Budget Briefer – DBCC Expenditures and Source of Financing

1. Budget Briefer – DBCC Expenditures and Source of Financing • Fiscal Program for 2011 • Revenue: % of GDP Growth 14.2% • Tax Revenue : % of GDP 12.8% • BIR: 940b • BOC: 320b • NonTax Revenue: % of GDP 1.4% • Expenditures: 1,711.3b • Surplus (Deficit) (300b) • Note: There was an actual deficit of 314 billion in 2010 budget so much that the government committed to decrease the deficit by 14 billion pesos in 2011 and the same level in 2012 • Fiscal Program/Target for 2012 • Revenue Growth 11.1% • Tax revenue 13.5% • BIR 1,066.1b • BOC 365.1b • Other Offices 14.2b • NonTax Revenue 1.1% • Expenditures 1,854.5b • Surplus (Deficit) (286b) • Note: There is decrease of 14 billion in the target deficit from the previous year • “Results-Focused Budget”- PaggugolnaMatuwid: Diretsosa Tao.

2. Government Assumptions • 2011 Program • Nominal GDP Growth 10.3% • Real GDP Growth 5% • Inflation 3% • Interest Rate 4% • Exchange Rate Ph42.00 • Import (Growth) 17% • Exports (Growth) 9% • Dubai Oil Price (USD/Barrel) 90.00 • 2012 Program • Nominal GDP Growth 10.9% • GDP Growth 5.5% • Inflation 3% • Interest Rate 4% • Exchange rate Ph42.00 • Import (Growth) 18% • Exports (Growth) 12% • Dubai Oil Price 90.00 NOTE: . Increase in GDP Growth at .5% . Increase in import at 1% and export at 3% Problems: . Pegging the price of crude oil to 90 USD may not be sustainable/ volatility of price due to unrest in the middle east/financial crisis in the US and other G7 economies/however, price may also go down because of problem in financial markets . Pegging the Exchange Rate to Ph42 per US Dollar may not be realistic considering the current volatility of US Dollar and thedown grading of the US Credit rating to AA+ and the problem besetting the European Union members. However if the peso depreciate further, it will increase the debt exposure of the Philippines .The actual Dubai Crude Oil price average at USD 106.68 from January to August, meaning were are also off the mark price of crude oil. For the 1st quarter of this year, the economy posted a much lower GDP of 4.8 vs. 8.9 in the same period last year; For the 1st five month of this year, average inflation of 4.2% as against 3-5% target; In 2010, export is about 50.6854 billion US Dollar, 55.3 billion to 55.8 billion for 2011 and 62.5 billion in 2012 or 12% GROWTH RATE Import of Goods will be almost 18% Growth rate. 2012 budget is higher by 171 billion vs. 2011 budget.

3. Collections Targets for 2012 = 171.26 billions Bureau of Internal Revenue – 126.12 billions which accounts to 2/3 of the total collections Bureau of Internal Revenue – 45.15 billions Financing Program of the National Government 2011: 74% Domestic Borrowing 26% Foreign Borrowing 2012: 75% Domestic Borrowing 25% Foreign Borrowing Note: the National Government is now increasingly focus on domestic sources than from foreign The national government may ease out the private sector from accessing local capital as it competes in borrowing in local/domestic sources The government seems to be crowding out the small and medium enterprises from the local /domestic sources as the banks would rather lend to the government than to the private sector • Outstanding Debt of the National Government • 2011: 5,053.4 billion is the outstanding debt of the country • 2012: 5,523.3 billion will be the outstanding debt of the country • Note: There is a marked increase in sovereign credit rating from Moody’s Ba2/Fitch BB+/S&P BB • However, there is also an increase in the outstanding debt of the country, for 2011 almost 335 billion , while for 2012 almost 470 billion. In effect, the government is not benefiting from the rating upgrade as it continue to increase its borrowing instead of settling its obligation by taking advantage of the favorable credit rating.

