(Note: this is my article for People's Brigada News last weekend)
The President submitted its proposed 2011 budget to Congress last week. It is a staggering P1.645 trillion budget, that will constitute some 18.2 percent of the projected gross domestic product (GDP) next year.
If we include the total budget of local governments as they have revenues of their own aside from the transfers they receive from the national government, the consolidated or combined budget of the whole government bureaucracy should be at least 21 percent of GDP.
National Government Expenditure by Recipient Unit, In P Billion
Recipient Unit : 2009 / 2010 / 2011
1. National Govt Agencies: 815.3 / 927.6 / 964.6
2. Local Govt. Units: 272.9 / 297.5 / 300.0
3. Government Corporations: 67.1 / 39.3 / 23.3
4. Creditors/Interest Payment: 278.9 / 276.2 / 357.1
Total Budget: 1,434.1 / 1,540.6 / 1,645.0
Source: DBM, Budget of Expenditures and Sources of Financing (BESF), Table B.9
The interest payment for our public debt, both domestic and foreign, will be a big burden next year. The P357.1 billion will comprise 21.7 percent of the total budget next year, much higher than the 19.5 percent ratio in 2009 and 17.9 percent ratio this year.
Here is another way at looking at the above table. The increase in total budget from 2010 to 2011 is P105 billion. The increase in interest payment from 2010 to 2011 is P81 billion. Meaning P4 out of every P5 increase in total expenditure was accounted by increase in interest payment alone.
The only consolation in the budget next year is that subsidies to government corporations has drastically declined to only P23 billion, or only 1/3 of its level in 2009. But we should aim for zero subsidy for those government corporations. They are supposed to be net contributors to the total revenues, not net subsidy-seekers. This should be an important argument why many of those government corporations should be privatized soon.
A related paper I wrote last June 29, 2010
Public Debt and Government Failure
On the roundtable discussion by IBON Foundation today in UP Diliman, "Global public debt troubles: the next phase of the global crisis?", I will argue that the current public debt woes of many governments around the world is a clear case of government failure.
What do you call a person or household who earns P20,000/month but spends P23,000/month (or higher) on average? Gastador, mayabang, iresponsable, engot...? I think all of the above.
So what do you call a government that earns 1 trillion (whatever currency) but spends 1.2 trillion, and the budget gap is repeated every year for several years or decades? Irresponsible, braggart, bleeding-heart,...? All of the above?
The Economist magazine last week (June 24 issue) also has a good interactive map and graph of the consolidated debt of key rich countries. Well, all G7 member countries, no exception, all Gof them are heavily indebted, especially Japan and UK.
Among G20 countries which met in Canada only over the weekend, ALL of them except Saudi Arabia, are running fiscal deficit (revenues lower than expenditures) and resort to lots of public borrowings. Many of them have been running fiscal deficit for the past decade or more.
Government failure is difficult to solve as the usual remedy by many politicians is to create another bureaucracy or to expand existing ones, that will look into the wastes, inefficiency and robbery that happened in other agencies. That is why it is important to remind governments and their politicians and bureaucrats, to stick to their more important function of protecting the citizens' right to life, right to private property, and right to liberty. Then let go of other functions that are better left to market players in a competitive environment.