Budget Secretary Rolando Andaya Jr. said that rising government payroll cost and interest expense have led to the contraction of proposed infrastructure funds for next year.

“True, these two are elbowing out many expenditure items in the budget,” Andaya said.

“Personal services,” the collective nomenclature for pay, pension and allowances in the bureaucracy, will reach P494 billion next year, from P429 billion this year, while interest payments on government debt will hit P340.8 billion, up from P302.6 billion

Combining for P834.8 billion, the two will account for 54 percent of the P1.514 trillion budget for 2010.

The P103.2 billion increase in the allocations for the two items if applied to infrastructure could fund many roads and classrooms, Andaya said

For personal services, our expenses is running at a daily rate of P1.353 billion, Andaya said. “We’re putting in P56 million for payroll every hour.”

On the second year implementation of the Salary Standardization Law III alone , government will be shelling out P68.4 billion, Andaya said.

But if you factor in the cost of three previous pay hikes prior to SSL3, which is now P50 billion annually, the cost of compensation adjustments which began in 1996 will be P118 for 2010, he said.

This does not include military pension, in which the total need next year of P45 billion, “is five times the budget of the Air Force and four and half times bigger than the Navy's,” Andaya said.

Andaya said personal services and interest payments are deemed “non-postponable” obligations. “These are immovable objects. So when money is tight, among the first to go are capital outlays because you can delay projects but not payroll.”

“But the budget is dependent on revenues. Budget is in the downstream of tax collecting. It is not based on an infinite resource or a number which you can simply pluck out of thin air. It would be easy to say: Let’s put P500 billion for infra, but it will be hard to raise that amount. Believe me, if we have a better revenue stream, then we would have allocated more for infra,” he said.

To shore up infrastructure spending, Andaya said Congress “could pad the proposed budget but this would mean borrowing more and letting the next government or the next generation redeem the IOUs.”

Aside from small fiscal space, Andaya said the completion of administration projects is another reason for the dip in infrastructure spending.

“The subtext here is that maybe the next administration should be given wider infra room to choose what projects to pursue,” he said.

The public sector infrastructure budget, which is a component of total capital outlays, will hit P210.7 billion next year allowing the Arroyo administration to complete projects it had started.

The above tally, he explained, does not include investments made by private groups, with some cloaked with government guarantees, on roads and other transport infrastructure.

He said the physical targets are respectable. “In critical infrastructure like schoolbuildings, there is no reduction.”

“We are not idling our bulldozers. For example, the DA plans to build or repair 2,400 kilometers of farm-to-market roads (FMRs) at a cost of P7.1 billion, and restore 138,429 hectares of irrigated lands at a cost of P13 billion,” he said.