Republic of the Philippines
House of Representatives
Quezon City

Fifteenth Congress
Second Regular Session

HOUSE BILLNo. 5245 as.

Introduced by Honorable Jeseph Emilio Aguinalde Abaya

EXPLANATORY NOTE

The call for fiscal discipline resonates in many countries these days. Recent
budget debates in the United States and other European countries attest to the
pressing significance of this topic, whether one’s economy is developed or
emerging.

The proposed Fiscal Responsibility Bill seeks to instil fiscal discipline in
the public sector, it prescribes a set of principles which aggressively advocates
prudent debt management, fiscal consolidation, results-oriented budgeting,
rationalization of subsidies, asset preservation, spending controls, and
responsible risk management.

It is anchored on the often forgotten principle that fiscal responsibility is
shared among many institutions. tt thus mandates the executive and tegislative
branches to agree on, and jointly work towards achieving, medium-term fiscat
targets through the passage of a fiscal accord and an annual budget strategy. It
also holds heads of different government agencies accountable for managing
their budget, especially their Personal Services requirement.

But the heart and soul of this bill is the offsetting mechanism prescribed
under Section 7. Strictly enforcing Section 25(4), Article VI of the 1987
Constitution - which mandates that all special appropriation bills must be
supported by funds actually available in the treasury or raised by a corresponding
fevenue proposal therein — Section 7 commands that no expenditure measure
shall be passed into law without the counterpart revenue-generating or
expenditure reducing measure. This deficit-neutral measure is designed to
prevent the proliferation of unfunded laws which unnecessarily distorts the
national govemment’s priorities, and unfairly raises the expectations of their
beneficiaries

It is about time that the Philippines pass its own Fiscal Responsibility Bill.
We need to fiscally sustain the benefits of the institutional reforms introduced by
the Aquino Administration.



Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

Fifteenth Congress
Second Regutar Session

HOUSE BILLNo. 245

Introduced by Honorable Joseph Emilio Aguinaldo Abaya

AN ACT
INSTILLING FISCAL DISCIPLINE IN THE PUBLIC SECTOR BY
ESTABLISHING PRINCIPLES OF RESPONSIBLE FINANCIAL,
MANAGEMENT, MANDATING THE PASSAGE OF THE MEDIUM TERM
FISCAL ACCORD AND ANNUAL BUDGET STRATEGY, AND PRESCRIBING
AN OFFSETTING MECHANISM FOR EXPENDITURE BILLS

Be if enacted by the Senate and the House of Representatives of the Philippines
in Congress assembled:

SECTION 1. Title. — This Act shall 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
fesponsible financial management, and establishing control mechanisms on
spending. The State shall ensure overall macroeconomic stability and long-term
sustainable growth through strategie forward planning and continuous
coordination between the Executive and Legistative branches of government, The
State shall likewise strengthen the budget as a performance management tool
and afford full transparency and accountability in all government revenue,
expenditure and borrowing operations

SEC. 3. Principles of Responsible Financial Management - The State shall
Pursue its policy objectives in accordance with the following principles of
responsible fiscal management:
1. Achieve fiscal sustainability through prudent debt management and the
adoption of a fiscal consolidation strategy.


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2. Minimize the vulnerability of the government's fiscal position to foreign
exchange fluctuations by maintaining an appropriate mix of domestic and
external financing.

3. Promote responsible budgeting by strengthening the results-orientation of
ali government expenditures and affording full transparency and
accountabilily in all government expenditure operations.

4, Maintain budget credibility by ensuring that automatically appropriated
items in the budget, such as interest payments, are kept intact to prevent
unwarranted distortion of the govemment's fiscal position.

5. Rationalize the grant of subsidy and/or equity investment to. the
government corporate sector by limiting the subsidy to those with socially
relevant mandates and equity investment to corporations with high
economic returns.

8. Preserve government assets by reducing reliance on the use of proceeds
from the sale or transfer of properties to finance current or operating
expenditures of the public sector.

7. Protect any fiscal gain that may be achieved by adopting deficit-neutral
measures that will control spending, prevent the erosion of the revenue or
tax base, and rationalize the grant of fiscal incentive.

