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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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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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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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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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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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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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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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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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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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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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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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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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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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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 + 5% salary increase
Baseline deficit + 10% salary increase
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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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.
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CENTER FOR PUBLIC RESOURCE MANAGEMENT, INC., 1998. 1997Nationwide Survey of Salaries and Other Compensation Practices in PrivateIndustry. Manila
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