ASEAN
22 March 2014
Smart budgetary advice for the Philippines
This week's invited contributor, David Jay Green from San Francisco's Hult International Business School, has some smart budgetary advice for the Philippines, a "Joseph Budget".
THE news from Europe, especially from Greece, continues to be grim. People are facing a future where promises about pensions, employment and public services are being broken. Government commitments are being shed as budgets are trimmed, and spending is cut.
Nearly every country has had similar experiences. The Philippines has gone through periods of time in which public spending had to be severely curtailed after revenues were found wanting to meet earlier plans. Some part of this problem is unavoidable: every government will make mistakes. The question is how to do a better job. I propose the “Joseph Budget.”
Most readers will understand that I am referring to the dream sequence in the biblical book of Genesis. In this cautionary tale, Joseph, in prison in Egypt, was asked to interpret dreams that troubled the ruler, Pharaoh. The dreams had stark images of seven healthy cattle being eaten by seven sickly ones and similarly seven good ears of corn or grain swallowed up by seven thin ears. Joseph explained that Egypt was facing what today would be termed a business cycle of poor times following upon good times. What was important, he said, was to save during the good times for disbursing in the poor times. Pharaoh listened.
This story has something for everyone. It is soundly based on the Bible; it can appeal to dreamers and those who believe in dreams. I am not the only one to use Joseph’s story to argue for a particular fiscal policy and before people start typing, I do know that the story doesn’t end in a completely positive fashion. Joseph and Pharaoh used the subsequent famine and their grain stocks to consolidate their rule. OK, so the Pharaohic system of government has some real drawbacks. The first part of the story has some real wisdom.
The Joseph Budget would call for rolling 14-year plans providing for increases or decreases in spending, taxation and net borrowing, depending on how the economy was doing. Increased calls for spending today could be met with specific plans to reduce future expenditures. Debated annually, it would provide short-term comfort against such events as financial-sector meltdowns, as well as give long-term confidence that we are mindful of the economy our children inherit. A long-term, multiyear budget would provide for greater macroeconomic stability, encouraging private-sector investment generally.
The multiyear part is important to rectify the problem that many legally mandated programs call for spending without regard to revenues. A Joseph budget provides at least 14 years of consistency in spending and revenue. Admittedly, 14 years is quite arbitrary, but we need to move toward planning over a generational time period. The annual debate is also an important part of the story—we need to build confidence in our economy, but also in the political decision-making process.
Some countries do use a longer-term perspective. Germany, for instance uses a four-year budget that is consistent with a conterminal “fiscal strategy.” Developing countries have sometimes experimented with medium-term expenditure frameworks that provide revenue and expenditure plans for several years. The Philippines, for instance, uses medium-term fiscal-planning tools; however, the budget itself as a legal document focuses on the current year’s activities. Overall in government budgets and budget debates, there is little sense of a forward-looking, multiyear plan. Yet, the substance of a budget has an impact over decades.
To change would require work: the annual budget must include a variety of alternative plans—it must incorporate contingency planning. For instance, different infrastructure projects would need to be planned, prioritized and readied for possible use. This feature of the budget would be technically demanding, but would make infrastructure spending a more powerful part of fiscal policy. Political and legal clearances would have to be given for projects on an annual basis: local political processes must also buy into the Joseph Budget. Conversely, we must hold spending projects if the economy unexpectedly shows robust growth. This is most difficult: Self-denial is hard when the going is good.
Debating and updating priorities for spending and taxes and the triggers to initiate changes are costly. At first, it would be politically enervating. The expense of establishing a multiyear budget pales against what we pay when we run into trouble—when our short-term, annual budgets lead us into crises. In those periods, decisions need to be made with limited fiscal flexibility and inevitably across a widening political divide.
Building on relatively good economic developments and policy steps, the public debate, the capacity building could have a positive impact on the country’s international credit rating. Certainly, the international community would welcome the attempt to learn from current tragedy being played out in Europe.
This article, by Dr David J. Green, was originally published in the Business Mirror (Philippines) on 20 October 2012, with the title: "Avoiding the Greek Tragedy A ‘Joseph Budget’".
