Gov’t agencies told to refocus funds on national programs, leave rest to LGUs

The Department of Budget and Management (DBM) has ordered agencies to refocus their cash-based budgets for next year on programs and projects of national importance.

The call was made in view of a tightening fiscal space due to foregone revenues arising from measures to aid businesses’ fight against the pandemic and the bigger budgets to be allocated to local government units (LGUs) with the prospective implementation of the Supreme Court’s Mandanas ruling. In National Budget Memorandum No. 141 issued on June 15, Budget Secretary Wendel Avisado said the Corporate Recovery and Tax Incentives for Enterprises (CREATE) and the Financial Institutions Strategic Transfer (FIST) laws, plus the pending Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) bill would result in revenue losses amounting to P139.5 billion this year. CREATE slashed the corporate income tax rate to 20-25 percent from 30 percent effective July 2020, while FIST will absorb banks’ bad loans due to the pandemic-induced recession. GUIDE, once enacted into law, will allow government financial institutions to offer more loans to save badly-hit industries.

Avisado said these foregone revenues were “expected to be injected into the economy, giving firms and business with additional resources to help them recoup losses from the pandemic, keep operations afloat and support future expansions.”

Prior tax reforms like the Tax Reform for Acceleration and Inclusion (TRAIN) and recent sin-tax laws, meanwhile, would generate an additional P122.9 billion and P43.6 billion, respectively, in incremental revenues this year, he said.As such, this year’s tax and nontax revenue target of P2.88 trillion remained lower than the prepandemic collections of P3.14 trillion in 2019.

For next year’s proposed P5.024-trillion cash-based national budget, Avisado said national government agencies should no longer duplicate the programs, activities and projects to be devolved to LGUs and instead “shift to addressing emerging national concerns.”

Local Budget Memorandum No. 82 issued by Avisado on June 14 said 40 percent of the 2019 tax collections of the Bureaus of Internal Revenue and of Customs as well as other agencies yielded P959.04 billion in national tax allotment (NTA) for LGUs next year.

The NTA—formerly called the internal revenue allotment (IRA)—starting 2022 will come from two-fifths of all taxes collected three years prior. The Mandanas ruling, nonetheless, contained allowable deductions and earmarking against total tax collections.

As the Inquirer earlier reported, LGUs’ indicative 2022 NTA jumped from an estimated IRA of only P846.31 billion for next year without the Mandanas ruling. This year, LGUs’ IRA was P695.49 billion.

Next year’s implementation of the Supreme Court’s 2018 decision on the Mandanas-Garcia petitions reduced the government’s fiscal space, such that President Duterte issued Executive Order (EO) No. 138 last month to transfer to LGUs spending on local infrastructure, agriculture, social welfare, health care and livelihood, among other sectors included in the Local Government Code.

“With the cost of ongoing programs/projects and automatic appropriations already accounting for nearly 94 percent of the proposed total cash budget next year, the government is left with only some P329.8 billion (6.6 percent of the proposed fiscal year 2022 budget) for new and expanded programs and projects under tier two. This compares with the P714.3 billion average fiscal space for tier two of the last five years (2017-2021),” Avisado said. In the national government’s budgeting process, tier one referred to ongoing, multi-year programs, activities and projects, while tier two covered new high-priority initiatives.

Among the national government’s priorities for the 2022 spending plan, which will be pitched to Congress when it resumes session next month, included the national mass vaccination program, the national ID system, the growth equity fund to assist the “poorest and least-capable” LGUs in their transition to the Mandanas ruling, the establishment of the Virology Science and Technology Institute of the Philippines, as well as family planning and nutrition programs.

Avisado said next year’s revenues were expected to revert to prepandemic levels and hit P3.29 trillion while the national government had programmed spend P4.95 trillion in 2022 “as it begins its fiscal consolidation program to lessen borrowings and overall debt, and gradually rebuilds its fiscal health overtime.” INQ