The political economy of the budget

In the previous column, we argued that a Philippine Budgeting Code, while necessary, will not be sufficient if it merely codifies procedures without strengthening the guardrails that protect the public purse.

That raises a more difficult question: Why do those guardrails remain weak in the first place?

The answer lies not in technical design, but in the political economy of the budget.

BEYOND THE TECHNOCRATIC VIEW
Budgeting is often presented as a technical and administrative exercise — an orderly process of planning, allocating, disbursing, and managing public resources.

That view is incomplete.

In reality, the budget is where policy meets politics. It is where national priorities are translated into numbers, and where those numbers are shaped by negotiation, pressure, and competing interests.

Those who work within the system understand this well.

The challenge is not simply to design better rules. It is to operate within a system where the allocation of limited public resources is deeply embedded in political relationships, constituency concerns, economic interests, and, in many cases, a long-standing culture of patronage.

THE POLITICS OF BUDGETING
At the center of this political economy is a basic asymmetry.

Budget institutions — particularly the bureaucracy — are expected to enforce rules, maintain discipline, and ensure that public funds are used in accordance with policy and law.

But they operate in an environment where elected officials often wield significant influence over resource allocation.

This influence is not always explicit. It is exercised through negotiation, expectation, and the implicit understanding that budgets are also instruments of political support.

Within this environment, technocrats face a structural constraint. They can design systems. They can issue rules. But they cannot, on their own, neutralize political pressures.

The result is predictable.

The bureaucracy retreats to what it can control — the legal, administrative, and technical dimensions of budgeting — while the broader political arena is largely ceded to politicians.

This is not avoidance. It is survival.

That is why technocrats prefer to see rigidities in the rules embedded in legislation, rather than being issued by them.

WHEN RULES ARE NOT ENOUGH
This dynamic helps explain a recurring pattern in Philippine public finance.

Well-designed rules are put in place. Processes are improved. Systems are modernized. And yet, over time, the same vulnerabilities re-emerge — particularly at the point of budget execution, where discretion is greatest and oversight is weakest.

This is not because the rules are poorly designed.

It is because rules, by themselves, cannot counterbalance power.

Without political backing, even the best-designed guardrails can be bent, stretched, or bypassed in practice.

WHEN REFORM WORKS
There are, however, moments when reform succeeds.

One of the clearest examples is the Sin Tax Reform Act of 2012.

For decades, reforming excise taxes on tobacco and alcohol proved politically difficult. Rates remained low, revenues constrained, and the public health costs of smoking continued to rise.

The reform that finally passed had two clear objectives: to reduce smoking — particularly among the poor and the young — and to generate revenues to support the expansion of public health, including universal health care and investments in health facilities, equipment, and services.

Both objectives were achieved.

But the success of the reform was not driven by technical design alone. It required political ownership.

President Benigno Aquino III made the reform a priority and signaled clearly that it would be defended. That signal changed the terms of engagement.

It allowed the bureaucracy to take firm positions, knowing they were backed at the highest level. It reframed negotiations with legislators, making clear that while accommodation was possible, the core objectives were not negotiable.

The result was not only higher revenues and better health outcomes. The reform also expanded the fiscal space of local governments, increased the share of revenues allocated to tobacco-growing provinces, and broadened access to health services nationwide.

The lesson is straightforward: technocrats and the bureaucracy are not entirely without means to counterbalance political pressures and advance developmental goals. When backed by clear political leadership, discretion can be constrained, oversight can be asserted, and institutional rules can carry greater force than they otherwise would.

THE LIMITS OF CODIFICATION
This brings us back to the proposed Budgeting Code.

Codification can strengthen systems. It can clarify rules and improve consistency. But it does not, by itself, change the underlying political dynamics.

A code can define how budgeting should work. It cannot ensure that those with the power to shape outcomes will choose to operate within those rules.

That is a political question.

GUARDRAILS REQUIRE POWER — AND RESTRAINT
The most important guardrails of the budget are not found in manuals or systems.

They are found in institutions — and in the willingness of those who lead them to exercise restraint.

This includes the President, who has the authority to set boundaries, enforce discipline, and, when necessary, use constitutional tools such as the veto power and, where appropriate, the prospect of budget reenactment to uphold the integrity of the process.

It also includes Congress, whose power of the purse carries with it the responsibility to exercise vigilant oversight and ensure that appropriated funds are used for their intended purposes.

Without this alignment, even well-crafted reforms will struggle.

With it, even imperfect systems can be made to work.

THE REAL CONSTRAINT
The constraint on budget reform in the Philippines is not a lack of ideas. It is the gap between what is technically sound and what political actors are willing to sustain.

A Budgeting Code can help close that gap — but only if it is understood for what it is: Not the reform itself, but part of a larger process that must engage both institutions and incentives.

In the next column, we turn to what real budget reform requires — not just in design, but in practice.

Florencio B. Abad was formerly chairman of the Committee on Appropriations of the House of Representatives and secretary of the Department of Budget and Management. Currently, he is professor of Praxis at the Ateneo School of Government and senior professional lecturer at the De La Salle Tañada-Diokno School of Law.