, 
FIFTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES) 
First Regular Session 
) 
SENATE 
S. B. N~. 2552 
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INTRODUCED BY SENATOR MANNY VILLAR 
EXPLANATORY NOTE 
Fiscal 
Responsibility 
entails 
the 
prudent 
management of government 
expenditures, revenues and debt with the goal of sustaining healthy public finances for 
the country. 
Never has the need for a Fiscal Responsibility' Act for our countrY been more 
apparent than now. Decisive steps must he taken to cure the ailing Philippine economy 
of the fiscal hemorrhage that is sapping the health of our public finances. In the past two 
decades, rare were the years when government revenues exceeded expenditures, 
happening only in the mid-1990s because of the one-time privatization receipts 
generated during this period. Aside from our unmanaQeable budget deficits, our huge 
debt stock also necessitated a rapidly increasing outlay for debt service, now more than 
a third of our national budget. The poor fiscal health of our country has already 
adversely affected our standing in the international credit market, earning for us two 
credit downgrades and increasing even more our ballooning interest payments for our 
foreign debts. 
It is evident that a comprehensive measure must be put in place to remedy not 
just the symptoms but also the root cause of the problem. This bill proposes to address 
this need through the imposition of control measures, including sanctions, which have 
not been implemented in past years. This includes the formulation of an executive-
legislative agreement called the Medium Term Fiscal Accord that seeks to impose 
fiscal, specifically deficit, revenues and expenditure ttirgets over a three-year period. 
Both Houses of Congress shall also approve, through a Joint Resolution, an Annual 
Budget Strategy submitted by the President to Congress. A debt cap is also imposed, 
with the national government targeting to gradually reduce consolidated non-financial 
public sector debt to 80-90% of the Gross Domestic product by 2010. To ensure the 
sustainability of sound debt management and controls en expenditures, caps shall be 
placed on personnel expenditures of the national Dovernment, only deficit-neutral 
measures shall be pursued, and the automatic guarantee provision for GOCC debts is 
repealed. 
. 
Evidently, comprehensive and not piecemeal solutions are needed to address 
the long-standing fiscal vulnerability of our country. It is :earnestly hoped that this bill will 
finally put us on the right track and will send a str-eng signal to the international 
community that our country is serious in charting the elusive path towards fiscal health, 
with the end in view of maximizing the growth potential of the Philippine economy. 
1 


In view of the foregoing, early approval of this measure is earnestly requested. 
M 
2 


FIFTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES) 
First Regular Session 
) 
SENATE 
S. B. No. 2552 
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" 
RECEIVED!W ~ 
INTRODUCED BY SENATOR MANNY VILLAR 
AN ACT INSTILLING FISCAL DISCIPLINE IN THE PUBLIC SECTOR 
BY SPECIFYING PRINCIPLES OF RESPONSIBLE FINANCIAL 
MANAGEMENT AND PROMOTING FULL TRANSPARENCY AND 
ACCOUNTABILITY IN GOVERNMENT REVENUE, EXPENDITURE 
AND BORROWING PROGRAMS" 
Be it enacted by the Senate and House of Representatives of the Philippines in 
Congress assembled: 
TITLE 1 
Preliminary Provisions 
Sec. 1. Title - This Act shall also be known as the "Fiscal Responsibility Act". 
Sec. 2. Declaration of Policy - It is hereby declared a policy of the State to instill 
fiscal discipline in the public sector by prescribing principles of responsible financial 
management, establishing control mechanisms on spending, and adopting preventive 
measures against the erosion of its tax base. The State shall ensure overall 
macroeconomic stability and long-term sustainable growth through aggressive forward 
planning and continuous coordination between the executive and legislative branches of 
government. The State shall likewise strengthen the budgetary process as a planning 
tool and afford full transparency and accountability in all government revenue, 
expenditure and borrowing operations. 
Sec. 3. Principles of Responsible Fiscal Management - The State shall pursue its 
policy objectives in accordance with the following principles of responsible fiscal 
management: 
a. Continuously strive for a balanced budget by adopting a diminishing yearly 
deficit target over the medium term. Once this deficit targets have been achieved, 
maintain these levels by ensuring that, on average, total operating expenses of the 
government do not exceed its total operating revenues. 
b. In order to decrease dependence on borrowed funds and minimize financing 
costs, reduce consolidated public sector debt and national government debt to 
sustainable levels through prudent debt management and the adoption of a 
comprehensive fiscal plan. 
3 


c. Without unduly adversely affecting domestic interest rates by keeping 8 ' its 
borrowings to a level that can be absorbed by the market, borrow from domestic 
resources in order to limit vulnerability of the government's fiscal position to resource to' 
foreign exchange fluctuations. 
d. Promote budget flexibility by reducing non-discretionary portions of the budget 
such as requirements for personal services and interest payments in order to channel 
more resources to growth inducing capital investments. 
e. Preserve the relative value of its assets by ensuring that the total value of 
liabilities is congruent to any adjustment in its tax revenues and other assets. The State 
shall not use proceeds from the sale or transfer of properties to finance current or 
operating expenditures of the public sector. 
f. To protect any fiscal gain that may be achieved and minimize the risk of 
backsliding, control mechanisms on spending, deficit-neutral measures to prevent the 
erosion of the revenue or tax base, and imposition of better incentive mechanisms shall 
continuously be adopted. 
g. Manage prudently all fiscal risks facing the government. 
Sec. 4. Definition of Terms - When used in this Act, the following terms or words 
and phrases shall mean or be understood as follows: 
a. Annual Budget Strategy shall have the meaning provided under Section 8. 
b. Build-Operate-and-Transfer or BOT refers to build-operate-and transfer 
arrangements or any of its variants as defined and enumerated under Section 2 of 
Republic Act No. 6957, as amended by Republic Act No. 7718. 
c. Budget refers to an estimated schedule of expenditures, based on either 
obligations or cash concepts and sources of financing, either from revenues, borrowings 
or cash balance·drawdowns. 
d. Budget of Expenditure and Sources of Financing or BESF refers to a 
document submitted by the President in accordance with Section 22, Article VI1 of the 
Philippine Constitution. It contains the annual program of estimated expenditures 
proposed by the executive branch to the legislature for spending authority, 
accompanied by an estimate of expected sources of financing. 
e. Consolidated, Non-Financial Public Sector Service Debt refers to the total 
indebtedness, whether foreign or domestic, of the national government, local 
government, monitored non-financial government owned and controlled corporations, 
social security institutions, as well as the cost of restructuring the defunct Central Bank, 
except those incurred by government financing institutions. 
f. Consolidated Public Sector Deficit refers to the combined deficit of the national 
government, local governments, monitored non-financial government owned and 
controlled corporations and financial institutions, social security institutions, as well as 
the cost of restructuring the defunct Central Bank, and the financial position of the 
present Bangko Sentral ng Pilipinas. 
g. Constitutional Offices refer 10 the Civil Service the Commission, Commission 
on Audit, the Commission on Elections, the Commission on Human Rights and the 
Office of the Ombudsman. 
4 


