Module 1 Packet FM 413 - Public Finance PDF

COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP PROGRAMS MODULE 1 PACKET FM 413 – PUBLIC FINANCE MODULE 1 OVERVIEW: Welcome to Public Finance (FM326). There are other means or system where we can learn as efficient and as effective as the classroom meetings or discussion. One of that is the modular system. The module will provide topics that are summarized. Links on the net and video presentations are also provided for your further readings that will require you to perform activities as basis for assessing your performance. Your assessment activities will be given every after the module. meaning you will have nine activities for the whole cycle. I am Mrs. Vergie A. Salvoza, your professor for the subject FM 326. I will be responsible of giving your grade. If there are difficulties, questions and issues regarding the subject you can use my email address, cellphone and facebook/messenger. Let us have fun learning together! 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 1 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP COURSE CONTENT OF MODULE IN PUBLIC FINANCE: Course Code: FM 326 (Public Finance) Course Description: This course is designed to let the students understand the basic aspect of public finance, specifically the sources of government’s revenues, how it is appropriated and why the borrowings. The course also studies the different processes involve in revenue generation, budget appropriation, public expenditures and borrowings. MODULE 1 LEARNING OBJECTIVES: a. Describe the sources of public revenues. b. Discuss revenue allocation of the government. c. Explain expenditure patterns of the government. d. Discuss the budgeting process of the government. e. Understand and react to the borrowings of Philippine government. f. Describe the fiscal and monetary policies of the government. g. Explain issues regarding revenue generation, allocation and borrowings. 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 2 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP INTRODUCTION Public Finance as a field of study in the Philippines, is not given much attention because it is treated only as a branch of Economics. The subject Public Finance was given attention as a separate field of study from macro or micro-economics when the course Financial Management was offered in the College of Commerce, University of San Agustin. The subject Public Finance will bring awareness to students how government revenues are raised, spent and why the government need to borrow huge amount of money to finance its development efforts. Hoping against hope that the awareness will help students understand and become conscious of their roles as citizen of this country. One of the limitations in studying the subject, Public Finance is the lack of textbook tailored fit for Philippine governance. This hand book will provide common understanding about the scope, terms, concepts and terminologies between students and faculty regarding the way Public Finance should be understood. The importance of Public Finance as a subject to be taught in Colleges and Universities should not be negated. Every citizen should be well informed how the government raises revenues, why it has to allocate funds fairly and justly and why corruption should have no place in the huge debts of the country. The necessity of understanding Public Finance is a primordial responsibility of every College student specifically the Financial Management students. Someday, they will become financial analyst of government organizations. As such, they need to understand the allocation functions, distribution functions and stabilization functions of the government. Public Finance is the only subject that deals with government finances. It covers issues in revenue generation, public expenditure, public borrowings and even 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 3 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP leadership. It will bridge passivity of students regarding issues confronting governance. Amidst the proliferation of fake news, their awareness will help them understand what is fake from real regarding dispensation of functions by government authorities. Career opportunities in public finance ranges from investment banking, Research and being Professors in the Academe. In Investment banking career in public finance entails raising funds for the development of public projects. Investment bankers help government entities by raising funds through underwriting debt securities such as bonds and commercial papers. Investment bankers also helps in analyzing project finance opportunities for large government projects and advising government companies on merger, acquisitions and divestments. Most of public finance professionals eventually become researchers. Many large banks, government entities and world organizations require public finance professionals to consolidate data for sound decision-making. A lot of public finance professionals eventually go on to become professors and teach public finance in colleges and universities. 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 4 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP COURSE CONTENT Module 1 The meaning of Public Finance, the nature and scope, the functions, the objectives, and its importance. 1. Meaning of Public Finance Basically, Public Finance is the study of the income and expenditure of the State. It deals only with the finances of the Government. It includes on the study of the role of government in the economy. It is the branch of Economics which assesses the government revenue and expenditures of the public authorities and the adjustment of one or the other to achieve desirable ends. 2. The Nature and Scope of Public Finance Public Finance is both a Science and an Art. It is a science because we study about the principles, problems and policies underlying the spending and raising of funds by public authorities. It teaches how to collect taxes efficiently and effectively and how to spend the same efficaciously. It is an art, because it enables public authorities or concerned personnel to adopt the principles and policies in solving the financial problems of the Government in the best possible way to the maximum benefit of the society. The scope of public finance consists of the study of the collection of funds and their allocation between various branches of government activities which are regarded as essential duties of the State. Specifically, it includes the four activities namely: a. Public Revenues – studies the various sources of revenues of the government. b. Public Expenditures – studies the main principles of public expenditure. c. Public debt – studies borrowing activities of the government. 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 5 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP d. Financial Administration – studies government controls or the problem of financial management. It covers matters on budget preparation, approval from legislature, the audit of Government accounts and other related matters. 3. Functions of Public finance includes the following: a. Allocation function – There are two types of goods in an economy, the private goods like car is paid by a private individual so there is exclusivity in it. In contrast, the public goods like roads, public hospitals, bridges, schools and etc. are non- exclusive. The allocation functions deal with the allocation of such public goods. The government has to perform various functions such as maintaining law and order, defense against foreign attacks, providing health care and education, building infrastructure and etc. It needs huge amount of expenditures by the government so therefore allocation should be efficient and effective, that would mean development for the country and the people. b. Distributive function – In a developing country like the Philippines, power distance is very glaring or disparity between the rich and the poor. The distribution function of public finance is to lessen the disparity or inequality between the rich and the poor through redistribution of income and wealth. In public finance there are three options or measures the government undertakes to bridge the gap. These are the following i. Progressive tax where higher taxes are charged to the rich or high- income group and exempt or giving subsidies to low income group ii. Progressive tax can be used to finance public service such as affordable housing, free education, health care and etc. iii. Higher taxes can be applied to luxury goods or goods that are purchased by higher income group like higher taxes imposed on luxury cars. 