COVER STORY

The struggle for the 2019 national budget

The proposed cash-based system has proven to be a bottleneck in passing the national budget for 2019.

Metro Manila (CNN Philippines) — The executive and the legislative branches are in a bit of a tiff over the national budget, the spine that holds all of next year's projects together.

For veteran Budget Secretary Benjamin Diokno, a cash-based budget is the way to go. As the head of the department that proposes next year's spending scheme, the economist believes that doling out next year's budget in cold, hard cash would minimize underspending and assure that all government projects would be finished quickly.

But legislators are apprehensive of this proposal, arguing that one year may not be enough to finish big ticket projects. The House of Representatives had temporarily suspended budget deliberations in opposition of cash-based disbursements. While House Majority Leader Rolando Andaya said that they are amenable to a hybrid budget, it seems that for Diokno it's cash-based or bust.

Budget deliberations are set to resume at the House of Representatives next week.

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How is the national budget passed?

While it is President Rodrigo Duterte who would ultimately sign the budget into law, the executive branch alone can not decide on the budget that it will use for the next fiscal year. The 1987 Constitution states that all bills on appropriations should originate from the House of Representatives, while the Senate may concur or propose amendments.

The DBM, acting as the representative of the President, submits yearly proposals to the House of Representatives for its spending plan for the next year. This is the basis for the House of Representatives' budget bill. The House conducts budget deliberations with different sectors of government to see if the DBM's proposal is amenable to them, what they want changed, and so on. The House uses what it has learned from deliberations to decide on what goes into the budget bill.

The Senate may also conduct its own deliberations. When both legislative houses have finished their respective budget bills, they convene as a bicameral conference committee to come up with one consolidated general appropriations bill that they will submit to the President for approval.

The President can then sign the general appropriations bill into law, to become the budget for next year, or he can veto the entire bill. If vetoed, Congress must submit another budget bill for signing. The President can also veto certain items of the budget bill before signing it into law.

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Where would the money for the 2019 national budget come from?

The national budget will be derived from government revenues, including taxes, and borrowing. In his budget message for the fiscal year of 2019, Duterte said that most of next year's budget will be funded by taxes.

"Our expected revenue collections of ₱3.208 trillion will help us fund 83.7 percent of government disbursements for 2019, of which ₱181.43 billion will come from proceeds of Package 1A and 1B of our tax reform program," Duterte said in the budget message, citing the Tax Reform for Acceleration and Inclusion (TRAIN) law.

Duterte added that the remaining ₱624.4 billion of the budget will come from local and foreign borrowing. This will account for the ₱579.2 billion fiscal deficit for the year.

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What's the difference between cash-based and obligation-based budgets?

This issue has proven to be the bottleneck in passing the 2019 budget. While the DBM has been adamant in the need to shift into a cash-based budget system, the House of Representatives want to stick to the traditional obligation-based system.

The main difference between a cash-based and an obligation-based budget is how money will be disbursed to government agencies to pay for its projects, operating expenses, and other needs. In an obligation-based budget, funds are given for projects that agencies promise to deliver. It takes into consideration how it may take more than one year for these projects to be implemented.

On the other hand, the cash-based budget system limits the time that a project is funded to one fiscal year. After that, agencies may file for a three-month extension. Funds are given for projects that agencies believe can be delivered within the fiscal year. According to the DBM, this system is meant to establish accountability, discipline and faster government service.

However, solons argue that this new system could lead to lower infrastructure spending.

"Mababawasan (ang) mga classroom buildings, mababawasan (ang) health facilities, mababawasan (ang) irrigation projects, mababawasan ang kahit mga new buildings and facilities ng SUCs (State Universities and Colleges), mababawasan ang roads and bridges," Representative Karlo Nograles, chair of the House committee on appropriations, said on an August 9 interview.

[Translation: The number of classroom buildings, health facilities, irrigation projects, even new buildings and facilities of SUCs, roads and bridges- will all be reduced.]

The DBM is aiming to have the national budget gradually shift into a fully cash-based system. In a statement issued February, the DBM said that the government is ready to implement the first annual cash-based budget.

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What is a reenacted budget?

A budget is reenacted when Congress fails to pass the budget bill by the end of the fiscal year. This means that the budget for this year will repeat for next year, including all projects itemized for that year.

Diokno said that they are already preparing for the eventuality of a reenacted budget if Congress does not approve of the cash-based system.

"So we're just preparing for that eventually. We're not saying it's going to happen, but like boy scouts, we're prepared," the Budget Secretary said in an August 15 interview. He added that the upcoming 2019 elections could be the reason why Congress is seeking a larger budget.

In an interview with CNN Philippines' The Source, Representative Joey Salceda, vice chair for the House committee on appropriations, said that a reenacted budget would not be able to fund the Southeast Asian (SEA) Games and the elections.

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What is underspending? What happens when a department underspends?

Underspending happens when an agency fails to spend a significant amount of its budget for the year. Given how budgets are based on a list of projects proposed by the agency for a year, underspending may imply unfinished projects or irregularities in procurement. Unspent funds are returned to the government coffers.

The Commission on Audit, on its latest report on the Department of Transportation, found that the department had underspent in 2017, using only ₱18 billion of its ₱71 billion budget. Transport Secretary Arthur Tugade defended his agency, and said that the unspent funds will all be returned to the government.

In 2017, Diokno had flagged underspending as a "major flaw" in government.

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What are the budget priorities for 2019?

As with 2018, the proposed 2019 budget will prioritize infrastructure, social services and national security. The education sector (Department of Education, Commission on Higher Education, State Universities and Colleges, etc.) combined has the highest proposed budget for 2019 at ₱659 billion. The second largest piece of the pie goes to the Department of Public Works and Highways, which is in charge of several of the administration's infrastructure programs. The Department of National Defense and the Department of Interior and Local Government get the third and fourth largest budgets respectively. Rounding up the top ten government agencies are the Department of Social Welfare and Development, the Department of Health, the Department of Transportation, the Department of Agriculture, the judiciary branch, and the Autonomous Region of Muslim Mindanao.

The legislative branch has a combined proposed budget of ₱17.59 billion. The Office of the President has a proposed budget of ₱6.82 billion while the Office of the Vice President a mere ₱455.9 million.

READ: Government to prioritize infrastructure, social services in 2019 budget

CNN Philippines business news producer Jil Danielle Caro contributed to this report.