Fiscal Irresponsibility 29, On the so-called DBM "Underspending" in 2014

A physician friend posted this report last week. Many of his friends (except me of course) blasted the "underspending". The report says, 

Abad attributed the sluggish spending mainly to the "structural weaknesses within national government agencies and government owned-or-controlled corporations (GOCCS), (42 percent); peculiar problems of small agencies (30 percent); savings generated from lower interest payments and net lending (14 percent); others reasons beyond the control of the agencies (12 percent); refocusing of efforts to Yolanda rehabilitation and recovery (1 percent); and, unutilized funds due to the Supreme Court decision on the Priority Development Assistance Fund and the Disbursement Acceleration program (DAP), (1 percent).

The budget for 2014 was P2.4 trillion.

Among the unreleased appropriations for agencies in 2014 were for major departments such as Department of Education (P2.2 billion); Department of Public Works and Highways (P26.3 billion); Department of Agriculture (P2.6 billion); Department of Agrarian Reform (P5.8 billion); and Department of Environment and Natural Resources (P1.9 billion).

The headline of course is wrong. No administration in the country since Marcos (then Cory, FV Ramos, Erap, Gloria, PNoy) knows how to "underspend", to have fiscal surplus during period of no crisis and pay previous debts incurred during crisis or financial turmoil years. Each year, government over-spends, expenditures > revenues, always, resulting in annual budget deficit and annual borrowings. Here is the annual budget deficit, 2000-2014. Average around P180 B a year.

source: http://www.treasury.gov.ph/.../2015/03/yr_cor_fiscal.pdf

With annual deficit, there is annual and endless borrowings. The PH public or government debt stock keeps rising by an average of P192 B a year from 2004-2014, with or without a crisis. Meaning the PH government, regardless of administrations, just keeps the spend-spend-spend, borrow-borrow-borrow policy. 

Source: Bureau of Treasury.

Governments must learn to underspend, to have fiscal surplus during non-crisis years and pay back some old debts. 

Another physician friend commented that the DOF and DBM "do not want to invest in more health human resource in the face of a growing population. The primary care coaltion is lobbying for more Health human resource, with decent and attractive compensation, and the government answers with a small govt paradigm, cutbacks and contractualization disguised as "rationalization ".imagine what we could have done with P303 billion in advancing universal health care."

Hmmm, "a small govt paradigm, cutbacks and contractualization", he could be referring to Hong Kong. The PH is definitely among the big government models. Combine the cost of national govt + local govt + government corporations (GOCCs, like SSS, GSIS, PhilHealth, PagIBIG) + cost of compliance of various regulations, the cost is big.

Besides, P192 billion a year net increase in public debt stock with or without a crisis is not enough? How much do they want, P300 B year, P500 B a year, increases in public debt?

The "underspending" of P303 billion in 2014 was not directly used to pay our public debt, but rather, it represented money that should have been borrowed and the borrowing by that amount did not materialize. 

It is understandable that the health sector will lobby to use that "underspent" P303 billion for more  health spending, like hiring more health human resource as "we don't even have 1 midwife or nurse per barangay."

One problem is that DepEd cries "we need more money", DA and DAR cry, "we need more money", DILG and PNP cry, "we need more money", DPWH and DOTC cry "we need more money", etc.

Another comment suggested that "Underspending is not a sign of good governance. It's a sign of bad budgeting and neglect of duty."

This is one clear proof that it is not only the government officials and legislators who love fiscal irresponsibility, but many in the public too, including many professionals. For them, government annual over-spending, living beyond its means, endless borrowings, is a virtue so long as the money goes to their favorite sector/s.

Consider this: A person who earns P100k a month but spends P110k a month, with or without health emergencies and borrows P10K a month on average will be called "mayabang", "maluho", "magarbo", "hindi marunong magtipid", "palautang", other unkind adjectives.

But when a government does the same, it is ok, it is fine, it is good governance. There is double standard and double talk here. In this example, that irresponsible individual can finance his endless borrowings by selling some of his assets and properties, or resort to stealing from other people, then pay his debts. An irresponsible government can finance its endless borrowings also through large-scale privatization of its assets and corporations, or resort also to stealing -- from the pockets of future taxpayers. Whether they steal from current or future people, it is a criminal act.

Finally, about this "more public spending in healthcare means better health outcome" hypothesis or theory. I am really curious about the case of Manila city. It has a total of 10 government hospitals -- 6 city hospitals, 3 DOH hospitals, and 1 UP PGH. Per sq. km. of land, it has the most number of government hospitals and hence, has the most number of government doctors, nurses and other health professionals in the country.

