FIFTHEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
First Regular Session 
SENATE 
s. NQ.24 80 
Introduced by Senator FRANKLIN M. DRILON 
EXPLANATORY NOTE 
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It is a policy of the State to maintain fiscal discipline as it is very essential in reducing 
vulnerabilities in the government, sustaining macroeconomic stability, and improving economic 
performance. In accordance therewith, the State has the right to establish measures to further 
strengthen fiscal discipline in the government. 
This bill proposes that public spending which results to an increase in deficit or reduction in 
revenue, whether it is a mandatory spending legislation or any tax legislation, should and must be 
accompanied by a countervailing measure which offsets it. Establishing Deficit-Neutral rules on both 
the Executive and Legislative branches of the government are much needed in order to institute these 
control mechanisms or cost-offsetting measures on spending. The bill also commands the adoption of 
preventive measures against the erosion of tax base. 
These Deficit-Neutral rules will be the key tool to somewhat limit deficit spending and to ensure 
compliance with the annual fiscal targets agreed upon by the Development Budget Coordinating 
Committee (DBCe). 
This Bill, therefore, helps the government to properly manage the country's public finances and 
strengthen the country's fiscal position. A more responsible financial management will be created. 
Thus, overall macroeconomic stability and long-term sustainable growth are most likely to be achieved. 
For these reasons, passage of this proposed measure is most earnestly and promptly requested. 
Senator 


FIFTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
First Regular Session 
) 
) 
) 
SENATE 
S.No. 2480 
Introduced by Senator Franklin M. Drilon 
AN ACT 
INSTfLLlNG FISCAL DISCIPLINE IN THE PUBLIC SECTOR BY ESTABLISHING 
DEFICIT-NEUTRAL RULES IN LINE WITH THE PRINCIPLE OF RESPONSIBLE 
FINANCIAL 
MANAGEMENT 
AND 
TOWARDS 
PROMOTING SUSTAINABLE 
ECONOMIC GROWTH. 
Be it enacted by the Senate and House of Representatives of the Philippmes m 
Congress assembled: 
Section 1. Declaration of Policy - It is hereby declared a policy of the State to instill 
fiscal discipline in the public sector along the principles of responsible financial management in 
order to ensure sufficient resources to finance socio-economic development programs toward 
overall macroeconomic stability and long-term sustainable growth. 
Sec. 2. 
Establishment of Deficit-Neutral Rules toward Responsible Financial 
Management - In line with the principles of responsible fiscal management, the State, through 
the Executive and Legislative Branches of government, shall adopt deficit-neutral rules that 
establish contml mechanisms on spending and adopt preventive measures against the erosion of 
the tax base. 
Any mandatory spending legislation or any tax legislation that increases the deficit or 
reduces revenues must be accompanied by a countervailing measure that offsets the increase in 
deficit or reduction in revenue. 
Deficit-neutral rules shall serve as a key tool to constrain deficit spending and to ensure 
compliance with annual fiscal targets agreed upon by the Development Budget and Coordinating 
Committee in support 0 r the Budget of Expenditures and Sources of Financing that is submitted 
to Congress for consideration in the enactment of the annual General Appropriations Act. 
Said rules shall contribute to the attainment of diminishing yearly deficit targets over 
the medium-term. 
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Sec. 3. Definition of Terms - When used in this Act, the following terms or words and 
phrases shalllllean or be understood as follows: 
a. Budget of Expenditure and Sources of Financing or BESF refers to a document 
submitted by the President in accordance with Section 22, Article VII of the 
Philippine Constitution. It contains the annual program of estimated expenditures 
accompanied by an estimate of expected sources of financing, proposed by the 
Executive branch to the Legislature for spending authority. 
b. Dejici! refers to the budgetary deficit, which is the deficiency of total revenues over 
expenditures excluding debt repayments and payments of non-budgetary accounts. 
c. Deve!opl17en! Budget and Coordinatll1g Committee or DBCC refers to the 
committee created under Executive Order No. 232, s. 1970, as amended. 
d. Fiscal Targe!s refer to numerical estimates on deficit, revenue, tax, non-tax, 
expenditure and financing, whether or not set as a percentage of the gross domestic 
product, that are adopted by the DBCC. 
e. 
Gross DOlliestie 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, 011 products 
not included in the values of their outputs. 
Sec. 4. Grant of Tax Incentive - The grant of tax incentive, in the nature of a tax 
break, tax exemption, tax privilege, tax reduction, tariff/duty reduction, preferential tax 
treatment, deferred tax or a broadening of an existing tax incentive or benefit, through the 
passage or effectivity of an executive or legislative measure, shatt be conditioned on either of the 
following: 
a. The issuance by the Department of Finance (DOF) of a cerlification that said 
measure is in compliance with the annual fiscal targets and that tax incentive has 
been considered in the revenue program for the year's BESF; or 
b. The imposition and implementation of a countervailing mechanism or cost-
offselling measure, through a revenue-generating provision or a reduction in 
expenditure. 
Sec. 5. Rationalization of Existing Tax Incentives - All existing incentives 
grantcd under various laws and executive orders shall be immediately reviewed with the end-
objective or rationalizing the lax incentives system and eliminating unnecessary and costly lax 
incentives within two (2) years from effectivity o[this law. 
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Sec. 6. Expe/lditure Eifls - Except for debt service and cost of living adjustments for 
government cmployees, all increases in national government expenditures especially those 
mandating thc creation of recurrent expenditures must be offset by a permanent increase in 
revenue or permanent reduction in other expeditures. 
Hereafter, all bills proposing an increase in public expenditures must be conditioned 
upon the following: 
a. 
An estimate by the Department of Budget and Management (DBM) of its budgetary 
ancl financial impact for the next three (3) years; and 
b. The enactment and implementation of an offsetting revenue-generating or 
expenditure-reduction measure 
Sec. 7 Ul(fil1l1led Laws - All laws with budgetary implications that are enacted 
without iclenti lied supporting revenue measures nor identified expenditure reduction shall be 
considered harillrulto public finances and may remain unfunded. 
The effectivity of existing legal provisions whose mandates remain unfunded, whether 
partially or in full, shall be suspended until the requirements of first paragraph of Sec. 5 shall 
have been complied with. For this purpose, the Committee on Oversight of the House of 
Representatives together with its counterpmi in the Senate, in coordination with the DBM, shall 
prepare a list of existing legal provisions that remain unfunded as of the effectivity of this Act. 
Sec. 8. 
IllIplel/lenting Rilles and Regulatioll - Within sixty (60) days from effectivity 
of this Act, the DOr and the DBM shall promulgate the necessary rules and regulations for the 
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proper implementation ofthe provisions of this Act. 
Sec. 9. Separabili(v Clause - If, for any reason, any portion or provision of this Act or 
the application thereor shall be declared invalid or unconstitutional, the validity of other parts or 
provisions shall not be affected and thereby, shall continue to be in full force and effect. 
Sec. 10. 
Repealing Clause - The following laws, preSidential decrees, executive 
orders, corporate chmiers and other issuances or parts thereof, contrary to or inconsistent with 
the provisions of this Act, are hereby repealed or modified accordingly: 
Sec. 11. Effectil'ity- This Act shall take effect fifteen (15) days after its publication in 
a newspaper of gencral circulation. 
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