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 6 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP c. Stabilization function – Every economy experience instability like heavy inflation that sometimes led to recession, the stabilization function of public finance is to eliminate or reduce the impact of instability to the economy. Policies like deficit budgeting is used during the time of depression and surplus budgeting during the time of boom helps achieved the required economic stability. d. Growth function – Maintain steady growth like high levels of employment and price stability are the primary growth functions of the government. These are achieved by coming up with fiscal and monetary policies that facilitates the ends of growth functions. 4. The Objectives of Public Finance The main objective of public finance is how to generate efficiently funds for the government to finance its development activities. It ensures equitable distribution of income within the society and helps the government regulate economic activities. Public finance also ensures efficient, effective and accountable use of public resources as basis for economic development and poverty eradication through improved service delivery. 5. The Importance of Public Finance Prior to Great Depression or the severe worldwide economic depression, the importance of public finance was focused on war or aggressions were income of the State was used to finance the making of weapons and armaments. The importance of public finance was felt only in the 20 th century where every government after the Great Depression ensures social welfare of its citizen. 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 7 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP Module 2 Public Revenue Government/Public Revenue includes the meaning of Public Revenue, its sources and classification, Taxation as source of public revenue, other sources of public revenue and issues in public revenue generation. 1. The meaning of Public Revenue Public Revenue refers to the income of the government through all sources. According to Dalton, public revenue, in its wider sense, includes all the incomes or receipts which a public authority may secure during any period of time. In its narrow sense, public revenue includes only those sources of income of the public authority which are ordinarily known as “revenue resources”. https://www.yourarticlelibrary.com/finance/public-revenue-meaning-tax-revenue-non-tax- revenue-with-classification-of-public-revenue/26277 2. Sources and classification of Public Revenue SOURCES Public Revenue is of two types: (a) Tax Revenue; and (b) Non-tax Revenue. Tax Revenue refers to a fund raised through various taxes, which is further classified into: Direct and Indirect Taxes. Direct Taxes  Corporation Tax- refers to taxes against profits earned by businesses during a given taxable period.  Income Tax – refers to taxes that government impose on financial income generated by all entities within their jurisdiction.  Expenditure Tax – refers to the taxation plan that replaces the income tax, which is based on the rate of spending. 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 8 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP  Service Tax – refers to taxes payable on service provided by the service provider. Indirect Taxes  Custom Duties – are indirect taxes levied on goods imported into a country as well as on goods exported from a country.  Excise Duties – are levied by the state on the manufacture or production of goods.  Sales Tax – are levied on the sale or purchase of goods. Non-tax Revenue refers to public income received through the administration, commercial enterprises, gifts and grants. Commercial Revenue  Refers to all types of revenue which are derived by the government from public enterprises by selling their goods and services. Administrative Revenue  Fees – payment to the government for the services that is rendered to the people.  Escheat – refers to the income of the state which arises out of the property left by the people without a legal heir.  Fines – payment which is made by lawbreakers to the government by an economic punishment Grants and Gifts  Gifts – voluntary contribution from private individuals to the government fund for specific purposes. 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 9 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP  Grants – are received from foreign countries in the form of foreign aid, which may be military, economy, and technical type. Other Income  Income from public property  Deficit financing  Voluntary loans CLASSIFICATION Seligman’s Classification  Gratuitous Revenue – refers to revenues received by public authorities free of cost and are voluntary in nature. Gifts, donations, and grants fall into this category.  Contractual Revenue – refers to revenues which arise from the contractual relations between the public authority and the people. Fees and prices fall into this category.   Compulsory Revenue – refers to income derived from administration, justice, and taxation. Taxes, and fines fall under this category. Dalton’s Classification  Taxes – as: (a) Taxes; (b) Compulsory Loan; (c) Income arising as tributes and indemnities; (d) Pecuniary Penalties for offenses.  Prices – subdivided into: (a) Receipts from public property; (b) Receipts from public enterprises; (c) Fees or payment made for services; (d) Receipts of Voluntary public loans. 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 10 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP Taylor’s Classification  Grants and Gifts  Administrative Revenue  Commercial Revenue  Taxes https://www.yourarticlelibrary.com/finance/public-revenue-meaning-tax-revenue-non-tax-revenue-with-classification- of-public-revenue/26277 http://www.economaldives.net/2012/04/topic-20-income-and-expenditure-of_8322.html https://www.accountingnotes.net/financial-management/public-revenue/public-revenue-meaning-and- classification/10022 3. Taxation as a Source of Public Revenue  Taxation is through the Bureau of Internal Revenue which comes under the Department of Finance.  Individual resident foreigners who derive their income from all sources in the Philippines and in foreign countries are taxed from 1-35% on gross compensation income.  20% on royalties, prizes, and winnings. Income derives from royalties includes earnings from copyrights, patents, and trademarks. For prizes and winnings, contests, awards and prizes for commercial and non-commercial contests are generally taxable. If the prize is 10,000 and below, it is taxable under section 24A. If it is above 10,000 then the final tax of 20% is applied.  20% interest on bank deposit and substitute arrangements and 5% capital gains tax on sale of realty.  Taxation is a way of raising income in order to defray the necessary expenses of the government.  It is the inherent power of the state to demand contribution to finance all the government expenses. 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 11 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP a. The Theory and Incidence of Taxation i. Benefit Theory – according to this theory, the state should levy taxes on individuals according to the benefit conferred to them. The more benefits a person derives from the activities of the state, the more he should pay to the government. ii. The Cost of Service Theory – if the state charges actual cost of the service rendered form the people, it will satisfy the idea of equity or justice in taxation. The cost of service principle can no doubt be applied to some extent in those cases where the services are rendered out of prices and are a bit easy to determine. iii. Ability to Pay Theory – the citizens of a country should pay taxes to the government in accordance with their ability to pay. b. Classification of taxes based on Tax base A Tax Base is a total amount of assets or income that can be taxed by taxing authority, usually by the government. It is used to calculate tax liabilities. This can be in different forms, including income or property. i. Property Tax – tax that is imposed on one’s property, whether it is real property or personal property in proportion with the property’s value. ii. Income Tax – tax on all yearly profits arising from property, profession, trades or offices, or as a tax on a person’s income, emoluments, profits, iii. and the like. iv. Estate Tax – tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death. v. Donor’s Tax – tax on a donation or gift, and is imposed on the gratuitous transfer of property between two or more persons who are living at the time of the transfer. 