DAP ruling, court orders causing underspending?

MANILA, Philippines – Will the Supreme Court’s ruling on the administration’s spending program lower government spending and dampen the Philippines’ economic growth?

Senate President Franklin Drilon warned against this scenario as he and economic managers cited instances where the judiciary stepped in to stop what they called “executive actions” and “business decisions.”

In the presentation of the P2.606 trillion ($59.943 billion) national budget for 2015, Drilon expressed concern about what he called the tremendous dip in government spending from 10% of GDP in the first quarter of 2013 to a mere 2% in the same quarter in 2014.

While the Senate leader related this to factors like the efficiency of individual departments, he party blamed it on the Supreme Court’s ruling declaring key acts of the Disbursement Acceleration Program (DAP) unconstitutional. 

A key administration ally, Drilon echoed President Benigno Aquino III and Budget Secretary Florencio Abad in saying that the decision has a “chilling effect” on the bureaucracy.

“The challenge for economic managers is how to comply with the Supreme Court’s decision on DAP and increase spending. We have enough revenues [yet] there is underspending,” Drilon said on Tuesday, August 19.

Finance Secretary Cesar Purisima responded that, besides the DAP ruling, court restraining orders on the government projects with the private sector or the Public-Private Partnership (PPP) deals are also affecting spending and the implementation of “a long list” of projects.

He cited the temporary restraining order (TRO) on the largest PPP program, the extension of the Light Rail Transit (LRT) 1 from Baclaran to Cavite, and the writ of kalikasan on the Redondo power plant in Subic, Zambales, issued back in 2011 that is still in effect.

“This is where some of the challenges we face involving the other branches of government arose,” Purisima said. “In effect, you have judicial veto on executive action. There may be parties affected, but it’s important to look at what benefits most than the few, [or] you end up in stalemate.”

Drilon agreed, “I recall there was a Supreme Court decision saying you cannot put up a factory in Batangas. It should be in Bataan. Those are business decisions that are difficult to understand.”

Drilon and Purisima’s statements came after President Benigno Aquino III expressed concern last week about “judicial overreach” when the judiciary supposedly uses its power to check the executive and legislative branches “more often.” He said he was open to charter change to address this. 

Yet Abad said in the hearing that the administration is also working to expedite spending. He cited a 44% increase in spending in June.

“I think we are going to see more because in the first quarter, we had to recluster [public works] projects to give engineering districts, regional offices greater participation in bidding of projects. The other slowdown there was the [Conditional Cash Transfer] program because of the typhoon that hit about 44 provinces,” Abad said. 

“Those delays will be straightened up in the second quarter. That explains why expenditure spiked by 44% in June. We will see further improvements because of the procurement innovations that we introduced to accelerate the expenditure for the rest of the semester,” he added.

The DAP was a stimulus measure meant to address underspending and pump-prime the economy from 2011 to 2013. It involved moving funds from projects that took time to be implemented to so-called “fast-moving projects” to expedite spending.

The court ruled that key acts under it were unconstitutional, saying it violated Congress’ power of the purse and the separation of powers in government.

Departments to break down lump sums

Senator Ralph Recto was concerned about the lump sums or funds without detailed expenditures in the budget. He asked Abad to further improve on efforts to “disaggregate” lump sums or break down the funds to provide more details and transparency.

Abad said that in the 2015 budget, the total lump sums are P370 billion ($8.47 billion) included in the President’s Special Purpose Funds and “different areas.”

The budget secretary said he already asked departments to break down the lump sums. “We required them from now until the end of the year to disaggregate because the President required projects to have IDs, geo-tag coordinates so you can monitor the projects.”

Still, Recto and Senate finance committee chairman Francis Escudero asked Abad to submit documents and data on off-budget items and automatic appropriations like the Malampaya Fund and the Philippine Charity Sweepstakes Office (PCSO) and the Philippine Amusement and Gaming Corporation (Pagcor).

Abad promised to comply with the request.

‘Use savings for tax cuts’

Drilon and Recto urged the economic managers to look into Senate bills proposing to lower the individual income tax rate from 32% to 25%.

A former socio-economic planning secretary, Recto said savings can be used for this purpose. “The last time we adjusted this was in 1997. We learned those figures were filed in 1994. Governance is about fair, equitable taxation, so the people can spend well.”

Purisima said he was open to reviewing the tax structure.

The finance secretary said: “Our suggestion is we do a comprehensive review and run models. We can’t tweak just one part.”

Recto asked him to fast-track the review, saying it cannot take another 19 years like the debate on rationalizing fiscal incentives. – Rappler.com