December 18, 2005
In theory, the national budget can be a powerful mechanism for ensuring that public resources are used for the welfare of the majority. Unfortunately, narrow interests have perpetually hijacked the direction of Philippine economic policy and this is fully reflected in the national government budgets annually drawn up and implemented.
President Gloria Macapagal-Arroyo said next year’s proposed P1.053 trillion expenditure program is “a potent weapon for the permanent upliftment of the large mass of our people from poverty.” And at first glance, the 2006 budget may seem an “improvement” over last year’s. It is P134.6 billion more than the 2005 budget, which could mean increased government resources going towards the people’s welfare.
There are noticeable increases in spending in economic services (by 24.8 percent), social services (15.6 percent) and general public services (13.8 percent) compared to 2005. At the same time there is slower growth in debt servicing, which records a mere 8.5 percent increase compared to the previous year. Correspondingly, the share of economic services and social services to total expenditure increased while that of debt service decreased.
But appearances can be deceptive, as a closer look at the numbers will show.
Debt service grows
Despite a slowdown in the growth of debt servicing, it still remains the largest item among expenditures in the budget. The single largest chunk of the 2006 budget, more than 30 percent, will still go to paying interest on public debt, followed by spending on education, 13.9 percent, and on communications, roads and other transportation, 6.8 percent.
Debt service payments for interest have been increasing since 1997, when they were 15.9 percent of total expenditures, and have increased most rapidly under the Arroyo administration. Between 2001 and 2004, the share of debt service to total expenditures increased by 9.4 percentage points, compared to an increase of only 8.8 percentage points between 1997 and 2001.
Conversely, spending on social services has been going down. Examining trends from 2001 to 2006, the share of education to the total budget has fallen from 17.4 percent to 13.9 percent, of health spending from 1.9 percent to 1.3 percent; and of housing spending from 0.4 percent to 0.3 percent.
These trends should not be surprising, given the skyrocketing public debt. As of August 2005, total outstanding national government (NG) debt was at P3.94 trillion, a 66 percent increase from its P2.38 trillion level in 2001. This is equivalent to some P46,244 of debt for each of the country’s 85.2 million Filipinos.
But the primacy of debt servicing in the budget is underlined further when principal payments for the NG debt are factored in. Only interest payments are included in the national budget; principal payments are an “off-budget” item found in a separate set of accounts called the NG Sources of Financing.
Total debt service payments have risen almost three-fold from P274.4 billion in 2001 to a projected P721.7 billion in 2006, which is equivalent to 68.5 percent of the total expenditure program for the year. This also means some P2 billion pesos in total debt payments each day. In the 2006 budget, total debt service will be: five times that of education spending (P146.5 billion); 53 times that of health spending (P13.7 billion); and 262 times that of housing spending (P2.8 billion).
The amount of total debt service relative to the size of the economy is also growing. The last three years have already seen this at all-time highs at an average 11.8 percent of gross domestic product (GDP). The projection is for this to be at 12 percent in 2006, which will be the fourth straight year of record highs.
Falling social services allocations
A closer look at the increased allocations in social services is also revealing. The “increase” is mainly found in a seemingly generous 46.2 percent increase in social security, welfare and employment spending: from P40.1 billion in 2005 to P58.6 billion in 2006. But two-fifths (41.1 percent) of this budget goes just to the pensions and gratuities of the 150,000-strong Armed Forces of the Philippines (AFP). Moreover, P10 billion is going to “retirement benefits” for tens of thousands of government employees who are going to be retrenched next year.
Furthermore, education and health spending have actually declined in real terms. Compared to 2001 levels, real spending in 2006 on education will be 4.5 percent lower and on health 19.2 percent lower. Increasing population growth has also cut into per capita spending. The Department of Education (DepEd) per capita budget per public school student, for example, has fallen from P6,007 per enrollee in 2001 to P4,782 per enrollee in 2006, or a 20 percent decrease.
The DepEd also estimates that there will be a need for an additional 10,549 classrooms, 1.2 million chairs, 67 million textbooks, and 12,131 teachers in 2006, which they already foresee will not be met by the 2006 budget.