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 12 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP c. Classification of Taxes based on Tax incidence i. Direct Tax – tax that is directly demanded from and paid by the taxpayers. This includes Personal Tax, Corporate Tax, Wealth Tax, Interest Tax, Gift Tax, Expenditure Tax, etc. ii. Indirect Tax – tax that is demanded from a certain person in the intention as well as expectation that the particular person shall indemnify himself at the expense of another. These are imposed on goods and commodities. This includes Sales Tax, Excise Duty, Service Tax, Customs Duty, VAT, etc. iii. Specific Tax- tax that is of fixed amount that is imposed by the head or number, or by some of the standard of the weight and measurement. iv. Ad Valorem Tax – tax that is of fixed proportion in relation with the value of the property in respect to which the tax is assessed. d. Classification of Taxes based on Tax rate A tax rate is the percentage at which an individual or corporation is taxed. The tax rate is the tax imposed by the federal government and some states based on an individual’s taxable income or a corporation’s earnings. i. Proportional Tax – tax that is based upon the fixed percentage vis-a-vis the amount of the property or other bases on which to be taxed. ii. Progressive or Graduated Tax – tax rate increase upon the increase of the base rate. iii. Regressive Tax – tax rate decreases upon the increase of the base rate. https://batasnatin.com/law-library/taxation-law/general-taxation/277-sources-of-revenues-taxation.html https://www.yourarticlelibrary.com/finance/public-revenue-meaning-tax-revenue-non-tax-revenue-with-classification- of-public-revenue/26277 https://kittelsoncarpo.com/taxes/ https://economicsconcepts.com/diffusion_theory_of_taxation.htm https://www.yourarticlelibrary.com/economics/taxation/incidence-of-taxation-meaning-shifting-the-burden-of-a-tax-and- other-details/38154 https://www.investopedia.com/terms/t/taxbase.asp https://www.investopedia.com/terms/t/tax_incidence.asp 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 13 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP https://www.yourarticlelibrary.com/economics/taxation/what-is-tax-meaning-and-classification-of-tax-explained/38119 https://www.investopedia.com/terms/t/taxrate.asp 4. Issues in Public Revenue Generation a. We have some of the highest income tax rates in the region. Principle of Taxation – High income taxes could discourage firms from producing more goods or employees from working more hours. Hence, a good tax system makes sure that income tax rates are not too high so as to discourage economic activity. Problem – The Philippine tax system has some of the highest income tax rates in the region compared other ASEAN countries. In 2016, our corporate income tax was at 30%, which turns off foreign investors. Our personal income tax rate was at 32%. b. Too many goods and services are not being taxed. Principle of Taxation – A good way to reduce high tax rates is to expand the tax base, or the set of goods and services which are taxed. The same (or even a larger) tax revenue can be collected as before by imposing a lower tax rate on as many goods and services as possible. Problem – In the Philippines, too many goods and services are exempted from taxes. c. Too many people are evading the tax system. Principle of Taxation – Another way to widen the tax base (in order to reduce tax rates) is to tax as many people as possible. But the more people can get away with not paying their taxes (or otherwise hide their income), the more difficult it will be to reduce tax rates. Problem – Too many Filipinos can get away with not paying taxes. There are tax evaders who are nearly impossible to catch and prosecute given our overly strict bank secrecy law. In addition, “compensation earners” or those 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 14 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP who earn salaries or wages, end up paying more in taxes than the self- employed and the professionals (who have some ability to hide part of their incomes). As a result, from 2010 to 2013, compensation earners earned 60% of total incomes in the country but paid as much as 80% of all taxes. d. The transfer of PhilHealth fund amounting to 20 Billion pesos legal or illegal? Show the narrative of Secretary Ralph Recto and the narrative of Prof. Cielo Magno a financial analyst. Module 3 Budget Appropriations and Expenditure Budget Appropriations and Expenditures includes the meaning of Appropriations and Expenditures, the process of budget formulation, the Appropriation Act, the theory of public expenditure, its classification, purposes/functions, reasons for increasing public expenditure, guiding principles/standards, and issues in budget appropriations and expenditures. 1. The meaning of Appropriations and Expenditures Appropriations are annual decisions made by Congress about how the government spends some of its money. In general, the appropriations process addresses the discretionary portion of the budget – spending ranging from national defense to food safety to education to employee salaries, but excludes mandatory spending, such as Medicare and Social Security, which is spent automatically according to formulas. An expenditure represents a payment with either cash or credit to purchase goods or services. An expenditure is recorded at a single point in time (the time of purchase), compared to an expense which is allocated or accrued over a period of time. https://www.crfb.org/papers/updated-appropriations-101 https://corporatefinanceinstitute.com/resources/knowledge/accounting/expenditure/ 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 15 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP The process of budget formulation (includes budget preparation, budget legislation, budget execution and budget accountability) a. BUDGET PREPARATION  Budget Call - Budget preparation starts with the Budget Call2, which sets the parameters and procedures to guide agencies in preparing their respective proposed budgets.  Citizen Engagement - Agencies engage citizens as they prepare their proposed budgets, through the Budget Partnership Agreements with civil society organizations (CSOs), Bottom-Up Budgeting (BUB), and other participatory budgeting mechanisms.  RDC Consultations - Agencies consult with Regional Development Councils (RDCs) to make sure that their respective budget proposals are aligned with the regions’ development needs and priorities.  Program Convergence - Lead and contributing agencies for each program priority of the government (for example, tourism) meet and synergize their proposed budgets to meet target outcomes.  Agency Tier 1 Proposals - Agencies prepare the forward estimates (FEs) or current costs of their ongoing programs and projects and submit these for the “Tier 1” stage of 2TBA.  Tier 1 Deliberations - Agencies prepare the forward estimates (FEs) or current costs of their ongoing programs and projects and submit these for the “Tier 1” stage of 2TBA.  Budget Priorities Framework - This document spells out the economic forecasts and fiscal targets for the budget year, the total cost of ongoing spending under Tier 1, and identifies the fiscal space: the available resources for new programs and projects or the expansion of existing ones. The Framework defines priority sectors and locations, and other 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 16 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP guidelines that agencies must comply with in preparing their Tier 2 budget proposals.  Agency Tier 2 Proposals - After undertaking further consultations with CSOs, RDCs, and other agencies, agencies prepare their proposals for new programs and projects or the expansion of existing ones. Agencies submit both their proposed Tier 1 and Tier 2 budgets through the Online Submission of Budget Documents System.  Tier 2 Deliberations - Like in Tier 1, the DBM conducts TBH and ERB to review the Tier 2 proposals of agencies. Other government bodies are also involved in reviewing such proposals: the NEDA Investment Coordination Committee (ICC) for capital projects costing P1 billion or more and for PPP-related proposals; the DBCC Subcommittee on Program & Project Appraisal (SC-PPA) for new or expanded programs or projects costing P300 million to less than P1 billion; the NEDA Infrastructure Committee (InfraComm) for all infrastructure projects in line with the Three-Year Rolling Infrastructure Program (TRIP); the GCG and DoF for the proposals of GOCCs; and the MITHI committee for ICT projects.  Presentation to the President and the Cabinet - The DBM, DoF, and NEDA, with the BSP (as the DBCC) present the proposed Budget before the President and the Cabinet for discussion and approval.  