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THIRTEENTH CONGRESS OF THE 
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REPUBLIC OF THE PHILIPPINES 
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First Regular Session 
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SENATE 
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S.B. No. ~ 
Introduced by Senator Manuel B.Villar, Jr. 
EXPLANATORY NOTE 
Fiscal Responsibility entails the prudent 
management 
of government 
expenditures, revenues and debt with the goal of sustaining healthy public finances for 
tlie 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 
ofthe 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 unmanageable 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 
tliis 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 targets 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 on expenditures, caps shall be 
placed on personnel expenditures of the national government, 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 tlie right track and will send a strong 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. 
MA 


THIRTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
First Regular Session 
Introduced by Senator Manuel B. Villar, Jr, 
“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 BOlWOWING 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 ofPolicy - It is hereby declared a policy ofthe 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 hnds 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. 
c. Without unduly adversely affecting domestic interest rates by keeping 
8
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its borrowings to a level that can be absorbed by the market, borrow 
I 
from domestic resources in order to limit vulnerability of he 
! 


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. Definifion 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 aid controlled corporations, social security institutions, as well 
as the cost of restnicturing the defunct Central Bank, except those 
incurred by government financing institutions. 
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 Banglto Sentral ng Pilipinas. 
f. 
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g. Constitutional Offices refer lo the Civil Service the Coinmission, 
Commission on Audit, the Commission on Elections. the Commission 
on Human Rights and the Office of the Ombudsman. 
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 
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. 
.. 
11. 
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 non- 
financial 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. 
1. 
Deficit refers to the shortfall or deficiency of revenue over 
expenditures of the government classified into: 
i. 
Budgetaiy Deficit which is the deficiency of total revenues over 
expenditures excluding debt repayments and payments of non- 
budgetary accounts. 
Financial deficit, which is the deficiency of total receipts over the 
sum of current and capital expenditures 
ii. 
rn. Development Budget and Coordinating Committee or DBCC refers 
to the committee created under Executive Order No. 232, S. 1970, as 
amended. 
Discretionary Fund refers to lump-sum appropriations for general 
purposes whose specific allocation shall be determined by an 
authorized public official or entity. 
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. 
Executive Department or branch refers to all national government 
agencies, including state universities and colleges and other 
instrumentalities, whether or not receiving funding support though 
n. 
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V. 
W. 
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2. 
aa. 
the Geiieral Appropriations Act, falling under the control and 
supervision of the President of the Philippines. 
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. 
Government Financial Institutions or GFIs 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. 
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 o f  at least a 
majority of its outstanding capital stock or of its outstanding voting 
capital stock. 
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. 
Gross Domestic Product or GDP 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 products not included in the values of 
their outputs. 
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. 
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. 
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. 
Internal Revenue Allotlnent 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. 
Legislative Department of branch refers to the Senate and House of 
Representatives. 
Medium Teim 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 Development Bank of the 
Philippines, as well as promissory notes issued to the different 
international financial inslitutions 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. 
ee. Net current revenue refers to the sum of all tax and non-tax 
collections less the following: 
i. 
ii. 
Internal Revenue Allotment; 
iii. 
iv. 
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, 
Personnel Expenditures shall have the meaning provided under 
Section 26. 
Proceeds from privatization and recovery of ill-gotten wealth; 
Interest payments on national government dent; and 
Net lending to government corporations 
ff. 
gg. 
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. 
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. 
jj. 
I&. 
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 hnd. 


