A deficit budget for 2024
“After extensive deliberations and negotiations, the House of Representatives on Wednesday (Sept. 27) approved on third and final reading the P5.768-trillion national budget for next year, just before Congress adjourns for a month-long break,” the Press and Public Affairs Bureau of Congress announced on its website, congress.gov.ph. The 310-strong legislative chamber voted 296 against three, with zero abstentions, to approve House Bill (HB) No. 8980 or the 2024 national budget on third and final reading. Almost unanimously.
House Speaker Ferdinand Martin G. Romualdez noted that the budgeting process was marked by rigorous discussions, particularly concerning confidential and intelligence funds, which the House meticulously scrutinized to ensure accountability and responsible utilization. He lauded “the timely passage of the 2024 General Appropriations Bill (GAB),” stating that it not only “demonstrated the commitment of the House to upholding its constitutional role but also underscored its dedication to serving the Filipino people with transparency and accountability.”
The Department of Budget and Management (DBM) defines the government budget as “the financial plan of the government…which shows what its resources are, and how they will be generated and used over the fiscal period. It refers to the income, expenditures and sources of borrowings of the National Government (NG) that are used to achieve national objectives, strategies and programs.”
Section 22, Article VII of the Constitution states that: “The President shall submit to the Congress within 30 days from the opening of every regular session, as the basis of the general appropriation bill, a budget of expenditures and sources of financing including receipts from existing and proposed revenue measures.”
The National Government (NG) budget is the totality of the budgets of all government entities, namely the National Government, the non-financial government-owned and -controlled corporations (which usually includes only the 14 major GOCCs), government financial institutions (GFIs), local government units (LGUs), the social security institutions (the Government Service Insurance System or GSIS, the Social Security System or SSS, the military pensions, PhilHealth, etc.), the Oil Price Stabilization Fund, the Bangko Sentral ng Pilipinas, and the Central Bank-Board of Liquidators. It is allocated for the implementation of various government programs and projects, the operation of government offices, payment of salaries of government employees, and payment of public debts. These expenditures are classified by expense class, sector and implementing unit of government (dbm.gov.ph).
The sources of appropriations of the annual budget are: 1.) new general appropriations legislated by Congress for every budget year under the General Appropriations Act (GAA); and 2.) existing appropriations previously authorized by Congress. Under the Constitution, Article VI, Section 29, no money can be withdrawn from the Treasury except in pursuance of an appropriation made by law.
The DBM calls a budget balanced when revenues match expenditures or disbursements. When expenditures exceed revenues, the government incurs a deficit which may result in the following situations: a.) the government borrows money either from foreign sources or from the domestic capital market which increases the debt stock of the NG and its debt servicing requirements; b.) the government borrows money from the Bangko Sentral ng Pilipinas; or, c.) the government withdraws funds from its cash balances in the Treasury. Historically, National Government expenditures have always exceeded total revenues resulting in annual budget deficits, the DBM declared. “Thus, the National Government had to resort to borrowing to cover said deficits which resulted in the ballooning of foreign and domestic debts,” the budget office admitted.
“However, in 1994, the government broke the deficit trend by posting a budget surplus of P16 billion through an aggressive privatization and revenue generation program and a prudent expenditure program. Since then, the government has been exerting efforts to maintain the surplus budget policy. The surplus budget policy is important to encourage economic growth,” the DBM said.
The exhortations of the national budget managers must be quoted word for word to educate the non-economists and questioning common people about how a surplus budget is necessary versus a deficit budget:
“The less the government borrow from the public, the lesser the pressure on interest and inflation rates and the more funds are made available in the financial market. Such funds may be used by businessmen to build factories, hire workers, buy equipment and open more employment opportunities. By keeping more funds in the hands of the private sector rather than competing for credit, the government helps make financing available for families who want to own homes, buy cars, or support their children’s education. The government also needs to generate a budget surplus to repay the huge debt it has accumulated over the years. The reduction of the national budget debt will correspondingly lessen government’s requirements for interest and principal payments. This becomes important particularly during periods of rising interest rates and unstable exchange rates” (dbm.gov.ph).
Why then, do we have a deficit budget for 2024?
The national budget for 2024 is at P5.768 trillion, 9.5% higher than the current (2023) budget of P5.268 trillion. Observers note that this first budget fully prepared by the current administration accounts for 21.7% of gross domestic product (GDP). The 2024 expenditure program is higher by P499.6 billion or a year-on-year growth rate of 9.5% as compared to the 2023 level of P5.268 trillion. The P5.768-trillion budget, to be supported mainly by P3.5-trillion tax revenues (based on 2023 tax revenue projections), would mean a budget deficit of some P2.268 trillion, to be funded by additional borrowings. This could increase government debt from the current P14.24 trillion (as of July) to P16+ trillion by the end of 2024.
During the Congressional budget hearing, Finance Secretary Benjamin Diokno optimistically provided updates on the government’s fiscal and revenue collection performances and presented sources of funding for the national budget. Tax revenue is projected to increase from P3.5 trillion in 2023 to P6.5 trillion in 2028, while non-tax revenues are expected to decline from P191 billion in 2023 to P184 billion in 2028, Diokno told the Philippine News Agency (pna.gov.ph, Aug. 10).
Diokno said the Finance department aims to gradually reduce net financing or new debt from P1.42 trillion in 2022 to P1.22 trillion in 2024, which will help bring the country’s debt-to-GDP ratio to almost below 60% by 2025. And yet, “We worry about our debt-to-GDP ratio in the Philippines, as it stands at about 63% and that’s a little high for us and it is not ideal,” President Ferdinand Marcos, Jr. told members of the US-ASEAN Business Council who visited Malacañang (ABS-CBN, Aug. 9, 2023).
Whom are we to believe, but inflation — which independently says it as it is.
“While inflation in the Philippines has been on a downward trend since January, the country needs to achieve a 3.7% average inflation rate for the next five months for the country to hit the BSP’s forecast of 5.5% inflation for 2023, Assistant National Statistician Rachel Lacsa said (Ibid.). Some economists say that deficit budgets and the remedies — monetary (borrowings increasing money supply) and fiscal (like raising taxes) increase inflation, and stubborn inflation further entrenches structural deficits in the system. It is a vicious cycle.”
National budgets might not be innocent of political agendas (call them plans and programs) that can divert money from the proper socio-economic goals of equilibrium as a balanced budget might work towards. But traditional politicians (called “trapo” in the Philippines) might have it in their hearts to think about the country and the welfare of future generations.
How many generations will pay for the monstrous debt incurred for the dubious objectives and vanities of some today?
Amelia H. C. Ylagan is a doctor of Business Administration from the University of the Philippines.
