Fiscal policy are "measures employed by governments to stabilize the economy, specifically by manipulating the levels and allocations of taxes and government expenditures"."Fiscal Policy."Britannica Academic Edition. n.d.. Web. May 19, 2011 In the Philippines, this is characterized by continuous and increasing levels of debt and budget deficits, though there were improvements in the last few years of the first decade of the 21st century."Fiscal Rules: The Way Forward?." Senate Economic Planning Office. Senate Economic Planning Office; August 2005. Web. May 20, 2011.

The Philippine government's main source of revenue are taxes, with some non-tax revenue also being collected. To finance fiscal deficit and debt, the Philippines relies on both domestic and external sources.

Fiscal policy during the Marcos administration was primarily focused on indirect tax collection and on government spending on economic services and infrastructure development. The first Aquino administration inherited a large fiscal deficit from the previous administration, but managed to reduce fiscal imbalance and improve tax collection through the introduction of the 1986 Tax Reform Program and the value added tax. The Ramos administration experienced budget surpluses due to substantial gains from the massive sale of government assets and strong foreign investment iyears and administrations. The Estrada administration faced a large fiscal deficit due to the decrease in tax effort and the repayment of the Ramos administration's debt to contractors and suppliers. During the Arroyo administration, the Expanded Value Added Tax Law was enacted, national debt-to-GDP ratio peaked, and underspending on public infrastructure and other capital expenditures was observed.

Revenues and funding

The Philippine government generates revenues mainly through personal and income tax collection, but a small portion of non-tax revenue is also collected through fees and licenses, privatization proceeds and income from other government operations and state-owned enterprises.

Tax revenue Tax collections comprise the biggest percentage of revenue collected. Its biggest contributor is the Bureau of Internal Revenue (BIR), followed by the Bureau of Customs (BOC). Tax effort as a percentage of GDP has averaged at roughly 13% for the years 2001–2010.

Income taxes Income tax is a tax on a person's income, wages, profits arising from property, practice of profession, conduct of trade or business or any stipulated in the National Internal Revenue Code of 1997 (NIRC), less any deductions granted."Income Tax." Bureau of Internal Revenue Website. Bureau of Internal Revenue; n.d. Web. May 10, 2011. Web. Income tax in the Philippines is a progressive tax, as people with higher incomes pay more than people with lower incomes. Personal income tax rates vary as such:"National Internal Revenue Code." Bureau of Internal Revenue Website. Bureau of Internal Revenue; n.d. Web. May 10, 2011. Web. Annual Taxable Income Income Tax Rate Less than ₱10,000 5% Over ₱10,000 but not over ₱30,000 ₱500 + 10% of the excess over ₱10,000 Over ₱30,000 but not over ₱70,000 ₱2,500 + 15% of the excess over ₱30,000 Over ₱70,000 but not over ₱140,000 ₱8,500 + 20% of the excess over ₱70,000 Over ₱140,000 but not over ₱250,000 ₱22,500 + 25% of the excess over ₱140,000 Over ₱250,000 but not over ₱500,000 ₱50,000 + 30% of the excess over ₱250,000 Over ₱500,000 ₱125,000 + 32% of the excess over ₱500,000

The top rate was 35% until 1997, 34% in 1998, 33% in 1999, and 32% since 2000.FDI and Corporate Taxation: The Philippine Experience , Rafaelita M. Aldaba, Philippine Institute for Development Studies.

In 2008, Republic Act No. 9504 (passed by then-President Gloria Macapagal Arroyo) exempted minimum wage earners from paying income taxes."RA 9504." Bureau of Internal Revenue Website. Bureau of Internal Revenue; n.d. Web. May 20, 2011. Web.

E-VAT The Expanded Value Added Tax (E-VAT), is a form of sales tax that is imposed on the sale of goods and services and on the import of goods into the Philippines. It is a consumption tax (those who consume more are taxed more) and an indirect tax, which can be passed on to the buyer. The current E-VAT rate is 12% of transactions. Some items which are subject to E-VAT include petroleum, natural gases, indigenous fuels, coals, medical services, legal services, electricity, non-basic commodities, clothing, non-food agricultural products, domestic travel by air and sea."Impact of RA9337 (RVAT) Actual." Department of Finance (DoF). Department of Finance; n.d.. Web. May 10, 2011. Web.

The E-VAT has exemptions which include basic commodities and socially sensitive products. Exemptible from the E-VAT are:"Briefer on the VAT Reform Law." VAT Reform Website. Department of Finance; n.d.. Web. May 7, 2011. Web Agricultural and marine products in their original state (e.g. vegetables, meat, fish, fruits, eggs and rice), including those which have undergone preservation processes (e.g. freezing, drying, salting, broiling, roasting, smoking or stripping); Educational services rendered by both public and private educational institutions; Books, newspapers and magazines; Lease of residential houses not exceeding ₱10,000 monthly; Sale of low-cost house and lot not exceeding ₱2.5 million Sales of persons and establishments earning not more than ₱1.5 million annually.

Tariffs and duties Second to the BIR in terms of revenue collection, the Bureau of Customs (BOC) imposes tariffs and duties on all items imported into the Philippines. According to Executive Order 206, returning residents, Overseas Filipino Workers (OFW's) and former Filipino citizens are exempted from paying duties and tariffs."Frequently Asked Questions." Bureau of Customs. Bureau of Customs; n.d.. Web. May 15, 2011. Web.