TITLE I1 
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 
wealmess in the tax structure or to promote an economic or social 
objective; 
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 the 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 I1 
Annual Budget Strategy 
Section 8. Definition - The Annual Budget Strategy is an agreement 
between the executive and legislative branches of government on the macro- 
economic 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 VI1 
~ 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 (GAA), 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 o f  
Representatives, and the President of the Philippines, which shall have the force 
I and effect of a law. 
In the event that Congress passes the GAA 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 GAA for the ensuing 
fiscal year, the GAA 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 Departnient 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 GAA must be consistent 
~ with the MTFA and based on the Annual Budget Strategy. 
The GAA shall likewise be accompanied by a regionalized allocation of 
~ expenditures, including those for the autonomous regions that may be derived 
i from budgets of regular agencies with nationwide projects. 
TITLE 111 
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 GDP by the end of 2010. The 
~ 
goveiiment shall likewise endeavor to reduce national government debt to 60- 
65% of GDP. 
Afrer 2010, or when the debt targets have been achieved, whichever 
occiirs 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 non- 
financial 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 
GDP, 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 DBCC, 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 
i public sector and national government debt exceed their respective annual limits, 
~ the DBCC must identiry 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: 
~ 
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. Additioizal 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,xcusnble Breach - The deficit targets provided herein may 
be temporarily breached when the same is absolutely necessary to counter 
I 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. Debt 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 
i this chapter. 
I 
The DOF must submit to Congress, on a quarterly basis, a report on the 
consolidated non-financial public sector and national government debt. In the 
event that the quarterly repoll. 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 
Nationall 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 
I 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 measures to combat tax fraud and evasion 
and the number and aniounts of judicial suits for the collection of outstanding tax 
~ debts. 
Section 20. Compliance with Fiscal Targets - If at the end of three (3) 
mouths, 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 govemnent, 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 GAA. 
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 bredcs 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 bredcs shall be conditioned on the issuance by the DOF of a cerlification 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 Bills - 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 permanent 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 
A swoin statement of responsibility to be executed by its sponsor/s 
certifying that: 
b. 
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 impleinentation of the offsetting measure identified in the sworn 
statement of responsibility, 
Section 25. Ur$mz'edLaws - All laws passed in violation of Sections 23 
~ and 24 shall be considered harmful to public finances and remain unfunded. 
I 
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%) ofnet 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 
i 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%) 
! 
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 
! persoimel 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. 
~ 
~ evaluated at the end of each four-month period. 
Compliance with the limits established in the preceding sections shall be 
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. 
b. 
C. 
d. 
e. 
f. 
granting any increase, adjustment or correction of remuneration for 
any reason, other than those arising from law or any final and 
executory judicial decision; 
creating a position, job, or function; 
increasing the number of personnel in its plantilla; 
implementing any career path changes if this implies an increase in 
personnel expenditures; 
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 
contracting overtime work, unless overtime is compensated through 
tiineidays off work in Iieu 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. 
b. 
abolition of positions and functions; and 
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 co~istitutional 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 Pvecedent - 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 DBM 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, GFIs, OGCEs and govemment subsidiaries. As 
such, the term “government owned and controlled corporations” or “GOCC” shall 
include GFIs, 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 foims of indebtedness, as well as the fulfillmenl,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 necessaiy 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 DOF 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 DOF 
~ and based on its assessment of the Iimancial risks involved. 
Section 39. Disclosure of Government Guarantees - As far as practicable, 
,’ and consistent with the priiiciple of full disclosure, the DOF shall disclose, on a 
quarterly basis, all contingent liabilities, created by way of guarantees, including 
claims and 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. Perfornznnce Agrement - 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 o€fice for failure to accomplish 
the prescribed targets, 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, Honornrin, 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 GOCCs must capture, as much as 
possible, the homogeneity among GOCCs in terms of mandate, core 
and secondary functions, historical data on operations income or 
losses, subsidy received from the national government, and exemption 
fiom the Salary Standardization Law. 
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. 
c. 
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; 
h. 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 the 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 collected by 
local governments; 
c. Any taxes withheld in accordance with law or mles and regulations; 
d. Statutory contributions, including its counterpart contribution as 
employer, to the Home Government Mutual Fund (Pag-ibig), 
Philippine HeaIth Insurance Corporation, Government Service 
Insurance System and other government agency or corporations; and 
e. Amortization payments of salary, policy and other loans incurred by its 
employees to the Government Service Insurance System or other 
GQCCs. 
I 
~ indebtedness due to GQCCs. 
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, contxibution, 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 
i government’s obligation and prepare an amortization schedule based on its 
~ capability to pay. 
Local governments shall immediately settle all outstanding ‘loans and 
I 
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 reinit 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. 
I 
A personnel cap shall likewise be imposed on all public utilities and 
~ 
economic enterprises owned by the local government at such limits imposed on 
~ 
GQCCs with similar mandates as may be determined by the DBCC under Section 
~ 
44, Chapter 4, Title V of this Act. 
i 
, 
’ 
Section 51. Compliance - Local governments as well as public utilities 
and economic enteiprises 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 2007; 
b. 50 percent by 2008; 
c. 75 percent by 2009; 