Consolidation, Validation, and Confirmation - The DBM validates the  approved budgets and consolidates these into the Budget of Expenditures and Sources of Financing (BESF) and other budget documents.  The President’s Budget - The 1987 Constitution mandates the President to submit the Proposed Budget to Congress within 30 days from the opening of the regular session of Congress. The proposed Budgets for 2012 to 2016 had been consistently submitted one working day after the opening of the regular session. In addition, the comprehensiveness and level of detail of the Proposed Budget had been improved. 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 17 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP b. BUDGET LEGISLATION  House Deliberations - The Budget bill is tackled by Congress like any legislation. Thus, the Committee on Appropriations of the House of Representatives holds public hearings on the proposed Budget. The Committee then sponsors the recommended General Appropriations Bill (GAB) before the House in plenary. Once approved, the House transmits the GAB to the Senate.  Senate Deliberations - Unlike normal legislation, the Constitution first requires the House to approve the GAB before the Senate considers the same. However, to expedite the process, the Senate Committee on Finance usually starts hearings on the President’s Budget well before the House formally transmits the GAB. Like in the House, the Committee on Finance sponsors the GAB in plenary, which then approves the Senate version of the GAB.  Bicameral Deliberations - After the House and the Senate approve their versions of the GAB, they each form a panel of lawmakers that will constitute the Bicameral Conference Committee or Bicam.  Ratification and Enrolment - The Harmonized or “Bicam” version of the GAB is then submitted back to both Houses, which then vote to ratify the final GAB. Both Houses then submit or “enrol” the ratified GAB to the President.  Enactment - Budget legislation ends when the President signs the GAA into law. Prior to this, the President may veto or set conditions for implementation of certain items in the GAA, which are then specified in the President’s Veto Message. Unlike other legislation, the President may effect a “line item veto” of specific provisions of the GAB. If in case Congress fails to pass the GAB on time, the President may re- enact the previous year’s GAA until such time that the fresh Budget is passed. The Budgets from 2011 to 2016 have all been enacted on time. 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 18 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP c. BUDGET EXECUTION  Early Procurement Activities - Agencies are required to prepare their Annual Procurement Plans and other bid documents before the new fiscal year starts. Moreover, the government adopted a policy of allowing agencies—such as the DPWH and others which implement infrastructure projects—to bid their projects before the GAA is enacted. Early bidding allows agencies to award their approved projects as soon as the new GAA takes effect.  Budget Program - Agencies submit Budget Execution Documents (BEDs) to outline their financial plans and performance targets for the year. The DBM consolidates these plans into the budget program, which breaks down the allotment and cash releases for each month of the year.  Allotment Release - The DBM issues allotments to agencies to authorize the latter to incur obligations. With the GAA-as-Release Document, the  enacted Budget itself serves as the allotment release for all budget items except those contained in a negative list that are issued the Special Allotment Release Orders (SAROs) after agencies comply with the documentary requirements.  Obligation - Agencies incur liabilities that the national government will pay for, as they implement programs, activities, and projects. Agencies incur obligations when they hire new staff or enter into a contract with suppliers of goods and services that are subject to a transparent and competitive procurement process.  Cash Allocation - The DBM issues disbursement authorities, such as the Notice of Cash Allocation (NCA), to authorize an agency to pay the obligations it incurs. To ease budget execution, the DBM issues comprehensive NCAs to cover the cash requirements of agencies for the first semester. 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 19 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP  Disbursement - Monies are paid out from the Treasury to settle obligations that government incurred for the delivery of services to citizens. To ease the payments process, the DBM introduced checkless and cashless disbursement schemes. The DoF-BTr also implemented the TSA to improve the management of the government’s cash resources. d. BUDGET ACCOUNTABILITY  Performance Targets - Budget accountability starts with the setting of targets that agencies are to be held accountable for. With the Performance-Informed Budget, the GAA now contains the targeted  outcomes, outputs and performance indicators of each agency. These targets are also reflected in agencies’ BEDs (see “Budget Program” under Budget Execution), which effectively serve as the agencies’ plans for the year.  Citizen Engagement - To empower citizens during Budget Accountability, the government ensures transparency--agencies disclose their budgets, reports, and other relevant information through the Transparency Seal; and make available data in open format. In addition, the government also publishes the People’s Budget along with other technical documents and reports. Citizens participate formally in the monitoring of programs and projects through BPAs, BUB, and other mechanisms. In addition, CSOs participate in the audit process through the COA’s Citizens’ Participatory Audit.  Monitoring and Evaluation - Agencies must set-up and implement monitoring and evaluation mechanisms to ascertain the effectiveness of the programs and projects on which they spend. Agencies must have internal control mechanisms to ensure that public funds are spent and accounted for properly.  Agencies’ Accountability Reports - Agencies submit Financial Accountability Reports on a monthly or quarterly basis, as required by the 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 20 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP DBM and the COA. These reports are submitted online through the Unified Reporting System.  Performance Review - The DBM reviews the financial and physical performance of agencies against their targets. Review mechanisms include: the ZBB, to evaluate the efficiency and effectiveness of programs; and the FTDUs, to closely monitor agencies’ performance and address bottlenecks proactively.  In -Year Reports - The DoF and the DBM regularly publish snapshots of the government’s fiscal performance, revenue collections, debt, and expenditures.  DBCC Mid-Year Report - The DBCC publishes a comprehensive report on macroeconomic developments, the fiscal situation of the national government, and the performance of key programs and projects. The Mid- Year Report also discusses any adjustments that the DBCC makes to the government’s economic projections and fiscal targets for the rest of the year.  DBCC Year-End Report - The DBCC publishes another comprehensive report covering the full year. Compared to the Mid-Year Report, the Year- End Report provides more discussions and details about actual revenue and expenditure outturns against program, and the financial and physical performance of priority programs.  Audit - The COA reviews the accounts of each agency to ascertain if public funds are used properly, according to the law and standards, and with value-for-money. The COA produces audit reports for each agency; a whole-of-government Annual Financial Report; as well as Special Audit Reports. The DBM uses COA’s Audit Reports in confirming agency performance, determining budgetary levels for agencies, and addressing issues in fund usage. 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 21 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 22 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP 2. The Appropriation Act  The General Appropriations Act (GAA) is one of the most important legislations that Congress annually passes.  It defines the annual expenditure program of the national government and all of its instrumentalities. The expenditure program includes all programs and projects that are supposed to be funded out of government funds for the year.  