Random Thoughts: Some financial aspects of going federal

“We, too, believe in and adhere to the public finance principle ‘funds follow function’, the groups (influential business) said in their statement. Accordingly, we echo the concerns of fiscal and economic experts about ambiguous provisions on the division of revenue and expenditure responsibilities between the proposed federal government and its federated regions” (Othel V. Caez, “Careful with Federalism”, Manila Standard, August 13, 2018).

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Recently, Secretary Ramon M. Lopez of the Department of Trade and Industry said “that federalism is good in the devolution and operation of the trade and industry function, promotes ease of doing business, and competitiveness among local governments in attracting investors.” He, however, likewise “agree with the other macro-economic managers of the government of the need to establish first the financial feasibility — costs and risks (please include also the benefits) — of the proposed shift (to a federal system)”.

From the very beginning, immediately after Mayor Rodrigo Roa Duterte was elected President of the Philippine Republic, we in the Kilos Pederal sa Pagbabago (KPP) warned: “We must be very prudent in our shift to a Federal System because if we do not do it right, we might create more problems in our country than what we intend to solve.”

Hence, No. 2 of the KPP’s 2016 Proposed Road Map to Federalism in the Philippines submitted to Malacanang stated “For President Duterte to organize a Study Group composed of experts from the National Economic Development Authority (NEDA), Dept. of Finance (DOF), Dept. of Budget and Management (DBM), and Dept. of Interior and Local Government (DILG) to study the financial aspect of going Federal for submission to the Consultative Commission (CC) for consideration (and guidance).”

Even in the Public Hearing undertaken by the House of Representative’s Committee on Constitutional Amendment in Davao City way back in 2017, yours truly advised the Committee to also tap financial experts to assist them especially in the determination of the number of Federal Regions to be created in the country and in the distribution of governmental powers between the Federal National Government and Federal Regional Governments.

That’s how cautious the KPP members vis-a-vis our challenging shift to a Federal System. Very unfortunately, no such studies were made by Malacanang economic team. Now if Malacanang is really still serious in pushing federalism during the term of Pres. Duterte, then such financial studies must be made soonest by these two (Malacariang and Congress) branches of government for obvious reason.

In KPP’s manual titled: “HOW TO FEDERALIZE THE PHILIPPINES,” it is written: “Step 6. Decide on the number of (Federal) Regions to be established in the Philippines.

“We must be extra prudent in our decision on this very crucial issue. We must have some degree of workable understanding of the intricacies of Federalism to arrive at the appropriate number of Federal Regions in the country.

“The comment of a Filipino expert on Federalism below can help.

“Former DILG Director Dr. Gaudioso Sosmena, Jr.: “”Determining the number States (Regions) in the country is dependent on financial capacities and revenue base of each of the proposed state (region)… A study on Federalism supported by the Konrad Adenauer Stiftung, Philippines shows that it will cost approximately Php202,973,184,000.00 (more or less Two Hundred Billion Pesos) to organize and manage a state (regional) government for a period of one year…. Realities, therefore, do not allow eleven viable states (regions) “as some quarters are proposing (imagine Con-Com proposing the creation of 18 weak Federal Regions in the country!)

“Aware of the merits of ‘Incremental Strategy’ in the creation of Federal Regions as suggested by Dr. Sosmelia, Jr., logic dictates that we must limit the number of Federal Regions we create in the country to economically viable ones. Let’s avoid the establishment of poor Federal Regions. Let not allow the continuation of the fragmentation of our country into ‘political fiefdoms’, neither shall we allow all types of mendicancy! Hence, the proposal of the KPP is to INITIALLY establish five (5) Federal Regions in the Philippines.” (Now we are considering six including the Bangsamoro).”

We go now to the Local Government Units’ (LGUS’) concern especially on their Internal Revenue Allocation (IRA). The present sharing of the IRA is 60% for the National Government and 40% for the LGUs’. Per Con-Corn spokesperson Ding Generoso, “the sharing of tax collection under the draft constitution would be 50% for the federal governments and 50% for the regional governments.” If 40% of the IRA now go to the LGUs, then only to 10% percent will remain for the 18 Federated Regional Governments. We don’t think this will suffice for the 18 Federated Regions.

Here is another problem of the LGUs in going Federal. Generoso also said “that internal revenue allotment for local governments under federalism would no longer be a concern of the federal government. The power to distribute the shares of the local governments will belong to the regional governments.” Most probably this is one of the reasons why LGU officials are deafeningly silent on the issue of federalism. “Baka bawasan ng Regional Governments ang kanilang IRA.” The Regional Governments may also abolish their provinces due to financial reason. If Federalism is really still “a priority for President Duterte” as stressed by Presidential Spokesperson Harry Roque, then all cabinet members who are in the position to help our President achieve this election promise to our people should better triple their efforts to this effect. “Kung talagang gusto, may paraan. Kung talagang ayaw naman, puro katwiran!”

Let’s see which is which.

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