2012 Budget Message of President Aquino

Message of His Excellency Benigno S. Aquino III

President of the Philippines
To The Fifteenth Congress of the Philippines
On the Budget for 2012

[July 26, 2011]

Ladies and Gentlemen of the 15th Congress of the Philippines:

Through the President of the Senate and the Speaker of the House of Representatives, I have the honor to submit, for your consideration, the proposed National Budget
for 2012.

THE DIVIDENDS OF REFORM
Last year, you gave your overwhelming support for the 2011 National Budget, this administrations first financial blueprint. You diligently and meticulously scrutinized
the same, while making sure that it is enacted before the Fiscal Year 2011 started: the first time in over a decade.

But that timeliness meant not only promptness: it also meant relevance. It reflected your belief that the programs we proposed are able to respond to the immediate and
pressing needs of our people, while making sure that our long-term agenda for reform is on track. And I laud you, the men and women of Congress, not only for
enacting the current years budget on time but also for giving this administration a stable first footing by supporting the 2011 Reform Budget.

Our pursuit of reform in the long-term cannot blind us from our peoples current concerns. In other words, change also has to be felt now.

This administration was hoisted to power by the overwhelming mandate of our people, fatigued by the preponderance of corruption and abuse of power. They have
expressed their deep yearning for Philippine society to be transformed into one that truly empowers them to pursue their aspirations for themselves, their families, their
communities and the country. Through People Power via the ballot, they have demonstrated their longing to be emancipated from poverty and helplessness through
honest and effective governance.

This is the core inspiration by which this administration crafted the 2012 National Expenditure Program that I am hereby proposing to Congress: to deepen the reforms
we are setting in place; to go one notch higher in our fight against corruption and our pursuit of good governance, in poverty reduction, and in employment generation
from inclusive and sustained economic growth.

Noong nakaraang taon, tinangkilik po ninyo ang aming pakay na tahakin ang landas Tungo sa Paggugol na Matuwid.

Sa paparating na taon, hinihikayat ko po kayong patuloy na sumama at lumahok sa biyaheng ito: sa pagsiguro na ang benepisyo ng Paggugol na Matuwid ay nakatutok
sa ating mga prayoridad at Diretso sa Tao.

THE RESULTS-FOCUSED BUDGET OF 2012
With the same degree of political will and sense-of-duty, I ask you to examine, deliberate on, and thereafter approve this P1.816 trillion National Budget for 2012.

This proposed budget is higher by 10.4 percent than the current years budget of P1.645 trillion. With the reduction of leakages, inducement of efficiencies and better
selection of project priorities, we can ensure that more of our peoples hard-earned tax money is spent on programs, projects and activities that benefit them the most.

More importantly, this budgetthe first that this administration is fully craftingembodies our commitment to lift the poor from poverty through honest and effective
governance. It is intently focused on fulfilling my administrations Social Contract with the Filipino People as I heeded their clamor for a leadership that will
emancipate them from the shackles of hopelessness. It is firmly anchored on our vision and priorities, and focused on results.

This proposed budget is a Results-Focused Budget.

This sharp focus on the Social Contract is the foremost and overarching principle that we adhered to in preparing the National Budget. This, we believe, is core to
making the government relevant, responsive and unequivocally reformist.

We commit to pursue this Social Contractas operationalized in the Philippine Development Plan (PDP) for 2011 to 2016until the end of our term.

To focus our government to achieving the Social Contract, I issued on May 13, 2011 Executive Order (EO) No. 43 that defines five areas of priority of the Social
Contract, and that reorganized my Cabinet into five Clusters in line with these priorities:

1. Transparent, accountable and participatory governance;

2. Poverty reduction and empowerment of the poor and vulnerable;

3. Rapid, inclusive and sustained economic growth:

4. Just and lasting peace and the rule of law; and

5. Integrity of the environment and climate change adaptation and mitigation.

This EO directs all departments and agencies of government to orient their programs, projects and activities towards the pursuit of these five priorities to achieve focus
and optimal impact given the available resources of government. In preparing our national budget proposal for 2012, we scaled up funding for endeavors that are in line
with these priorities, and scaled down those which are not.

Sa limang prayoridad na ito itututok ang paggastos at pagkilos ng Administrasyong ito. Sa mga ito rin natin nais mahusgahan ng taumbayan at ng kasaysayan oras na
bumaba tayo sa puwesto sa ika-30 ng Hunyo, 2016.

In defining these priorities of the Social Contract, I did not create isolated pockets of action. Rather, I drew clear lines of collaboration and synergy within and among
the departments. For one, spending on social and economic services will end up to be ineffective without transparent and effective governance. Poverty reduction
initiatives will need to be coupled with efforts to generate quality employment through inclusive economic growth. Finally, a conducive context of peace, rule of law
and environmental integrity is necessary for good governance, poverty reduction and economic growth to thrive.

Daylight in Governance
We are defining good governance as one that thrives in Daylight. I believe that the only way forward is for us to uphold transparency over secrecy; accountability over
impunity; and citizen participation over collusion.

This proposed Budget for 2012 is designed to transmit Daylight into the crevices of governance, starting with the use of the peoples funds.

Public expenditure management reform under this administration began with the Zero-Based Budgeting (ZBB) approach. ZBB has proven to be an important tool in
weeding out waste and redundancies in allocating resources. In crafting the proposed budget for 2012, we sustained its use to ensure the continued relevance, and
impact of major government programs and projects, assessing the capabilities of departments and agencies in implementing these and ensuring that government only
spends on priority endeavors.

ZBB and the desire to instill transparency and accountability in the bureaucracy have compelled us to flesh-out oft-abused lump-sum funds. We have drilled-down into
regional and sub regional allocations, agency lump-sum funds totaling an unprecedented P150.5 billion. To the extent feasible, we have directed the release of
budgetary allocations to the smallest implementing units of departments and agencies to facilitate implementation, empower them and enforce accountability.

Lump-sum budgeting delays the implementation of programs and projects, especially critical ones. It also masks the lack of master plans in core undertakings, the weak
planning capacities and poor monitoring and evaluation systems in the bureaucracy. Lump-sum budgeting has also encouraged political intervention given the lack of
firm criteria or priorities, allowing anomalies in the use of public fundssuch as the Fertilizer Fund Scamto flourish.

Financial accountability studies have also convinced us to similarly tighten the gravely abused generation and use of savings. We have reformulated the General
Provision in our proposed spending program that allows the use of savings to strengthen DBM oversight on the realignment of funds across allotment classes, within
capital outlays, and over their use for allowances like magna carta benefits.

It is the loose definition of savings that has begotten anomalous practices such as the conversions in the Armed Forces of the Philippines (AFP). Congress had
investigated revelations that funds appropriated for the salaries of soldiers have been converted to other uses, such as the pabaon of certain generals, and unauthorized
purchases and kickbacks.

Hence, in the 2012 proposed Budget, we have removed the special provisions granted to the Department of National Defense (DND) and the AFP to propose
realignments in their budgets to clearly signal the need to avoid these. The budget must already reflect the best of the operational plans of agencies. We only reiterate
the fiscal autonomy and privilege to realign savings granted in the Constitution to Congress, the Judiciary and the constitutional offices. A more stringent reporting
requirement is also proposed.

I have instructed the Department of National Defense (DND) and the Department of Budget and Management (DBM) to jointly work to address weak financial controls
in the AFP, at the same time, empower the operating units of the AFP to undertake their missions.

For instance, all operating units of the AFP down to the level of company will be allocated a definite amount for maintenance and other operating expenses, which will
be published in the AFP website. AFP funds will also no longer be centralized in the General headquarters, but will be distributed to the major services.

To preclude the need for cash advances, purchase cards will be used starting 2012. The pilot for this new system will be undertaken in the last quarter of 2011. Other
measures are now being drawn-up by the DND and DBM in an AFP Reform Roadmap.

To further minimize similar conversions in other departments, we have also funded Personal Services in the agency budgets only to the extent of filled positions to
close avenues for abuse in the use of savings from unfilled positions.

But to address the need to staff up on teachers, health workers, soldiers and policemen, judges and auditors among others, we have also allotted P23.4 billion under the
Miscellaneous Personnel Benefits Fund (MPBF) to cover for the unfilled positions in the AFP, Philippine National Police (PNP), the Departments of Education
(DepEd), and Health (DoH), the Judiciary and the Constitutional Commissions, among others. These funds will be released upon the submission of sufficient proof that
personnel have been hired for these positions.

