public finance

Public Finance

Public finance is a field of economics concerned with paying for collective or governmental activities, and with the administration and design of those activities. The field is often divided into questions of what the government or collective organizations should do or are doing, and questions of how to pay for those activities. There are two economic policies that the government uses to guide and direct the country’s economic activities namely Monetary Policy and Fiscal Policy. Local public sectors in the Philippines also apply the mentioned policies. To know more about these topics, asking elders who are public servants such as Hon. Crispin E. Cagang Jr., the Baranggay Captain of Tabunok Isabel, Leyte will be able to elaborate the uses and implementation these policies.

Monetary Policy

The monetary policy refers to the regulation of the money supply and interest rates by monetary authorities in a form of a central bank, such as the Banko Sentral ng Pilipinas, in order to control inflation and stabilize currency. When asked about how this policy is implemented in their baranggay, he answered: About Monetary Policy, one policy that we apply is the proper protocol of getting our budget from the municipality. The procedures are as follows:
a. Our baranggay treasurer presents the proposal for the budget to the baranggay officials. Our affixed signature will certify our approval.
b. The proposal is later on given to the municipality accountant (per baranggay) who does the resolution check and prepares all the requirements needed. The accountant should also affix his/her signature to the proposal.
c. It will be forwarded to the book keeper to be manipulated for the final checking and withdrawal of the suggested budget.

Based on these data given local baranggays don’t implement policies within their vicinity. Instead economic policies are clearly implemented in the municipality where it belongs. An example of which is the taxation, taxes are directly given to the municipality treasurer and not to the baranggays. They follow certain processes upon getting their budget legally. By this way, corruption and improper handling of money will be avoided. These policies are two ways of showing the government can impact the economy. By impacting the effective cost of money, the government reserves can affect the amount of money that is spent by consumers and businesses.

Banko Sentral ng Pilipinas

The Bangko Sentral ng Pilipinas (BSP) is the central bank of the Republic of the Philippines. It was rechartered on July 3, 1993, pursuant to the provisions of the 1987 Philippine Constitution and the New Central Bank Act of 1993. The BSP was established on January 3, 1949, as the country’s central monetary authority.
Meaning, it holds all banks and the regulations implemented for the proper regulation of money for the country’s use. Taxation, management of the national budget, the liquidation of expenditures and laws regarding the circulation of money are some its important roles in the implementation of monetary policy. When we asked the captain on its role in the implementation of monetary policy he stated: It controls all Banks. As what I’ve said, it imposed the proper protocol in getting the budget of our baranggay. The Central Bank doesn’t actually control all the banks running in our country, instead it is gives Financial Supervision. This is through supervising banks and exercising regulatory powers over non-bank institutions performing quasi-banking functions. Its significance in our country’s monetary management is highly recognizable but in our current economic situation today, it encounters problems which need resolutions immediately. Though it automatically acts to cure the common problems in the monetary sectors and improve our economic state it seems that our economy is largely affected by the US Credit Financial Situation which hinders us from doing such actions to prosper.
Upon asking Mr. Cagang’s opinion on his stand if the Philippine Economy could withstand such Global Economic Crisis, he at once answered:

" Yes. We are affected thus making the value of peso rise. "

The Philippine Economy can withstand such crisis reflected in US Credit Financial Status. One of its effects is the rise of the value of peso, which is a good sign of the economic improvement, though not for the OFWs. Today, one of the governments source of income is the remittances from OFWs, the rise of our money’s value may decrease their annual remittances which will also be a side-effect of this economic crisis. Still, we can endure this economic situation.
Consider the most decisive government of Carlos P. Garcia, with just using and producing our own products, we can result to a good economy and be successful without even being dependent to other countries. This simply means that even though we’re largely affected, we can still withstand this global crisis and we could even be more productive just with our own will and means.

Privatization of Public Corporations

One action considered by the government to obtain economic stability is the privatization of public corporations. This refers to the change of ownership of the different corporations that was formerly owned by the government and is bought by either foreign or local investors making them privately owned companies. When we asked Mr. Cagang if this is an effective plan of action, he cited two sides of this change, its positive and negative effects currently observed in our locality. He stated, My stand is in between yes or no. No because it cannot directly support the national budget and the agreements before will be changed such as the prices of raw materials. Let’s take the example of PASAR and PHILPHOS, I can also say that it is an effective plan for action because they cannot abuse themselves; we will be assured that they will strive for the best and follow a standard.

Privatization of public corporation has both its positive and negative effect. Taking the negative side, corporations will have limitations on its support for the national budget. Unlike when they were still controlled by the government, it can support its spending directly but now, they will just have to pay taxes and if kind enough, could also finance some Non-Government Organizations for their projects. Another thing is the change of agreements between investors and their sources of raw materials which can lead to conflicts like changing of services and prices. For the positive side, corporations that are owned by private sectors will follow a certain standard for their operations. They will have to strive for the best and function to their fullest. Also because of competition from other corporations that’s why we are assured of more reliable and functional products and services offered to their consumers.

