ON PRESIDENTIAL DOLEOUTS

Action for Economic Reforms

Coalition Against Corruption

Makati Business Club
Management Association of the Philippines
Transparency and Accountability Network

The President recently announced the expenditure of P2 billion for a program to award grants to poor families, among several other new subsidy programs. We laud her intention to assist the poor especially during this difficult period. However, we strongly disapprove of:

• the President’s circumvention of constitutional processes in coming out with these programs.

This expenditure program was not authorized by Congress in the recently passed 2008 budget. The President thus violated a constitutional provision that no money will be paid out by the Treasury unless authorized by the General Appropriations Law.

• doleouts that address short-term political exigencies at the cost of diverting public funds from substantive anti-poverty programs.

While it is government’s role to protect the disadvantaged in our society, it is common economic knowledge that ill-conceived subsidies are not efficient means of allocating a developing country’s meager resources. In Latin America, conditional cash transfers have had salutary effects in addressing the health and education needs of the poor. But doleouts without counterpart performance by the beneficiaries are actually anti-poor. Unconditional doleouts make the government look good but do nothing to tackle the roots of people’s poverty and daily hardship. They do not solve the problem of insufficient harvests, high transport fares, and utility bills.

The Administration justifies this unbudgeted expenditure by saying it will be funded from the expected excess collections over the budgeted revenues from VAT. They predict a windfall from government’s proportionate tax share of the higher selling prices of petroleum products, calling it “Katas ng VAT.” We take exception to this spurious reasoning as it presumes that the country’s fiscal situation will improve as a result of higher fuel prices, when in fact there should be more reason for it to deteriorate. Higher prices will lead to a slowdown in the economy, narrowing the tax base and negatively affecting government’s revenue take from other sources. The government recorded a fiscal deficit last year when the domestic economy grew by over 7%; we cannot expect a better fiscal performance when the economy’s growth slows down. Not unless the government curtails spending.

The Secretary of Justice uses Section 25(5) of the Constitution to provide legal cover for the President’s act. This provision authorizes the President to augment any item in the General Appropriations Law from savings in other items authorized in the same Republic Act. However, the above subsidy is a new program not found in the 2008 budget and, therefore, does not qualify as a program that may be augmented. Even assuming this subsidy could somehow be construed as an extension of a program authorized in the 2008 budget, can the government really expect to end up with savings in the budget in the light of higher-than- assumed prices of goods, labor, and capital?

We deplore the cavalier disregard for Congress and the rule of law. At the very least, the President should have followed the proper procedure of submitting a supplemental budget to Congress for its approval of her subsidy programs for the poor. Instead, the President took a shortcut and justified it by creating false expectations of our fiscal situation and offering a dubious interpretation of the Constitution.

We call on this Administration to follow constitutional processes and for our limited resources to be used for programs in basic education, meaningful infrastructure, and good governance. Only by addressing these binding constraints to development will the welfare of the underserved in our society be effectively ameliorated.

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