With bulk of 2016 budget allocated, Duterte’s projects may lack funding

With president-elect Rodrigo Duterte’s economic platform and projects already known, the next step is to find the funding for these projects so the next administration could “hit the ground running” on June 30.

But former national treasurer and University of the Philippines professor Leonor Magtolis Briones said finding the funding for new projects of the Duterte administration could be difficult because the Aquino administration had already “tied his hands,” with a bulk of the 2016 budget already allocated for pet projects.

Briones said the Aquino administration had poured money into selected regions while neglecting others, ostensibly with political motivations in doing so.

“It seems they have tied the hands of the incoming president with their allocations, not only for 2016 but also for the 2017 budget proposal,” Briones told the BusinessMirror.

She pointed out that even in the 2017 budget, much of the proposed allocations have already been finished by the Department of Budget and Management (DBM), which started consultations with local governments earlier this year through the so-called bottom-up budgeting (BuB) scheme wherein the local governments are able to propose projects for approval by the DBM.

Although these proposed allocations in the 2017 budget are still in the works and could be changed, the incoming administration would have to act fast to come up with a new proposal by July when the new president holds his first State of the Nation Address (SONA) and subsequently present to Congress his budget proposal for the next year.

DBM denies allegations

The DBM, meanwhile, has denied that the incoming president’s hands are tied by the budget proposal being crafted by the outgoing Aquino administration.

DBM Undersecretary Richard Moya said the next administration is not bound by the Aquino government’s budget proposal for 2017, which is already being finalized as of Friday.

“The DBM is finalizing the 2017 budget, yes, but the incoming officials can change it. It will be the new administration that will transmit the budget to Congress and there is time for them to make changes if they think it is necessary, but the technical work is continuing in DBM,” Moya said in a text message to the BusinessMirror.

Earlier, the DBM also clarified that although the Aquino administration had already released about 84 percent of the 2016 national budget, such release does not necessarily mean the money had already been spent.

Under the DBM’s rules the General Appropriations Act (GAA) is the actual release document, the appropriations for the various government agencies may already be released to the corresponding government agency even at the beginning of the year without need to secure a special allotment release order (SARO). However, the actual spending of the money would still have to comply with the rules on procurement, such as a schedule of payments for payroll items and the schedule of payments for capital outlay based on the percentage of completion of a particular project.

Briones said even though the 2017 budget proposal may be changed, the incoming government would have only around P500 billion in fiscal space because about a third of the country’s annual budget is automatically appropriated for payment of debts, while the remaining balance would have to be appropriated to fund existing capital outlay, which cannot be shelved without big losses to the government.

Revenue shortfall

Another problem that might arise is the revenue shortfall that would likely result from the announced plan of the Duterte administration to adjust the tax brackets, which the Aquino administration had adamantly opposed.

The Tax Management Association of the Philippines (TMAP) had welcomed the policy of tax reform by Duterte, as he had earlier manifested in TMAP’s pre-election survey regarding the tax policies of the presidential candidates. These tax reforms are targeted to be effected in the first 180 days of the Duterte administration.

Duterte’s transition team bared its eight-point economic agenda on Thursday and promised tax reforms that will adjust the tax brackets to effectively lower the tax rate on those earning P500,000 and below annually to reflect the inflation that had set in since the Tax Code was enacted nearly three decades ago.

The adjustment of the tax brackets is planned to be done even without increasing the tax rate on the value added tax (VAT), and the resulting revenue decrease is planned to be offset from the proposed increase in sin taxes.

Department of Finance (DOF) undersecretary and chief economist Gil Beltran said he would have to study whether the proposed increase in sin taxes would cover the expected revenue shortfall, which will result from the adjustment of the tax brackets.

House Manila Leaderboard
ECA 728×90 Leaderboard
Suntrust banner2
Dave Cagahastian is BusinessMirror's reporter covering the Office of the President and the Department of Labor and Employment. He has recently finished a law degree from the University of the Philippines, and holds a business degree from the International Academy of Business and Economics. In the past two years in a row, he had won the Sinag Financial Literacy Journalism Award sponsored by Sun Life Financial Philippines, getting the third place in 2014 then ‎the first prize in 2015.