In addition, it has barangay health centers + clinic within city hall + private hospitals giving subsidized treatment to indigent residents of the city.

Is there an existing study/ies showing that the residents of Manila City are the healthiest people in the PH? I doubt it, but in case there is one, I want to see that paper.

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See also: 

Fiscal irresponsibility 17: Cut Spending and Borrowing, September 19, 2011 

Fiscal Irresponsibility 26: On the $1 B Philippine Loan to the IMF, June 27, 2011 

Fiscal Irresponsibility 27: PH's P2.6 Trillion 2015 Budget, June 10, 2014 

Fiscal Irresponsibility 28: Greece's Public Debt and Populism, February 09, 2015

Fat-Free Econ 24: Government Fat and Public Expectations, September 21, 2012

Fat Free Econ 39: P57,000 Public Debt Per Filipino, February 25, 2013 

Pork Barrel 10: Bloated Budget, Wasteful Government, June 02, 2014

Fiscal Irresponsibility 27: PH's P2.6 Trillion 2015 Budget

The Department of Budget and Management (DBM) has announced that the projected budget of the Philippine government next year will be around P2.6 trillion ($59.63 billion at P43.60/US$) or more than P300 billion than this year's P2.26 trillion budget. That means P2.6 trillion of taxes, fees and borrowings.

A P3 trillion budget for 2016, and P3 trillion taxes, fees and borrowings, is just around the corner. Government, national and local, keeps expanding. On years of no crisis or emergencies, a responsible government should have fiscal surplus, pay many loans and reduce the public debt, currently rising by around P400 B a year. In post-emergencies year, running a budget deficit and resume borrowings is understandable. But the government just keeps expanding and borrowing, with or without a crisis or emergencies.

While politicians and legislators, and those in the Executive branch are directly to blame for endless expansion of government, the public also share the guilt. For any problem they see, they think that more government is the solution. They seek endless government subsidies, endless government new regulations.

People should be careful what they wish for or request from the government, especially new legislations. Almost ALL government subsidy programs created by legislation are forever, they never go away as all laws here have no sunset (timetable) provisions. All new regulations create new or expand existing bureaucracies that exist forever. And the BIR will keep inventing new harassments, new requirements, to doctors, entrepreneurs, even those in informal sector, so that it can raise more tax revenues. We already saw it in the BIR-doctors love-hate affair. Expect the worst to come in the coming years.

Another disappointment for the lefties too. Big money means big temptation to steal, or at least to waste. Big expectations often mean big disappointments. 2.6 trillion of disappointment.

I am curious how much will be the interest payment alone for 2015. Public debt stock is rising by around P300 B a year, with or without a crisis or emergencies.

source: Bureau of Treasury, http://www.treasury.gov.ph/ 

Palpak din ang campaign ng Freedom from Debt Coalition (FDC). You will never have "freedom from debt" if there is no "freedom from (endless) borrowings" mentality and policy. If new welfare programs (and bureaucracies)are invented without phasing out or abolishing old and ineffective welfare programs (and bureaucracies), endless borrowings is the result. 100 percent.

Government should learn to live within its means. If projected revenues next year are P2.3 trillion, then the budget should be at that level only, not P2.6 trillion then borrow P300 billion. Government should stop borrowing even for one year. If new welfare programs have to be invented, then some old welfare programs that do not seem to work should be shrank, if not discontinued. The national government should focus on improving the institutions for rule of law implementation. The poor appreciate fast and credible delivery of justice as much as the rich. 

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A physician friend engaged me in a private discussion. His ideas are useful, I am posting our short discussion here.

Him: Sir Nonoy, we cannot continue living beyond our means. Either cut the budget, impose new taxes, cut losses due to inefficiencies and corruption or a combination of the three.

Me: Yes, that was my point. The Executive, as tolerated by the Legislative branch courtesy of pork barrel, keeps living beyond its means. Too much fiscal irresponsibility. This makes tax cut proposals become more difficult. Too many spending.

Him: well sir, there are those arguing that if government spending contracts without the private sector coming in, our economic growth will be compromised. i would prefer living within our means, whether as individuals, families, communities, or as a nation. We are lucky interest rates are down. but what if it shoots up? just the interest payments will kill us hehe.

Me: PH government interest payment alone is P330 B a year. And it should rise to P350 B yearly soon. That is killing certain sectors of the PH economy already.