David Jay Green is an Adjunct Faculty Member at the Hult International Business School, San Francisco. He is also a Development Advisor at INVISIBLE Sisters (www.invisiblesisters.org).
Nearly every country has had similar experiences. The Philippines has gone through periods of time in which public spending had to be severely curtailed after revenues were found wanting to meet earlier plans. Some part of this problem is unavoidable: every government will make mistakes. The question is how to do a better job. I propose the “Joseph Budget.”
Most readers will understand that I am referring to the dream sequence in the biblical book of Genesis. In this cautionary tale, Joseph, in prison in Egypt, was asked to interpret dreams that troubled the ruler, Pharaoh. The dreams had stark images of seven healthy cattle being eaten by seven sickly ones and similarly seven good ears of corn or grain swallowed up by seven thin ears. Joseph explained that Egypt was facing what today would be termed a business cycle of poor times following upon good times. What was important, he said, was to save during the good times for disbursing in the poor times. Pharaoh listened.
This story has something for everyone. It is soundly based on the Bible; it can appeal to dreamers and those who believe in dreams. I am not the only one to use Joseph’s story to argue for a particular fiscal policy and before people start typing, I do know that the story doesn’t end in a completely positive fashion. Joseph and Pharaoh used the subsequent famine and their grain stocks to consolidate their rule. OK, so the Pharaohic system of government has some real drawbacks. The first part of the story has some real wisdom.
The Joseph Budget would call for rolling 14-year plans providing for increases or decreases in spending, taxation and net borrowing, depending on how the economy was doing. Increased calls for spending today could be met with specific plans to reduce future expenditures. Debated annually, it would provide short-term comfort against such events as financial-sector meltdowns, as well as give long-term confidence that we are mindful of the economy our children inherit. A long-term, multiyear budget would provide for greater macroeconomic stability, encouraging private-sector investment generally.
The multiyear part is important to rectify the problem that many legally mandated programs call for spending without regard to revenues. A Joseph budget provides at least 14 years of consistency in spending and revenue. Admittedly, 14 years is quite arbitrary, but we need to move toward planning over a generational time period. The annual debate is also an important part of the story—we need to build confidence in our economy, but also in the political decision-making process.
Some countries do use a longer-term perspective. Germany, for instance uses a four-year budget that is consistent with a conterminal “fiscal strategy.” Developing countries have sometimes experimented with medium-term expenditure frameworks that provide revenue and expenditure plans for several years. The Philippines, for instance, uses medium-term fiscal-planning tools; however, the budget itself as a legal document focuses on the current year’s activities. Overall in government budgets and budget debates, there is little sense of a forward-looking, multiyear plan. Yet, the substance of a budget has an impact over decades.
To change would require work: the annual budget must include a variety of alternative plans—it must incorporate contingency planning. For instance, different infrastructure projects would need to be planned, prioritized and readied for possible use. This feature of the budget would be technically demanding, but would make infrastructure spending a more powerful part of fiscal policy. Political and legal clearances would have to be given for projects on an annual basis: local political processes must also buy into the Joseph Budget. Conversely, we must hold spending projects if the economy unexpectedly shows robust growth. This is most difficult: Self-denial is hard when the going is good.
Debating and updating priorities for spending and taxes and the triggers to initiate changes are costly. At first, it would be politically enervating. The expense of establishing a multiyear budget pales against what we pay when we run into trouble—when our short-term, annual budgets lead us into crises. In those periods, decisions need to be made with limited fiscal flexibility and inevitably across a widening political divide.
Building on relatively good economic developments and policy steps, the public debate, the capacity building could have a positive impact on the country’s international credit rating. Certainly, the international community would welcome the attempt to learn from current tragedy being played out in Europe.
This article, by Dr David J. Green, was originally published in the Business Mirror (Philippines) on 20 October 2012, with the title: "Avoiding the Greek Tragedy A ‘Joseph Budget’".
David Jay Green is an Adjunct Faculty Member at the Hult International Business School, San Francisco. He is also a Development Advisor at INVISIBLE Sisters (www.invisiblesisters.org).