What is the Rationale behind our Country’s double digit increases to our National Budget?

Article 1: “What is the Rationale behind our Country’s double digit increases to our National Budget?”

It is budget season again in congress and the once P3.35 Trillion Philippine National Budget in 2017 is now a whopping P3.76 Trillion for 2018 or a budget increase of over 12%. In last years budget season, I asked our Economic Managers the following questions:

How do they decide on the yearly budget increases?
Who decides the double-digit rate of these increases? And,
How do they arrive at a final figure of such increases?

From 2016 to 2017, the national budget increase was at 11.6% and now from 2017 to 2018, the Philippine budget increase is way over 12%.

To give you a background, just 10 years ago, in 2007 and 2008, the Philippine National Budget was only at P1.126 Trillion and P1.227 Trillion respectively, comparing it to today’s 2017 National budget of P3.35 Trillion, the budget increase within a span of 10 year difference is an overwhelming 300% increase. Comparing 2018 national budget to 2008 national budget, the result shows a staggering 310% increase over 10 years ago. If our country’s yearly national budget increases at these monumental pace of 300% every 10 years, then WE, as Filipinos should have likewise increased our Cost of Living (COL) by 300% or better from 10 years ago also. Why is it not then? Why is the increase in our National budget not proportional to the increase of every Filipino’s living? Why do we still lack so many infrastructures (roads, bridges and highways, MRT/LRT)? Why is there no difference to our way of life?

To answer all these questions, we have to understand the manner on how Government spends our national budget each year. According to our Economic Managers, the Department of Education is the highest spending government agency in the country, 18.5% of our yearly budget or almost 1/5 of our national budget goes to education. The second top spending agency is considered to be one of the most corrupt departments of government, the Department of Public Works and Highways. DPWH is spending at a rate of almost P650 Billion a year or another 1/5 of our National budget (17.5%). On top of this, DPWH was even granted an incredible increase of 30% from their budget last year. Being the most notorious government department for corruption, we all hope that these 30% increase does not go to projects which increases values of a particular family’s land banking (likes of daang hari and daang reyna highways).

Herewith are the 10 Top spending government departments for 2018:

image source: Rappler

1. Dept of Education – P691 Billion

2. Dept of Public Works and Highways – P643 Billion

3. Dept of Interior and Local Govt – P172 Billion

4. Dept of Health – P164 Billion

5. Dept of National Defense – P145 Billion

6. Dept of Social Welfare and Development – P138 Billion

7. Dept of Transporation – P73.8 Billion

8. Dept of Agriculture – P54.2 Billion

9. ARMM – PP33.5 Billion

10. Dept of Environment and Natural Resources – P27.9 Billion

Going back to my question I posed last year, one of BSP’s officials answered my question on what their basis for increasing our national budget to double-digits each year, and to quote: “The growth in GDP is our basis for the 11.5% increases in budget from 2016 to 2017”. This truly is a puzzling answer, Our GDP grows only at 5.0%-6.5% a year, while the National Budget increases are at double digits of 11.6% for 2017 and 12%+ for 2018. Sad to say until today, nobody from the new Government’s Economic Team has answered me directly on the true basis and logic behind each years budget increases. So from their answers, I draw my own conclusion to the cause of our yearly budget increases, they are mere numbers plucked out of thin air, arbitrarily and unilaterally they are numbers guessed and made up by our economic managers and after both Houses of Congress approves it, these numbers suddenly becomes an accepted smart figures as they suddenly becomes a LAW.

But hold on, should we as Filipinos understand the repercussions of these yearly budget increases and its impact to each and everyone of us? Are these double digit increases create permanent damages and long-term effects to every Juan dela Cruz?

To answer that, I would have to take the business principle of a sari-sari store owner’s own business and co-relate it to our National budget . The sari-sari store owner thinks that he can sell P1,000 worth of goods every day, within 30 days he can sell P30,000 worth of goods and turn it into P30,000 worth of revenues. The sari-sari stores owner’s capital is only P20,000, so how could he stock up his 30-day/P30,000 worth of inventory? The answer to this question is that the owner will have to resort to “UTANG” (DEBT). The sari-sari store owner would need to borrow P10,000 more to complete his 30-day inventory and likewise he has to pay this plus his cost of Debt in the future.

The same principle likewise applies to our Philippine National Budget increases. For each budget, there is a corresponding revenue source and if that source is inadequate, then the Philippines would be in a “Budget Deficient” scenario. If the country is budget deficient, meaning our sources of funds cannot be enough for our budgeted uses of funds, then the Philippines will have resort to an increase in “National Debt”.

So the equation is actually as follows: Budget Deficiency = Increases in National Debt. Exactly where the Philippines as a country is at right now.

Now, how do we repay these National Debt? Like a complete cycle, payment of our National Debt must also come from Revenues or the lack of Revenues generated by Government. If Revenues is inadequate to pay off our National Debt, then Government has to increase its Revenue Sources.

How do we then increase Government Revenues? Government Revenues are only increased by 1) Improving efficiency of revenue collections or; 2) Increasing Taxes or Taxable goods and services which hurts majority of Filipinos. These dear friends are the hidden cycle on what a double-digit increases to our National Budget effects are. In the end, even the 20%-30% corruption in government, the ordinary Filipino people must suffer and pay for it on a daily basis.

Authored by Dr. Michael L. Romero, Double PhD degree holder. PhD in Management with High Distinction (2006) and PhD in Political Economy (2008)