4. REVENUE MEASURES • July to December 2010 • Best Tax Performance 1. Transfer tax 95.4% 2. Individual Income Tax 18.8% 3. Import Duties 16.9% 4. Corporate Income Tax 16% 5. DST 12.3% 5. Excise tax 12.2% • Low Tax Performance 1. VAT on Imports 9.5% 2. Percentage Tax 7.4% 3. VAT (BIR) 2.1% Note • Transfer Tax is consistent best Tax performer for two consecutive years • From being the lowest tax performer, VAT on Imports improve its standing last year • Individual Income Tax outperforms Corporate Income Tax • January – June 2011 • Best Tax Performance 1. Transfer Tax 38.8% 2. VAT on Imports 38.4% 3. Corporate Income tax 28.7% 4. Individual Income Tax 15.0% 5. DST 8.2% 6. Percentage tax 6.7% • Low Performance 1. Excise Tax 1.8% 2. VAT (BIR) 0.4% 3. Import Duties -67.9% NOTE: • From being one of the best performing tax, import duties got the lowest performance in 2011 • VAT (BIR) is a consistent low tax performer last year and the previous year Problem • How could you reconcile the big disparity in performance between Import Duties -67.9% and VAT on Imports 38.4% when they pertain to importation? • Explain why the percentage of performance for transfer tax decreases to 38.8% from the previous level of 95.4% ?

5. NEGATIVE REVENUE MEASURES : NOTES • 2008-2009 (73.40 to 78.40 billion pesos) • Ra 9337 Corporate Income Tax Reduction 15-16 b • RA 9504 Individual Income tax 26b • RA 9505 PERA 12b • RA 9511 Franchise Tax on Power Transmission 9b • RA 9593 Tourism Incentives 6b • RA Abolition of DST on 2nd Trading of Stocks 1.4b • RA 9679 Incentives under PAG IBIG Charter 1b • RA 9728 Bataan Freeport 3b • 2010 (107.37 to 112.37 billion pesos) • RA 9856 REIT Incentives 2.7b • RA 9994 VAT Exemption on selected goods /services 1.68b • RA 9999 Tax Deductibility of actual free legal services 0.10b • RA 10001 Restructuring of DST .007b/1.30b • RA 10022 Migrant Workers 1b • RA 10026 Income Tax Exemption and Condonation of Unpaid taxes of Water District 0.80b • RA 10083 Creation of Special Economic Zone and Freeport in Aurora 3b • Various Tariff Reduction Program 23.32b While the government posted the amount of revenue loss because of these negative revenue measures, it failed to post the major laws where the government obtained the highest revenue. For example in case of EVAT, how much revenue the government is receiving; How about the MVUC Law? The recent position of the government to tax the income of professionals may increase the revenue of the government, but there appears no projections as to how much the government will raise if it increase such professional tax; It also appear from the list of best performing taxes and the effects of negative revenue measures on the lowest performing taxes, the government seems to be pointing to Congress as the reason for the decline in revenue for these low performing taxes. Take note that it is the government that usually initiate tax increase. Under the item various Tariff Reduction Program, the government could reinstitute such tariff and could possibly cover easily the deficit of the government. We suppose that these tariff reduction programs are temporary and could be withdrawn without compromising the government fiscal policy

6. RECENT DEVELOPMENTS AND OUTLOOK: MONETARY, EXTERNAL AND BANKING SECTORS • Economic Growth: Average of 4.6% from 1999 to 2011 Q1 • Actual % of Growth 1999 3.1% 2000 4.4% 2001 2.9% 2002 3.6% 2003 5% 2004 6.7% 2005 4.8% 2006 5.2% 2007 6.6% 2008 4.2% 2009 1.1% 2010 7.6% 2011 4.9Q1 • External Payments Position continues to be the source of Strength a. Balance of Payments (BOP) Surplus for 2011 Q1 at USD3.5b b. Current Account Surplus from OFW Remittance and Strong BPO Earnings c. Capital inflows due to favorable investors confidence • Foreign Currency Reserves remains Ample a. Strong dollar Inflows allows build up in Reserves b. Reserves more than 10 months of Import cover and more than sufficient to cover external obligations • Favorable External Debt Profile 1. Short term debt accounts for only 11% of external debt/Medium and Long Term accounts to 88.9% 2. Debt maturities average more than 22 years (Public debt 24.4years/Private Debt 11.7years 3. External debt/GDP has dropped significantly NOTES: The government seems to downplay the importance of OFW remittances and amplify the contribution of BPO and other capital inflows; From among the negative revenue measures only one law was enacted to favor the OFWs where only 1b was sacrificed, while those that are beneficial to business are far more massive and costly for the government in terms of foregone revenues; Looking at the debt profile vis a vis the External Payments position, the trickle down effect thereof remain insignificant to ordinary citizens. The same is true to the ample foreign currency reserves.

