budget 2013

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.