We will leverage technology in the pursuit of Daylight in governance. This proposed Budget not merely encourages, but mandates, the public disclosure of budget
information through the internet. All agencies are required to post a Transparency Seal on their websites, which link to important information on governance: agency
mandates and functions; names of officials with position and contact information; annual reports for the last three years; approved budgets and their corresponding
targets; major programs and projects, and their implementation status, and beneficiaries; contracts awarded and names of suppliers; among others.

Moreover, we will harness ICT as a tool to digitize government operations, promote arms-length transactions, reduce human intervention, and integrate fragmented
processes and data flows in government agencies. One such initiative is the Government Integrated Financial Management Information System (GIFMIS), which seeks
to integrate and re-engineer the financial management processes of the DBM, the Department of Finance (DOF), Bureau of Treasury (BTr) and the Commission on
Audit (COA). This system will provide us a powerful tool to manage our fiscal resources better and allow our people to see the results of financial transactions as we do
it.

Similarly, the Government Manpower Information System (GMIS) of DBM is being upgraded to capture governments complete manpower roster: including those of
the military, police, Congress and the Judiciary. Moving forward, this completed GMIS will allow us to institute a National Paymaster System that will enable the BTr
to directly pay personal services to better control the largest component of the budget.

To start widening spaces for citizen participation in the budget, I had instructed the DBM to pilot consultations with civil society organizations (CSOs) in crafting the
2012 budget. The DepEd, DOH, Department of Social Welfare and Development (DSWD), Department of Public Works and Highways (DPWH), Department of
Agriculture (DA) and Department of Agrarian Reform (DAR), as well as the National Food Authority (NFA), National Housing Authority (NHA) and the National
Home Mortgage and Finance Corporation (NHMFC), were tasked to partner with CSOs in crafting their agency proposed budgets.

This is not merely an experiment, or a one-time engagement. We intend to sustain and expand this consultative process in the coming budget cycles. We intend to
engage citizens through all phases of the budget cycle, from their social audit of indigent families under the conditional cash transfer (CCT) program, their presence in
budget formulation and authorization, to their continued vigilance during the bidding of big-ticket projects.





Shunning the Business-as-Usual Mindset in Combating Poverty
The 2012 National Budget is again decidedly biased for the poor.

For one, the Social Services sector continues to receive the lions share of 31.7 percent of the National Budget. It is equivalent to P575.8 billion: an increase of 10.4
percent over its budgetary allocation of P521.4 billion this year.

However, more than this budgetary increase, we must also change the way we implement our poverty interventions. We cannot combat poverty in a business-as-usual
manner. Otherwise, funds will just go to waste and the poor will continue to be poor.

As mentioned earlier, we used the ZBB approach to make government spending more focused on what really matters to our people. ZBB has led us to further expanding
the Pantawid Pamilyang Pilipino Program (4Ps)our anchor-point in our poverty reduction agendato benefit 3 million households by January next year given the
inroads accomplished this year in serving 2.3 million households.

But the 4Ps, especially its conditional cash transfer component, is not our end-all be-all solution to poverty. It cannot succeed on its own. Its implementation has to
synergize with our investments in education, healthcare and housing: investments that will empower the poor and the vulnerable. Details of our investments in these
areas are fleshed-out in succeeding sections of this message. Government must adopt a new paradigm of departments and agencies collaborating with each other and
with their stakeholders.

We have seen how the success of 4Ps has been dependent on the effectiveness of its targeting of the poor. With this, we are spreading the use of our National Household
Targeting System (NHTS) so that we can more accurately determine who the poor are and where they are located. We are expanding the use of the NHTS to ensure that
our agricultural programs reach poor farmers and fishers, and that health insurance for indigents truly benefits them.

In other words, NHTS is a tool we will use so we can be surgically precise in implementing our various interventions against poverty.

Through the 2011 Budget, we introduced public-private partnerships (PPPs) as an innovative way to address our perennial lack of funds for infrastructure.

We have sustained this, and more: we will also be using the PPP approach to implement social services that may be delivered better and faster with the collaboration of
the private sector and civil society.

We are, for instance, proposing P3.0 billion as governments counterpart in PPPs to rehabilitate, maintain and operate 25 regional hospitals. We are also employing the
use of Multi-Year Obligational Authorities to encourage private participation in the construction, operation and maintenance of school buildings, health centers and
other basic government infrastructures.

The 2012 budget has also been designed to deepen national-local partnerships in implementing social interventions. We have been encouraging co-financing schemes
between national government agencies and local government units (LGUs) in the implementation of crucial programs and projects, such as the construction of school
houses. We plan to use the same approach in the construction of projects of maternal and health care centers of the DoH.

As we lift our people from poverty and invest in their capabilities, we must also create ample opportunities for their meaningful employment.

Consolidating our Strengths for Economic Growth
For the past decade, the countrys economic growth has been elusive. If ever there was growth, it had been slow, lagging and uneven, compared to that of our Asian
neighbors. Corruption, macroeconomic instability and lack of critical infrastructure have been cited as key constraints to investment and to economic growth.

This Budget supports Rapid, Inclusive and Sustained Economic Growth.

Under the PDP, we commit to pursuing economic growth for the Filipinos that is rapidour economy must grow by at least 7 to 8 percent annually if we are to make
any dent on the persistent problem of poverty; equitableas the benefits of economic growth should also redound to the poor, especially in terms of more jobs and
livelihood; and sustainedas we must move away from the erratic growth path of the past.

But in order to achieve our economic goals, we must effectively use the Budget to sustain and expand our established revenue earnerssuch as remittances of Overseas
Filipino Workers (OFWs), electronics and semiconductor manufacturing, and business process outsourcingas well as harness other economic activities where we
have an inherent advantage and urgent need, such as tourism, agricultural production and basic infrastructure development.

We must focus on these in spending on our economic programs and projects: from infrastructure to agricultural and industrial support services, and even to our
vocational and tertiary education curricula.

To support this agenda, the Economic Services Sector will receive the second biggest share of 24.2 percent or P438.9 billion. This is higher by 21.3 percent over the
sectors P361.9-billion budget this year.

As earlier mentioned, we continue to employ PPPs as an innovative approach to tapping private capital into key, growth-driving infrastructure projects. This year, we
again provisioned in the national budget P22.1 billion as national governments counterpart funding for various infrastructure and other capital outlay support of the
DWPH, DA, and Department of Transportation and Communications (DoTC) for PPP as well as for the rehabilitation and maintenance of regional hospitals of DOH
and the construction of school buildings of DepEd.

We must also address one critical constraint to growthmacroeconomic and fiscal instabilityby designing the National Budget to sustain fiscal consolidation.

Our proposed National Budget of P1.816 trillion is designed to narrow our fiscal deficit to P286.0 billion or 2.6 percent of Gross Domestic Product (GDP), from this
years target of P300.0 billion or 3.0 percent of GDP. We remain on track on our medium-term goal to achieve a fiscal deficit of 2.0 percent of GDP by 2013.

To achieve this, I have instructed the DOF to increase revenues without raising the tax burden of our people, by introducing more collection efficiency measures. To
sustain the total projected disbursements of P1.855 trillion for 2012, the DOF has set its sights to increasing revenues by 11.1 percent to P1.569 trillion from its current
years target of P1.411 trillion. This means sustaining or even surpassing this years targeted revenue effort of 14.2 percent of GDP.

At the same time, we recognize the need to be fiscally responsible and to level the playing field in the case of taxes paid that should be refunded. Embedded in our
revenue program is the effort to convert P10.0 billion worth of tax refunds, both current and outstanding since 2001, from tax credit certificates into cash in the coming
year. Of these tax credits, P9.0 billion is due for input value-added tax (VAT), mostly for exports. Fairness means giving back to taxpayers promptly what are due to
them.

Tax Credit Certificates (TCCs) tie up the liquidity of our exporters, especially small and medium-scale ones. Since the TCCs could not be used for any other purpose,
some small exporters have resorted to selling their TCCs at a discount to big exporters, particularly the oil firms which do not need tax breaks. Beginning 2012, we are
shifting to cash refunds, instead of the TCC mode. We will also implement a scheme to refund our long-standing TCCs in the hands of exporters through a monetization
system. The guidelines to implement this reform will be jointly drafted by the DBM and the DOF.

Fiscal consolidation also requires us to reduce the share of the Debt Burden on the National Budget. In the 2012 Budget, the Debt Burdens share has been reduced by
3.0 percentage points to 19.6 percent or P356.1 billion from 22.6 percent or P372.1 billion.

