Analysis of the President`s Budget for 2012

The 2011 and 2012 fiscal program appears to score high in terms of contributing to the speed of fiscal consolidation despite limited gains in revenue generation. This came about largely because of fairly serious underspending during the first nine months of 2011. The slow utilization of spending authority has been attributed to the diligence that many government agencies have directed on the contracting/procurement process given the new administration`s focus on anticorruption and good governance. However, it cannot be denied that such "underspending" necessarily contributed to the lower-than-target rate of economic growth. The proposed expenditure program for 2012 is PHP 171 billion (or 10.4%) higher than the PHP 1.6 trillion expenditure program for 2011. Close to two-thirds of the increment in the proposed expenditure program net of debt service is captured by the social service sectors and the economic service sectors combined. In particular, 33.2% of the increment in the expenditure program net of debt service in 2012 relative to the 2011 program is allocated for all the social service sectors combined while 31.0% of the increment is alloted for all the economic service sectors as a group. In a sense, the bias toward the social service sectors that was very much evident in the national government expenditure program in 2011 has been replaced by a more balanced distribution between the social services sectors and the economic services sectors. Despite the higher allocation that is provided the economic services sectors (particularly, infrastructure) under the 2012 National Expenditure Program, the level of national government spending on the infrastructure sector compares unfavorably with the amount of resources needed to achieve high, sustained, and inclusive growth. On the other hand, 2012 spending levels on education, health, and social welfare services will continue to lag behind those of other countries in the region. Moreover, programmed national government spending on basic education is estimated to fall short of the amount required to achieve the MDG target for education. Given the evidence that significant levels of unmet needs are not being addressed, this study echoes previous calls for government to recognize that national government revenues has to expand at a faster rate than has been demonstrated by the collection agencies so far. Although there is evidence that some gains have been made in BIR tax effort since the Aquino II administration came into power, the improvement in tax effort to date pales in comparison with the amount needed to achieve sustained and inclusive growth with fiscal consolidation. Furthermore a comparison of actual revenue collection in January—September 2011 with that in January—June 2011 also suggests that the pace of improvements (or lack of it) in tax administration may have faltered in the third quarter of the year. It is, thus, critical that efforts toward improving collection efficiency be renewed and re-invigorated in the fourth quarter.