If government reduces spending, it reduces heavy taxation and borrowings too, more money in the pockets of people and firms, they can expand and hire more people. If people have stable jobs, what is the need for rising government spending, except to fatten the salaries and perks of those in government.

Him: although sir there will be expenditures for certain social needs which the  private sector cannot or will not spend for (i.e. national defence). but i agree that we must spend within our means

Me: Actually defense spending here is verrryyy bloated. The big threat to the people is internal -- criminals, thieves, rapists, murderers, etc. Police function, not military function. That is why private security agencies are everywhere. Peace and order has been privatized, what a horrible government failure.

Him: regarding defense spending, Im no expert but our AFP does need upgrading. hehe. also our PNP.

Me: AFP modernization can be funded by privatizing Camp Aguinaldo, all of the proceeds should go to AFP fund, so there will be no need for new taxes, new borrowings. AFP can move to Cavite or Bataan. Their function or mandate is external defense, not internal.

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See also: 
Fiscal irresponsibility 12: More on US debt default, July 28, 2011

Fiscal irresponsibility 17: Cut Spending and Borrowing, September 19, 2011 

Fiscal Irresponsibility 26: On the $1 B Philippine Loan to the IMF, June 27, 2011 

Business 360 3: Fiscal Cliff and Government Irresponsibility, January 23, 2013
Pork Barrel 9: Are PH Government Institutions Ready for Cleansing?, April 09, 2014
Pork Barrel 10: Bloated Budget, Wasteful Government, June 02, 2014

Pork Barrel 8: Forum at DLSU Manila

More than corruption in pork barrel use, government has corrupted the people's value that personal and parental responsibility can be secondary to more government responsibility.

I said that during a forum at De La Salle University (DLSU) Manila last Friday, September 27, 2013,  "Double Dead: A Forum on PDAF", in front of about 200 students. The event was organized by two student organizations, the Pol. Science Society plus an organization of Development Studies majors.

I was one of three speakers that day. The other two were Atty. Eduard Chico of DLSU College of Law, and another lady lawyer from DLSU College of Business Administration. We seemed to corroborate each other's point, very spontaneous.

The format was also based on spontaneous discussion. No powerpoint, the faculty moderator, Prof. Gina Lomotan of the DLSU Political Science Department, read the guide questions, then three minutes talk from each speaker, then Q&A round 1, Then student moderators read a question and asked the audience response/answer of Yes or No, asks some of them to explain their answer. Then Q&A round 2, and so on. All done in 1 1/2 hour.

The main questions addressed to me were, "Why is PDAF a governance issue, how has it affected governance in the country, should it be abolished or reformed?".

My opening arguments to answer these questions were as follows.

1. Pork barrel is a bribe by the Executive branch for its wasteful if not corrupt spending. An equally wasteful and corrupt Legislative branch has allowed this, via pork barrel fund. If the Legislature is truly independent, it should have checked and controlled the Executive's wastefulness, but it did not do its job.

2. One clear proof of the Executive branch's wastefulness is the ever-rising public debt. Even in the absence of clear national emergencies (1990-91 earthquake + Pinatubo eruption, 1997-98 Asian financial crisis were clear emergencies and debt financing and borrowing were clearly justified), the Executive kept borrowing, endlessly and irresponsibly, to finance its wasteful and often bloated spending. Even if domestic revenues are not enough, government keeps spending beyond its means. The public debt stock is rising by around P350-400 B a year.

3. The Priority Development Assistance Fund (PDAF) or other Philippine legislators pork barrel can never be abolished because it is a bribe by the Executive branch to the Legislative so that the wastes and irresponsible spending by the former will be tolerated without much questions.

My other points during the open forum were:

4. In periods or years where there are no clear national emergencies, the government should aspire to have budget surplus, pay back some old debt. This never happened and is far from happening, regardless of the administration in power. More public debt means more and rising interest payment, average of P332 B a year from 2012-2014. The public is not scandalized by this huge transfer of money from their pockets -- such interest payment alone constitutes about P20 or 1/5 of every P100 in various taxes that we pay.

5. Since the audience were mostly Political Science and Development Studies majors, I briefly discussed  political theory, "What is the role of government?" From the 3 Social Contract theoreticians, Thomas Hobbes, John Locke and Jean Jacques Rousseau, and corroborated by another classical thinker, Adam Smith, the main role of government is to protect the citizens from aggression, protect their right to life against murderers and aggressors, their right to private property against thieves and destroyers of property, their right to liberty against bullies. The classical thinkers hardly or never advised that government should provide numerous, endless, forever redistribution and welfarism. Such endless welfarism has become the basis of endless expansion of government including pork barrel expansion.