Ultimately, our countrys debt profile has to be improved to reduce our vulnerability to market fluctuations. I have tasked the DOF to constantly and vigilantly manage
our outstanding debt, reducing it to 50.2 percent of GDP from the current years target of 50.9 percent of GDP. Each year of this administration will bring us closer to
being at par with our peer countries outstanding debt of roughly 30 to 40 percent.

Because of our fiscal consolidation efforts, this administration has successfully attained four positive credit rating actions, including three separate credit rating
upgrades, in its first year in office, effectively putting our credit standing just a notch below investment grade. These positive credit rating actions, we believe, signify
the investing communitys renewed interest and confidence in the Philippines.

At the same time, this sends us an important message: our fiscal consolidation efforts must not go astray. With this, I ask Congress to help us sustain our fiscal
consolidation agenda by enacting a Fiscal Responsibility Bill; and pending that, to refrain from enacting revenue-eroding measures or expenditure-generating laws that
are not supported by additional revenues.

Between 2005 to June 2010, we lost an estimated P107.0 billion to P112.0 billion in tax revenues due to tax reductions and fiscal incentives granted to different sectors,
or about 7.5 percent of the annual tax intake for this year. For the period of 2006 to 2010, the amount of foregone revenues from the economic zones and investment
priorities ranged from a low of P30 billion to a high of P45 billion. We will need to be more discerning to carefully weigh these fiscal incentives in view of their trade-
offs in terms of public services.

Enhanced Context for Development
Our open governance, poverty reduction and economic growth agenda will only succeed if we ensure an environment conducive for development.

This is what our last two prioritiesJust and Lasting Peace and the Rule of Law; and Integrity of the Environment and Climate Change Adaptation and Mitigation
seek to achieve.

This Budget can only support development if it supports these two priorities.

Ang hanging patuloy na nangangamoy-pulburadahil sa giyera sa kanayunan o kriminalidad sa lungsoday nagpapalala sa kahirapan. At sa bawat bagyong hindi
napaghahandaan, lalong nalulunod ang mahihirap sa kahirapan.

These cannot be pursued in the sideline: they are part and parcel of what we seek to achieve: kung walang corrupt, walang mahirap. I wish to again stress our
commitment to catalyze synergy among our priorities.

A good example of this synergy is our effort to end decades of internal conflict. While we are earnest in our negotiations with rebel groups to achieve fair political
settlements with them, we must acknowledge that conflict is both an outcrop of and an exacerbating factor to poverty. With this, various agencies have gotten their
heads and hands together to implement targeted poverty reduction interventions in conflict-afflicted areas in the countryside through the Payapa at Masaganang
Pamayanan (PAMANA) program.

Similarly, protecting our environment should not be limited to the DENR. For one, I have issued Memorandum Circular 25 directing all national and local government
agencies to use coco coir and other materials for soil conditioning and erosion control. DPWH is increasing its use of coconet in its infrastructure projects.

OVERVIEW OF THE 2012 RESULTS-ORIENTED BUDGET

Dimensions of the Expenditure Program
The P1.816-trillion proposed Budget for 2012 represents 16.5 percent of the countrys GDP. Net of debt servicing and Internal Revenue Allotment (IRA), the
government Budget for 2012 is higher by 20.8 percent over the equivalent portion of the 2011 national budget.

We request Congress to support this proposed Budget by enacting P1.254 trillion in New General AppropriationsP1.092 trillion in Programmed New Appropriations
and P161.7 billion for the Unprogrammed Fund that we are submitting to Congress for consideration. Meanwhile, Automatic Appropriations amount to P723.6 billion.
The total 2012 National Budget, net of the Unprogrammed Fund, is P1.816 trillion.

Budget Breakdown. The Sectoral Distribution of our proposed Budget reflects this administrations priorities. The Social Services sector continues to receive the lions
share of 31.7 percent or P575.8 billion of the National Budget. Meanwhile, the Economic Services sector will receive the second biggest share of 24.2 percent or P438.9
billion.

The Debt Burden follows, but its share has been reduced by 3.0 percentage points to 19.6 percent or P356.1 billion from 22.6 percent or P372.1 billion. Lastly, the
General Public Services and Defense sectors receive shares of 18.3 percent or P332.1 billion and 6.2 percent or P113.1 billion, respectively, of the proposed National
Budget.

By Expense Class, Capital Outlays (CO) will increase by 25.4 percent to P328.6 billion, as compared to its budgetary allocation this year of P262.0 billion. In
particular, Infrastructure and Other Capital Outlays has increased significantly by 33.1 percent to P255.2 billion from P191.7 billion. With this, I stress that this
administration will not spend on infrastructure randomly and with much leakage: rather, in an efficient and targeted manner that supports our priority economic growth
drivers.

Current Operating Expenditures (COE) will also increase, but by a narrower magnitude of 7.0 percent to P1.464 trillion from the current years P1.368 trillion. In
particular, Maintenance and Other Operating Expenditures will increase by 23.9 percent to P268.1 billion in 2012, primarily for the expansion of operating programs for
social and economic services. Personal Services will increase by 9.8 percent to P593.3 billion to support the final tranche of the Salary Standardization Law III and the
requirements for new teachers and uniformed personnel, and other civil servants. Meanwhile, Interest Payments will decrease by 6.7 percent to P333.1 billion.

Of the total Personal Services, P53.6 billion is included to provide for the pension requirements of the military, uniformed and civilian personnel which are indexed by
law to current base pay and salaries. The increase in the pension requirements for 2012 of military (13 percent), uniformed (23 percent) and civilian personnel (12
percent) is due to the indexation of pension benefits to wage increases and the increasing number of beneficiaries.

Retirement benefits provided under special laws are becoming an increasing fiscal burden and calls for the need for reform to improve its ability to achieve equity and
long-term sustainability.

Support for GOCCs, in the form of Subsidy (under COE) and Equity (under CO), substantially increased by 85.9 percent to P18.2 billion and by 106.8 percent to P2.1
billion, respectively. This is primarily due to increases in the support for GOCCs in the agriculture sector, in support of this administrations rice self-sufficiency
program.

Meanwhile, the Internal Revenue Allotment (IRA) shares of LGUs decreased from P287.0 billion in 2011 to P273.3 billion in 2012, as the legally-mandated base year
for computing the IRA is 2009 when revenue collections slumped due to the global financial crisis. On the other hand, the Special Shares of LGUs from the utilization
of national wealth increased from P11.9 billion in 2011 to P16.8 billion in 2012.

Allocation of Top 5 Departments. The Top 5 Departments in terms of budgetary allocation have remained the same; although key changes in their program composition
and ranking were reflected due to this administrations increased focus on its priorities.

DepEd will remain at the top, with another significant budgetary increase of 15.2 percent to P238.8 billion from its budget of P207.3 billion this year. From the 12.6
percent increase in 2011, the largest in over a decade, the increase for 2012 is even larger; and this administration is bent on exponentially increasing investments in
basic education.

DPWH, meanwhile, will remain in second place with yet another significant increase of 13.5 percent to P125.5 billion, from P110.6 billion this year. After DPWH has
revised cost structures and increased transparency in its procurement processes, it is ready to spend on the right projects, at the right cost and the right quality.

The DND, again at third, will receive P107.9 billion, slightly higher by 3.1 percent than its current years allocation. To fund unfilled positions, P989.3 million is
provided for DND.

The Department of Interior and Local Government (DILG), at fourth, will meanwhile receive P101.4 billion, which is an increase of 15.1 percent. In the case of both
security sector agencies, financial management reforms are currently underway to ensure that our men-and-women in uniform march along the daang matuwid. Part of
this amount is P5.2 billion under the MPBF to fund unfilled positions in the PNP, Bureau of Jail and Management Penology (BJMP) and Bureau of Fire Protection
(BFP).

DA, at fifth, gets the largest budgetary increase of 53.6 percent to P54.1 billion, from P35.2 billion in 2011. With better targeting of agricultural support for small
farmers and sustainable fisherfolk, the increased agriculture budget will support this administrations Rice and Food Sufficiency agenda: the construction and
rehabilitation of irrigation facilities, the establishment of postharvest facilities, the expansion of research and development (R&D) and increased provisions for the
National Rice, Corn, Fisheries, Livestock and High Value Crops Programs.

THE BUDGET AS A SOCIAL CONTRACT WITH THE FILIPINO PEOPLE
This Budget and the succeeding Budgets to come under my administration will seek greater focus in funding and fulfilling the priorities identified by our Social
Contract with the Filipino People, particularly the five priorities that I have defined in EO 43.