7. Result Focused Budget- PaggugolnaMatuwid: Diretsosa Tao • Five Areas of Priority under the Social Contract with the people. MTPDP of Aquino Admin a. Transparency, accountable, and participatory governance – 29.012 billion; b. Poverty reduction and empowerment of the poor – 368.769 billion; c. Rapid, inclusive and sustained economic growth – 247.109 billion; d. Just and lasting peace and rule of law – 196.805 billion; e. Integrity of the environment and climate adaptation and mitigation – 36.209 billion • 2012 budget is higher by 171 billion vs. 2011 Budget • Distribution shall be as follows: 1.254 trillion to the department and Agencies and 880.053 billion for Special Purpose Funds • For 2012, Unprogrammed Appropriations stood at 161.69 billion • Standby authority that shall be released only when collections are received from sources not considered in the estimated targets • Automatic Appropriations amounts to 723.629 billion • Distribution shall be as follows, 46.03% earmarked for Interest Payments; 37,77% for IRA; remaining balance for tax refunds, grant Proceeds, Tax Expenditure, Net Lending, Retirement and insurance and special accounts. • IRA share of LGU will decrease by 13.635 billion • Decrease due to the sharp decrease of revenue collections in 2009 which is the legally mandated base year • MOOE will increase by 82.912 billion • Regular MOOE will reflect an increase of 82.912 billion, net of IRA and Interest payment • Capital Outlay will also increase by 257.29 billion • Additional 15.881 billion for infra like roads and Bridges;6.249 billion for school building; 6.56 billion for FMR under DA and 1.562 billion for DAR FMR • Personal Service (PS) will also post and increase of 53.133 billion • Debt Service in Interest payment will decrease to 333.107 billion from 357.09 billion • Social Services will increase to 54.324 billion because of Salary Standardization Law • Economic Services will increase dramatically because of the additional budget for FMR, for power and energy and natural resources and environment NOTES: Since the unprogrammed fund is subject to a condition, there should be an stricter rules to be followed instead of allowing the government to start using it when it reaches the target revenue for the fiscal year. While there maybe decrease in interest payment of our debt, only 24 billion more or less were saved. Increase of Regular MOOE can amply cover the 6k additional budget for salary increase for government employees./ Better yet, why not devote the unprogrammed fund of 161.69 billion or portion of the Automatic Appropriations for the 6k salary increase for all the government employees.

8. REGIONAL ALLOCATIONS/TOP DEPARTMENTS • Regional Allocations • Region IV-A will get the biggest portion of the Budget in the amount of 68.929 billion • The CAR will received the lowest allocations of 25.77 billion • Top Ten Departments • 1. DepEd budget will increase by 29.871 billion (207.271 billion) • 2. DPWH 125.542 billion • 3. DND 106.914 billion • 4. DILG 96.186 billion • 5. DA 61.735 billion • 6. DSWD 49.424 billion • 7. DOH will increase by 10.361 billion • 8. DOTC 34.875 billion • 9. DOF 10.839 billion • Disbursement of the National Government • Disbursement will grow up to 1.855 trillion • Cash disbursement will be used to pay for Personal Services (595.724 billion) LGU (218.648 billion) Interest Payments (333.107 billion) and Infra Outlay (287.183 billion) • There will be a projected deficit of 286 billion or 2.6% of GDP NOTES: DepEd increase in its budget will fund the hiring of additional 13,000 teachers; construction and rehabilitation of 45,231 classrooms, buy 2.53 million school desks and chairs, but 45.5 million textbooks and teachers manual and construction of 25,667 water and sanitation facilities DPWH budget will be use to upgrade road and bridge network by 2016, construction of access roads to airports and roll on roll off port leading to various tourist destinations. In DILG budget, 968.621 million will be used for the PAMANA Program ( maybe to MILF) DA budget increased by 60.01% from 38.582 billion to support the Rice and Food Self Sufficiency Agenda; In case of the DSWD, increase is due to the expansion of coverage of the CCT Program from 2.3 million to 3 million indigent households with an additional 18.250 billion alone; DOH will increase budget for National Health Insurance Program, Doctors to the Barrios Program (1.742 billion) and Family Health and Responsible Parenting (2.504 billion) Increase in DOTC budget will be use for the acquisition of Maritime Disaster Response Helicopter, New Bohol (Panglao) Airport and Puerto princesa Airport Development under the PPP program