Fat Free Econ 47: Pork Scam vs. Public Debt Scam

* This is my article yesterday in interaksyon.com.

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MANILA - The government is setting aside P330-plus billion a year in interest payment alone for our public debt, and many people are not angry with that huge transfer of money from average taxpayers to rich lenders. The people are angry (and rightly so) of the alleged P10 billion pork barrel scam.

Let us compare the numbers and see why public anger is disproportionate to the money that is siphoned off from their pockets.

At the heart of public anger and discontent over the Napoles pork barrel scam is the huge lump-sum money allocated to legislators in both the Senate and House every year. This is a separate item in the National Expenditure Program (NEP) and beyond the amount allotted to various national agencies, government owned or controlled corporations (GOCCs) and local government units (LGUs).

Table 1. Priority  Development Assistance Fund (PDAF), in billion pesos

Source: DBM, NEP 2012 and 2014

Note the big jump of legislators’ pork barrel from the Arroyo to the PNoy administrations, 2010 vs. 2011 PDAF fund. 

The alleged P10 billion pork barrel fund that was coursed through Janet Lim-Napoles (JLN) over many years does not seem to be itemized. Below is an itemized table covering 2006-2011 but totaling only P3.13 billion.

Table 2. Amount dispensed to some legislators in the Napoles pork barrel scam

Source: Philippine Daily Inquirer, August 30, 2013

The public is angry because almost none of this amount went to clear projects that benefitted the poor, but were simply divided among the legislators (they allegedly got 70 percent), JLN and bogus NGOs, and some implementing agencies and COA auditors that allowed such irregular distribution of funds without publicizing it. It was the internal whistleblowers who divulged the scam and the legislators involved.

While the public fund siphoned to corrupt legislators and the JLN camp was indeed big, the amount is loose change -- in short, barya -- compared to the amount of money that leaves the public coffers yearly just to pay the interest on our public debt. Most people are not aware of the magnitude of such payment: around P332 billion a year on average from 2012 to 2014: P312.8 billion in 2012, P332.2 billion this year; and P352.6 billion next year.

Table 3. Principal and interest payment of Philippine public debt, 2012-2014

Source: DBM, Budget of Expenditures and Sources of Financing (BESF) 2014,Table B.20

Interest payments in 2010 and 2011 were also huge, P294.2 billion and P321.6 billion, respectively. So annual interest payment is about 14 times the size of the annual lump-sum pork barrel of legislators, and 32 times the share of the Napoles camp.

Table 4. Principal and interest payment of Philippine public debt, 2010-2011

 

Source: DBM, BESF 2012, Table 18

Another way of looking at it is that from 2010 to 2014, for every P100 in various taxes that we pay -- personal income tax, corporate income tax, excise tax and value-added tax (VAT) passed on to us consumers, documentary stamp tax, import tax, travel tax, vehicle registration tax, etc. -- about P23 of it is used to settle the interest alone on the country's debts. And only P77 will be used for salaries, offices, subsidies and projects of various government agencies -- local and national -- assuming that such services and subsidies are indeed necessary or are efficiently provided at the least cost possible.

Table 5. Interest payment as percent of tax revenues, 2010-2014

Sources: Interest payment, Tables 3 and 4 above; Tax Revenues 2010-2012, DOF, Fiscal Update Tax Revenues 2013-2014, DBM, BESF 2014, Table C.1

Pork Barrel 6: Spontaneity and Friedrich Hayek

* This is my article last Monday in thelobbyist.biz.
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After the Priority Development Assistance Fund (PDAF0 has been abolished by the President last Friday, August 13, 2013, there is an unprogrammed amount of P25.4 billion in the proposed 2014 budget. If explicit pork barrel is indeed abolished, the budget should be lower by that amount. But this is not the case.

According to DBM Secretary Butch Abad, legislators can introduce their priority projects, subject to certain guidelines as mentioned by the President last Friday, into the budget. Meaning those projects will be inserted into agency budgets and the size of the proposed budget has remained the same, not declined. This practice is often called as “Congressional Insertion.”

The budget submitted by DBM to Congress after the President’s State of the Nation Address (SONA) is a compilation of financial requests from four groups: (a) provincial and regional offices of an agency like  DA, DILG, DTI, etc., (b) Central offices of those agencies and Departments, (c) local government units (LGUs), and (d) NGOs, people’s organizations via “participative budget consultations" like the recent Bottom up Budgeting (BuB) scheme.