This Budget is the financial translation of our Social Contract with the Filipino People.

The following are key programs, activities and projects that we will fund through the 2012 Results-Focused Budget.

Anti-Corruption, Transparent, Accountable and Participatory Governance

The 2012 Budget will help us escalate our efforts towards intensifying transparency, accountability and citizen participation in governance, towards making it more
responsive to the most pressing needs of our people.

In other words, kung walang corrupt, walang mahirap.

For 2012, we are proposing to allocate P29.0 billion for various initiatives to improve the state of governance in our country: a 53.9 percent increase over a comparable
allocation in 2011.

Funding the fight against corruption. This administration is committed to pursue the closure of large-scale and notorious cases of corruption that have been left
unresolved. To attain this goal, we are increasing the budget of the Sandiganbayan to P357.3 million. Of this amount, P254.0 million is set aside to help the primary
graft court to fast track the disposition of 3,546 pending cases of corruption.

We also allocated for the Revenue Integrity Protection Service (RIPS) of the DOF the amount of P13 million to enable it to intensify the filing of cases on graft and
corruption with the Office of the Ombudsman. We will sustain the latters P1.4 billion budget to maintain the foundation for a strong partner against corruption.

Delaying the resolution of cases is tantamount to denying justice to the accused and the victims of injustice. For corruption cases, the biggest victim is the Filipino
people.

Making government more open. Alongside this effort to weed-out the corrupt from government, this National Budget again mandates the online disclosure by
departments and agencies of detailed information on their budgets, their targets and performance indicators and specific programs on their official websites.

We are also enjoining local government units (LGUs) to adopt practices of good, open governance. With this, we provided the Department of the Interior and Local
Government (DILG) with a budget of P101.4 billion for 2012 of which, P754 million has been set aside for the Performance Challenge Fund (PCF). This amount will
be used to augment the resources of 516 LGUs which are able to attain a Seal of Good Housekeeping in various areas of good governance.

Digitization. Information and communications technology (ICT) will serve as a vital tool in our pursuit of open governance. We have focused P2.9 billion to support
major ICT projects that promote transparency and accountability in government operations and more responsive front line services. These include P978 million for the
GIFMIS: a project that seeks to improve the link between public sector resource allocation and expenditure management.

To reduce customs fraud and smuggling and increase revenue collection, the Bureau of Customs (BOC) will receive P740 million, of which, P500 million will fund the
On-Line X-ray Imaging System and the Petroleum Inventory System.

The On-Line X-ray imaging system will distribute and share captured images and information from two pilot sites, the Port of Manila and the Manila International
Container Port, for the viewing of concerned offices.

The Petroleum Inventory System project, on the other hand, will accurately and efficiently monitor the movement and inventory of petroleum imports, source of about
17 percent of BOCs revenues.

The Bureau of Internal Revenue (BIR), the biggest revenue earner, will receive P1.1 billion to implement the Tax Administration Computerization Project (TACP),
which is 95 percent higher than the P564 million the project received in 2011. With a complete taxpayer database and expanded third party information, the BIR will
further improve tax collection efforts, while enhancing its taxpayer service.

We have also granted P156 million to the Enterprise Information Systems Program (EISP) of the Supreme Court (SC), so all the courts will have the same information
on court adjudications, resolutions and transactions.

I also support the continuance and escalation of the Philippine Government Electronic Procurement System (PhilGEPS), the central electronic portal for government
procurement. By the end of this year, we will launch the e-bidding feature of this project, even as we are developing the e-payment facility which will enable the
electronic transfer of funds to lessen procurement time.

To ensure clean and honest midterm elections, we have provided the Commission on Elections a budget of P10.2 billion in 2012, inclusive of the P162.3 million under
the MPBF for its unfilled positions. Of this amount, P8.0 billion will be used for the conduct and supervision of elections and other political exercises, i.e., purchase of
automated ballot paper, dissemination of information through media releases, and lease of PCOS machines in preparation for the national and local elections on May
2013. Some P123 million will be used to support activities for the Resumption of the System of Continuing Registration such as purchase of forms for printing the
Precinct Computerized Voters List, Election Day Computerized Voters List and Specialized Printers.

We are also supporting the Cadastral Survey project of the Department of Environment and Natural Resources (DENR) with the amount of P3.6 billion, a significant
tenfold increase from the projects 2011 budget of P329 million. The project is essential for fast-tracking the establishment of the metes and bounds of real properties
vital for the efficient patent distribution to accelerate countryside development. We are targeting some 2.1 million hectares of lands for survey in 2012 through the use
of advanced mapping technology. The cadastral survey will also help clean the land area database of DENR for more accurate and more permanent information on
the land area of local government units and solve the perennial issue on the correct LGU share in the Internal Revenue Allocation (IRA) based on land area.

Governance of state firms. We are determined to instill fiscal discipline in government owned and controlled corporations (GOCCs) and government financial
institutions (GFIs). The Governance Commission for GOCCs (GCG) which was created under the GOCC Governance Act of 2011 that I recently signed will make this
possible. This law grants the GCG the power and responsibility to evaluate the performance, organizational and compensation structures of GOCCs, where such
evaluation will determine their retention, reorganization, merger, streamlining, privatization and even abolition.

Poverty Reduction and Empowerment of the Poor and the Vulnerable
Within the framework of the Millennium Development Goals (MDGs), we aim to reduce poverty from 26.5 percent in 2009 to 16.6 percent by the end of 2015.

For 2012, we have focused 20.3 percent of the total budget, or P368.8 billion towards direct poverty reduction and empowerment of the poor, the highest among the key
areas of expenditure and 15.8 percent higher than its 2011 level at P318.5 billion.

Giving a lifeline to the poor. An immediate, direct and substantial lifeline to the poor, the social protection program will continue to receive increasing allocations.

On top of these efforts is 4Ps, with a P39.5-billion budget, will enable the expansion of its coverage from 2.3 million indigent households to 3 million in 80 provinces,
138 cities and 1,496 municipalities in the 17 regions. This is an P18.3-billion increase over its 2011 budget of P21.2 billion.

Another social protection program, the Social Pension for Indigent Senior Filipino Citizens will receive P1.2-billion next year, compared to this years P871 million, to
benefit 198,370 indigent senior citizens, aged 75 years and above who will receive P500 monthly social pension. This would mean 59,410 more beneficiaries than this
years target of 138,960 beneficiaries.

We will feed the minds of the youth through education and satisfy their nutritional needs through the Supplemental Feeding Program of the DSWD which will have a
funding of P2.9 billion, equal to this years level. It will not only benefit an estimated 1.6 million children enrolled in day-care centers, it will also have a positive long-
term effect on their physical and mental health.

We will also sustain next year the Kapit-Bisig Laban sa Kahirapan-Comprehensive and Integrated Delivery of Social Services (KALAHI-CIDSS), a top-to-bottom,
people-powered development approach wherein communities participate in the design and implementation of pro-poor activities in their respective areas. Since its
launch in 2003, the project has already covered 4,583 barangays in 200 municipalities. Next year, with its provision of P1.3 billion, 3,404 more barangays are expected
to be given assistance.

Investing in our people. Our poverty reduction programs are not mere dole-outs; they are investments in human capital developmentsuch as quality education and
public healthcarethat empower our people to take charge of their lives.

Relative to 4Ps, the DSWD, DepEd, DoH and DILG have initiated an inter-agency convergence to ensure that household-beneficiaries indeed avail of education and
healthcare services.

Building capacities through education. Investing in educationfrom pre-school to tertiaryremains one of our central strategies to combat poverty and build national
competitiveness.

To secure education for all (EFA), the Education Sector will continue to get the biggest chunk of the FY 2012 budget pie with P308.9 billion, 13.8 percent higher than
this years allocation of P271.5 billion. To complement this budget, our conditional cash transfer (CCT) program will monitor household-beneficiaries to ensure
attendance of their children in day care and kindergarten (for those aged 3 to 5) or in primary and secondary schools (for those aged 6 to 14).

We have set aside from the DepEd budget P1.9 billion next year for the universal kindergarten program. We estimate that out of the 2.3 million five-year old children to
enter kindergarten, 74 percent or 1.7 million will be served by public schools. In preparation, we will be creating around 3,000 kindergarten teacher positions.

