Republic of the Philippines
HOUSE OF REPRESENTATIVE!
Quezon City, Metro Manila

SIXTEENTH CONGRESS
First Regular Session

142

House Bill No.

Introduced by Hon. Francis Gerald Aguinaldo Abaya

EXPLANATORY NOTE
Fiscal discipline is essential to improve and sustain economic
Performance, maintain macroeconomic stability and reduce vulnerabilities. It
involves the prudent utilization and management of the government's financial
resources, balanced by efforts to protect and enhance the revenue base. Itis a
shared responsibility by both the policymakers, i.e., the legislators, and the
implementers of laws.

|n recent years, many laws have been passed by Congress, which
intentions may be well-meaning but have caused considerable impact on the
budget. According to the Department of Finance, the estimated revenue losses
from recently-enacted revenue-eroding laws could .completely negate the
fevenue gains from the Reformed VAT Law or RA 9337, the law that saved the
country from @ serious fiscal crisis in 2005. The fiscal implications of recent
revenue-eroding laws exacerbated the impact of the global economic and
financial crisis, and the natural disasters that struck us last year. Proof is that
for this year, 2010, the country's budget deficit is projected to reach P325 billion
or 3.9 percent of GDP.

The proposed bill offers a framework of burden-sharing among the
Legislature and the Executive Branches of the government. It aims to foster an
atmosphere of mutual respect, coordination and cooperation.

The bill introduces a deficit-neutral measure designed to address the
Proliferation of unfunded laws. The concept is straightforward: no mandatory
spending measure or tax legislation that increases the deficit or reduces
revenues shall be passed and take effect without a new revenue-generating or
expenditure-reduction measure,


‘Adopting deficit-neutral rules instill responsible fiscal management by
consciously establishing control mechanisms on spending or preventing the
erosion of the tax base. They ensure compliance with fiscal targets that are, in
the first place, the bases for yearly appropriations approved by Congress.

Coupled with prudent spending and better tax effort, the enactment of
the Deficit-Neutral Bill will help contain the budget deficit and attain the targeted
ratio of two percent (2%) of GDP by 2013 until 2016.

In view of the foregoing, approval of this bill is earnestly requested

FRANCIS GERALD AGUINALDO AI
Representative, First District, QBvité


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Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

SIXTEENTH CONGRESS
First Regular Session

42
House BillNo.___ 142

Introduced by Hon. Francis Gerald Aguinaldo Abaya

AN ACT
INSTILLING FISCAL DISCIPLINE IN THE PUBLIC SECTOR BY ESTABLISHING
DEFICIT-NEUTRAL RULES IN LINE WITH THE PRINCIPLE OF RESPONSIBLE

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

Section 1. Declaration of Policy - It is hereby declared a policy of the State
‘o instil fiscal discipline in the public sector along the principles of responsible
financial management in order to ensure sufficient resources to finance socio-
Sconomic development programs toward overall macroeconomic stability and long-
term sustainable growth.

Sec. 2. Establishment of Deficit-Neutral Rules toward Responsible
Financial Management - In tine with the principles of responsible fiscal
management, the State, through the Executive and Legislative Branches of
Severnment, shall adopt defici-neutral rules that establish control mechanisms on
Spending and adopt preventive measures against the erosion of the tt base.

Any mandatory spending legislation or any tax legislation thad 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 of 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.

Sec. 3.

Definition of Terms — When used in this Act, the following terms or

words and phrases shall mean or be understood as follows:

a

Budget of Expenditure and Sources of Financing or BESF refers to a
document subi
Article VIL of the Phil
of estimated expenditures accompanied by an estimate of expected

itted by the President in accordance with Section 22,
ine Constitution. It contains the annual program

sources of financing, proposed by the Executive branch to the
Legislature for spending authority

Deficit refers to the budgetary deficit, which is the deficiency of total
revenues over expenditures excluding debt repayments and payments
of non-budgetary accounts.

Development Budget and Coordinating Committee or DBCC refers to
the committee created under Executive Order No. 232, s. 1970, as
amended

Fiscal Targets 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.

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. S

Sec. 4. Grant of Tax Incentive - The grant of tax incentive, in the nature of

a tax break, tax exemption, tax privilege, tax reduction, tarifffduty reduction,

preferential tax treatment, deferred tax or a broadening of an existing tax incentive or


Sowyrd 448%

benefit, through the passage or effectivity of an executive or legislative measure,
shall be conditioned on either of the following
a. The issuance by the Department of Finance (DOF) of a certification that
said measure is in compliance with the annual fiscal targets and that the tax
incentive has been considered in the revenue program for the year's BESF;
or
b. The imposition and implementation of a countervailing meihanism or cost-
offsetting measure, through a revenue-generating provision Ur a reduction in
‘expenditure,

Sec. 5. Rationalization of Existing Tax Incentives ~ All existing tax
incentives granted under various laws and executive orders shall be immediately
reviewed with the end-objective of rationalizing the tax incentives system and
eliminating unnecessary and costly tax incentives within two (2) years from effectivity
of this law.

Sec. 6. 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.
Hereaiter, 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 and 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. Unfunded Laws - All laws with budgetary implications that are
enacted without identified supporting revenue measures nor identified expenditure
reduction shall be considered harmful to 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


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on Oversight of the House of Representatives together with its counterpart 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. Implementing Rules and Regulations - Within sixty (60) days from
effectivity of this Act, the DOF and the DBM shall promulgate the necessary rules
and regulations for the proper implementation of the provisions of this Act.

Sec. 9. Separability Clause - 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 shall not be affected and thereby, shall continue
to be in full force and effect. 7

Sec. 10. Repealing Clause - 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:

Sec. 11. Effectivity- This Act shall take effect fifteen (15) days after its
Publication in a newspaper of general circulation.