Winning support from the favored few
The people should have priority in government spending, particularly the poor who rely on government-provided essential services such as health and education that they cannot afford. But it is clear that the Arroyo administration’s budget priorities are to ensure its survival by courting the support of two vital sectors: the AFP and local government officials.
Hence, proposed expenditures for defense in the 2006 budget increased by P8.2 billion to P52.4 billion or an 18.7 percent increase from 2005, which pushes the sector’s share in the budget from 4.8 percent to five percent. But this only tells part of the story. There are other budget items going to the military establishment or for military objectives that are hidden in the economic, social and general public services categories.
Altogether, actual military spending for 2006 comes to a much higher P81.9 billion. These other military-related items include P630.5 million for the Philippine Military Academy (PMA), National Defence College (NDC) and Military Shrines Service under “education, culture and manpower development”. The combined P1.4 billion budget of the two military hospitals, the Armed Forces of the Philippines Medical Center (AFPMC) and Veterans Memorial Medical Center (VMMC), are categorized under “health” and, at 10 percent of the total health sector budget, they actually even account for a disproportionate share of it.
There is also the P24.3-billion worth of pensions and gratuities and for the Philippine Veterans Affairs Office (PVAO) under “social security, welfare and employment,” which is a huge 42 percent of the total social security, welfare and employment budget. There is a further total P3 billion allocation under the direction of the Department of National Defense (DND) and Office of the Presidential Adviser on the Peace Process (OPAPP) for the counter-insurgency Kalayaan Barangay Program for 500 conflict areas. These are “special purpose funds” split between the “other economic services” and “other social services” categories. Finally, there is also an additional P85 million for the Office of Civil Defence (OCD) under “public order and safety.”
The Arroyo administration is also using NG budget resources to gain the support of provincial governors and mayors in local government units. They already came out in force during the president’s state-of-the-nation (SONA) address at the opening of Congress in July and regularly mobilize rent-a-crowds to counter local anti-Arroyo mass actions. Allocations for capital outlays – traditionally the most expedient sources of pork barrel kickbacks – increased by a massive 37.7 percent in 2006 to P133.2 billion.
Using the budget for public welfare
In theory, the national budget can be a powerful mechanism for ensuring that public resources are used for the welfare of the majority. Government revenues, mainly generated through taxes, can be used for vital economic, social and public services. Unfortunately, narrow interests have perpetually hijacked the direction of Philippine economic policy and this is fully reflected in the NG budgets annually drawn up and implemented.
The Philippines is in the middle of a deep economic crisis and the people suffer from intensifying poverty, falling incomes, rising prices and high level of joblessness. Government should at least use its budget to mitigate the harsh impacts of these on the people.
However, the domination of elite interests prevents this from happening. Instead, the Arroyo administration is gearing the national budget towards gaining “investor and creditor confidence” and towards its political survival.
The 2006 proposed budget can best be described as a “creditors’ budget,” insofar as it continues to favor the interests of commercial banks and multilateral agencies that hold the country’s debt. Despite popular calls for a more progressive debt management policy – involving cancellation of the most odious debts and a debt cap on payments and new borrowings – government continues to defer to the country’s creditors.
Even worse, government has done little to address the endemic problem of corruption that robs it of millions in lost revenues. Further, it also refuses to tackle the problem of large amounts of foregone revenues due to steep tariff cuts and too-generous incentives to foreign investors. Instead, it passes on the cost of debt servicing to the people through onerous measures such as the Reformed Value-Added Tax, which will result in higher prices of basic goods and services. It also undertakes an “austerity” problem that hits social services the worst.
The administration’s budget for 2006 is also a “survival budget.” The Presidency faces a grave crisis of legitimacy as a result of perceived corruption reaching to Malacañang Palace and, more significantly, widespread belief of presidential-level electoral fraud in the 2004 national elections. Its reaction has been to aim to consolidate support from the military and police, on one hand, and from civilian local government units (LGUs), on the other, through increasing resources for presidential patronage. It is also financing the stifling of dissent in the cities and greater militarization in the countryside.
Given these realities, it is clear that the present administration will never pass a budget that can truly be called “pro-people.” A national government that truly upholds the interests and welfare of the majority can only arise as a result of the continued struggles of the people for genuine and fundamental political and economic change.