h. Contingent Liabilities refer to either of the following: 
i. Possible obligations that arise from past GOCC and BOT operations 
whose . existence will only be confirmed upon the concurrence or non-
concurrence of one or more uncertain future events not wholly within the control 
of the enterprise; or 
ii. Present obligations that arise from past events but are not recognized 
because it is not probable that an outflow of resources embodying economic 
benefits will be required to settle the obligation or the amount of the obligation 
cannot be measured with sufficient reliability. Examples of these are the future 
projects of actuarial deficiencies of the government social security institution. 
i. Credit Operations refer to the act of contracting funds from financial institutions 
whose principal plus interest and other financial charges shall be paid at a later agreed 
upon date. 
j. Debt refers to the stock of total liabilities or obligations at any given time, 
whether of the national government or the consolidated nonfinancial public section, or 
both. 
k. Debt Service refers to the sum of loan repayments, interest payments, 
commitment fees and other charges on foreign and domestic borrowings. 
I. Deficit refers to the shortfall or deficiency of revenue over expenditures of the 
government classified into: 
i. Budgetary Deficit which is the deficiency of total revenues over 
expenditures excluding debt repayments and payments of non-budgetary 
accounts. 
ii. Financial deficit, which is the deficiency of total receipts over the sum of 
current and capital expenditures 
m. Development Budget and Coordinating Committee or DBCC refers to the 
committee created under Executive Order No. 232, S. 1970, as amended. 
n. Discretionary Fund refers to lump-sum appropriations for general purposes 
whose specific allocation shall be determined by an authorized public official or entity. 
o. Economic Enterprises refer to income generating establishments created by 
local governments for the purpose of improving production and delivery of baSic goods 
and services for a specific market or client group, such as public markets, slaughter 
houses, cemeteries, sports, cultural and recreation centers, parking lots, ice plants, 
hospitals, and special and tertiary schools. 
p. Executive Department or branch refers to all national government agencies, 
including state universities and colleges and other instrumentalities, whether or not 
receiving funding support through the General Appropriations Act, falling under the 
control and supervision of the President of the Philippines. 
q. Fiscal Indicators refer to measures such as numerical ceilings, whether or not 
set as a percentage of the gross domestic product, as may be prescribed, for the 
evaluation of the fiscal position of the government. 
5 


r. Government Financial Institutions or GFls are GOCCs that are primarily 
engaged in both incurring liabilities and acquiring financial assets in the market, and any 
acceptance of demand, time or savings deposits. 
s. Government Owned and/or Controlled Corporations or GOCCs refer to a stock 
or non-stock corporation, whether performing governmental or proprietary functions, 
which is directly chartered by a special law, or if organized under the general 
corporation law is owned or controlled by the government directly or through a parent 
corporation or subsidiary corporation, to the extent 0 f at least a majority of its 
outstanding capital stock or of its outstanding voting capital stock. 
t. Government Subsidiaries refers to those created in accordance with law where 
at least a majority of the outstanding capital stock or outstanding voting capital stock is 
owned 
by 
parent 
government 
corporations 
and/or 
other government-owned 
subsidiaries. 
u. Gross Domestic Product or GOP refers to the value of all goods and services 
produced domestically; the sum of the gross value added of all resident institutional 
units engaged in production, plus any taxes and minus any subsidies, on pr.oducts not 
included in the values of their outputs. 
v. Guarantee refers to an arrangement whereby the government promises to pay 
the debt of another entity if certain conditions are met, such as the liability of the entity 
to pay. 
w. Joint Resolution refers to a formal declaration or expression from both the 
Senate and the House of Representatives voting separately. Like bills, joint resolutions 
shall embrace only one subject and must pass three readings on separate days, except 
when the President certifies to its urgency. 
x. Judiciary Department or branch refers to the Supreme Court, Court of Appeals, 
Sandiganbayan, Court of Tax Appeals, Shari'ah Appellate Court and all lower courts. 
y. Internal Revenue Allotment or IRA refers to the share of local government in 
the national internal revenue taxes a prescribed under Sections 284 and 285 of 
Republic Act No. 7160, or the Local Government Code. 
z. Legislative Department of branch refers to the Senate and House of 
Representatives. 
aa. Medium Term Fiscal Accord or MTFA shall have the meaning provided under 
Section 5. 
bb. National Government refers to the executive, legislative and judiciary 
branches of the government, including the constitutional offices. 
cc. National Government Debt refers to all security issuances and loans of the 
national government, excluding assumed liabilities from the Philippine National Bank 
and the Developrnent Bank of the Philippines, as well as promissory notes issued to the 
different international financial institutions and loans under the Consolidated Borrowings 
Program. 
dd. Net lending refers to advances by the national government for the servicing 
of government guaranteed corporate debt during the year, net of repayments and such 
advances, including loans, outlays or proceeds from program loans relent to GOCCs. 
6 