d. 100 percent by 2010. 
By the end of 2010, 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. 
Section 53. 
Sanctions - I[ 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, shall 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 VI1 
Voluntary Transfers 
Section 55. Dejnition - 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 
j financial assistance, sourced from any discretionary fund. 
~ 
Section 56. Requisites - In addition to those that may be established in the 
I GAA, the requirements for voluntary transfers shall include: 
~ 
a. existence of a 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 non- 
financial public sector and national government debt, as well as 
those for total personnel expenditures. 


Section 57. Disclosure of Voluntavy 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 Voluntay Transfers - Suspension o f  voluntary 
' transfers imposed as a sanction under this Act shall not apply to those intended for 
the education and health sectors. 
TITLE VI11 
Transparency in Fiscal Managemelit 
Chapter 1 
Full Disclosure 
Section 59. 
Public Disclosuve - 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 o f  the 
proper official, pertain to matters that may adversely affect the interest of the 
government. 
~ 
I 
Section 62. Fiscal Managenzent 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 different 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 o f  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. 
11. 
Integrity of the disclosure contained in the report; and 
Consistency with the requirements of this Act. 
.. 
Chapter II 
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 Acconnting System (NGAS), designed 
~ 


~ and prescribed by the Commission on Audit (COA) to all national government 
~ agencies, local governments, and GOCCs, is hereby adopted. 
Henceforth, all financial statements included in the reports required 
j 
i pursuant to this Act shall be prepared in accordance with the NGAS. 
Section 65. Compliance Peviod - Within a period one [I] year from the 
~ effectivity of this Act all national as well as local government agencies, including 
I GOCCs, shall have completely installed the computerized version of NGAS 
otheiwise known as “e-NGAS”. 
TITLE IX 
Final Brovisioiis 
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 ofPvovisions - If for any reason, any portion or 
! provision of this Act or the application thereof shall be declared invalid or 
I unconstitutional, the validity of other parts or provisions not affected thereby shall 
! continue to be in full force and effect. 
i 
1 
Section 68. Repealing Provision - The following laws, presidential 
i 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 
j modified accordingly: 
~ 
a. 
b. 
C. 
d. 
e. 
f. 
g. 
h. 
i. 
1. 
k. 
1. 
Section 21, Republic Act 1161 as amended by R.A. 8282 (Social 
Security Act of 1954); 
Section 14, Republic Act 4850 (An Act Creating the Laguna Lake 
Development Authority); 
Section 17, Republic Act 6234 (Creation of Metropolitan 
Waterworks and Sewerage System); 
Section 1, Republic Act 6395 (An Act Revising the Charter of 
National Power Corporation); 
Section 13, Republic Act 6958 (Charter of the Mactan-Cebu 
International Airport Authority); 
Section 12, Republic Act 7354 (Postal Service Act of 1992); 
Seclion 19, Republic Act 7393 (Quedan and Rural Credit 
Corporation Act); 
Section 58, Republic Act 7875 (National Health Insurance Act of 
1995); 
Section 1, Republic Act 8291 (The Government Service Insurance 
System Act of 1997); 
Section I, Republic Act 8282 (Social Security Act of 1997); 
Section 18, Republic Act 8763 (Home Guaranty Corporation Act of 
2000); 
Section 2, Presidential Decree 179 (An Act Creating the Cultural 
Center of the Philippines); 


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


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