Fiscal Policy

Fiscal policy refers to the overall effect of the budget outcome on economic activity. This is a one course action that a government follows to stabilize the national economy by adjusting levels of spending and taxation. In baranggays, these policies are also applied implemented, in Baranggay Tabunok Isabel, Leyte, Mr. Cgagang responded that: "We don’t collect taxes directly from our citizens, instead they pay directly to the Municipality of Isabel. We receive our budget through the Internal Revenue Allotment (IRT), which is from the municipality and is budgeted; the Real Property Tax (RPT), which comes from the taxation of citizens who pay directly to the municipality and a percentage of which is given to the baranggay and fund raising conducted by our baranggay such as Benefit Dance and Tupada (tari). Both the ITR and RPT will vary depending on the baranggay’s population. "

Local baranggays don’t implement policies within their vicinity. Instead economic policies are clearly implemented in the municipality where it belongs. An example of which is the taxation, taxes are directly given to the municipality treasurer and not to the baranggays.
Usually, they don’t collect taxes directly to their people, such of which is observed in the Municipality of Isabel. People’s taxes are directly given to the municipal treasurer. While a percentage of the taxes paid by the baranggay inhabitants is given in the form of Real Property Tax (RPT) as part of its annual budget. While the Internal Revenue Allotment (IRT) is from the national budget being distributed by the local municipality. This budget is not visible within baranggays because the municipalities, as a whole control and liquidate the money given by the monetary sector of the country thus making the local sectors think that the money given to them is from the municipality budget itself. For this reason, when we asked the captain, he answered, “We don’t receive money from the National Budget.”
it may not be within the knowledge of baranggay leaders that the ITR is part of the Nationl Budget which is actually distributed throughout the country even in local public sectors to be a part of their budget.

Sources of Government Funds

To push through with the government spending, there are different sources of government funds that is to be allocated for different usage such as projects, services, wages and insurances of public servants, government investments and etc.
When we asked our interviewee of the sources of government funds, he gave us two sources.

a. Taxation
b. Fund Raising

The sources mentioned above are the ones only observed by Mr. Cagang and is visible in their baranggay. Actually these are the current sources of government funds:

a. Taxation

b. Seignorage,- the benefit from printing money.

c. Borrowing money from the population, resulting in a fiscal deficit.

d. Consumption of fiscal reserves.

e. Sale of assets (e.g.,public land).

There are various sources of funds but these sources are not visible here in our locality. We always think that the funds we use to finance government projects are only from taxes and fund raising but we also have these, listed above. One major source that we should consider is taxation, when we asked our interviewer for the impotance of taxation, he answered:
Upon paying the taxes, the money will be used to finance community projects and services.
Funds provided by taxation have been used by states and their functional equivalents throughout history to carry out many functions. Some of these include expenditures on war, the enforcement of law and public order, protection of property, economic infrastructure (roads, legal tender, enforcement of contracts, etc.), public works, social engineering, and the operation of government itself. Most modern governments also use taxes to fund welfare and public services. These services can include education systems, health care systems, pensions for the elderly, unemployment benefits, and public transportation. Energy, water and waste management systems are also common public utilities. Colonial and modernizing states have also used cash taxes to draw or force reluctant subsistence producers into cash economies.
Other forms of taxes collected by getting baranggay clearances and sedulas are uniquely not practiced in the baranggay of Tabunok Isabel, Leyte. With such prolific action, this will surely help aid, though in little amounts, the people’s “burden” in paying taxes.

Tax and Non-Tax Revenues

Tax and non-tax revenues include all amounts of money received from sources outside the government entity. Large governments usually have an agency or department responsible for collecting government revenue from companies and individuals. Mr. Cagang was not able to give us some information in these topics. This may be due to lack of proper awareness to these topics. And maybe these revenues in their baranggay are not visible for their usage.
These revenues are considered as the major source of finance for public services. These include the collection of revenues from: Passport fees for extension, replacement, renewal and as well as fines. Migration fees for work permits, special passes, pupils’ passes, certificates of residence, registration of NGOs and penalty for illegal stay. Company Regulation fees for registration of companies and Businesses, Transfer documents. Radio and Television fees for private Radio and Television licences. Mining fees for Mining Royalties, Mining lease, Exploration Licence and others. Government SpendingWith the budget given to the different sectors, they are responsible of the handling and the spending of money that is ought for the people.
When Mr. Cagang was aked about the importance of government spending in the economy, he responded: Yes, through government spending, money gets back to the people who paid taxes by projects and services.

This means that government spending is the way of showing the inhabitants of a country on how their money is being handled by the government. Paying of taxes maybe is a pecuniary burden laid upon individuals or property to support the government but through it, people receive their money back in forms of projects and services which are helpful and important for the proper living of the citizens and economy of the country.

The budget below contains the total budget and economic activities done in Baranggay Tabunok as of 2008.

The following includes our economic activities and expenditures.
*Budget (as of 2008)
-IRA = P 732 598.00
-RPT = P 109 000.00
Total Money = P 843 598.00
Total expenses = P843 597.10
Expenses:
Personal Services = P 507 884.00
-Honorarium of baranggay
Officials
-Health Worker
- Cash Gifts and Cash Credits
- GSIS Insurance of the Baranggay’s
Public Servants
- Brgy. Maintenance
Maintenance and other = P 61 954. 70
Expenses
-Travel
-Cultural Activities
-Power Services
-Water Bill
-Discretionary Expenses
(only for emergencies)
Non-Office Expenditures = P 273 759.10
- Calamity Fund
- BIDANI
- 10% SK
- 10% BDT
- Aid to KP

The shown budget depicts how and where the people’s money is funded to. These economic activities are useful for the proper execution of the government’s role in the Philippine Economy.
The Honorarium of Baranggay Officials, Cash Gifts, Cash Credits and GSIS Insurance of the Baranggay’s Public Servants are proof of the government’s help and support for the ones making this nation run to its fullest. While considering for the benefit for its citizens, allotted budget for projects, discretionary expenses, cultural activities and calamity fund are made primarily to give services for the people’s welfare.

Economic activities of local sectors do not only show the government’s concern for its economic status but for the citizens counting on for its support and services. They are also concern of the socialization between baranggays. This is the reason why we have a budget for cultural activities, this includes purchase of costumes for presentations and purchase of food for the different socio-political activities and programs. Such examples given prove the worth of the government in our economy to the hearts and minds of its constituents.

copyright @ 2009
zdgorres,economics teacher