ee. Net current revenue refers to the sum of all tax and non-tax collections less 
the following: 
i. Proceeds from privatization and recovery of ill-gotten wealth; 
ii. Internal Revenue Allotment; 
iii. Interest payments on national government dent; and 
iv. Net lending to government corporations 
ff. Other Government Corporate Entities or GOCCs refer to those who by judicial 
decree are considered GOCCs, including those which by legal definition are treated as 
such, as well as private corporations acquired by the government either by voluntary 
transfer or sequestration. 
gg. Personnel Expenditures shall have the meaning provided under Section 26. 
hh. Public sector entity refers to an individual office, agency, bureau, or court, as 
may be appropriate, falling under the executive, legislative, and judicial branches of 
government, including constitutional offices. 
ii. Public utilities refer to revenue raising undertakings created by local 
governments for the purpose of providing a basic need or service to the general public 
which otherwise cannot be provided adequately by the private sector, such as water 
and sewerage services, garbage collection and disposal, telephone system, electric and 
power services, public transport and terminal station services. 
jj. Tax breaks refer to any of the following: amnesty, subsidy, presumed credit, 
exemptions, changes in tax rate or tax base which results in reduction of taxes or 
contributions, and other beneficial treatments. 
kk. Voluntary Transfer refers to the transfer of current or capital resources to 
other branches, agencies, offices, local governments, and other instrumentalities in the 
form of cooperation, aid or financial assistance, sourced from any discretionary fund. 
TITLE II 
Fiscal Planning and Accord 
Chapter 1 
Medium Term Fiscal Accord 
Section 5. Definition - The Medium Term Fiscal Accord (MTFA) is an agreement 
between the executive and legislative branches of government on the 'fiscal targets 
sought to be accomplished over a period of three (3) years. It shall contain the agreed 
upon fiscal indicators and their underlying assumptions, including the following: 
a. Deficit targets, quantified as a percentage of GDP; 
b. Revenue and tax targets, quantified as a percentage of GDP; 
c. Expenditure targets, measured as a percentage of GDP; 
d. Financing strategy to be adopted; 
e. New revenue measures to be enacted in order to correct an identified 
weakness in the tax structure or to promote an economic or social objective; 
7 


f. New expenditure measures to be implemented; and 
g. Additional measures to accomplish fiscal targets and sustain reforms. 
Section 6. Term - Each MTFA shall be valid for a period of three (3) years 
starting from the second to the third year of a congressional term and the first year of 
the succeeding congressional term. 
Section 7. Preparation - At the start of every congressional term, the President, 
through the Development Budget Coordinating Council (DBCC), shall prepare the 
proposed MTFA and submit it to Congress, through the Chairmen of the Committee on 
Appropriations, on economic Affairs and on Ways and Means of the House of 
Representatives and the Chairmen of the Committee on Finance, on Economic Affairs, 
and on Ways and Means of the Senate, within thirty (30) days from the opening of th~ 
regular session. 
Within one hundred and eighty (180) days from its submission, the Executive 
Department and Congress shall agree ion the terms and content of the MTFA through a 
Joint Resolution to be signed by the Senate President, the Speaker of the House of 
Representatives, and the President of the Philippines, which shall have the force and 
effect of a law. 
If no MTFA shall have been agreed upon within the prescribed period, then the 
MTFA for the preceding congressional term shall be deemed reenacted and shall 
remain in force and effect until the MTFA is passed. 
Chapter II 
Annual Budget Strategy 
Section 8. Definition - The Annual Budget Strategy is an agreement between the 
executive and legislative branches of government on the macroeconomic policies and 
fiscal targets sought to be achieved as well as financial strategies to be implemented 
during one fiscal year. It shall be consistent with the MTFA and include, among other, 
revenue forecasts calculated in accordance with Section 18. 
Section 9. Preparation - Together with the submission of the Budget of 
Expenditures and Sources of Financing as mandated under Section 22, Article VII of the 
Philippine Constitution, the President shall likewise submit to Congress the proposed 
Annual Budget Strategy for the ensuing fiscal year. 
Within one hundred twenty (120) days from its submission or upon the enactment 
of the General Appropriations Act (GM), whichever comes earlier, the Executive 
Department and Congress shall agree on the Annual Budget Strategy to be 
implemented for the succeeding fiscal year through a Joint Resolution to be signed by 
the Senate President, the Speaker of the House of Representatives, and the President 
of the Philippines, which shall have the force and effect of a law. 
In the event that Congress passes the GM without approving the Annual Budget 
Strategy, the Annual Budget Strategy submitted by the President shall likewise be. 
deemed approved. If Congress fails to pass the GM for the ensuing fiscal year, the 
GM for the preceding fiscal year shall be deemed reenacted under Section 25 (7), 
Article VI of the Constitution, then the Annual Budget Strategy approved in the 
preceding year shall likewise be deemed reenacted, unless Congress and the Executive 
8 


