permo.

overtime pay Hourly ratebased onactual

monthlysalary orP300whicheveris lower

Actualhourly rate

125 to150% ofactual

hourly rate

RATA (e.g., Division Chiefposition)

P625 permo.

P2,200 permo.

P4,000 permo.

year-end bonus and cash gift 1 mo.

Salary +P1,000

1 mo.

Salary +P3,000

1 mo.

Salary +P5,000

clothing and uniformallowance

P300 peryear

P1,000 peryear

P2,000 peryear

P4,000 peryear

PIB P2,000 peremployeeper year


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As argued by government employees unions, their salaries have been

deteriorating in real terms. As shown in Fig. 10, per capita salary in real terms

has been relatively stable and flat for the period covered. Its level is however

lower in 2005 compared with 2004. and is starting to fall in 2005.

Fig. 10. Per Capita PS, Nominal vs. Real, 1986-2005

0

50,000

100,000

150,000

200,000

250,000

300,000

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

(inpesos

)

Per Capita PS Real Per Capita PS

Source: DBM, NSCBNote: IPIN based on 1985 prices

Public-Private Wage Differential

In 1997, the DBM conducted a nationwide survey of salaries and other

compensation practices in private industry relative to the memorandum of the

then President Fidel V. Ramos on the Study on New Pay Hike for the Public

Sector which has been directed, among others, to fast track the

implementation of a compensation study, including salary survey in the

private sector, to address inequities in compensation among government

personnel and raise compensation rates to a level that will attract highly

competent workforce.

The findings of the study were as follows:

1. The average basic salary of comparable jobs in the private sector is

about 14.0 percent higher than those for the survey key classes

representing sub-professional level government jobs (SG-1 to SG

9) and is about 4.0 percent higher than those for the survey classes


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representing professional level government jobs (SG-10 to SG-19)

(Table 3).

2. The average basic salary of counterpart position in the private

sector for supervisory positions in government represented bysurvey key classes Division Chief and Department Chief is higher by

81.0 percent and 176.0 percent, respectively. The average basic

salary of counterpart positions in the private sector for top

management/executive level positions in government represented

by key class Chief Executive Officer (Bureau Director) is higher by

about 634.0 percent.

1997 Survey

Rate (in pesos)

Level (in

pesos) %

1 71,768 56,856 14,912 26.2

2 75,780 61,980 13,800 22.3

3 80,017 67,560 12,457 18.4

4 84,490 72,960 11,530 15.8

5 89,214 78,792 10,422 13.2

6 94,202 85,104 9,098 10.77 99,468 91,056 8,412 9.2

8 105,029 97,428 7,601 7.8

9 110,901 104,256 6,645 6.4

10 117,101 111,204 5,897 5.3

11 123,648 117,864 5,784 4.9

12 130,561 124,944 5,617 4.5

13 137,860 132,432 5,428 4.1

14 145,567 140,388 5,179 3.7

15 153,705 148,800 4,905 3.3

16 162,298 157,740 4,558 2.9

18 180,953 177,240 3,713 2.119 191,069 187,872 3,197 1.7

24 422,800 232,968 189,832 81.5

25 669,723 242,292 427,431 176.4

28 2,001,707 272,544 1,729,163 634.5

Table 3. Comparison Between the Private Sector Rates and PublicSector Rates

Difference

Salary

Grade

Private Sector

Present Rate

as of 1997

Source: DBM


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In general, public sector pay was found to be significantly lower than

private sector pay particularly for those holding managerial or supervisory

positions. Salaries of professional and sub-professional positions are slightly

behind that of the private sector by about 9.0 percent and may still be

considered competitive.

In terms of ratio of the average PS per government employee to GDP

per capita which measures the relative pay of government employees for

2005, PS is approximately 4.07 times the per capita GDP (Fig. 11). This

compares well with India and Korea, which have the largest ratios of 4.8

(Heller and Tait 1985, p. 17). However, the years covered in their study were

earlier than 1986.

Fig. 11. Ratio of Average Wage Per Employee to Per Capita GDP,

1986-2005

0

1

2

3

4

5

6

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Source: DBM

The study also indicated that the public sector might have seem to be

a somewhat privileged group (Heller and Tait 1985, p. 18).

Medium Term Fiscal Program

As embodied under the Medium Term Philippine Development Plan 2004-2010

and consistent with its fiscal consolidation and deficit reduction strategies, the


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national government aims at balancing the budget by 2010 (Fig. 12). The

budget deficit of the national government is expected to balance by 2010.

The consolidated financial position is also targeted to decline as a percent of

GDP from 6.0 percent to 1.0 percent by 2010. These objectives are envisaged

to be achieved from a combination of both revenue and expenditure

measures.

The desire to achieve these objectives has been manifested in the

recent announcement by the national government to lower further the

national government deficit target for 2005 from 3.6 percent of GDP to 3.4

percent of GDP.