President Rodrigo Roa Duterte today signed into law the Fiscal Year (FY) 2020 General Appropriations Act (GAA), which appropriates PhP4.1 trillion for the operations of the national government. http://www.pep-net.org/sites/pep-net.org/files/typo3doc/pdf/files_events/CBMS_nov2006/Vicerra-pa.pdf 3. The theory of public expenditure Public Expenditure – refers to the spending made by the government of a country on collective needs and wants. Refers also to the value of goods and services bought by the state in its articulations. Theories: a. Wagner’s Hypothesis  As the national income increases in amount, the percentage of outlay for government supplied goods is greater.  Increase in public expenditure was the natural result of economic growth and continued pressure for social progress.  This law seeks to establish the functional relationship between the rate of growth of an economy and government activities with the result that the government sectors grow faster than the economy expenditure. 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 23 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP b. Peacock-Wiseman Hypothesis  The public expenditure increases and makes the inadequacy of the present revenue. Then a movement must take place so that the older level of expenditure and taxation to a new and higher level is the displacement effect. During the period of emergency or of major social disturbances such as war and depression that most of the upward steps in public expenditure had occurred. c. Colin-Clark’s Critical Limit of Taxation and Expenditure  It is concerned with the tolerance level of taxation. By maximum limit of the tolerance level is 25% of GNP.  When the share of government expenditure exceeds 25% in the GNP, inflation occurs even in balanced budget. d. Stanley Please Hypothesis  An attempt to increase domestic saving by increasing performance is frustrated by the growth of current government expenditure which is casually related to tax effort. This is referred to as please effect or please hypothesis.  This means that the countries which had pushed up their tax ratios over time had not necessarily increased their saving performance and that countries with high tax ratios were not necessarily high savers. e. Marginal Utility Approach  Developed in 1920s, this theory suggested an economic approach to determine the composition of expenditure and budgeting.   According to this theory, the government spends its limited income on alternative services in such a way that the marginal benefit is the same on all items. 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 24 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP f. Public Goods Approach  This theory states that goods that are collectively consumed are non-rival and non-excludable.  Public goods are those for which no private mechanism exists for providing them and which are consumed in equal amounts by all. People who have not paid for them cannot be excluded from their enjoyment. g. Public Choice  The recognition of the importance of the political process in revealing public preferences has, in due course, contributed to the growth of “public choice” theories. https://kalyan-city.blogspot.com/2011/02/what-is-public-expenditure-meaning-and.html http://www.economicswebinstitute.org/glossary/pubexp.htm https://kalyan-city.blogspot.com/2011/02/wagner-law-of-increasing-state-activity.html https://www.accountingnotes.net/financial-management/public-expenditure/analysis-of-public-expenditure- growth-3-theories/10016 http://learntoeconomics.blogspot.com/2014/04/theories-of-public-expenditure.html https://study.com/academy/lesson/public-good-in-economics-definition-theory-examples.html https://www.econlib.org/library/Enc1/PublicChoiceTheory.html 4. Classifications of public expenditure a. Revenue and Capital Expenditure Revenue Expenditure – refers to the estimated expenditure of the government in a fiscal year which does not either create assets or cause a reduction in liabilities. Capital Expenditures – refers to the estimated expenditure of the government in a fiscal year which either creates assets or causes a reduction in liabilities. b. Transfer and Non-transfer Expenditure Transfer Expenditure – relates to the expenditure against which there is no corresponding return. 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 25 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP Non-transfer Expenditure - relates to the expenditure which results in creation of income or output. c. Productive and Unproductive Expenditure Productive Expenditure – expenditure on infrastructure development, public enterprises, or development of agriculture increase productive capacity in the economy and bring income to the government. Unproductive Expenditure – expenditures in the nature of consumption such as defense, interest payments, expenditure on law and order, public administration, do not create any productive asset which can bring income or returns to the government. d. Development and Non-development Expenditure Development Expenditure – all expenditures that promote economic growth and development are termed as development expenditure. Non-development Expenditure – unproductive expenditures are termed as non-development expenditures. e. Grants and Purchase Price Grants – are those payments made by a public authority for which there may not be any quid-pro-quo, i.e, there will be no receipt of goods and services. Purchase Price – expenditures for which the government receives goods and services in return. http://www.simplynotes.in/classification-of-public-expenditure https://www.yourarticlelibrary.com/economics/public-expenditure-meaning-importance-classification-and-other- details/38100 5. Purposes/functions of public expenditure a. Economic Stabilization b. Production c. Economic Growth d. Economic Development e. Distribution 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 26 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP f. Price Stability g. Full Employment h. Balance of Payment (BOP) Equilibrium i. Equitable Distribution of Income 6. Reasons for increasing public expenditure a. Economic Reasons  Increase the national income and the expansion of the establishment of new development project.  State fight recession through expansion in public spending, provide economic benefits for entrepreneurs to increase competitiveness. b. Social Reasons  Increasing migration to the cities and the creation of slums in need of government assistance programs.  Increased social awareness has led to the need to develop educational and health services. c. Political Reasons  The development of political thought in many communities, and the consequent development of the spread of many of the principles and systems of democracy that lead to the different look of citizens to public services on a truly mind of their rights, and the duty of the duties of the government.  Growing feeling by governments of responsibility towards the communities in the provision of minimum public services such as education and health.  Military spending increased. d. Financial Reasons  Ease of borrowing in the modern era, which led to the large number of asylum countries to public loans to get the necessary revenues to cover the deficit, resulting in an increase in public spending. 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 27 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP  There is a surplus in public revenues, leading to encourage the government to spend. e. Virtual Reasons  The increase in the size of public expenditures, does not necessarily mean an increase in the real benefit of public services, and this is what is known as virtual increase of public spending, which do not result in an increase in the benefit, it might be because this kind of increase to the following reasons: (a) deterioration in the value of money; (b) urbanization and population growth; and expanding the territory of countries. 7. Guiding principles/standards of public expenditure Expenditure decisions should be guided by the following standards, among others: a. Economy b. Benefit c. Surplus d. Sanction e. Elasticity f. Neutrality g. Productivity h. Equitable Distribution 8. Issues in budget appropriations and expenditure a. The intelligence fund of VP Sara Duterte. Is it allowed or dis-allowed by COA? b. The unprogrammed funds issue in the Marcos admin’s 2024 budget. c. Why is government underspending a problem? 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 28 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP Module 4 Assessment and Monitoring of Public Funds Assessment and Monitoring of Government Allocation and Expenditures includes the executive control, the legislative control, the DBM control system, the departmental control over budget expenditure, and the COA control system. 