Department deem it fit to pass an Annual Budget Strategy in order to provide guidelines 
for the implementation of the enacted budget. 
Section 10. General Appropriation Act - The GM must be consistent with the 
MTFA and based on the Annual Budget Strategy. 
The GM shall likewise be accompanied by a regionalized allocation of 
expenditures, including those for the autonomous regions that may be derived from 
budgets of regular agencies with nationwide projects. 
TITLE III 
Debt Cap 
Section 11. Coverage - The provisions under this Title shall apply to all public 
sector entities, including national and local governments, as well as GOCCs, but 
excluding Government Financial Institutions, since their indebtedness form part of the 
consolidated non-financial public sector debt. 
Section 12. Debt Cap - To ensure overall macroeconomic stability and long-term 
sustainable growth, the following debt targets are hereby established. 
The national government shall endeavor to gradually reduce consolidated non-
financial public sector debt to 80-90% of GOP by the end of 2015. The government shall 
likewise endeavor to reduce national government debt to 60- 65% of GOP. 
After 2015, or when the debt targets have been achieved, whichever occurs later, 
the national government shall maintain the same at a sustainable level taking into 
account the prevailing economic condition as well as changes in the underlying 
assumptions that may affect the fiscal position of the country. 
Thereafter, the medium-term and annual deficit targets for consolidated 
nonfinancial public sector and national government debt shall be embodied in the MTFA 
and Annual Budget Strategy, respectively, and shall be intended to facilitate the steady 
reduction of debt over a six-year period. 
In the event that the national government anticipates a fall in the nominal GOP, 
or upon occurrence of other events, which are due to extraneous factors beyond its 
control, the President is hereby authorized, upon the recommendation of the DSCC, 
and subject to consultation with the presiding officers of both Houses of Congress and 
the Chairmen of the Committee on Appropriations, on Economic Affairs and on Ways 
and Means of the House of Representatives and the Chairmen of the Committee on 
Finance, on Economic Affairs, and on Ways and Means of the Senate, to make the 
necessary adjustments on the applicable debt target. 
Section 13. Debt Restructuring - Should the consolidated non-financial public 
sector and national government debt exceed their respective annual limits, the DBCC 
must identify the public sector entity or entities who, contributed most to such violation. 
The identified public sector entity or entities must then reduce their indebtedness in 
order that the established limits will be met within one year from the end of the twelve-
month period. 
Section 14. Sanctions - As long as the debt targets have not been achieved, the 
public sector entity or entities identified by the DBCC to have contributed the most to' 
such violation shall: 
9 


a. be prohibited from contracting internal or external borrowing operations, 
including revenue anticipations, except for the refinancing or amortization of the debt; 
and 
b. restrict funding commitments. 
Section 15. Additional Sanctions - Once the period for bringing the debt I target 
within the limit has expired, and as long as the excess persists, the public sector entity 
or entities identified by the DBCC to have contributed the most to such violation shall be 
prohibited from: 
a. receiving voluntary transfers; and 
b. qualifying as a beneficiary in a foreign-assisted project. 
Section 16. E,xcusable Breach - The deficit targets provided herein may be 
temporarily breached when the same is absolutely necessary to counter catastrophic 
emergencies of national proportion as may be declared by the President. The 
presidential certification must specify the urgency and necessity of such breach, the 
period OC time within which the government should offset the breach, as well as 
measures to cushion the effects of said breach to the national economy. 
Section 17. Oebt Monitoring - The Debt and Risk Management Office, created 
under the Department of Finance (DOF), shall supervise the borrowing operations of the 
national government. It shall likewise monitor and evaluate compliance by any public 
sector entity concerned with the specified targets under this chapter. 
The DOF must submit to Congress, on a quarterly basis, a repprt on the 
consolidated non-financial public sector and national government debt. In the event that 
the quarterly report of the DOF discloses the possibility of exceeding the limits set forth 
herein, the DOF in coordination with the public sector entity concerned shall improvise 
measures to prevent the eventual violation of the debt cap. 
TITLE IV 
National Government 
Chapter 1 
Compliance with Fiscal Targets 
Section 18. Annual Revenue Forecast - The revenue forecast, as embodied in 
the Annual Budget Strategy, must comply with historical data, taking into account the 
effects of changes in legislation, price index, variations, economic growth or any other 
relevant factor, and must be accompanied by a statement of its evolution in the last 
three years, a projection €or the next two years, and the calculation methodology and 
premises adopted. Revenue forecasts may only be revised due to technical error or 
omission. 
Section 19. Quarterly Revenue Targets - Within thirty (30) days from passage or 
reenactment of a Joint Resolution adopting the Annual Budget Strategy, estimated 
revenues reflected in the Annual Budget Strategy must be broken down by the DBCC 
into quarterly collection targets, including, if applicable, a separate description of 
10 


measures to combat tax fraud and evasion and the number and amounts of judicial 
suits for the collection of outstanding tax debts. 
Section 20. Compliance with Fiscal Targets - If at the end of three (3) months" 
the DBCC shall conclude that the revenue inflow for the next quarter will not meet the 
quarterly revenue targets indicated in the Annual Budget Strategy, all branches of the 
national government, including constitutional offices, must at their own initiative, and in 
the required amounts as may be determined by the DBCC, individually take measures 
within the next thirty (30) days to restrict commitments and financial operations as 
reflected in the GM. 
Should the forecasted revenues be re-established, as determined by the DBCC, 
the appropriations €or which funding commitments were restricted must be replenished 
in proportion to the reductions previously made. 
Chapter 2 
Deficit-Neutral Measures 
Section. 21. Fiscal Incentives - The granting or broadening of tax incentives or 
benefits resulting in tax breaks shall in no case be in an amount equal to or lower than 
their respective collection costs. It must also be consistent with the provisions of the, 
Annual Budget Strategy. 
Prior to the deliberation of any such measure, the legislative or executive branch, 
as the case may be, must ensure that the proposed measure is accompanied by a 
report prepared by the DOF assessing its budgetary and financial impact for the next 
three (3) years. 
Section. 22. Condition Precedent - The effectivity of an executive or legislative 
measure granting or broadening tax incentives or benefits resulting in tax breaks shall 
be conditioned on the issuance by the DOF of a certification that said measure complies 
with the requirements of the preceding section and at least one of the following: 
a. DOF certification specifying that the tax breaks have been considered in the 
revenue estimate reflected in the Annual Budget Strategy; or 
b. Imposition and implementation of countervailing mechanisms, through revenue 
generation programs, such as tax rate raises, expansion of tax base, or increase in, or 
creation of, taxes or contributions. 
Section 23. Expenditure Bil!s - Except for debt service and cost of living 
adjustments for government employees, all increases in national government 
expenditures especially those mandating the creation of recurrent expenditures must be 
offset by a per.manent increase in revenue or permanent reduction in other 
expenditures. 
Hereafter, all bills proposing an increase in public expenditures must be 
accompanied by the following: 
a. An estimate by the Department of Budget and Management (DBM) of its 
budgetary and financial impact for the next three (3) years; and 
b. A sworn statement of responsibility to be executed by its sponsorls certifying 
that: 
11 