We will hire 13,000 more teachers next year to fill in the gap for teacher shortage, with a budget of P2.9 billion, slightly higher by P484 million compared to the current
years level. This is on top of the P8.9 billion allocation out of the MPBF which will be released upon submission of documentary proof that teaching personnel have
been hired to fill vacant teaching positions.

We have also included P2.5 billion in the MPBF to begin the five-year amortization by the national government of unremitted premiums to the Government Service
Insurance System (GSIS). In addition to the condonation by GSIS of the P15-billion interest in these unremitted premiums, this will restore the membership status of
more than half-a-million DepEd personnel, so they may now avail of all the privileges as bonafide GSIS members.

To lessen the classroom and facilities gap, we will allocate P17.4 billion for basic educational facilities, P6.1 billion more than this years appropriation of P11.3 billion,
and an additional P1.0 billion to be funded from the regular school building program. The funds will be used for the construction and repair or rehabilitation of 45,231
classrooms; procurement of more than 2.53 million school desks and chairs; and construction of 25,667 water and sanitation facilities.

Of the P17.4 billion allocation for school buildings, P5.0 billion will fund school building construction through a PPP scheme wherein the contractor undertakes the
financing, design, construction, and maintenance of classrooms and after completion, turns over the same to the DepEd.

We will also provide P2.6 billion for the procurement of 45.5 million textbooks and teachers manuals. The proposed amount has increased by P847 million from its
2011 level of P1.8 billion.

The Government Assistance to Students and Teachers in Private Education (GASTPE) remains an innovative program that helps decongest public schools and gives
poor but qualified students an opportunity to study in private schools. To support the expansion of GASTPE, P6.3 billion will support one million grantees in 2012,
from 691,494 in 2010 and 757,401 in 2011. The amount is higher by P456 million from the 2011 appropriation of P5.8 billion.

Other scholarship opportunities will likewise be provided by the Science Education Institute (SEI) and the Philippine Science High School (PSHS) of the Department of
Science and Technology (DOST) which will receive a total of P2.1 billion to increase the number of scholars in all levels. The PSHS targets an increase of science-
oriented high school scholars from 3,241 in 2010 to 4,334 scholars in 2012. On the other hand, the SEI will utilize P1.3 billion to support more than 10,000 S&T
scholars at the undergraduate and graduate levels.

To support our agenda for economic growth, we have tasked the Commission on Higher Education (CHED), as well as the Technical Education and Skills Development
Authority (TESDA), to steer our higher education institutions and technical vocational institutes towards a focus on training and skills needed by our growth drivers.

CHED will use P681 million out of its total budget of P2.2 billion for 2012 to finance its Student Financial Assistance Programs (STUFAPs) which are expected to
benefit 47,330 grantees belonging to the poor and disadvantaged sectors. To help ensure that the grantees will land a job after completion, 100 percent of the STUFAP
slots are allotted to priority courses identified based on labor market and development needs.

On the other hand, P500 million will be used to ensure that the curricula of State Universities and Colleges (SUCs) focus and concentrate on human resource
development into our priority areas for economic development: business process outsourcing, tourism, agriculture and fisheries, and infrastructure development.

We will also provide P25.8 billion for 110 SUCs to support the attainment of quality yet affordable education at the tertiary level. I have directed these SUCs to align
their budgets, as well as their curricula, and focus their course offerings on the specific needs to pursue the priority development areas of the administration.

TESDA, for its part, will use P700 million for its training-for-work scholarship program to be implemented nationwide. The list of courses that would be offered will be
based on the key employment generators identified by the Department of Labor and Employment (DOLE), to help ensure employability of program recipients. More
than 30,000 slots will be provided under this program.

Advancing public health. For 2012, we will infuse P49.9 billion for the health sector, 89.0 percent or P44.4 billion of which is allocated to the DoH to meet the health
MDGs. Our countrys commitment by 2015 is to reduce by two-thirds the under-five mortality, by three-quarters the maternal mortality ratio, and by half the incidence
of malaria and other major diseases.

To improve maternal health, and the well-being of infants, we will sustain the implementation of the Health Facilities Enhancement Program, with P5.1 billion funding
to upgrade healthcare facilities and services particularly maternal healthcare facilities.

The Department will also provide P595 million for the elimination of diseases considered as public health threats such as malaria, schistosomiasis, leprosy, filariasis and
rabies control.

Better than curing diseases is preventing their occurrence. In June of this year, I signed Republic Act 10152 which makes basic immunization for babies and children
under five years of age mandatory. Under the law, all infants should be provided with the Hepatitis B vaccine within 24 hours of birth.

For 2012, we will provide P1.9 billion for the Expanded Program on Immunization to reduce infant mortality and morbidity by decreasing the prevalence of
immunizable diseases including tuberculosis (TB), diptheria, pertussis, tetanus, polio, measles and rotavirus. We are targeting 2.6 million children, aged 0-15 months,
under this program.

We will likewise set aside P2.5 billion for family health and responsible parenting. Funding for this program has increased significantly from P731 million in 2011. Part
of the funds will be used for the vaccination of 1.2 million senior citizens against influenza and pneumonia.

To deploy doctors to serve our kababayans, particularly in the remote areas, we will set aside P1.7 billion, higher by P1.61 billion than this years level, to continue our
support for the Doctors to the Barrios program. Some 200 doctors, 1,021 midwives and 12,000 nurses will be deployed in regional health units (RHUs), barangay health
stations (BHSs) and hospitals nationwide.

To combat the rising reported cases of HIV/AIDS, and other infectious diseases (i.e., dengue, food and water borne-diseases), the DOH will receive P224 million for
the purpose. Another P1.0 billion will be provided for TB control to ensure treatment of TB patients through the Directly Observed Treatment Short Course (DOTS)
strategy.

To provide wider access to health services, we have increased premium subsidies for indigents under the National Health Insurance Program, from P3.5 billion this year
to P12.0 billion next year, to help ensure cover for all of the 5.2 million indigent households, as indicated in the NHTS.

Affordable Housing. For 2012, we have set aside P7.0 billion for the housing sector. This is 23 percent higher than the 2011 appropriation of P5.7 billion.

As mandated, the NHA will continue to provide affordable homes for the homeless. The national government will provide P5.6 billion for resettlement of families
living along danger areas and those affected by calamities; for medium-rise housing; and for slum upgrading. The latter will provide tenurial security for families
residing in government-owned lands proclaimed as socialized housing sites.

In response to the clamor of civil society organizations (CSOs) during the budget preparation consultations, P1.26 billion was added to the NHA budget for additional
resettlement projects in locations identified by the CSOs.

The NHMFC, on the other hand, will set aside P500 million for its Community Mortgage Program which seeks to help organized community home associations of
landless citizens obtain tenure and ownership of the land they are presently occupying. Next year, the NHMFC aims to increase its beneficiary members to 25,000 from
this years level of 20,000.

The Home Guaranty Corporation (HGC) will guarantee 57,065 housing units for 2012, or 6,565 more than the FY 2011 target (50,500 units), and 16,661 higher than the
40,404 units generated in 2010. The HGC will mobilize P48.5 billion for this purpose, a guarantee capacity equivalent to twenty times its net worth.

Rapid, Inclusive and Sustained Economic Growth
This administration is committed to pursuing economic growth of 7 to 8 percent annually through a combination of increased investments in infrastructure, support
services, and other interventions.

There is no time to waste if we want to achieve our goals to create an average of 1 million jobs every year, while reducing at the same time our unemployment rate from
8 percent in April of 2010 to a range of 6.8 percent to 7.2 percent in 2011 to 2016.

For this purpose, P247.1 billion, or 28.9 percent more than 2011, has been provided for programs and projects to pursue rapid, inclusive and sustained economic
growth. Of this amount, the largest allocations are for the programs and projects under the budgets of DPWH (P99.4 billion), DOTC (P30.6 billion), DA (P45.2 billion),
DOF (P8.3 billion), Department of Foreign Affairs (DFA, P8.0 billion), DOST (P7.1 billion), DAR (P6.2 billion), DENR (P4.4 billion), and various GOCCs (P12.3
billion, e.g. NFA and National Irrigation Administration).

Infrastructure for development. Pursuing inclusive economic growth means that we must ensure sufficient investments in strategic infrastructure projects that support
expansion and job creation in priority economic sectors for development.

For 2012, we are providing for a larger infrastructure program to catalyze economic activity, reduce poverty and address climate change: P182.2 billion or 25.7 percent
higher than this year. At this point, I stress that we will implement our infrastructure program in a new way, not in the corruption-laden ways of the past.

