Things that make you go hmmm…

I was meant to do a thorough analysis of the proposed budget for 2013 this week. But I will have to postpone that discussion for another day. I would like instead to point to a couple of interesting things that I found in reading the slide presentation of the budget ng bayan website of the Department on Budget and Management.

The first is the switch from ZBB to PBB. That is from Zero Based Budgeting to Program Based Budgeting. The administration has apparently learned from the mistakes of its first two years when it engaged in too much spending restraint in a bid to change the atmospherics surrounding the government of its predecessor which it claimed was mired in wasteful, unnecessary purchases and expenditures.

The contraction of government capital spending in the latter half of 2010 and all of 2011 led to a slowing of the economy. The trifecta of rising poverty, hunger and unemployment that according to surveys conducted by the SWS the country experienced earlier this year amid high oil prices, the failure of austerity in Europe and the nearing mid-term elections of 2013 all have convinced it seems the government to change its budget stance.

ZBB was a concept popularized by President Jimmy Carter in the 1970s. PBB emerged in the 1990s as an alternative. If ZBB was about reducing spending to a minimum, PBB is all about ensuring that budget is adequate for the sort of outcomes you want or the direction you want to take the nation (see how I refer to this with examples in my comments found at the end of the post). It’s a subtle shift, but one that is so noticeable in the presentation of this year’s budget.

I have long been advocating that the so-called Social Contract of the government be linked to strategic projects with outcomes defined numerically and supporting budgets specified. The shift to a PBB framework has facilitated this. So in terms of strategically aligning the platform of the Aquino government with resources, this year’s budget does so I feel.

The second observation I would like to make is a specific one. Because of the PBB mapping of policies, projects and budgets, this year’s budget presentation yielded one curious nugget of information. On page 22 of their slide presentation, you will find an item called PBB. This time it refers to “Performance Based Bonus”.

Apparently, its implementing agencies or IAs are the government owned and controlled corporations or GOCCs and national government agencies or NGAs. It seems after haranguing the appointees of the previous government for granting themselves bonuses and other perks, the Aquino administration is now bent on pursuing the same strategy, as part of its Good Government and Anti-Corruption drive.

The total amount allotted for this is close to 10 billion. Now that money is significant. Why? Because the recently announced proposal for a mining tax could earn up to 16 billion pesos according to Environment Secretary Paje. So the size of these new measures is comparable to the amount that is going to be spent on performance bonuses.

Presumably those bonuses will only be awarded if agencies perform well. This is on top of the salary adjustments they have already received. Don’t get me wrong, I am all in favour of compensating public officials appropriately, especially those engaged in economic governance. That is the East Asian model. And I do credit this government for making the payments of bonuses at least transparent and open.

The problem is that unlike profit-motivated, it is not easy to define what good performance means in the public sector. Should a public officer simply be concerned with making a profit? What about public hospital administrators? Or school principals? Or policy chiefs, firemen or soldiers for that matter? How should we define good performance for them?

Even for government owned and controlled corporations, it is difficult to determine if they have performed well. How should we determine whether a CEO of PAGCOR or NHA has done well. Someone might say it is simple, for profit centres, it is all about profit maximization, while for cost-centres it should be about cost minimization. How would we classify the NAPOCOR, the LRA and similar agencies? Should we cheer if they make hefty profits? The SBMA and other economic zones for instance might not make as much profits, but what about the investments and commerce they generate?

As far as revenue generating agencies like the BIR and BOC, I have advocated in the past for their corporatization so that their officers could be exempt from the salary scale of the government and be paid proper salaries, since these are the few agencies whose key performance indicators are easiest to measure (by how much taxes and duties they collect).

And then there is the issue of who decides how to disburse these bonuses. The GOCC reform law of 2011, the first piece of priority legislation enacted, was meant to standardise compensation and benefits for GOCCs. I hope that the appropriate agency releases the guidelines for how this ten billion PBB is meant to be spent soon so that there may be greater transparency.

For now, these are just things that make you go hmmm.

Doy Santos aka The Cusp

Doy Santos is an international development consultant who shuttles between Australia and the Philippines. He maintains a blog called The Cusp: A discussion of new thinking, new schools of thought and fresh ideas on public policy (www.thecusponline.org) and tweets as @thecusponline. He holds a Master in Development Economics from the University of the Philippines and an MS in Public Policy from Carnegie Mellon University.

  • GabbyD

    zbb and pbb arent substitutes. they work together.