i. the increase in expenditure shall be supported by a revenue generating 
or expenditure reduction measure enumerated either in the Annual Budget 
Strategy or an independent legislative proposal; and 
ii. an undertaking that the expenditure bill's effectivity is conditioned on the 
passage and execution of the revenue measures identified. 
Section 24. Conditions Precedent - The effectivity of any law proposing an 
increase in public expenditure, except those enumerated in Section 23, shall be 
conditioned on the (i) issuance by the DBM of a certification that all the requirements 
prescribed by Section 23 have been complied with, and (ii) the enactment and 
implementation of the offsetting measure identified in the sworn statement of 
responsibility. 
Section 25. Unfunded Laws - All laws passed in violation of Sections 23 and 24 
shall be considered harmful to public finances and remain unfunded. 
The effectivity of existing legal provisions whose mandates remain unfunded, 
whether partially or in full, shall be suspended until requirements of Sections 23 and 24 
shall have been complied with. For this purpose, the Committee on Oversight of the 
House of Representatives together with its counterpart in the Senate, in coordinated 
with the DBM, shall prepare a list of existing legal provisions that remain unfunded as of 
the effectivity of this Act. 
Chapter 3 
Personnel Expenditures 
Section 26. Definition - For ·the purpose of this Chapter, total personnel 
expenditure is defined as the sum of expenditures incurred for wages and salaries, fixed 
and variable benefits or allowances, subsidies, pensions, including any additional 
payments, bonuses, overtime and fringe benefits of any kind, as well as social security 
charges and contributions withheld by and on behalf of the social security agencies for 
permanent, temporary, casual, contractual employees and retirees, including elective 
officials. 
It shall likewise include personnel expenditures incurred as a result of final and 
executory judicial decisions. 
Section. 27. Personnel Cap - Consistent with the principles of responsible fiscal 
management, total personnel expenditures of the national government shall not exceed 
forty five percent (45%) of net current revenues starting 2010. 
By the end of 2010, the national government shall continually maintain and 
manage its total personnel expenditure at an optimum level, which shall in no case 
exceed forty-five percent (45%) of its net current revenues. For this purpose, the Annual 
Budget Strategy Shall specify the optimum level of total personnel expenditures €or the 
succeeding years. 
Section 28. Personnel Cap Distribution - The overall limits for the national 
government set in the preceding section shall be broken down as follows: 
a. Executive-ninety-four percent (94%); 
b. Legislative-one percent (1%) 
c. Judiciary-three percent (3%); and 
d. Constitutional Offices-two percent (2%) 
12 


The foregoing limits, pegged as a percentage of the overall limit, shall be further 
broken down among the different courts, ,bureaus, offices, and other agencies under 
each branch or constitutional office in proportion to their average personnel expenditure, 
expressed as a percentage of net current revenue, incurred in the three fiscal years 
preceding the effectivity of this Act. 
Section 29, Determination of Compliance - Total personnel expenditures must be 
determined on an annual basis, by adding expenditures incurred in the base month with 
those incurred in the preceding eleven months, 
Compliance with the limits established in the preceding sections shall be 
evaluated at the end of each four-month period. 
Section 30. Non-compliance with Personnel Cap - Any increase in personnel 
expenditures resulting in a violation of the limits prescribed in Sections 27 and 28 shall 
be null and void. 
Section 31. Sanctions - If total personnel expenditures exceed thirty percent 
(30%) of the prescribed limit, the branch or constitutional office which exceeded the 
limit, as well as the courts, agencies, or offices under said violating branch or 
constitutional office, shall be prohibited from: 
a, granting any increase, adjustment or correction of remuneration for any 
reason, other than those arising from law or any final and executory judicial decision; 
b. creating a position, job, or function; 
c. increasing the number of personnel in its plantilla; 
d, implementing any career path changes if this implies an incre,ase in personnel 
expenditures; 
e. offering public employment positions, admitting or hiring personnel for any 
reason, except when the replacement results from retirement or death of public servants 
in the education, health, and security areas; and 
f. contracting overtime work, unless overtime is compensated through time/days 
off work in lieu of overtime pay in accordance with guidelines jOintly issued by the DBM 
and the Civil Service Commission. 
In addition, the following measures may be adopted: 
a. abolition of positions and functions; and 
b. temporary reduction in working hours, if wages may be adapted to the 
new work schedule. 
Section 32. Remedy Period - Without prejudice to the measures in the preceding 
section, if total personnel expenditures exceed the limits set in Sections 27 and 28, the 
excess percentage must be eliminated in the two subsequent four-month periods, with 
at least one-third of such excess being eliminated in the first four-month period. 
Section 33, Additional Sanctions - If the reduction is not completed within the 
remedy period, and until such time as the excess continues, the branch or constitutional 
13 