Non-tax revenue Non-tax revenue makes up a small percentage of total government revenue (roughly less than 20%), and consists of collections of fees and licenses, privatization proceeds and income from other state enterprises."National Government Fiscal Position." Department of Finance (DoF). Department of Finance; n.d.. Web. May 15, 2011. Web.

The Bureau of the Treasury The Bureau of the Treasury (BTr) manages the finances of the government, by attempting to maximize revenue collected and minimize spending. The bulk of non-tax revenues comes from the BTr's income. Under Executive Order No.449, the BTr collects revenue by issuing, servicing and redeeming government securities, and by controlling the Securities Stabilization Fund (which increases the liquidity and stabilizes the value of government securities"The New Central Bank Act (RA 7653)." Bangko Sentral ng Pilipinas. Bangko Sentral ng Pilipinas; n.d.. Web. May 20, 2011. Web. ) through the purchase and sale of government bills and bonds."Mandate." Bureau of the Treasury Website. Bureau of the Treasury; n.d.. Web. May 16, 2011. Web.

Privatization Privatization in the Philippines occurred in three waves: The first wave in 1986–1987, the second during 1990 and the third stage, which is presently taking place.Ortile, Lauro. "Privatization of the Philippines." Asian Development Bank. Asian Development Bank; n.d.. Web. May 10, 2011. Web. The government's privatization program is handled by the inter-agency Privatization Council and the Privatization and Management Office, a sub-branch of the Department of Finance."The Philippine Privatization Program." Department of Finance (DoF). Department of Finance; n.d.. Web. May 15, 2011. Web.

PAGCOR The Philippine Amusement and Gaming Corporation (PAGCOR) is a government-owned corporation established in 1977 to stop illegal casino operations. PAGCOR is mandated to regulate and license gambling (particularly in casinos), generate revenues for the Philippine government through its own casinos and promote tourism in the country.

Spending, debt and financing

Government spending and fiscal imbalance In 2010, the Philippine government spent a total of ₱1.5 trillion and earned a total of ₱1.2 trillion from tax and non-tax revenues, thus resulting to a total deficit of ₱314.5 trillion.

Despite the national deficit of the Philippines, the Department of Finance reported an average of ₱29.6 billion in local government unit (LGU) surplus, which is mostly due to an improved LGU financial monitoring system which the government implemented in the recent years. Efforts of the monitoring system include "debt monitoring and creditworthiness monitoring system, effective mobilization of second generation funds (SGF) to promote LGU development, and the implementation of a Land Administration and Management Project (LAMP2) which received a 'very good' rating from the World Bank (WB) and Australian Agency for International Development (AusAid).""DoF: Bulwark of Strength and Stability: 2009 Annual Report." Department of Finance (DoF). Department of Finance; n.d.. Web. May 15, 2011. Web.

Microfinance management in the Philippines is improving substantially. In 2009, the Economist Intelligence Unit "recognized the Philippines as the best in the world in terms of its microfinance regulatory framework." The DOF-National Credit Council (DOF-NCC) focused on improving the state of local cooperatives by developing a supervision and examination manual, launching advocacies for these cooperatives, and pushing for the Philippine Cooperative Code of 2008. A standardized national strategy for microinsurance and the provisions of grants and technical assistance were formulated.

Financing and debt Aside from Tax and Non-Tax Revenues, the government makes use of other sources of financing to support its expenses. In 2010, the government borrowed a total net of ₱351.646 billion for financing:"National Government Financing." Bureau of the Treasury Website. Bureau of the Treasury; n.d.. Web. May 16, 2011. Web. Domestic Sources External Sources Gross Financing ₱489.844 billion ₱257.357 billion Less: Repayments/Amortization ₱271.246 billion ₱124.309 billion Net Financing ₱218.598 billion ₱133.048 billionTotal Financing ₱979.688 billion₱351.646 billion

External Sources of Financing are: Program and Project Loans – the government offers project loans to external bodies and uses the proceeds to fund domestic projects like infrastructure, agriculture, and other government projects. Credit Facility Loans Zero-coupon Treasury Bills Global Bonds Foreign Currencies

Domestic Sources of Financing are Treasury Bonds Facility loans Treasury Bills Bond Exchanges Promissory Notes Term Deposits

In 2010, the total outstanding debt of the Philippines reached ₱4.718 trillion: ₱2.718 trillion from outstanding domestic sources and ₱2 trillion from foreign sources. According to the Department of Finance, the country has recently reduced dependency on external sources to minimize the risks caused by changes in the global exchange rates. Efforts to reduce national debt include increasing tax efforts and decreasing government spending. The Philippine government has also entered talks with other economic entities, like the ASEAN Finance Ministers Meeting (AFMM), ASEAN+3 Finance Ministers Meeting (AFMM+3), Asia-Pacific Economic Cooperation (APEC), and ASEAN Single-Window Technical Working Group (ASW-TWG), in order to strengthen the countries' and the region's debt management efforts.

History of Philippine financial management

Marcos Administration (1981–1985)