Once the budget is discussed and heard in Congress, legislators can disapprove some proposals and projects, say projects coming from Mayors, Governors  and NGOs who are not friendly or non-ally of the legislators. Then they can increase the budget of certain projects which can benefit their friends and allies, like in municipalities and cities that supported them in the last election. It is the prerogative of the legislators to do this because they are empowered by the Constitution to scrutinize and pass a budget law every year. 

This Congressional Insertion is one form of soft or implicit pork barrel. Thus, pork barrel can never be truly be abolished, without expecting the national government to shrink in size and budget. Only a truly independent and activist legislature can control and disallow wasteful or excessive spending by the Executive branch.

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The citizens’ “Million March” in Luneta on August 26 is unique because it is largely spontaneous. While Edsa 1 revolution in 1986 was also spontaneous, big politicians and political groups later set the tone and direction of the protest movement. Besides, it was directed against a particular leader, the former President Marcos.

The “Million March” is different. It is not directed against a particular leader, say President Noynoy Aquino, but against corruption in general and corrupt officials in government, especially among the legislators implicated in the Napoles pork scandal. And there are no grand speakers with grand speeches and promises, no plackards and streamers, no dominant political color or political group organizing it.

The  spontaneity and lack of central organizers with central planning thinking makes the “Million March” exciting and unpredictable. The activist public have become wary of the usual protest leaders and groups. They suspect that these groups are no different from the politicians that they criticize. So the public is now opting and experimenting the politics of spontaneity.

Big politicians, big political groups and big government do not like this kind of arrangement. They are used to dealing with centralized action so they can focus their politics of compromises, and bribery if necessary, on the leaders of those movements.

Famous Austrian economist and political philosopher, Friedrich Hayek, extolled the value of spontaneity in his book, The Constitution of Liberty (published 1962). He wrote,

Liberty is essential in order to leave room for the unforeseeable and unpredictable. Because every individual knows so little that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it….

Freedom means the renunciation of direct control of individual efforts that a free society can make use of so much more knowledge than the mind of the wisest ruler could comprehend… Freedom granted only when it is known beforehand that its effects will be beneficial is not freedom. Freedom means that many things will be done which we do not like. Our faith in freedom rests on the belief that it will, on balance, release more forces for the good than for the bad.

Hayek was referring to the evil of central planning in running societies and governments. Leave the individuals to run their own lives, their own households and communities, so long as the government is there to implement the rule of law – few, general laws and prohibitions that apply to all, no one is exempted and no one can grant an exemption. Like the laws against murder, stealing, abduction, land grabbing, extortion, destruction of properties.

The politics of central planning as practiced by many governments around the world, armed with huge annual budget as authorized by their legislators and the legislators getting their own pork in exchange for passing such budget laws, works against individual freedom and facilitates corruption. Corruption not only in wasteful or stolen spending, but corruption of values of the people, that they can relegate certain personal and parental responsibility in running their own households, and pass them as government responsibility.

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See also:

Pork Barrel 3: The Silent Idealists, the GFO-NGOs, August 10, 2013 

Pork Barrel 4: Ten Q&A on the Pork Scandal, August 18, 2013

Pork Barrel 5: Abolish Pork Fund, or Shrink Government?, August 21, 2013 

Fat Free Econ 46: On Pork Barrel Aboition, August 25, 2013

CSOs and State 12: From NGOs to GFOs

This is my article for the online magazine today, refreshing the page. Original title is Civil Society and the State.
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Civil society, like many other social concepts, has a varying definition for different groups. There is no single, “unanimous” or “consensus” definition of the term. And very often, the definition is patterned after the social or political philosophy that a particular group adheres to.

Take the following definitions of “civil society”:

1. Civil society is an invention to correct state failures and inefficiencies, later lambast market's self-correcting mechanisms (such as de-monopolization of industries through deregulation & more competition).

2. Civil society is a cultural phenomena and has other tasks aside from a mere focus on economics. It does not exist just for the market. To balance out market imperatives is only one of its functions.

3. Civil society role is to encourage and empower individuals and citizens to take on more personal and parental/guardian responsibilities in running their own lives. The principle of subsidiarity says that things that can be done better by the lower level of social organs or entities should not be given to higher social organs, things that can be done by the individual should not be given to the government.