9. DENR Budget Highlights for 2012 • 16,990,868.00 budget for 2012 • Equals to 0.93% of the total 2012 Budget (1.816 trillion) • Osec/Central Office and 4 Staff Bureaus 5.188 billion (30.5% share) • EMB 778 million or 4.6% • MGB 709 Million 0r 4.2% • Regional Field Offices 9.302 billion or 54.7% • NAMRIA 910 million or 5.4% • PCSDS 54 million or 0.3% • NWRD 50 Million on 0.3% • Budget By Expense Class • 3.1 billion for Capital Outlay(18.8%)/4.8 Billion for PS (28.8%) and 8.9 billion for MOOE (52.4%) • Capital Outlay is Broken down as follows: • Land and land Improvement Outlays 403.668 million • Buildings and Structures Outlay 419.880 million • Office Equipment 413.528 million • Transport Equipment 87.707 million • Machineries and Equipment 379.016 million • Reforestation projects 1.495 billion According to the LBRMO, DENR should receive 17.480 billion which is slightly higher than the report of the DENR; 0.96% of the total 2012 budget or 0.12% of the GNP With an Automatic Appropriations of 488.652 million There is an increase of 5.867 billion vs. 2011 budget PROBLEM National Greening Program (NGP) There are approximately 8 million hectares of forestland that are unproductive, open and denuded or degraded and only 773,000 hectares were planted for the past 20 years. Only 38,000 hectares are planted each year thus It would take 280 million years to reforest or rehabilitate 8 million hectares. NGP target 250,000 hectares per year rom 2011 to 2016. However, only 84, 336 hectares were identified as NGP sites nationwide. However, for 2011 DENR targets 100,000 hectares which is short of the 250,000 hectares target under NGP

10. NATIONAL GREENING PROGRAM (NGP) • Problems: • Only 84,336 hectares were identified as suitable sites for NGP; • For 2011, only 100,000 hectares were the targets instead of the 250,000 hectares for the next 6 years; • What will happen to the remaining 150,000 hectares for 2011, will it be carried over the 2012 target; • Under your 2012 budget presentation, only 150,000 hectares are the target area under the NGP which technically is a carry over of the 2011 targets. What will happen on the 250,000 hectares target for 2012? • Why not consider the year 2012 as the start of the NGP instead of last year? You already missed 250,000 hectares in case we include 2011 and 2012 together. • What is now the actual accomplishment for under the NGP? • If you need 50 million trees for 100,000 hectares, then you need 125 million trees for 2012 alone. However for 2011, you only able to produce 27.3 million seedlings. You need to plant 100 million trees more or less to meet your demand for 2012. Can you really meet this targets? • If you will plant 77 million seedlings for 150,000 hectares in 2012, you have only 2 million seedling over the target of 75 million seedlings for the 100,000 hectares. Meaning, you are hiding your actual accomplishment and practically delayed the NGP for a year. Right or wrong? • You are not also in a hurry to meet your targets under the NGP because you only identified 84.336 hectares as sites for NGP. Meaning while you know that there are 8 million hectares of denuded, open and degraded and unproductive forestland, you cannot accurately find these 8 million hectares? TARGETS: 1.5 BILLION TREES IN 1.5 MILLION HECTARES nationwide for the next 6 years from 2011 to 2016 (an average of 250,000 hectares per year) Areas of Targets are as follows: Forestlands Mangrove and Protective Areas Ancestral Domain Civil and Military Reservations Urban Areas In active and Abandoned Mines Riverbanks and other suitable areas Identified only 84,336 hectares as sites of NGP For 2011, the targets are as follows: a, 60,00 hectares within community managed forestlands, including mangrove and coastal areas 20,000 hectares within protective areas 10,000 hectares in ancestral domains; 10,000 hectares in other areas