office which exceeded the limit, as well as the courts, agencies or , offices under said 
violating branch or constitutional office, shall be prohibited from: 
a. Receiving voluntary transfers; and 
, 
b. Qualifying as a beneficiary of a foreign-assisted project, except those 
aimed at reducing personnel expenditures. 
Chapter 4 
Creation of National Entities 
Section 34. Scrap and Build Policy - The national government may not create or 
form new agencies, bureaus, offices, including GOCCs and state universities and 
colleges unless existing agencies, bureaus, offices, GOCCs and state universities of 
substantially the same size in terms of manpower and budget resources have been 
abolished. 
Section 35. Conditions Precedent - The effectivity of any law creating or forming 
new agencies, bureaus, offices including GOCCs and state universities and colleges 
shall be conditioned on the issuance by the OBM of a certification that all the 
requirements prescribed in Section 34 shall have been complied with. 
TITLE V 
Government Owned and Controlled Corporations 
Chapter1 
Government Guarantees 
Section 36. Coverage - For the erasure of doubt, the provisions of this Title shall 
apply to all GOCCs, GFls, OGCEs and government subsidiaries. As such, the term 
"government owned and controlled corporations" or "GOCC" shall include GFls, OGCEs 
and Government Subsidiaries. 
. 
Section 37. Repeal of Automatic Guarantees - All provisions of law, presidential 
decree, or executive order requiring the State to guarantee payment, both of the 
principal and interest, of loans, bonds, debentures, collateral, notes, or other forms of 
indebtedness, as well as the fulfillment of any other obligation incurred by GOCCs, are 
hereby repealed. 
The guarantee referred to herein pertains to all kinds of government guarantee, 
whether the same be express or implied, solidary or subsidiary, automatic or subject to 
approval or the performance of such other acts. 
' 
Section 38. Grant of Guaranty - In cases where government guarantee is 
determined to be necessary in order to protect the greater interest of the State, or where 
the economic benefits of its issuance outweighs the financial drawback, the President 
may, upon favorable recommendation of the OOF and payment of a guarantee fee, 
grant government guarantee to GOCCs or assume its liabilities. The amount of the 
guarantee fee to be collected shall be determined by the OOF and based on its 
assessment of the financial risks involved. 
Section 39. Disclosure of Government Guarantees - As far as practicable, and 
consistent with the principle of full disclosure, the OOF shall disclose, on a quarterly 
basis, all contingent liabilities, created by way of guarantees, including claims and 
14 


commitments by the national government for and in behalf of government corporations, 
with a statement of its budgetary and financial implications. 
Chapter 2 
Creation of Subsidiaries 
Section 40. Scrap and Build Policy - GOCCs may only create or form new 
corporations or subsidiaries upon the abolition of substantially similar, corporations or 
subsidiaries in terms of manpower and budget resources. 
The validity and existence of any corporation or subsidiary hereafter, formed or 
created shall be conditioned on the issuance by the DBM of a certification that all the 
requirements prescribed in this section shall have been complied with . 
. Chapter 3 
Government Corporate Performance 
Section 41. Performance Agreement - To improve government corporate 
performance, every member of the board of directors or trustees appointed by the -
President shall execute a performance agreement with the DOF. 
The performance agreement shall prescribe among others, the responsibilities, 
expectations, performance targets and review, remuneration, grounds for termination 
including removal from office for failure to accomplish the prescribed targElts, and other 
terms and conditions of the officer's appointment. 
Section 42. Salary Increase - All increases in salaries, per diems, allowances, or 
other fringe benefits approved by the corporation's governing board shall only take 
effect after the expiration of the full term of all the directors and trustees approving such 
increase. 
Chapter 4 
Personnel Expenditures 
Section 43. Increases in Salaries, Allowances, Honoraria, and Other Fringe 
Benefits - All increases in salaries, allowances, honoraria, and other fringe benefits that 
may be granted by the governing boards to the employees of GOCCs, including those 
that are presently or may hereafter be exempted by law from the Salary Standardization 
Law, shall be subject to the approval of the President, upon recommendation of the 
DBM. 
Section 44. Corporate Personnel Cap - A personnel cap shall be imposed on 
total personnel expenditures of each GOCC as a percentage of its net operating 
revenue. Within six (6) month from the effectivity of this Act, the DBCC shall fix the 
applicable personnel cap for each GOCC in accordance with the following policy 
guidelines: 
a. Definition of net operating revenue shall exclude remittances of fees, charges 
or premiums, or any payments made, which are mandated by law or rules and 
regulations to be so remitted or paid; 
b. Taking into consideration the peculiarities of each GOCC, a different personnel 
cap may be imposed per GOCC, or Cluster of GOCCs; Provided that, the clustering of 
15 


GOCCs must capture, as much as pqssible, the homogeneity among GOCCs in terms 
of mandate, core and secondary functions, historical data on operations income or 
losses, sUQsidy received from the national government, and exemption from the Salary 
Standardization Law. 
c. Personnel cap must be comparable to applicable benchmarks in the private 
sector. 
d. The personnel cap to be imposed may consider the targets and schedule of 
any rationalization program to be implemented by the national government. , 
The DBCC shall periodically review the personnel cap imposed and shall make 
the necessary adjustments to it as may be justified under the circumstances. 
Section 45. Compliance and Sanctions - Sections 26, 29 to 33, under Chapter 3, 
Title IV of this Act are hereby adopted for the purpose of determining compliance with, 
and imposition of sanctions to enforce the personnel cap, prescribed in the preceding 
section. 
Chapter 5 
Additional Sanctions 
Section 46. Additional Sanctions for GOCCs - In addition to those prescribed 
above, the DOF is hereby authorized to impose the following sanctions on GOCCs and 
officers who have not complied with the requirements prescribed under this Act: 
a. Assign an independent financial comptroller; 
b. Prohibit the issuance of any national government guarantee, whether direct or 
indirect; and 
c. Recommend to the President a revamp of the governing board or 
management. 
TITLE VI 
Local Governments 
. Chapter 1 
National Remittances 
Section 47. Efficient Remittance -
All local governments shall exercise 
responsible fiscal management by timely and efficiently remitting to tre relevant national 
government agency or corporation the following: 
a, All tax collections that accrue to the national government; 
b. National government share in taxes, fees, and charges colle~ted by local 
governments; 
c. Any taxes withheld in accordance with law or rules and regulations; 
d. Statutory contributions, including its counterpart contribution as employer, to 
the Home Government Mutual 
Fund 
(Pag-ibig), 
Philippine 
Health Insurance 
Corporation, Government Service Insurance System and other government agency or 
corporations; and 
16 