I commend our people at the DPWH for the courage they have shown these past months. They have been criticized left and right for the supposed slow
implementation of infrastructure projects. But I tell you this: my administration stands on a platform of clean and honest government, and this is exactly what guides
DPWH through the reforms it has already implemented.

This somehow assures us that the higher budgetary outlay for infrastructure this year will benefit our people directly.

With focus on upgrading the quality and safety of national roads, DPWH has been provided with a budget of P29.7-billion for the rehabilitation and maintenance of
national roads and bridges. The amount is 11.8 percent higher than this years budget of P26.5 billion.

We will also pursue the completion of our road and bridge network by 2016, with P38.5 billion in 2012 to construct 6,229 kilometers of new roads and 15,292 linear
meters of new bridges. This amount is 23.1 percent higher compared to its 2011 level of P31.3 billion, and is on top of the budget for access roads in various parts of the
country. The DPWH will also have P15.9 billion for the upgrading of 809 kilometers of roads from gravel to concrete.

Infrastructure for tourism. Tourism creates and catalyses economic activities. It is a low-hanging fruit with a huge potential for generating livelihood. During the first
four months of 2011, inbound visitors to the Philippines numbered 1,306,944, which is 13.3 percent higher than last years arrivals of 1,153,198 for the same period.
We aim to increase tourist arrivals to 6.5 million visitors by the end of 2016.

For 2012, DPWH will invest P1.1-billion to construct access roads to airports and to roll-on/roll-off (RORO) ports leading to various tourist destinations, particularly
Boracay, Palawan, Bohol, Bicol, Cebu, Mindanao and Northern and Central Luzon.

In addition, P8.1 billion has been earmarked in the budget of DPWH to build 1,071 km of access roads to tourist destinations, a whopping 351.4 percent increase from
this years P1.8 billion.

Also, efficient transport facilities will always figure prominently in the investor and visitor experience thereby enhancing the prospect of attracting more foreign
investments.

As a strategy, we are funding six (6) transport projects under the PPP Strategic Funds of the Department of Transportation and Communication (DOTC) amounting to
P6.6 billion. This is on top of the lump sum allocation of P2.0 billion under the DOTC budget.

One of these projects is the P1.2-billion New Bohol (Panglao) International Airport Development Project. Despite the dismal state of the present Tagbilaran airport, air
traffic has grown at an annual average of over 30% in the last five years from 198,000 plane passengers in 2005 to 573,000 in 2010. Imagine what could have been the
scenario had Bohol been provided with a much-better and world-class airport?

Another key destination, Palawan, will get P1.0 billion for the Puerto Princesa Airport Development Project, a 33.3-percent increase from P750 million to meet the
standards of the International Civil Aviation Organization (ICAO).

The total tourism sector itself will be given a boost with a P2.2 billion budget, which is a 22.9 percent increase from this years P1.8 billion. Bulk of the fund, or P753
million, will be used for international tourism promotion specifically targeting our top five patrons: Koreans, the Japanese, the Chinese, Australians and Americans.

Strategic support for public-private partnerships. While we are now investing more heavily in critical public infrastructure, this is not yet enough. A World Bank report
says that middle income countries in East Asia will, on average, need to spend over 5 percent of GDP on infrastructure to meet their needs. We aim to attain that
benchmark.

We are sustaining the use of PPPs as an innovative strategy to entice private capital in building roads, airports and other critical infrastructure. The DPWH and the
DOTC will be given P3.0 billion and P8.6 billion, respectively, for their various PPP ventures, and for the preparation of business cases, pre-feasibility and feasibility
studies.

Improving national productivity. National productivity growth hinges significantly on the States commitment to search for new knowledge, harness emerging
technologies, and accept S&T innovations. I have tasked the DOST to take the lead in this area.

Four of the five priority programs in the DOST Master Plan for 2011-2016 are necessary for our national productivity improvement program, namely: developing
appropriate technologies to create growth in the countryside by producing world-class products out of locally available raw materials; harnessing technology to improve
industry competitiveness particularly in business process outsourcing, electronics, mining, furniture industry, and other forest products; using S&T to enhance delivery
of government and social services, and harnessing emerging technologies to boost national competitiveness.

For 2012, we have included P2.7 billion in the budget of the DOST for the generation of new knowledge and technologies and the diffusion and transfer of these, for
the development of human resources for S&T, including the grant of research and faculty development, and for the promotion of S&T. This is 26.8 percent larger than
this year. This forms DOSTs Grants-In-Aid (GIA) Program which aims to harness the countrys scientific and technological capabilities by providing financial grants
to S&T programs and projects to spur sustainable economic growth for the country. Incorporated is some P392 million for the adoption of new technologies to assist
small and medium scale enterprises nationwide, 30.6 percent more than this years allocation.

Towards Food Self-Sufficiency. As I said during the Independence Day celebration last June 12 at the Quirino Grandstand, ang unang kalayaan na dapat makamit ay
ang kalayaan ng mga Pilipino mula sa gutom (the first freedom that Filipinos should attain is freedom from hunger).

For 2012, we will sustain our reforms in the agriculture sector to finally achieve food self-sufficiency. Attaining rice and food self-sufficiency is the central goal of our
blueprint for food security, otherwise known as the Food Staples Self-Sufficiency Roadmap (FSSR) for 2011-2016.

Irrigation development, as a centerpiece program of the FSSR, will be allocated with P24.8 billion for the construction and rehabilitation of irrigation systems that will
service a total of 214,055 hectares of new areas to be generated, rehabilitated and restored. The added investment is a 93.6-percent increase from this years P12.8
billion: a testament to our resolve to eradicate hunger.

Of the 214,005 hectares targeted to be irrigated, about 122,000 are national irrigations systems, 89,847 are communal systems, and 2,158 are small-scale systems. These
will benefit 142,767 households, an increase from this years 112,349 households.

We have already fleshed-out in the budget the specific irrigation projects to be funded. These will be uploaded in the DA and DBM website. And after the approval of
the budget, the farmers organizations will be undertaking an oversight activity similar to Road Watch for the irrigation projects.

The National Rice Program of the DA is provided with P6.2 billion in 2012, a significant increase of P1.8 billion or 43.2 percent over the 2011 budget of P4.3 billion.
The bulk of the increase will cover the purchase and distribution of various postharvest equipment and machinery in order to increase and sustain farmers gains in
production by reducing losses during the postharvest stage.

We target to produce 19.2 million metric tons (MT) of palay for 2012 at a sufficiency rate of 91.9 percent, compared with 80.0 percent in 2010 and 84.4 percent in
2011.

Sustained increase in rice production will also be achieved through expansion of production areas and improvement of yield per hectare. According to the projection of
the DA-Bureau of Agricultural Statistics (BAS), the first semester palay production would total 7.6 million MT, 15.0 percent more than last year for the same six-month
period.

Corn is second to rice as the most important crop in the Philippines. It is the best candidate agricultural produce of the country to help ease-up the pressure on rice
demand. Increasing corn production output means a lot in attaining food sufficiency.

We will perk up our subsidy for the National Corn program of DA, with P951 million provided for this purpose in 2012, or twice the 2011 level of P484 million.

The production target for 2012 is 7.6 million MT. About 75 percent of the increase in the programs budget will be spent for post-harvest facilities in a bid to generate a
steady supply of white corn grain production as part of our plan to support palay output.

We are also investing P1.3 billion for our High-Value Crops Program in 2012, which is 44.2 percent higher than the 2011 budget of P927 million. The bulk of the
increase will cover the purchase of postharvest facilities and equipment, farm equipment and irrigation.

To supplement our food sufficiency effort in the crop sector, we are also setting our eyes on re-invigorating our fisheries sector, especially in light of the recent fish kills
that have brought havoc among our local waters. The funding support of P1.9 billion for the National Fisheries Program under the DA-Bureau of Fisheries and Aquatic
Resources (BFAR) in 2012 targets 5.6 million MT of products from commercial, municipal and aquaculture fisheries.

We will also set aside a total amount of P1.0 billion for our National Livestock Program. Around 50.2 percent of the increase over the 2011 level of P682 million will
cover the purchase of various postharvest facilities and equipment such as biogas digester, dairy processing plants, abattoir/slaughterhouse and cold storage, to attain the
target of producing 2.0 million MT of hogs and 1.5 million MT of chicken in 2012. These are critical inputs as these will reduce losses, add value and ensure safety and
quality of livestock products which have strong export potential.