1. The executive control As a branch of the government, the executive sets the overall direction of national policy. The executive power is vested in the President of the Philippines. The following are the powers of the executive: a. Removal Power – refers to the power to appoint officials for certain position. b. Control Power – refers to the power to alter, or nullify, or modify, or set aside what subordinate officer had done in the performance of his duties and to substitute the judgment of the former for that of the latter. c. Military Power – includes the power as the commander-in-chief, suspend the writ of habeas corpus, and declaration of martial law. d. Pardoning Power – the president may grant reprieves, commutations, and pardons, and remit fines and forfeitures, after conviction by final judgment. e. Borrowing Power – the president may contract or guarantee foreign loans on behalf of the Republic of the Philippines with prior concurrence of the Monetary Board. f. Diplomatic Power – the president is the spokesperson of the nation on external affairs. He may also deal with foreign states and governments, extend or withhold recognition, maintain diplomatic relations, enter into treaties, and transact business on foreign relations. g. Budgetary Power – within 30 days from the opening of every regular session, the President shall submit to Congress a budget or expenditures and sources of financing, including receipts from existing and proposed revenue measure. 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 29 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP h. Informing Power – the President shall address Congress at the opening of its regular session. He may also appear before it at any other time. i. Other Power – Call to Congress to a special session; Approve or Veto Bills; Deport Aliens; Consent to deputation of government personnel by COMELEC and discipline them; Exercise emergency and tariff powers; Power to classify or reclassify lands. 2. The legislative control As a branch, legislative is composed of the Senate, and the House of Representatives. The following are the powers of the legislative: a. General Legislative Power – consists of enactment of laws. b. Specific Legislative Power – it has reference to powers which the constitution expressly and specifically directs to perform or execute. c. Executive Power – power to appoint officers; affirm treaties; confirm presidential appointees through Commission on Appointments; removal power. d. Supervisory Power – exercises considerable control and supervision over the administrative branch. e. Electoral Power f. Judicial Power g. Miscellaneous Power 3. The DBM control system The Department of Budget and Management is an executive body under the office of the President of the Philippines. The DBM is responsible for the formulation and implementation of the National Budget. General Functions:  Formulates the overall resource application strategy to match the government’s macro-economic policy; 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 30 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP  Prepares the medium-term expenditure plan, indicating the programming, prioritization, and financing of capital investment and current operating expenditure requirements of medium-term sectoral development plans;  Undertakes the formulation of the annual national budget in a way that ensures the appropriate prioritization and allocation of funds to support the annual program of government;  Develops and administers a national accounting system essential to fiscal management and control;  Conducts a continuing study of the bureaucracy and assesses as well as makes policy recommendation on its role, size, composition, structure and functions to establish a government bureaucracy imbued with a spirit of public service;  Establishes the rules and procedures for the management of government organization resources i.e., physical, manpower and other resources,  formulates standards of organizational program performance; and undertakes or provides services in work simplification or streamlining of systems and procedures to improve efficiency and effectiveness in government operations;  Conceptualizes and administers the government’s compensation and position classification plan; and  Monitors and assesses the physical as well as the financial operations of local government units and government-owned and/or – controlled corporations. In support of the government’s thrust towards efficient, transparent, and accountable delivery of public services, the Department of Budget and Management (DBM) has been pushing for the modernization of budgetary practices in the country. And a key factor in the achievement of this goal is the passage of the Budget Reform Bill (BRB), a landmark measure that will introduce 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 31 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP and implement broad reforms in the entire budget process in the Philippines – from budget planning, to budget execution, to tracking and monitoring. 4. Departmental control over budget expenditure of The Department of Public Works and Highways. The Department of the Interior and Local Government The Department of National Defense Department of Social Welfare and Development The Department of Health The Department of Transportation (DOTr) The Department of Agriculture The Department of Environment and Natural Resources The Judiciary The Autonomous Region in Muslim Mindanao 5. The COA control system COA is an independent constitutional commission established by the Constitution of the Philippines. It has the primary function to examine, audit, and settle all account 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 32 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP ts and expenditures of the funds and properties of the Philippine Government. 7 Functions of the Commission  Auditorial  Rule Making  Reportorial  Quasi-Judicial and Adjudicatory  Recommendatory  Limited Accounting  Custodial Archival The Audit Framework 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 33 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP Audit Reports:  Annual Audit Report (AAR) – report prepared at year-end on the results of audit on the accounts and operations of an Agency. It is transmitted to the head of the agency/auditee not later than the deadline set by the commission.  Consolidated Annual Audited Report (CAAR) – audit report on the results of audit of a national government agency with regional offices and field/operating units; and for a government corporation with regional branches and/or field offices. It is the consolidated report of the head office and the regional/division/ district/branch/field offices and subsidiaries, if needed/required, of such agency.  Management Letter – an audit report on the results of audit of the regional/branch office, field/operating unit, staff bureau and line office with complete set of books of accounts but no financial statement submitted as of the deadline set by COA and league/federation of local government units and local elective officials. https://www.coa.gov.ph/coa_at_a_glance/index.html#audit-framework https://www.youtube.com/watch?v=DDE_rlnvnd8 6. Issues in assessment and monitoring of public funds: Identify at least one issues of corruption in the local and national government written in mainstream media. Module 5 Public Borrowings Public Borrowings or Public Debts includes the meaning of public borrowings, its process, institutions for government’s borrowings, and issues in public borrowings. 