(DP 2000-10) Philippine Public Finance in Recent History

Abstract

This paper reviews public finance policy covering the fiscal deficit, public expenditure, and taxation over a period of two decades until the opening of 2000. The first section reviews national government budgetary operations through the net fiscal stance of the budget. Initially, the fiscal deficit level was high and quite volatile. Through stringent efforts to reduce that fiscal deficit, macroeconomic instability was brought under greater control, with less volatility. This effort took the better part of the first decade and a half, even though this was not clearly evident from just looking at national budgetary operations. But in the recent aftermath of the Asian financial crisis, the fiscal deficit has risen again.

The next two sections discuss the evolution of public expenditure and of tax mobilization efforts, emphasizing changes in structural patterns for both the allocation of expenditure and the sources of fiscal revenues. The paper highlights the evolution of real per capita public expenditure as well as efforts to improve the revenue base to reduce the deficit through resource mobilization, tax reform and efforts to raise non-tax sources of revenues.

The last section briefly takes up the fiscal implications of the operations of public enterprises, both financial and non-financial. When public enterprise operations sustain persistent losses, the magnitude and severity of financial cash shortages add volatility to macroeconomic management. The budget becomes hostage to their losses and financial liabilities. The problems that they brought to the rest of the economy had very important repercussions on the performance of the fiscal sector.

This is one of several papers on fiscal and development issues on the Philippine economy being undertaken by the main author.