Carlos G. Dominguez
Secretary of Finance
Senate Finance Committee Chairman Sonny Angara; Senator Imee Marcos; Senator Cynthia Villar; Senator Nancy Binay; fellow workers in government: Good afternoon.
Thank you for this opportunity to brief the Senate on the proposed 2022 budget of the Department of Finance.
First of all, let me emphasize the role and importance of the DOF.
This department performs multiple essential functions in successful governance and the sustained, inclusive growth of our economy.
If the DOF does its job well, the government will be able to keep its deficit and debt obligations within manageable levels, and will be assured of adequate funding for the government to smoothly run its affairs. If ample financing is secured, the government can make strategic economic investments in and for the people. In turn, these will help maintain a strong financial sector and ensure robust public spending for social services and infrastructure.
During the normal years, the DOF accomplished much in consolidating our growth and realizing better economic outcomes for the Filipino people. But the pandemic changed the game completely. It overturned economic plans and threw all countries into disarray.
Fortunately, we were financially ready when the contagion hit us. Amidst the ongoing global health crisis, we managed to maintain our solid financial footing. This confirms the correctness of the reforms and the policies pursued by this department since the beginning of President Duterte’s term. This validates the good work that the DOF has been doing for the nation.
Before I discuss our spending performance and proposed budget for 2022, allow me to quickly go through the highlights of our accomplishments over the past five years.
The DOF pushed for the modernization of our tax policies and we thank Congress again for passing our tax reform packages that provided us a reliable revenue flow and strong financial position.
We are the only administration in Philippine history that dramatically reduced income tax rates twice in a single presidential term. The TRAIN law lowered the personal income tax rates for 99 percent of our workers. This was followed by the CREATE law which provides hefty reductions in the corporate income tax rates for our micro, small, and medium enterprises and the rest of the corporations. This underscores our position that the Duterte administration is pro-business and pro-people.
We are also the only administration that increased excise taxes on sin products three times. This highlights what strong political will can do to protect our people from consuming products that have a negative impact on their health.
Apart from the bold tax reforms, the DOF pursued aggressive tax enforcement campaigns that led to historic accomplishments. It was only during this administration that the domestic cigarette industry was cleaned up. We led a sustained drive to crack down on POGOs and their service providers that evade proper taxation.
We destroyed illicit cigarette products and machines as well as luxury vehicles to demonstrate our strong resolve to fight against smuggling to the very end. It was only during this administration that the government was able to start implementing a full-fledged fuel marking program nationwide to curb oil smuggling.
Our revenue agencies are well on their way to their full digital transformation. This is a major step towards aligning our process standards with the best customs and revenue services around the world.
Meanwhile, our exemplary financial and debt management brought the country to its historic low debt-to-GDP ratio and the highest ever revenue effort. As a result, we received our highest credit ratings ever and these have been maintained amid the wave of downgrades globally. These allowed us easy access to concessional financing when we negotiated international funding for our Build, Build, Build infrastructure program.
This record of fiscal discipline enabled us to quickly access emergency financing from our development partners and the international capital markets for our COVID-19 response. We immediately negotiated the financing and procurement of vaccines and secured 171 million doses that can inoculate a hundred percent of our adult population by the end of this year if the pharmaceutical companies deliver them as contracted.
We worked hard to raise revenues for the national effort to defeat the pandemic and for the funding of our economic investments. We worked closely with Congress to come up with fiscally responsible economic stimulus packages. We have fine tuned our fiscal and monetary policies to enable our banks and government financial institutions to assist the pandemic-hit sectors, especially the micro, small and medium enterprises. Our interventions to save lives and rescue the economy have been both prompt and effective.
Although our deficit and debt ratios expanded as a result of our unplanned spending needed for the pandemic response, we assure you that these are still within the prescribed bounds of fiscal viability. The increases are just temporary and we will return quickly to fiscal consolidation. We have been exercising maximum fiscal responsibility to ensure we do not shift the burden of repayment to future generations of Filipinos.
We will continue to work with Congress to pass our economic priority bills and to fight the pandemic sustainably by keeping our deficit and debt ratios within reasonable levels. This will allow us to leave our finances in great shape for the next generation.
Now, let me make a quick rundown on the spending performance of the DOF over the last five years. The yearly decrease in our budget and a high budget utilization rate from 2016 to 2020 show that there is no wasteful spending in the fulfillment of the DOF’s mandate.
From 2016 to 2020, the DOF had a total approved budget of 95 billion pesos under the general appropriations. We obligated 86 percent of our total allotments and disbursed 80 percent of our total obligations.
The 14 percent unobligated allotments were savings from the procurement or bidding activities for our operational expenses and capital outlays. Meanwhile, the 20 percent undisbursed obligations were largely payments for big-ticket contracts under deferred or progress billing terms, which typically cross over to the succeeding fiscal year. Over the past five years, we demonstrated the DOF’s effort in efficiently managing its resources towards necessary and essential expenditures.
For 2021, our approved budget under the General Appropriations Act amounted to 16 billion pesos. As of the end of July of this year, we have obligated 58 percent of our allotments and disbursed 79 percent of our total obligations. On the average, our obligation rate is on track and our disbursement rate is relatively high for the period.
Allow me now to brief you on DOF’s proposed 2022 budget.
The department’s proposed budget for next year totals 23.2 billion pesos. This includes Automatic, Unprogrammed, and New General Appropriations as well as Budgetary Support to the Philippine Tax Academy.