1. The meaning of public borrowings 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 34 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP Public borrowing is the money that the government borrows to fund public spending, the total amount of money that a country’s central government has borrowed to fund its spending on public services or benefits. Public debt may be classified according to source: (1) internal or domestic, and (2) external or foreign. Public borrowing may also be categorized as (1) direct borrowings of both the national and the local governments, and (2) guaranteed and non-guaranteed debt of government corporations, and (3) debt of monetary institutions. Public debt may also be grouped according to maturity: (1) short-term debt (payable within one year), (2) medium term debt (payable after one year but not beyond five years), and (3) long-term debt (payable beyond a period of five years). https://www.bartleby.com/essay/Public-Borrowing-in-the-Philippines-FKDZGJE3RYYA https://opendocs.ids.ac.uk/opendocs/bitstream/handle/20.500.12413/3584/pidswp8103.pdf?sequence=1 The process of public borrowings The Structure of Philippine Public Debt Four Stages of Public Debt according to Angel Yoinco:  Borrowing the Funds  Spending the Funds  Raising Revenue for Payments  Actual Debt Repayment https://www.slideshare.net/KarenAlanSamonte/public-debt-philippines 2. Institutions for government’s borrowings and their nature of involvement a. Bangko Sentral ng Pilipinas Under Philippine law, all government borrowing, whether peso- or foreign- currency denominated, require the approval of the Monetary Board. BSP staff examine the effects of these borrowings on monetary aggregates, foreign exchange reserves, the balance of payments and the sustainability of external 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 35 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP debt. The implications of these borrowings for monetary policy are also considered. Within the BSP, the national government is able to coordinate monetary policy and public debt management through a seat on the Monetary Board. The government representative on the Monetary Board is currently the Secretary of the Department of Finance (DoF). In instances that the DoF Secretary is unable to attend, the usual substitute has been the Treasurer of the Philippines. b. National Economic Development Authority Beyond the confines of the BSP, its participation in macroeconomic coordination is through the Board of the National Economic and Development Authority NEDA Board. To assist the NEDA Board in the performance of its functions and duties, seven inter-agency cabinet level committees were formed. The BSP is also involved in two of these seven committees. These are the Development Budget Coordinating Committee (DBCC); and the Investment Coordination Committee (ICC). c. The Development Budget Coordinating Committee The DBCC is a policymaking body which approves the macroeconomic assumptions and economic policy directions for the preparation of the annual national government budget and for the requirements of the government’s medium-term development plan. The BSP participates in the DBCC as a resource institution providing background information on monetary and financial policy as well as perspectives on economic developments. The DBCC is the government body through which inflation targets are proposed by the BSP and approved by the economic managers who comprise the Committee. d. The Investment Coordinating Committee Its functions under Philippine law are: (1) Evaluate the fiscal, monetary and balance of payments implications of major national projects and recommend 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 36 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP to the president the timetable of implementation of these projects on a regular basis; and (2) Recommend to the president a domestic and foreign borrowing programme updated each year, and subsequently, submit to the president a status of the fiscal, monetary and balance of payments implications of major national projects. https://www.bis.org/publ/bppdf/bispap67s.pdf 3. Issues in public borrowings: a. Should Filipinos worry about the recent debts of the country? Is the debts of the country still manageable, defend your answer. (Present the lates debts of the country during the presentation of issues). Module 6 Fiscal and Monetary Policies of the Government Philippine Fiscal Policies includes the meaning of fiscal policy, its objectives, measures, and instruments in the Philippines. FISCAL POLICY 1. Meaning of fiscal policy Fiscal policy is the use of government spending and taxation to influence the economy. Governments use fiscal policy to influence the level of aggregate demand in the economy in an effort to achieve the economic objectives of price stability, full employment, and economic growth. The government has two levers when setting fiscal policy: a. Change the level and composition of taxation, and/or b. Change the level of spending in various sectors of the economy. https://courses.lumenlearning.com/boundless-economics/chapter/introduction-to-fiscal-policy/ 2. Objectives of fiscal policy 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 37 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP Generally following are the objectives of a fiscal policy in a developing economy:  Full employment  Price stability  Accelerating the rate of economic development  Optimum allocation of resources  Equitable distribution of income and wealth  Economic stability  Capital formation and growth  Encouraging investment https://www.economicsdiscussion.net/fiscal-policy/top-8-objectives-of-fiscal-policy/4694 3. Fiscal policy measures in the Philippines There are three main types of fiscal policy: a. Neutral: This type of policy is usually undertaken when an economy is in equilibrium. In this instance, government spending is fully funded by tax revenue, which has a neutral effect on the level of economic activity. b. Expansionary: This type of policy is usually undertaken during recessions to increase the level of economic activity. In this instance, the government spends more money than it collects in taxes. c. Contractionary: This type of policy is undertaken to pay down government debt and to cap inflation. In this case, government spending is lower than tax revenue. https://courses.lumenlearning.com/boundless-economics/chapter/introduction-to-fiscal-policy/ 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 38 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP Instruments of fiscal policy in the Philippines The tools of fiscal policy are taxes, expenditure, public debt and a nation’s budget. They consist of changes in government revenues or rates of the tax structure so as to encourage or restrict private expenditures on consumption and investment. Public expenditures include normal government expenditures, capital expenditures on public works, relief expenditures, and subsidies of various types, transfer payments and social security benefits. Government expenditures are income-creating while taxes are primarily income-reducing. Management of public debt in most countries has also become an important tool of fiscal policy. It aims at influencing aggregate spending through changes in the holding of liquid assets. During inflation, fiscal policy aims at controlling excessive aggregate spending, while during depression it aims at making up the deficiency in effective demand for raising the economy from the depths of depression. The following considerations may be noted in the adoption of proper policy instruments. https://www.economicsdiscussion.net/fiscal-policy/fiscal-policy-objectives-and-instruments-trade-cycle- control/14669 4. Issues in Fiscal Policy a. Is fiscal policy of the present government able to balance between tax rates and public spending, defend your proposition by showing facts. 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 39 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP Monetary Policy of the Government Monetary Policy includes the meaning of monetary policy, its objectives, and instruments in the Philippines. 1. The meaning of monetary policy Monetary Policy – measures or actions taken by the central bank to influence the general price level and the level of liquidity in the economy. Monetary policy actions of the BSP are aimed at influencing the timing, cost and availability of money and credit, as well as other financial factors, for the main objective of stabilizing the price level. Expansionary Monetary Policy – monetary policy setting that intends to increase the level of liquidity/money supply in the economy and which could also result in a relatively higher inflation path for the economy. Examples are the lowering of policy interest rates and the reduction in reserve requirements. Expansionary monetary policy tends to encourage economic activity as more funds are made available for lending by banks. This, in turn, increases aggregate demand which could eventually fuel inflation pressures in the domestic economy. Contractionary Monetary Policy – monetary policy setting that intends to decrease the level of liquidity/money supply in the economy and which could also result in a relatively lower inflation path for the economy. Examples of this are increases in policy interest rates and reserve requirements. Contractionary monetary policy tends to limit economic activity as less funds are made available for lending by banks. This, in turn, lowers aggregate demand which could eventually temper inflation pressures in the domestic economy. http://www.bsp.gov.ph/monetary/glossary.asp 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 40 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP 2. Objectives of monetary policy The primary objective of BSP's monetary policy is to promote a low and stable inflation conducive to a balanced and sustainable economic growth. Four most important objectives of monetary policy are the following:  Stabilizing the Business Cycle: Monetary policy has an important effect on both actual GDP and potential GDP. Industrially advanced countries rely on monetary policy to stabilize the economy by controlling business. But it becomes impotent in deep recessions.  