8. Manage prudently and minimize all fiscal risks facing the government.

SEC. 4, Medium Term Fiscal Accord - The Medium Term Fiscal Accord
(MTFA) is an agreement between the Executive and Legislative branches of
government on the fiscal targets of the National Government sought to be
accomplished over a period of three (3) years. The agreed upon terms and
content of the MTFA, which shall be consistent with the principles enumerated in
Section 3, shall be embodied in a Joint Resolution signed by the Speaker of the
House of Representatives, the Senate President, and the President of the
Philippines, and shall have the force and effect of a law.

Ifno MTFA shall have been agreed upon within the prescribed period, then the
MTFA of the preceding congressional term shall be deemed reenacted and shall
femain in force and effect unti! the new MTFA is passed


SEC. 8. Annual Budget Strategy - The macro-economic policies and fiscal
targets sought to be achieved by the National Government in one fiscal year shall
be contained in the Annual Budget Strategy (ABS). The ABS shall be
incorporated in the General Appropriations Bill submitted for approval by the

President.

In case of a re-enacted budget as provided under Section 25 (7), Article V1 of
the 1987 Constitution, the ABS prepared by the Executive branch shall be
deemed approved until the passage of a new General Appropriations Act (GAA)
containing a different version of the ABS.

SEC. 6. Responsible Budgeting - The heads of all departments and
agencies in the Executive, Legislative, and Judicial branches, including
government-owned or controlled corporations, government financial institutions
and Constitutional Offices shall be responsible in ensuring that their Personal
Services (PS) requirement, regardless of funding source, is computed based on
the personnel information provided in the Government Manpower Information
‘System maintained by the Department of Budget and Management (DBM) and in
accordance with the basic salaries, allowances and benefits, and incentives
authorized under Republic Act No. 6758, as amended, or the respective laws of
government agencies exempt therefrom.

Accordingly, the DBM shall only release the PS appropriations of all
departments and agencies in the Executive, Legislative, and Judicial branches,
including Constitutional Offices that are consistent with the foregoing computation.

Any and all payments made in excess of the PS computation above, whether
sourced from the GAA, special accounts, revolving funds, or corporate funds,
shall be considered an illegal disbursement of public funds and shall make the
responsible officials legally accountable therefor.

SEC. 7. Expenditure Bills — Pursuant to Section 25 (4), Article VI of the 1987
Constitution, all proposed bills the implementation of which will result in, or carry


with it, an increase in National Government expenditures, especially those
mandating the creation of recurrent expenditures, must be offset by measures
providing for a permanent increase in revenue or permanent reduction in other

expenditures.

For this purpose, all expenditure bills must be accompanied by the following:
4. An estimate by the DBM of its budgetary and financial impact for the
next three (3) years; and
2. A swom statement of responsibility to be executed by its principal
sponsor/s certifying that.

a.) the increase in expenditure shali be supported by a revenue
generation measure identified either in the ABS or an independent
legislative proposal; and

b.) an undertaking that the effectivity of the expenditure bill is
conditioned on the implementation of the revenue generation
measure identified in the ABS or the passage and execution of the
independent legislative proposal

SEC. 8. Effectivity of Expenditure Bills - The effectivity of any
expenditure bill shall be conditioned on the following:
a.) issuance by the DBM of a cettification that all the requirements
prescribed in Section 7 have been complied with; and
6.) implementation of the offsetting measure identified in the ABS or the
passage and execution of the independent legislative proposal
mentioned in the sworn statement of responsibility,

SEC. 9, Unfunded Laws - All laws with budgetary implications that were
enacted without identified supporting revenue generation or expenditure reduction
measure shall be considered harmful to publi¢ finances and remain unfunded

The effectivity of existing legal provisions which mandates remain
unfunded, whether partially or in full, shall be suspended until the requirements of
Sections 7 and 8 have been complied with.


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SEC. 10. implementing Rules and Regulations - The DBM and the
Department of Finance shall promulgate the necessary rules and regulations for
the proper implementation of the provisions of this Act within sixty (60) days from
the date of its effectivity.

SEC. 11. Separability of Provisions - \f 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
continue to be in full force and effect.

SEC. 12. Repealing Provision - Any law, presidential decree or issuance,
executive order, rule or regulation, and/or parts thereof, contrary to or incensistent
with the provisions of this Act is hereby repealed, modified, or amended
accordingly.

SEC. 13. Effectivity Clause - This Act shall take effect after fifteen (15)

days following its publication in the Official Gazette or in two (2) newspapers of

general circulation.

Approved,