Ensuring the welfare of overseas Filipino workers. The protection of the rights and promotion of the welfare of our migrant workers and their families, and OFWs is
also our prime concern. They are, after all, a venerable force that drives our economy. To better implement the Migrant Workers and Overseas Filipinos Act of 1995,
we have set aside the amount of P30 million in the 2012 budget of the DFA as Legal Assistance Fund to pay for legal services for distressed migrant workers and
overseas Filipinos such as fees for foreign lawyers, bail bonds, court fees, charges and other litigation expenses. This will ensure that the Legal Assistance Fund still
remains at P100 million in the coming year as mandated by law.

We have created the Overseas Preparedness and Response Team (OPRT) under the Office of the President to formulate programs, strategies and policies that will
respond to crises faced by Filipinos abroad. One project aims to enhance capabilities of Rapid Response Teams (RRTs) that can act promptly on the needs of distressed
OFWs overseas.

The integration of returning OFWs to society is also the responsibility of the government. We set aside P50 million from the 2012 budget of the DOLE for the
reintegration of OFWs through livelihood programs (Pagnenegosyo) and local wage employment (Panghanapbuhay). To provide returning OFWs with a sustainable
business, we launched, in partnership with the Land Bank of the Philippines (LBP) and the Development Bank of the Philippines (DBP) a P2-billion Reintegration
Program that will be implemented by the Overseas Workers Welfare Administration (OWWA).

Just and Lasting Peace and the Rule of Law
A big challenge to development is the state of the countrys national security, justice and peace. Protecting our national territory and boundaries, strengthening the rule
of law, and institutionalizing an efficient and impartial justice system that delivers equal justice to the rich and poor are all priority thrusts under my watch.

About P196.8 billion is allocated to support governments efforts in attaining peace and promoting the rule of law. This is 8.1 percent more than the 2011 allocation for
this priority.

In the pursuit of just and lasting peace, this government seeks to achieve closure on social conflicts and to address their causes such as poverty, corruption, and poor
governance. Our strategy is to pursue negotiated political settlements to end conflict, while ensuring targeted interventions to address the pressing needs of our people in
conflict-affected areas.

Peace and Development. As a strategy to end the long standing conflict throughout the Archipelago, we have developed the PAMANA Program.

This will strengthen government efforts towards building peaceful communities in 1,921 conflict-affected barangays in 171 municipalities in 34 provinces. PAMANA is
an inter-agency project led by the Office of the Presidential Adviser on the Peace Process (OPAPP), the office charged with the management and supervision of the
comprehensive peace process.

For 2012, PAMANAs budget of P1.9 billion will be shared among the OPAPP (P329.3 million), the DSWD (P586.7 million) which will be spent on livelihood
activities for 845 barangays and for the construction of 989 Core Shelter Units, the DILG (P968.9 million) and DAR (P17.6 million). The AFPs Engineering Brigade
and other services may be tapped in the implementation of these projects.

We are confident that the PAMANA Program will empower communities and make the governments presence felt by those affected by armed conflicts.

We also earmarked P100 million in 2012 for the Government Peace Negotiating Panel to enable them to pursue a final negotiated settlement of all armed conflicts with
the Moro Islamic Liberation Front (MILF), Communist Party of the Philippines (CPP), New Peoples Army (NPA) and the National Democratic Front (NDF).

But we will not only address issues that cause armed conflicts. We will also deal with issues that affect the peace and security of our day-to-day living.

Protecting national territory and boundaries. Of the total P107.8 billion budget of the DND for 2012, we are allocating P5.0 billion for the AFP Modernization Program.
This amount will be used to provide better equipment that will strengthen our military preparedness to address threats to national security.

We are also funding the Philippine Coast Guard (PCG) and the Navy (PN) with a total of P7.3 billion to ensure the security of the Malampaya Gas Project, one of the
countrys reliable, alternative sources of energy. This project generates funds through receipts realized from service contracts and agreements. The Malampaya Fund is
used to finance energy resources development and exploitation programs and projects of the government.

The Philippine Army (PA), another vital institution tasked to protect the security of the people and the State and secure an environment conducive to national
development, will be given P35.4 billion in 2012, to boost internal operations on the ground.

Strengthening the rule of law. We will intensify the operations of the police and other law enforcement agencies to fulfill our promise of an environment that is visibly
protected and secure from internal threats. Of the total 2012 budget of the DILG, P78.6 billion is allotted to the PNP, P57.7 billion of which will enhance their
capabilities in crime prevention and suppression services. This amount will also support the PNP reform projects under the PNP- Integrated Transformation Program-
Performance Governance System (PNP-ITP-PGS).

On the other hand, the amount of P4.9 billion is set aside for the implementation of the Jail Management and Penology Program of the Bureau of Jail Management and
Penology (BJMP). This program will improve jail security, upgrade the living conditions of inmates, and intensify development programs geared for the inmates.

To ensure that the violators of laws on trade competition are apprehended, we signed Executive Order No. 45 which designates the Department of Justice (DOJ) as the
Competition Authority to investigate cases that break such laws and to protect consumers from abusive, fraudulent or harmful business practices. The amount of P12.5
million is allotted for the purpose.

We also provided the DOJ the amount of P9.7 billion in 2012, about 14.8 percent more than this year, for its various programs that will fast track the passing of final
resolutions on 347,600 various cases under its jurisdiction.

We are also strengthening the National Justice Information System (NJIS), which seeks to link all databases in the justice sector to provide for seamless exchange of
data and real time information on offenders. The NJIS will lead to more efficient coordination among different government departments, the counter crime agencies and
the general public. For this project, P68 million from the DOJ budget will be used.

We will not be able to resolve pending cases in court if we do not provide ample support to credible yet at-risk witnesses. To assure their security and protection and
encourage them to testify, we are giving the Witness Protection Services of the DOJ a budget of P174.7 million for the evaluation of 700 witnesses and the provision of
security and protection to those identified as credible.

The amount of P50 million from the DOJ budget will be used to intensify government efforts against human trafficking. We established Anti-Trafficking Task Forces in
local ports that will track down trafficking activities and prosecute human trafficking offenders. With 21 convictions from July 2010 to March of this year, our country
has already been upgraded from Tier Two Watchlist to Tier Two status of the Trafficking-in-Persons (TIP) report of the US Department of State. We have also signed a
Memorandum of Agreement with the International Justice Mission, a human rights organization, for collaboration in stamping out human trafficking.

To address the increasing number of cyber crimes in the country, the amount of P5 million has been set aside from DOJs budget for the creation of an Office for
Cybercrime. This office will put up a crime information network that will link up with various law enforcement and government investigation agencies. DOJs 2012
budget also provides for the full roll-out of its electronic case monitoring that allows prosecutors and the public to monitor pending cases.

The DOJ budget also includes P400 million for the construction of a 12-storey Manila Hall of Justice along Taft Avenue.

Institutionalizing an efficient and impartial justice system. We recognize the commitment and sacrifices our judges put into their work. We allotted P188 million to fund
the salary differentials of 1,465 judges. This is an offshoot of discussions between the Executive and the Judiciary which culminated in the signing of a Memorandum of
Agreement that restored the Special Allowances of the Judiciary (SAJ) and raised their salaries according to the Salary Standardization Law III. Likewise, P2.0 billion
has been set aside under the MPBF for filling up of vacant items in the Judiciary.

We increased the budget of the Judiciary to P15.7 billion for 2012 from P14.3 billion in 2011, inclusive of the allocation of P1.98 billion for the unfilled positions under
the MPBF. The increase will boost the Enhanced Justice on Wheels (EJoW) Program of the Supreme Court, which brings mobile courts to areas where there are no
judges and where the whole judicial process, from prosecution to conviction, can be conducted. Conflicts are resolved fast through on-the-spot conciliation, mediation
or adjudication.

Integrity of the Environment and Climate Change Mitigation and Adaptation
Kung walang corrupt, walang mahirap requires us to ensure the integrity of our environment, for the poor are the worst victims of climate change. This Budget funds
critical climate change adaptation and mitigation activities with P36.2 billion or 18.2 percent more than its allocation in 2011.

Preparedness. We cannot sit idly by after how past typhoons and other calamities have wreaked havoc in the lives of our people. For one, we have provided a larger
Calamity Fund under the 2012 budget: P7.5 billion, compared to P5.0 billion for the current year.