Fig. 12. Medium Term Deficit Targets

0.0

1.0

4.2

3.6

2.9

2.1

1.2

0.2

3.0

3.9

4.6

5.3

6.0

5.3

0

1

2

3

4

5

6

7

8

2004 2005 2006 2007 2008 2009 2010

(percentofGDP)

NG Deficit CPSD

Source: MTPDP 2004-2010Note: 2004 numbers were changed to reflect actual levels

As indicated in the MTPDP, the following administrative and legislative

expenditure measures are being pursued by the DBM:

1. Austerity program Administrative Order No. 103 was issued on

August 31, 2004 which mandated government entities to implement

austerity measures including a freeze in hiring.

2. Rationalization of personal services A rationalization of the


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bureaucracy shall be implemented. Savings from the rationalization

program will be used to fund salary adjustments and the 10-point

agenda (NEDA 2004, p. 99).

3. Operationalization of the Medium Term Public Investment Program(MTPIP) This will serve as an instrument to monitor public

investment commitments over the medium term.

4. Strengthening the ICC process of the NEDA Board

5. Moratorium on the establishment of GOCCs

6. Full implementation of the devolution provision of the Local

Government Code

7. Transfer to the General Fund of all dormant accounts.

Legislative expenditure measures over the medium term include the

Fiscal Responsibility Bill, rationalization/reorganization program, rationalization

of retirement and pension benefits, and improvement of government

corporate performance.

On the revenue side, the national government has likewise lined up

both legislative and administrative measures. Under the MTPDP, the following

legislative measures are being identified:

1. Indexation of the excise tax on sin products This was signed into

law on December 23, 2004 as Republic Act 9334.

2. Lateral attrition system which establishes a system of rewards and

incentives covering revenue and customs officials/employees fromthe district level up to the Commissioner This was signed into law

on January 25, 2005 as Republic Act 9335.

3. Rationalization of fiscal incentives which aims to streamline the

incentives system to make it an efficient and effective tool for


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investment promotion (NEDA 2004, p. 97).

4. Review of the VAT system which will increase the VAT rate by two

percentage points. Both houses of Congress have passed this

measure although both differed in revenue impact.

5. Tax on telecommunication which will reimpose the franchise tax on

telecommunication companies.

6. Excise tax on petroleum products

7. General Amnesty which requires individuals and corporations to file

a statement of assets and liabilities.

8. Adoption of gross income taxation (GIT) which is envisaged to

replace the current net income taxation with GIT of corporations

and self-employed individual at a rate of 10.0-15.0 percent. In the

recent version of the list of measures spearheaded by the

Department of Finance (DOF), this has been dropped and replaced

by the proposal to adopt a simplified net income tax system.

Administrative revenue measures, on the other hand, include the

following:

1. Periodic adjustment in fees and charges to ensure cost recovery

A joint circular by DOF and DBM was issued to remind government

entities in the periodic adjustment of their fees and charges.

2. Tariff rate adjustment This was made effective by an Executive

Order increasing duty on petroleum products from 3.0 percent to

5.0 percent.

3. Innovative sources of wealth creation such as privatization of the

National Power Corporation, mobilization of investor for Mt.

Diwalwal gold mine, exploration and development of more oil and

gas wells and relaunching of massive reclamation projects.


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19

4. Improved enforcement mechanisms to increase efficiency.

Recently the Bureau of Internal Revenue (BIR) has launched its

program on Run After Tax Evaders (RATE). BIR will file at least a case against

one tax evader a week.

Corollary to this, interest expenditures are targeted to decline over the

medium term (Fig. 13). Personal services is also expected to decline as a

percent of GDP. In contrast, capital outlays as a share of GDP will double to

at least 4 percent of GDP.

Fig.13. Medium Term Expenditure Targets

0

1

2

3

4

5

6

7

2004 2005 2006 2007 2008 2009 2010

(percentofGDP)

Interest Payments Personal Services Capital Outlays

Source: MTPDP 2004-2010Note: 2004 numbers were changed to reflect actual levels

Feasibility of Granting a Salary Increase

In assessing the capability of the national government to grant a salary

increase, five scenarios including the baseline scenario were formulated. The

basic assumptions of each scenario are shown below:

Scenario Basic AssumptionsScenario 1 5.0 percent

increaseDone every other year starting2006; 2005 as base year


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Scenario 2 10.0 percentincrease

Done every other year starting2006; 2005 as base year

Scenario 3 P3,000 across-the-board

Twice for the medium term; onlyin 2006 and 2010; 2005 as baseyear

Scenario 4 Inflation adjusted Starting 2001, the last salary

adjustment; annual increase usingmid-point inflation

The granting of salary increase will entail additional requirements

ranging from P29.9 billion to P78.2 billion for the medium term based on the

four scenarios. The 3,000 across-the-board currently being demanded by the

employees unions has the highest requirement followed by the 10.0 percent

salary increase (Table 4).

From the 2005 approved budget for PS of P289.2 billion, a 5.0 percent

salary increase will cost the government an additional P9.6 billion in 2006 or

roughly a total of P298.3 billion for PS in the 2006 budget. Based on the

assumptions, the increase will be done every two years, thus requiring an

additional amount of P9.9 billion in 2008 and P10.4 billion in 2010. The total

increase in salaries from 2006 to 2010 will amount to P29.9 billion.

