Politics and the national budget (Part I)

How does the government operate?

This could be one question which is easy to answer and yet hard to explain. The fundamental function of the state is to collect tax above all other things imaginable. Taxes are the life and blood of the government. Without which, the government will collapse and will be rendered inutile. Now, the efficiency in the collection of taxes is yet another matter for discussion.

These taxes are then translated as government’s funds. In the Philippines, the government funds are allocated by an act of the legislature known as the General Appropriations Act. This act serves as the national budget and is comprised of three components/elements: personnel services (PS), maintenance and other operating expenses (MOE), and capital expenditure (CapEx).

Interestingly, the bulk of national budget goes to PS with roughly 75-85% of the entire budget for the year. That leaves MOE with around 10% and CapEx 5% of the pie. Why? Primarily, the civil servants in the country are secured of tenure as provided by the constitution. Therefore, layoffs are abhorred and are not options to the government. Instead, the number of civil servants doubled. This is a political phenomenon. I will explain this later.

Professor Alex Magno outlined five features of the national budget which make governance ineffective and inefficient. One, the national budget is largely inflexible. It is too rigid that marginal changes are not possible. Two, we operate on a single-year budget which amplifies the miniscule CapEx. Three, there is no clear policy on earmarking. Four, the budget is line-item budget which increases dependency of local officials to the president. And last, the budget is designed for maximum spread. I will expand these features in a different post.

Considering on the surface, budget is no longer an accounting problem. It is not entirely about the deficit and the surplus, the inflow and outflow. Rather, the budget is a political problem. A quick look of the mentioned features would be telling.

Why is the national budget inflexible? Why do we operate on a single-year budget? Why is there no clear policy on earmarking? Why do we use line item budgeting? Why is the budget designed for maximum spread?

[to be continued…]