(Above three definitions lifted from CSOs and State 10: The Role of Civil Society)

4. Civil society is the arena outside of the family, the state, and the market where people associate to advance common interests. It is sometimes considered to include the family and the private sphere and then referred to as the "third sector" of society, distinct from government and business. Dictionary.com's 21st Century Lexicon defines civil society as 1) the aggregate of non-governmental organizations and institutions that manifest interests and will of citizens or 2) individuals and organizations in a society which are independent of the government.

(Wikipedia definition)

5. Civil society is as a "third sector," distinct from government and business. In this view, civil society refers essentially to the so-called "intermediary institutions" such as professional associations, religious groups, labor unions, citizen advocacy organizations, that give voice to various sectors of society and enrich public participation in democracies.

(Definition from www.civilsoc.org)

6. If all means of decentralisation, deregulation and privatisation have been implemented and citizens have been involved as comprehensively as possible, there is nothing to stop the definitive self-administration of citizens. A civil society has emerged.

(See CSOs and State 4: Local Government and Civil Society)

It is possible to find a hundred (or more?) definitions of civil society, along with their respective role in relation to the government, private enterprises and individuals. I am taking the liberal definition of the term. The 3^rd definition above is actually mine. And this clashes with the mainstream or dominant definition, that civil society organizations (CSOs) exist to fill in the gap by government inefficiencies -- note that they do not want to use the term “government failure” while frequently mentioning “market failure” -- in addressing various social and economic problems, from garbage to health to poverty alleviation.

In the mainstream definition therefore, there is a close if not symbiotic relationship between government and CSOs. A big and interventionist government is consistent with a big and interventionist civil society community, they often conspire to harass what they think is the source of various social ills – the private enterprises, corporations big and small, businessmen and capitalists. So that in this symbiotic relationship, many CSOs get various contracts and funding from government – local, national and multilateral or foreign aid. But CSOs are supposedly “non-government” groups and organizations; when they get huge funding from government, they become government-funded organizations (GFOs).

The Department of Budget and Management (DBM) has released a new regulation, National Budget Circular (NBC) No. 536 dated January 31, 2012 or just two weeks ago. It is called “Guidelines on partnership with civil society organizations and other stakeholders in the preparation of agency budget proposals.” The DBM has created a “CSO Desk” that will monitor the initial 12 departments and 6 government owned and controlled corporations (GOCCs) that will be covered by NBC 536, so that those departments and GOCCs are required to involve CSOs in their budget preparations.

 I attended the DOH-DBM meeting with CSOs about this circular last February 14, 2012. All CSO leaders and representatives involved in health introduced themselves, their organizations and their specific interests on public health issues. As expected, our group, Minimal Government Thinkers was the odd-man-out because we always link rights with responsibilities, entitlements with obligations, and delineate which healthcare services are personal and parental/guardian responsibility and which ones are government responsibility. I emphasized that people who over-smoke, over-drink, over-eat and over-sit cannot just assert that “health is a right” because they did not recognize that “health is a personal responsibility” too. It was good to see a number of heads among the participants nodding after I spoke. 

I observed later how some CSO leaders would use the occasion to lobby for more DOH support if not funding for their specific advocacies. And this is part of the process by which NGOs become GFOs. I think the appropriate term for that will be "CSO Insertion" to differentiate it with "Congressional Insertion" and pork barrel in the national budget that many NGO leaders and the public so dislike.

 Government is very often the arena of irresponsibility and hypocrisy. Of living beyond one’s means, of spending much larger than income and revenue, and resorting to endless borrowings to finance the funding gap, year in and out. The continuing financial turmoil worldwide is very much caused by government fiscal irresponsibility and huge public debts. From north America to Europe to many Asian economies. One can count in his fingers the number of governments that are not heavily indebted, say with public debt of 15 percent of GDP or lower. The bulk of these governments have debt/GDP ratio of 30 to 200 percent, and such ratio is still understated because contingent debts (debts by government corporations and financial institutions guaranteed by the national or central/federal government), as well as local government debts (provinces, states, cities) are often not included.

When CSOs become indebted and dependent for funding with government, their capacity to fiscalize and criticize the government for its excesses and wastes becomes limited. This is something that CSOs should try to avoid as much as possible.

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See also:
CSOs and State 7: Public School Library with Minimal Government, BftB, June 29, 2009

CSOs and State 8: Gawad Kalinga, Health NGOs and Taxes, September 19, 2009

CSOs and State 9: The Global Fund and Corruption by Some Phil. Health NGOs, March 10, 2010

CSOs and State 11: Rights and Responsibilities, Liberal Civil Society, July 11, 2010

The Interest Payment Burden

(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.
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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.