A 10.0 percent salary increase, on the other hand, will entail an

additional P19.0 billion in 2006, P20.7 in 2008, and P22.8 billion in 2010 or a

total of P62.5 billion additional PS requirements from 2006 to 2010.

The demand of various government employees unions for the grant of

P3,000 across-the-board salary increase will definitely put pressure on the

Table 4. Salary Increases, by Scenario

(in billion pesos)

Scenario 2006 2007 2008 2009 2010 Total

1 9.6 - 9.9 - 10.4 29.9

2 19.0 - 20.7 - 22.8 62.5

3 39.2 - - - 39.0 78.2

4 9.8 7.9 8.2 8.5 8.8 43.2


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21

part of the government and require government to produce additional

revenues of P39.2 billion in 2006.

To keep up with the current demands and increasing prices, a salary

increase based on inflation was also simulated. An average of P8.7 billion ayear starting 2002 or a total of P78.3 billion is needed to implement the salary

increase given an average inflation rate of 4.0 percent. For 2006 alone, the

government will spend around P9.8 billion if salary increase was done in 2002

based on inflation or a total of P43.2 billion from 2006 to 2010. At the rate of

inflation with the 2005 base year, the amount of P8.7 billion is needed to

implement the salary increase in 2006 or a total of P37.7 billion up to 2010.

The impact of these scenarios on the budget deficit is shown in Fig. 14.In all scenarios, the baseline deficit is increased. However, if government

decides to maintain the deficit targets, a corresponding revenue increase

equivalent to the salary increase should be generated.

Fig. 14. Budget Deficits under Salary Increase Scenarios

-225

-200

-175

-150

-125

-100

-75

-50

-25

0

2005 2006 2007 2008 2009 2010

(in

billion

pesos)

Baseline deficitBaseline deficit + 5% salary increase

Baseline deficit + 10% salary increase

Baseline deficit + P3,000 ATB salary increase

Baseline deficit + inflation adjusted salary increase


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22

It should be noted that the simulation excludes equally competing

claims such as those in the MTPIP which could not be accommodated within

the existing revenue measures assumed.

Fig. 15 shows the budget deficits as percent of GDP under the foursalary increase scenarios.

Fig. 15. Budget Deficits under Salary Increase Scenarios

-5

-4

-3

-2

-1

0

2005 2006 2007 2008 2009 2010

(percent

ofGDP)

Baseline deficit



Baseline deficit + P3,000 ATB salary increase

Baseline deficit + inflation adjusted salary increase

Conclusion

Personal service remains to be one of the highest items in the budget in

terms of nominal share.

Given the deficit reduction strategy of the national government, any

salary increase will either add to the deficit or entail a correspondingreduction in capital outlays. Of the four salary increase scenarios presented,

the demand for a P3,000 across-the-board salary increase by government

employees unions will have the largest impact.


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23

The decision to implement a salary increase is a policy decision keeping

in mind the priorities of the national government. The MTPDP clearly states

that the savings from the rationalization of personal services will be used to

fund salary adjustments and the 10-point agenda.

Other considerations include on the one hand, the budget deficit target

of the national government together with the targeted expenditures in the

MTPDP and the MTPIP and on the other, the perception that low salary rates

of government employees is one of the major causes of corruption.

Given only existing revenue measures, any salary increase will clearly

increase the deficit. Thus, as has been maintained by the DBM, it is

imperative to have a corresponding revenue measure for any salary increase.

A more comprehensive approach to increasing salary rates in the public

sector could be taken within the context of a rationalization of compensation,

which is being spearheaded by the Civil Service Commission and the

Department of Budget and Management. Under this program, a research

study on PS by level of government, by occupational and sectoral or

functional groups could be undertaken.


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References

COURAGE, 2000. State Workers Flatly Reject Malacaang Offer of 5%Increase Next Year, Retrieved on 13 April 2005 fromhttp://www.skyinet.net/~courage/stmts/5percent.htm

DEPARTMENT OF BUDGET AND MANAGEMENT, 2002. Fiscal StatisticsHandbook 1981-2000.

HELLER, P. S. and TAIT, A. A., 1983. Government Employment and Pay:Some International Comparisons. Washington: International Monetary Fund.

HEWITT, D. and VAN RIJCKEGHEM, C., 1995. Wage Expenditures of CentralGovernment. Washington: International Monetary Fund.

INTERNATIONAL MONETARY FUND. (various years). Government FinanceStatistics. Washington: International Monetary Fund.

NATIONAL ECONOMIC DEVELOPMENT AUTHORITY, 2004. Medium TermPhilippine Development Plan 2004-2010. Manila.

PALACIO, R., 2004. Retrieved April 13, 2005 fromhttp://www.pia.gov.ph/news.asp?fi=p040330.htm&no=1

RADWAN, I., 2000 Measuring Government Employment and Wages, Retrieved April 13, 2005 http://www1.worldbank.org/publicsector/civilservice/wageconcerns.

htm

CENTER FOR PUBLIC RESOURCE MANAGEMENT, INC., 1998. 1997Nationwide Survey of Salaries and Other Compensation Practices in PrivateIndustry. Manila

Documents

Personal Services Profile of the National Government Philippines)