The Automatic Appropriations amount to 1.6 billion pesos. These are composed of the Retirement and Life Insurance Premium, and Special Accounts in the General Fund.
The Unprogrammed Appropriations amount to 210 million pesos for the refund of the service development fee for the government’s Nampedai property in Japan. Since 2012, it has been allotted in the budget of the DOF with its utilization contingent on the finalization of the case.
A total of 95 million pesos is allocated for the implementation of the Specialized Tax Training and Education Management Program of the Philippine Tax Academy.
For the 2022 General Appropriations Act, the DOF’s proposed budget increased by 32.7 percent to 21.2 billion pesos compared to this year’s appropriations. However, if we compare the proposed 2022 new appropriations to our 2017 budget level, this amount is even one percent lower.
The increase in next year’s funding will be spent for our modernization and digitalization programs to enhance our revenue enforcement capacity. These programs will allow us to effectively raise more funds to finance our pandemic response and economic recovery program.
The growth in next year’s budget is also due to the implementation of the corresponding salary adjustments for public service employees under the Salary Standardization Law.
Overall, the Bureau of the Treasury’s budget has the highest growth rate because a major portion of that will be for thenational government operations and not for the agency itself. Meanwhile, the Bureau of Internal Revenue continues to have the largest budget allocation among the DOF-attached agencies.
I will now proceed to a more detailed presentation per agency.
We have allocated 10.9 billion pesos for the BIR next year to further improve its tax administration capacity. The proposed budget is 9 percent more than the 2021 level.
The 13 percent rise in personnel services is due to the mandated salary adjustments and an increase in the filled-up positions from 12,449 in 2021 to 13,241 in 2022.
The 21 percent growth in financial expenses is due to the interest expense and financing charges for the lease-purchase agreement between BIR and the Land Bank of the Philippines to provide our regional BIR Offices with their own buildings to better serve the public.
The Bureau of Customs’ budget, on the other hand, will increase by 69 percent compared to this year’s budget to bolster its modernization and digitalization efforts.
The capital outlays will grow 21 times from last year’s budget mainly due to the rollout of the Philippine Customs Modernization Project which costs 1.58 billion pesos. Supported by the World Bank, the project aims to transform the BOC into a world class agency by streamlining and digitalizing its systems and processes. This project is expected to be partially operational by 2023. The full operation is scheduled in 2024.
The 20 percent growth in BOC’s personnel services, meanwhile, is meant to improve its enforcement capability. Apart from the mandated adjustment of salaries under the Salary Standardization Law, the number of filled up personnel positions will increase from 2,892 in 2021 to 3,444 in 2022.
The Bureau of the Treasury has the biggest percent increase in next year’s budget at 96 percent or 4.2 billion. The bulk of the increase, or about 74 percent, is for the national government operations. Only 26 percent of the proposed budget is for the BTR’s regular operations.
For instance, the BTR’s capital outlays grew 5 times from this year’s budget mainly due to the national government’s payment for the International Commitments Fund worth 1.35 billion pesos. These are membership quota subscriptions or equity contributions to multilateral institutions.
Our membership in different multilateral institutions gives us access to concessional financing and technical expertise to support key projects and programs of the government. Our membership also gives the Philippines a voice in these institutions by allowing us to vote on the policies and plans of action that they will undertake. Our equity contributions are pooled together with the contributions of other member countries to fund projects and programs supported by these multilateral banks. In essence, the Philippines is both a contributor and a beneficiary of its equity investments in these multilateral institutions.
Meanwhile, the BTR’s MOOE, or maintenance and other operating expenses, increased by 16 percent due to incurred expenses on the transfer of some assets to the national government as a result of court decisions and borrower defaults. These expenses include appraisal services, insurance of government properties, other general services, and taxes.
The Office of the Secretary was allotted 1.1 billion pesos, a 30 percent increase from its budget level this year. Our MOOE increased by 19 percent from the 2021 level primarily due to the operating requirements for projects under the Medium Term Information and Communication Technology Harmonization Initiative. These include the digital Philippine National Single Window, which allows for the automation and streamlining of trade processes among the different government agencies.
The capital outlays increased by almost 8 times largely due to building renovations specifically for the Philippine Tax Academy office, an essential institution that trains all our revenue agencies to improve their competitiveness and expertise. This includes the training of municipal treasurers and provincial treasurers.
The remaining five DOF-attached agencies have a total proposed budget of 723.2 million pesos or around 3 percent of the total DOF budget. The increases in their appropriations are mainly due to ICT infrastructure upgrades to support the ongoing modernization programs to prepare for the new economy.
For instance, the Privatization Management Office is currently setting up a comprehensive digital Asset Register on assets transferred or assigned to its office for privatization. This project will increase the efficiency of asset disposition and generate much needed revenues to fund our pandemic response.
Meanwhile, the Bureau of Local Government Finance is implementing the Local Governance Reform Project together with the Asian Development Bank. This will help boost the revenue collection capacity of our local government units by adopting new digital tools and bolstering institutional development and policy support for property valuation.
Overall, our proposed budget mirrors the current reality–that we have to speed up the digital transformation of our government offices if they are to thrive in the new economy. We need to modernize governance to efficiently deliver basic services and be responsive to the needs of the Filipino people especially during these difficult times.
In closing, let me reiterate the DOF’s commitment to be the exemplar of prudence and fiscal discipline. We practice what we preach.
We look forward to your approval of this budget submission.
Thank you very much.
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