  • Manuelbuencamino

    Doy, 

    The criteria for performance based bonus is what bears watching. Each government sector civilian to military profit to service provider operates differently and so require their own unique criteria for measuring performance. This could be a good area for NGOs to get involved in. There are NGOs in every sector and they would be able to supply valuable inputs on the public’s assessment of government employee performance. The time to do it is now because we have a responsive administration.

  • Manuelbuencamino

    Doy,
    “The trifecta of rising poverty, hunger and unemployment that according to surveys conducted by the SWS the country experienced earlier this year amid high oil prices, the failure of austerity in Europe and the nearing mid-term elections of 2013 all have convinced it seems the government to change its budget stance.”The shift is better explained by what accepting what was obvious from the very beginning. A ZBB/spending restraints approach was necessary at the start because leakages had to be identified and plugged. Now that leakages have been addressed, the government can move on to PBB confident that public funds are being going where they should and not into  the pockets of crooks. What is admirable then is that the government was able to make real headway into addressing the problem in just  2 years considering the gravity of leakages it inherited.

    • I agree in the sense that what you have stated is the narrative they want to portray. I am unsure whether their shift now to a more realistic approach is because they have adequately addressed the problem, or if external factors have forced them to reconsider their earlier methods.

      • Manuelbuencamino

        Doy,

        The more realistic approach is to plug leaks before turning on the tap. That’s not a narrative that the administration is trying to portray. That’s what it did. 

        So the economy slowed down temporarily, the economy did not collapse, did it? Now the taps are turned on and growth which you’ve always argued goes with wide open taps will follow. 

        But this time without the leaks that you think we should have lived with for the sake of one or two percent more and at the cost of continued corruption of the nation’s soul. That’s was your realist versus idealistic paradigm wasn’t it?

        • UPnnGrd

          “…without the leaks”  is an assertion.

          Wish the Noynoy administration well about this “… without the leaks” // let’s see what Binay (or bongBong)  will say when their turn at bat  comes.  (… or Mar Roxas or Kris Aq… who really knows who is at helm come 2017… especiallly if Cha-Cha-Cha gets to happen)

  • I think there is a big difference between pork and a performance-based payout. One provides incentive for loyalty and the other productivity. Now you are right, establishing the standards upon which a performance bonus is paid is extraordinarily difficult. But the DISCIPLINE pushes always in the right direction. The arguments over the bonus are a part of the brainstorming that helps drive forward. If the measures for payout are vague, figure out how make them specific. Then we are getting to the kinds of disciplines that drive western productivity. Take any job and it can be broken down into reasonable and measurable performance based benchmarks for the forthcoming year.

    Great article.

    • So performance bonuses are okay for executives of GOCCs but not for bus drivers plying their routes in the metro. Would we as voters consent to giving our Congressmen and Senators bonuses then on the same basis? And for what?

      • Did I say that? I don’t see it anywhere.

        If bus drivers are a part of a corporation, they can be paid bonuses based on inspection results, safety record, timely transit, and courtesy/customer service (rated by “secret riders”).I’d consent to giving Congressmen bonuses based on getting the birth rate down, manufacturing up, corruption down, investment rating up, debt down, and maybe some others I’d have to think about. Alas, I have no vote, and think bizarrely.

        • Nope, I was just making a general comment, not commenting on anything you said, Joe. As for setting the pay of public officials, I would rather go with paying an ‘efficiency wage’ like Henry Ford did to encourage productivity. It would have to be well-targeted, because doing this for the entire bureaucracy in the low tax collecting Philippine setting is not feasible.

          • Yes, feasibility. Well, pay big bonuses for those people (like property tax assessors) who get taxes up measurably by assessing accurately and getting payments in (no ag rates for residential estates). And make the bonus pool go up or down depending on the nation’s achievement of overall financial targets. Gadzooks, I am back at work again . . .

          • While we are on the topic, how much should the pay packet of a CEO of a 2 trillion peso entity called the Republic of the Philippines be worth, do you think?

          • 41.82 million pesos per year if performance is rated “outstanding” by the official Performance Award Panel

          • UPnnGrd

             Thd salary of Gazmin and all the generals should be doubled at least given their responsibilities,  right?  The governors, too.  And especialy Robredo and de Lima.  Let money rain from the heavens!!!!

            Or then again, maybe these government positions should not be considered   “for gain” “for compensation”… what do you think?   If Conrado deQuiros (because there is not enough money in it) does not want to volunteer to run for Palawan governor,  that’s his prerogative.

    • UPnnGrd

       “KKK”-implementation is incentive for loyalty,  isn’t it?