e. Amortization payments of salary, policy and other loans incurred by its 
employees to the Government Service Insurance System or other GOCCs. 
Section 48. Restructuring of Obligations - In case any local government I fails to 
remit or pay the required amounts within thirty (30) days from the time such tax 
collection, contribution, or loan should have be remitted or paid, it shall enter into an 
agreement with the national government agency or GOCC to settle, its obligations. The 
parties may agree, among others, to restructure the local government's obligation and 
prepare an amortization schedule based on its capability to pay. 
Local governments shall immediately settle all outstanding 'loans and 
indebtedness due to GOCCs. 
Section 49. Authority to Withhold - In case no agreement to restructure 
obligations is reached within sixty (60) days from start of negotiations, or if an -
agreement is reached but the local government still fails to remit or pay in accordance 
with the revised amortization schedule, the national government shall be authorized to 
deduct the unremitted or unpaid amount, as may be determined by the concerned 
national government agency or GOCC upon consultation with the local government, 
froin the defaulting local government's internal revenue allotment (IRA) as well as its 
special share from other forms of taxes and revenue. 
Chapter 2 
Personnel Expenditures 
Section 50. Personnel Cap - The personnel cap imposed on local governments 
pursuant to Section 325(a) of Republic Act No. 7160 or the Local Government Code 
shall be strictly adhered to. 
A personnel cap shall likewise be imposed on all public utilities and economic 
enterprises owned by the local government at such limits imposed on 'GOCCs with 
similar mandates as may be determined by the DBCC under Section 44, Chapter 4, 
Title V of this Act. 
Section 51. Compliance - Local governments as well as public utilities and 
economic enterprises already in compliance with the personnel cap shall maintain their 
personnel expenditures within said cap, or reduce it, to achieve its optimum level. 
However, those with personnel expenditures greater than said cap shall reduce 
such excess by the following percentages: 
a. 25 percent by 2012; 
b. 50 percent by 2013; 
c. 75 percent by 2014; 
d. 100 percent by 2015. 
By the end of 2015, the local governments as well as public utilities and 
economic enterprises shall maintain such level or reduce it to achieve the most cost-
effective personnel expenditure. 
Section 52. Non-compliance with Personnel Cap - Any increase in personnel 
expenditures resulting in a violation of the limits stated in the aforementioned sections 
shall be null and void. 
17 


Section 53. Sanctions - If total personnel expenditures exceed the prescribed 
limit, or if the required reduction on personnel expenditures prescribed in Section 51 is 
not followed, the violating local government, public utility, and economic enterprise, in 
addition to the sanctions prescribed by the Local Government Code, sh<J1I be prohibited 
from performing and adopting the acts and measures enumerated under Section 31, 
Chapter 3, Title IV of this Act. 
Chapter 3 
Additional Sanctions 
Section 54. Additional Sanctions for Local Governments - In addition to those 
prescribed above, the violating local government, public utility or economic enterprise 
which have not complied with the requirements prescribed under this Act, shall be 
prohibited, during the period of its violation, from: 
a. receiving voluntary transfers; 
b. qualifying as a beneficiary in any foreign assisted project; and 
c. obtaining any direct or indirect guarantee from the national government. 
TITLE VII 
Voluntary Transfers 
Section 55. Definition - Voluntary transfer is defined as the transfer of current or 
capital resources to other branches, agencies, offices, local governments, and other 
instrumentalities in the form of cooperation, aid or financial assistance, sourced from 
any discretionary fund. 
Section 56. Requisites - In addition to those that may be established in the GM, 
the requirements for voluntary transfers shall include: 
a. existence ora specific budget allocation; 
b. proof by the beneficiary that: 
i. the project, activity, or program to be funded is covered by the project 
menu prepared by the DBM; 
ii. it has no outstanding taxes, loans and financing due to the national 
government, and that previously received funds have been duly accounted for; 
iii. it has complied with procurement procedures prescribed by Republic 
Act No. 9184; and 
iv. it is in compliance with the limits set for consolidated nonfinancial public 
sector and national government debt, as well as those for total personnel 
expenditures. 
Section 57. Disclosure of Voluntary Transfers - All beneficiaries of voluntary 
transfers shall report and disclose to the DBM the details and outcomes of the program, 
project or activity being funded by the voluntary transfers. The DBM shall widely 
disseminate these information through electronic media. 
. 
Section 58. Suspension of Voluntary Transfers - Suspension (') f voluntary 
transfers imposed as a sanction under this Act shall not apply to those intended for the 
education and health sectors. 
18 


