LGU budget declining by 14% to P820 billion in 2023

MANILA, Philippines — Budget allocations of local government units (LGUs) may decline by 14 percent next year due to a drop in taxes collected by revenue agencies.

Under Local Budget Memorandum 85, the Department of Budget and Management (DBM) said the national tax allotment (NTA) for LGUs would drop to P820.27 billion next year from P959 billion this year.

The joint allocation for LGUs to fund education, health and livelihood will be reduced even as the national budget will reach a record P5.27 trillion next year.

Budget Undersecretary Rolando Toledo told The STAR that LGUs have to endure the budget cut because tax collections in 2020 declined as well.

In computing the NTA, the DBM uses as base period the third year prior to the distribution; in this case, the 2023 budget of LGUs is measured against the revenues raised in 2020.

Government revenues fell by nine percent to P2.86 trillion in 2020 from P3.14 trillion in 2019, as business activities were curtailed by the quarantine restrictions imposed to contain the spread of the coronavirus.

Collections by the Bureau of Internal Revenue (BIR) and the Bureau of Customs slid to P1.95 trillion and P537.69 billion from P2.18 trillion and P630.31 billion, respectively.

“The pandemic has heavily impacted the government’s revenue collections during that time, as limitations on economic activities and mobility restrictions were imposed to combat the spread of the virus,” Toledo said.

“It may be good to note that the NTA is based on the collections from the third fiscal year preceding the year of distribution,” he said.

As a result, BIR contribution to the NTA will decline by 13 percent to P665.8 billion in 2023 from P765.2 billion in 2022, according to the memorandum.

Further, the Customs certified a share to the NTA of just P154.43 billion next year, a 20 percent drop from the P193.74 billion it released for this year.

Inputs from the Bureau of the Treasury, on the other hand, will drop by 68 percent to P32.58 million from P101.07 million.

By level, municipalities will take the largest share in the NTA at P278.89 billion, while provinces and cities will receive P188.66 billion each. Barangays, for their part, will obtain P164.05 billion.

In 2022, the DBM allocated P326.07 billion for municipalities, P220.58 billion each for provinces and cities, and P191.81 billion for barangays.

For 2023, Southern Tagalog will receive the largest budget among regions at P95.8 billion, ahead of Central Luzon’s P79.66 billion, Western Visayas’ P64.68 billion, Central Visayas’ P58.07 billion and Metro Manila’s P49.51 billion.

Despite the budget cut, LGUs were ordered to sustain their financing for pandemic response, such as prevention measures against the virus and additional support for health workers.

They were also reminded to appropriate 20 percent of their NTA share on development projects.

Starting 2022, the national government is mandated to increase LGU share in tax collections in line with the Supreme Court’s Mandanas ruling. In exchange, localities are required to handle the responsibility of managing social services within their jurisdictions.

The national government looks to take advantage of this adjustment to lighten its spending load, as it tries to normalize its fiscal position hurt by the expenditure spike during the pandemic.

The budget of the next administration could even rise to nearly P6 trillion by 2025 as long as the economy recoups its losses and revenue collections go up in the next three years.

The next administration is expected to receive all-time high appropriations of P5.27 trillion in 2023, P5.56 trillion in 2024 and P5.83 trillion in 2025.