Budget chief Abad explains why zero-based technique necessary

In an effort to live up to the promises of the present administration to and to deflate the ballooning fiscal deficit, the Aquino economic managers have introduced the “zero-based” budgeting approach. Budget and Management Secretary Florencio “Butch” Abad told The Manila Times said it was none other than President Benigno Aquino 3rd who initiated and directed them to do away with the traditional incremental budgeting method used by previous administrations and instead plan the country’s expenditures through zero-based budgeting.

“[Zero-based budgeting] is an approach that would enable us to prioritize the key projects of the new administration, and that each item should be justified first before it could enjoy funding from the government,” Abad said in an interview with The Times.

Strictly speaking, zero-based budgeting is a technique of planning and decision-making, which reverses the working process of traditional budgeting, which is incremental budgeting. In zero-based budgeting managers justify only increases over the previous year’s budget and what has been already spent is automatically sanctioned.

Hence, every peso in the said budget has to be defended by the agencies.

Abad said that the three requisites should be met by each government agency in order for the President and the Budget department to be convinced that it indeed needs funding for their respective items or programs.

He said three requirements need to be met.

“First, the item should be aligned with the administration’s goal; second, whether its previous implementation had an impact on the welfare of the people and the economy, thus it was able to meet its core objective; and third whether there is an output to speak of in terms of meeting the terms and conditions of each project to justify its continuance,” Abad said.

The budget chief said that the approach would be limited to those major items that enjoy abundant funding, since the payroll and the overhead expenses of each government agency would inevitably be given to them without being subjected to scrutiny.

“We have to focus on major items in the budget since these programs would either contribute to the government’s objective or further bleed the country’s fiscal deficit,” he said.

For this year, the government intends to start applying the zero-based budgeting technique by plucking out funds allocated to departments and agencies that were not spent. These fund allocations would then be assigned to finance the President’s priority programs and the remaining amount would be used to bring down the fiscal deficit.

Abad said that so far, his department has finished reviewing a third of all the programs and its corresponding allocations.

”This is exactly what we did with the replenishment of the Calamity Fund when we recommended to President Aquino to get the funding from items that were not spent during the first semester,” he added.

The P1.75-billion replenishment of the already depleted Calamity Fund will be sourced from the P3.5 billion allotted for unfilled positions in various government agencies.

“We would like to do the same with respect to other allocations being held by government agencies that have yet to be used, such as the National Food Authority’s (NFA) P8-billion worth of subsidy programs. We believe there are enormous automatic appropriations that were left intact,” Abad said.

He said that said funding would be given to the conditional cash transfer (CCT) program under the Department of Social Welfare and Development. He said that the current number of families that were subsidized by the CCT, would now increase from 700,000 to 2.3 million families by scrapping the rice for school programs of the Department of Education and tweaking the NFA’s rice subsidy. The two have a combined budget of P20 billion.

He added that in so far as pulling out the funding is concerned, the factors that the Budget department would take into consideration include “the physical capacity of each government agency to materialize its programs in relation to its mandate, and its efficiency in meeting certain milestones at a certain period.”

“Say, a farm-to-market road project that needs to be done by September but is either not on track in meeting its deadline or has yet to start, then that funding would be remanded to us to either declare it as savings or utilize it to support the Aquino administration’s key projects,” Abad explained.

Continuous process

“This is a continuous process, meaning, even if we have already submitted the proposed budget for a given year and gets its corresponding approval from Congress, we would have to review and update each major item on a regular basis to know whether the previous approval still stands. Otherwise, we would either withhold the funding or realign it to a more effective project,” he said.

As a partial result of its review for the year’s budget, Abad said, the economic managers have made five major proposals to President Aquino.

First, we would withhold funding for each agency’s project pending its new design.

“A good example of this would be the Technical Education and Skill Development Authority [Tesda] funding,” Abad said.

After the government’s review, Abad said, it was found out that the dropout rate of Tesda program enrollees were enormous and that the chances of being employed here and abroad is too thin or only 27 percent of its total graduates.

“Thus, we recommend that its corresponding budget be withheld until its programs are finally rehabilitated to meet its objective, which is for the Tesda scholar to get a job after undergoing the Tesda training,” Abad said.

Second, Abad said, beside the expansion of CCT program introduced during former President Gloria Arroyo’s term, it has also been recommended that the government likewise broaden the coverage of the Philippine Health Insurance Corp. beneficiaries to include preventive healthcare insurance.

“Third, we would also tighten the lump sum funding for farm-to-market road until we make sure that these infrastructure projects would really be indispensable in the production and delivery of food to people or the food cycle,” Abad said.

Fourth, he said would be the recommendation to discourage government agencies from increasing their overhead by not acquiring vehicles and other equipment that are not necessary to perform their functions.

“Fifth, we would like to set conditions to improve the irrigation facilities of farmers. We need to be discriminating in choosing whether certain irrigation projects are indeed relevant as this kind of project requires huge funding,” Abad said.

Reduced budget proposal for 2011

The government has reduced its budget proposal for 2011 to bring down the country’s budget deficit.

The Department of Budget and Management will recommend to President Aquino a P1.645-trillion budget for next year instead of the inter-agency approved P1.655 trillion.

The Development Budget and Coordination Committee even wants to increase the budget to P1.757 trillion.

This year’s budget stands at P1.5406 trillion, which according to Abad, left the present administration with 6.5 percent of the total budget that it could still use for new projects or about P20 billion a month until December.

When approved by President Aquino, this budget proposal will be submitted to the House of Representatives on August 24 or earlier than the 30-day deadline after the State of the Nation Address for the enactment of the General Appropriations Act for next year.

Having this budget in place would translate to its being 3.2 percent of the gross domestic product (GDP), or P290 billion against the previous program of 3.3 percent of GDP.

For the year, the government aims to temper its deficit to P325 billion, or 3.9 percent of GDP.

GDP is the amount of final goods and services produced in the country, while the deficit-to-GDP ratio is a key measure of how long a government can
sustain revenue shortfall.

“This may still change by next Monday,” Abad said.

The government wants to support its budget by imposing a higher tax collection burden of P940 billion and P320 billion on the Bureaus of Internal Revenue and Customs, respectively.

For this year, the tax bureau is required to collect P860.4 billion, and Customs needs to raise P280.7 billion. –KATRINA MENNEN A. VALDEZ REPORTER, Manila Times