TITLE VIII 
Transparency in Fiscal Management 
Chapter 1 
Full Disclosure 
Section 59. Public Disclosure - The instruments of public fiscal management, 
including the Budget of Expenditures and Sources of Financing, the GAA, the MTFA, 
the Annual Budget Strategy, and other plans, policies, assessment reports, or budgets, 
together with a simplified Version of these documents, shall be widely disseminated, 
especially in electronic public media. 
Section 60. Public Participation - Transparency must also be ensured by I 
encouraging 
public participation 
and 
comments during the 
preparation 
and 
deliberations of the above documents. 
Section 61. Inspection - All plans, policies, reports, budgets, and other 
documents required to be submitted in accordance with this Act shall be made available 
throughout the year in the respective branch or office of the government taking custody 
thereof and shall be subject to inspection during office hours on regular business days, 
except only such matters as may, in the judgment of the proper official, pertain to 
matters that may adversely affect the interest of the government. 
I 
Section 62. Fiscal Management Reports - Within sixty (60) days from the 
effectivity of this Act, the DBM in coordination with the DOF shall prepare a list of 
reports to be submitted by the differ.ent branches and agencies of the government, 
including constitutional offices, to monitor compliance with this Act and ensure 
consistency with the government's fiscal policies. 
Section 63. Accountability - The plans, policies, reports, budgets, and other 
documents required to be submitted pursuant to this Act shall include a sworn 
statement signed by the head of the branch, agency, or constitutional. office, as the 
case may be, which shall include the following: 
a. A certification that the report was prepared using the best' professional 
judgment on the basis of information available to it before and at the time of its 
submission; and 
b. A statement of responsibility guaranteeing: 
i. Integrity of the disclosure contained in the report; and 
ii. Consistency with the reqUirements of this Act. 
Chapter /I 
New Government Accounting System 
Section 64. New Government Accounting System - To enhance uniformity in the 
application of government accounting rules and facilitate the consolidation of financial 
reports, the New Government Accounting System (NGAS), designed and prescribed by 
the Commission on Audit (COA) to all national government agencies, local 
governments, and GOCCs, is hereby adopted. 
19 


Henqeforth, all financial statements included in the reports required pursuant to 
this Act shall be prepared in accordance with the NGAS. 
Section 65. Compliance Period - Within a period one [I] year from the effectivity 
of this Act all national as well as local government agencies, including GOCCs, shall 
have completely installed the computerized version of NGAS otherwise known as "e-
NGAS". 
TITLE IX 
Final Provisions 
Section 66. Implementing Rules and Regulations - Within sixty (60) days from 
effectivity of this act, the DBM and DOF shall promulgate the necessary rules and 
regulations for the proper implementation of the provisions of this Act. 
Section 67. Separability of Provisions - If for any reason, any portion or provision 
of this Act or the application thereof shall be declared invalid or unconstitutional, the 
validity of other parts or provisions not affected thereby shall c<i)ntinue to be in full force 
and effect. 
Section 68. Repealing Provision - The following laws, presidential decrees, 
executive orders, corporate charters and other issuances or parts thereof, contrary to or 
inconsistent with the provisions of this Act are hereby repealed or modified accordingly: 
a. Section 21, Republic Act 1161 as amended by R.A. 8282 (Social Security Act 
of 1954); 
b. Section 14, Republic Act 4850 (An Act Creating the Laguna Lake 
Development Authority); 
c. Section 17, Republic Act 6234 (Creation of Metropolitan Waterworks and 
Sewerage System); 
d. Section 1, Republic Act 6395 (An Act Revising the Charter of National Power 
Corporation); 
e. Section 13, Republic Act 6958 (Charter of the Mactan-Cebu International 
Airport Authority); 
f. Section 12, Republic Act 7354 (Postal Service Act of 1992); 
g. Section 19, Republic Act 7393 (Quedan and Rural Credit Corporation Act); 
h. Section 58, Republic Act 7875 (National Health Insurance Act of 1995); 
i. Section 1, Republic Act 8291 (The Government Service Insurance System Act 
of 1997); 
j. Section I; Republic Act 8282 (Social Security Act of 1997); 
k. Section 18, Republic Act 8763 (Home Guaranty Corporation Act of 2000); 
I. Section 2, Presidential Decree 179 (An Act Creating the Cultural Center of thE! 
Philippines); 
20 


m. Section 8, Presidential Decree 346 (Amending the Charter of Philippine 
Aerospace Development Corporation); 
n. Section 8, Presidential Decree No. 425 (Amending Certain Sections of R.A. 
No. 6234); 
o. Section 3, Presidential Decree 552 (Amending certain Sections of R.A. No. 
3601, creating the National Irrigation Administration); 
p. Section 12, Presidential Decree 564 (Revising the Charter of the Philippine 
Tourism Authority); 
q. Section 1, Presidential Decree 572 (Amending the Charter of the Philippine 
National Oil Company); 
r. Section 11, Presidential Decree 690 (An Act Creating the Southern Philippines 
Development Administration); 
s. Section 4, Presidential Decree 741 (Amending R.A. No. 4156, creating 
Philippine National Railways); 
t. Section 14, Presidential Decree 757 (An Act Creating the National Housing 
Authority) ; 
u. Section 36, Presidential Decree 768 (An Act Declaring a National Policy 
Favoring Local Operations and Control of Water Systems); 
v. Section 36, Presidential Decree 857 (Promulgation of Port Administration and 
Operation Functions in the Philippines); 
w. Section 9, Presidential Decree 1080 (Revision of P.D. No. 550 creating the 
Philippine Foreign Loan Guarantee Corporation); 
x. Section 7, Presidential Decree 1267 (Creation of the National Home Mortgage 
Finance Corporation); 
. 
y. Section 12, Presidential Decree 1648 (Reorganization of the National 
Development Company); 
z. Section 12, Presidential Decree 1703 (Amending Presidential Decree 690); 
aa. Section 11, Presidential Decree 1770 (Reconstituting the National Grains 
Authority); 
bb. Section 1, Presidential Decree 1846 (Further Amending the Charter of the 
National Development Company); 
cc. Section 7, Executive Order 603 (Creating a Light Rail Transit Authority); and 
dd. Section 16, Executive Order 903 (Revision of EO 778, creating the Manila 
International Airport Authority) 
, 
Section 69. Effectivity Clause - This Act shall take effect fifteen (15) days after its 
publication in a newspaper of general circulation. 
Approved. 
21