Reasonable Price Stability: In a developing country like India the acceleration of investment activity in the face of a fall in agricultural output creates excessive pressure on prices. The food inflation in India is a proof of this. In such a situation, monetary policy has much to contribute to short-run price stability.  Faster Economic Growth: Monetary policy can promote faster economic growth by making credit cheaper and more readily available. Industry and agriculture require two types of credit— short-term credit to meet working capital needs and long-term credit to meet fixed capital needs.  Exchange Rate Stability: In an ‘open economy’—that is, one whose borders are open to goods, services, and financial flows— the exchange-rate system is also a central part of monetary policy. In order to prevent large depreciation or appreciation of the rupee in terms of the US dollar and other foreign currencies under the present system of floating exchange rate the central bank has to adopt suitable monetary measures. http://www.bsp.gov.ph/monetary/overview.asp https://www.economicsdiscussion.net/monetary-policy/monetary-policy-meaning-objectives-scope-role-and- targets-economics/31314 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 41 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP 3. Instruments of monetary policy in the Philippines Monetary Policy Instruments –the various instruments used by the BSP to achieve the desired level of money supply. These include (a) raising/reducing the BSP's policy interest rates; (b) increasing/decreasing the reserve requirement; (c) encouraging/discouraging deposits in the overnight deposit facilities (ODF) and term deposit facilities (TDF) by banks; (d) increasing/decreasing its rediscount rate on loans extended to banking institutions on a short-term basis against eligible collaterals of banks’ borrowers; and (e) outright sales/purchases of the BSP’s holdings of government securities. The BSP’s main policy instrument used to signal the stance of monetary policy is the overnight reverse repurchase (borrowing) rate. http://www.bsp.gov.ph/monetary/glossary.asp 4. Issues in Monetary Policy a. Is monetary policy of the present government able to fulfill its goals of maximum employment and stabilize inflation? Defend your answer by showing facts. 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 42 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP RUBRIC FOR GRADING CASE ANALYSIS Criteria/Percentage Scale 60-74% 75-84% 85-94% 95-100% % Below Standard Approaching At Standard Exceeds Standard Standard Clear explanation of key strategic 20% Shows little Shows some Shows adequate Shows superior issues understanding of the understanding of the knowledge of the knowledge of the The problems were clearly identified in issues, key problems, issues, key issues, key issues, key the discussions. and the company’s problems, and the problems, and the problems, and the There was a well-focused diagnosis of situation and strategic company’s present company’s present company’s present strategic issues and key problems that issues. situation and situation and situation and demonstrated a good grasp of the Executive summary strategic issues. strategic issues. strategic issues. company’s situation and strategic missing or poorly Executive Executive summary Effective issues. constructed summary adequate Executive inadequate Summary Executive summary clearly discussed the problem and solutions Valid arguments; analysis of issues 20% Critical issues and key Critical issues and Critical issues and Critical issues and performance with relevant supportive problems that key problems that key problems that key problems that detail supported the Case supported the Case supported the Case supported the Case  Logically organized, key points, key Analysis were not Analysis were not Analysis were Analysis were arguments, and important criteria for identified, analyzed, clearly identified, partially identified, clearly identified, evaluating business strategies were and supported. analyzed, and analyzed, and analyzed, and easily identified supported. supported. supported.  Critical issues and key problems that supported the Case Analysis were identified and clearly analyzed and supported. Appropriate analysis, evaluation, 20% Analysis of key Analysis of key Analysis of key Analysis of key synthesis for the specific industry change drivers and change drivers and change drivers and change drivers and identified the underlying issues the underlying the the underlying the the underlying the  There was complete data on which to were not identified. issues were issues were partially issues were clearly base a thorough analysis inadequately identified identified  Key change drivers underlying the identified. issues were identified.  Synthesis, analysis, and evaluations were clearly presented and supported in a literate and effective manner. Conclusions and recommendations are 20% Effective Effective Effective Effective congruent with strategic analysis recommendations recommendations recommendations recommendations,  Specific recommendations and/or plans and/or plans of action and/or plans of and/or plans of solutions, and/or of action provided. not provided. action inadequate. action were partially plans of action were 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 43 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP  Specific data or facts were referred to Specific data or facts Specific data or provided. provided. when necessary to support the analysis necessary to support facts were Specific data or Specific data or and conclusions. the analysis and inadequate to facts were facts were referred  Recommendations and conclusions conclusions was not support the analysis occasionally when necessary to were presented and supported in a provided. and conclusions. referred when support the analysis literate and effective manner. necessary to and conclusions. support the analysis and conclusions. Proper organization, professional 20% Key points were not Key points were Key points were Key points were writing, and logical flow of analysis. identified and poorly identified and partially identified clearly identified and APA formatting supported with a well supported with a and supported with supported with a  Logically organized, key points, key thought out rationale well thought out a well thought out well thought out arguments, and important criteria for based on applying rationale based on rationale based on rationale based on evaluating the business were identified. specific concepts or applying specific applying specific applying specific  Key points were supported with a well analytical frameworks concepts or concepts or concepts or thought out rationale based on applying to the data provided in analytical analytical analytical specific concepts or analytical the case. frameworks to the frameworks to the frameworks to the frameworks to the data provided in the Grammar, spelling, data provided in the data provided in the data provided in the case. punctuation, case. case. case.  Grammar, spelling, punctuation, 3rd professional writing, Grammar, spelling, Adequate grammar, Excellent grammar, person objective view, professional and syntax needs punctuation, spelling, spelling, writing, and syntax are observed. significant professional writing, punctuation, punctuation, improvement and syntax needs professional writing, professional writing, improvement and syntax and syntax 2020-2021 Module Packets for FM 326 (Public Finance) | College of Commerce |University of San Agustin, Iloilo City, 5000, Philippines Page 44 of 46 COLLEGE OF COMMERCE BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP GRADING RUBRIC FOR WRITTEN ASSIGNMENTS LEVELS OF ASSESSMENT BELOW MEETS EXCEEDS EXEMPLARY – 5 SCORE STANDARD – 2 STANDARD – 3 STANDARD – 4 PTS. PTS. PTS. PTS. ORGANIZATION Writing lacks logical Writing is coherent Writing is coherent Writing shows organization. It and logically and logically high degree of shows some organized. Some organized with attention to logic coherence but ideas points remain transitions used and reasoning of

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