We have also provided the automation program of the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) with a budget of
P367 million, double the current years budget of P183 million. This will enhance the capability of PAGASA to provide timely and accurate weather forecasts. Mabilis
at matalas na impormasyon mula sa PAGASA ang siyang nagbibigay pag-asa sa ating mga kababayan sa panahon ng sakuna (Fast and accurate information from
PAGASA will give hope to our people in times of disaster).

As proven during the first year of our administration, timely and accurate weather forecasts really matter for government and communities in preparing for disasters.
The bulk of the funds will be used for the observation and acquisition of data for atmospheric-geophysical and allied sciences and the automation of weather and flood
forecasting.

We have provided P12.3 billion under the budget of DPWH for flood control projects. This will support the construction of 8,000 lineal meters of flood barriers,
especially along major basins and principal rivers. With this, I have instructed the DPWH, DA and DENR to collaborate so that rain water collected in the upstream
may be utilized for irrigation and as a source of potable water.

In addition, we will fund the Laguna de Bay Institutional Strengthening and Community Participation Project, with P485 million allotted for the goal of improving the
environmental quality and sustainable management resources covering 20 LGUs around Laguna de Bay. We have also provided for P173 million for the Pasig River
Rehabilitation project.

The Solid Waste and Disposal Management Project of the Metro Manila Development Authority (MMDA) will also receive a budget of P793 million in 2012 and aims
to provide disposal services for 17 LGUs in Metro Manila as well as technical assistance to other LGUs.

Sustainability. For the long-term, we need to enhance the quality of our environment and make it more sustainable through empowered communities.

The National Greening Program of the DENR aims to plant 1.5 billion seedlings in 1.5 million hectares of public land nationwide for the period 2011 to 2016. Aside
from increasing forest cover, this project also seeks to improve water quality in rivers and irrigation for farm lands, reduce the potential for flooding, reduce carbon
dioxide, and lay the foundation for an expanded wood-products economy.

For 2012, we will allocate P2.7 billion under the DENR budget for the planting of seedlings in 214,900 hectares of land with 600 extension workers expected to be
hired. Also, DA will be receiving P761 million to produce 36 million fruit tree seedlings, while DepEd with P9 million will produce 20 million planting bags and 200
Information, Education and Communication (IEC) materials.

To protect our forests, a budget of P857 million is allotted for the Forest Protection Program, an activity that intends to hire 600 extension workers and 3,113 Bantay
Gubat volunteers to monitor and patrol the 4.1 million hectares of untenured forest lands.

To make the government more energy-efficient, P722 million is provided for the Philippine Energy and Efficiency Program of the Department of Energy, higher by
48.4 percent than this years budget of P479 million. This program aims to retrofit 120 government buildings with energy-efficient lighting and to install LED traffic
lamps in 88 traffic intersections.

FINANCING THE EXPENDITURE PLAN
As in our first financial blueprint, our proposed National Budget for 2012 will bank on increased collection efficiency and determination, coupled with the strategic
management of our debt.

We will work on improving tax administration and widening the tax base before looking into possible revisions in the tax structure. We believe there are still significant
gains to be generated through improving collection efficiency. Hand-in-hand with improving collection efficiency, we are also committed to demonstrate our
earnestness in eradicating inefficient, wasteful and corrupt expenditures.

Nakasisiguro kayo na sa bawat piso ng buwis na ibinibigay ninyo sa kaban ng bayan ay mapupunta sa mga serbisyong magpapaangat ng ating ekonomiya at ng mga
mahihirap nating kababayan. Wala nang dahilan para hindi magbayad ng tamang buwis.

Revenues. We will raise P1.569 trillion in revenues to support our expenditure plan for 2012. Total revenues projected for next year is higher by 11.1 percent than this
years P1.411 trillion. It is equivalent to 14.2 percent of GDP. The expected increase is attributed to the sustained tax administration efforts of our major collecting
agencies: BIR and BOC.

Tax Revenues. Tax collections will amount to P1.446 trillion in 2012, which is more than 92 percent of our total revenues. This is higher by 13.5 percent than the
current years target of P1.273 trillion. Of the total, 73.8 percent or P1.066 trillion will be collected by the Bureau of Internal Revenue (BIR), 25.3 percent or P365.1
billion by the BOC, and the rest by other collecting agencies.

The increase in BIR target next year is attributed to a projected 15.3-percent increase in individual income taxes, from P192.7 billion to P222.3 billion; a 5.5-percent
increase in excise taxes, from P65.7 billion to P69.3 billion; a 11.5-percent increase in document stamps, from P48.6 billion to P54.1 billion; and a 14.2-percent increase
in corporate income taxes, from P319.6 billion to P364.8 billion.

Likewise, the BOC expects to exceed its performance, with growth in customs collection coming from import duties, from P79.4 billion this year to P94.6 billion in FY
2012; and from the VAT on imports, from P219.1 billion to P248.4 billion.

Tax Collection Reform. We will strengthen and provide funding support to the existing tax administration measures and policy reforms being implemented by the BIR,
BOC, and DOF in 2012. We will support the intensified implementation of the Lateral Attrition Law, Expanded Third Party Information, Anti-Smuggling Campaign
and Improved Taxpayer Service and a number of administrative and policy reforms such as the PAYGO Bill and the Fiscal Incentives Rationalization Bill.

In addition to the various IT projects that we are funding in 2012 under the E-Government Fund, we are also supporting another laudable project of the BIR: Oplan
Kandado, which aims to padlock businesses persistently evading taxes and engaging in other illegal practices. The project received a P86-million war chest: a 34.4
percent increase from this years P64 million budget.

This complements our invigorated Run After Tax Evaders (RATE) program. To further capacitate legal and enforcement personnel of the enhanced RATE Program, we
have more than doubled the funding given to the program in 2012 to P94 million, from P43 million this year.

The BIR is also bent on training its frontline personnel to improve taxpayer service through its Taxpayers Service Excellence. For 2012, we will increase provision for
this program to P131 million from P72 million this year.

The BOC, for its part, will intensify its anti-smuggling campaign and the implementation of judicial decisions including filing of cases. To ensure its success, P153
million is set aside for this purpose in 2012, up from P148 million this year.

Non-Tax Revenues. Meanwhile, we are targeting P123-billion in non-tax revenues for 2012, which is lower by 10.9 percent from the 2011 program. Even with
increased revenues from fees and charges of 11.6 percent to P69.4 billion due to the increased volume of government transactions, income from treasury operations and
privatization are expected to slow down by 25.2 percent to P51.6 billion and 66.7 percent to P2.0 billion, respectively. These only indicate how we are lessening our
dependence on non-recurring and unsustainable revenues.

Debt. We are determined to improve our debt profile, reducing our outstanding debt from 50.9 percent of GDP to 50.2 percent of GDP by the end of 2012. To reduce
our economys vulnerability to external shocks, we seek to redefine our foreign-to-domestic borrowing mix to 25:75 from the 2010 ratio of 34:66. For 2012, we intend
to finance our P286-billion deficit and our outstanding debt by borrowing P174.8 billion from foreign sources and P529.5 billion from the domestic market. For a total
of P704.3 billion, this is P33.9 billion or 4.6 percent less than our borrowing program for 2011.

Our debt profile will also be improved by extending the maturities of our current debt and to re-denominate external debt through the issuance of peso-denominated
bonds in the international market. In our first year in office, the DOF has successfully swapped US$2.3 billion externally and P171.9 billion domestically of our existing
debt.

PAGGUGOL NA MATUWID: DIRETSO SA TAO
Starting with the 2011 Reform Budget, we have introduced reforms in public expenditure management to ensure that public funds and resources benefit only the people,
not the pockets of a few.

This is how we define budgeting under the Aquino administration: efficiency, effectiveness and strategy, as opposed to waste, irrelevance and caprice. Ito ang ibig
sabihin ng paggugol na matuwid.

Ladies and gentlemen of the 15th Congress, in submitting my administrations budget proposal for your examination and approval, I invite you to join our people in
their quest to end corruption and to establish a government that truly serves them. With this, I respectfully assert that this 2012 National Budget will be a critical tool
that we can use to achieve that vision.

Akin pong sinabi nang manumpa ako sa katungkulan, ang mandato ninyo sa amin ay pagbabago isang malinaw na utos para ayusin ang gobyerno at lipunan, mula sa
pamahalaang iilan lamang ang nakikinabang, tungo sa isang pamahalaang kabutihan ng mamamayan ang pinangangalagaan.

Asahan po ninyo na ito po ang patuloy kong pinaninindigan bilang inyong Pangulo.

Respectfully,

(Sgd.) BENIGNO S. AQUINO III

President of the Philippines