Rody to consider biz groups’ inputs on federalism

by Alexis Romero with Lawrence Agcaoili, Cecille Suerte Felipe (The Philippine Star) – Aug 14, 2018

MANILA, Philippines — President Duterte wants solutions to the concerns of economic managers and business groups that urged Congress to assess the costs and risks of the proposed shift to a federal form of government.

Presidential spokesman Harry Roque said the issues raised by the business chambers can be resolved and do not completely hinder efforts to push for Charter change.

“This is, of course, an input that the President will consider. And we’re hoping that the legislature (that) will tackle Charter change will also consider the position of the business community,” Roque said at a press briefing yesterday.

“He (Duterte) is now aware of this concern. And he has said that it is not insurmountable,” he added.

Roque said the President has also spoken to members of his economic team who earlier enumerated federalism’s risks on the country’s credit ratings and economic growth.

“He has listened attentively to what they were saying, but he wants solutions. He’s looking for solutions,” he said.

“That’s why he is exploring now all options and has ordered that everyone should study it. He is asking members of Congress to look into the matter very seriously because ultimately, it’s Congress that will submit to the people the proposals.”

Duterte has been pushing for a federal form of government, saying it would spur development in the countryside and address the root causes of insurgency and extremism in Mindanao.

But some economic managers are worried that the proposed shift to a federal government might be costly and could affect the country’s growth momentum.

Finance Secretary Carlos Dominguez III told a recent Senate hearing that the country may incur a very large deficit if the provision providing the regions a 50 percent share of the national government’s revenue collections is implemented. The setup may bring the Philippines’ credit rating to “hell,” he added.

At the same hearing, Socioeconomic Planning Secretary Ernesto Pernia said the shift to federalism would also require the government to spend P120 billion, excluding the disruption of state projects.

Business groups have expressed support for the concerns raised by the economic team and have urged Congress to consider the possible effects of federalism on the country’s fiscal position.

In a joint statement released over the weekend, the Cebu Business Club, Employers Confederation of the Philippines, Financial Executives Institute of the Philippines, Makati Business Club, Management Association of the Philippines, Philippine Chamber of Commerce and Industry and Philippine Exporters Confederation Inc. expressed concerns over what they described as “ambiguous” provisions on the division of revenue and expenditure responsibilities between the proposed federal government and its federated regions.

“We, too, believe in the need to adhere to the public finance principle ‘funds follow function,’” the groups said.

“We worry about the dire consequences that such fiscal imbalance could have on the economy and the flagship Build, Build, Build program of the current administration,” they added.

The business groups cited an estimate by state-run Philippine Institute for Development Studies, which said that the government under a federal system may incur cost of P72 billion to P130 billion.

The deficit may also balloon to 6.7 percent of the gross domestic product, the groups added.

Roque said the Duterte administration is open to discussions on federalism.

“This is a kind of discussion that we welcome as far as Charter change is concerned. We want this kind of discussion. We want people to think deeply about the ramifications. And we welcome all sorts of inputs from all members of society,” Roque said.

“The President has been listening. He still wants it because he is the foremost proponent of Charter change towards federalism. But of course, he wants it done in a manner that will not put the country in trouble,” he added.

The Department of Finance (DOF) yesterday warned the people that the fiscal provisions of the proposed draft federal charter would pad the country’s bleeding coffers by an additional P1.2 trillion, resulting in a fiscal nightmare.

Finance Undersecretary Gil Beltran said the allotment to federal regions would go up to P744.9 billion based on the formula of 50 percent, while capital transfers would amount to P251.1 billion.

The equalization fund not less than three percent of the General Appropriations Act would amount to P131 billion, he said.

“That’s additional P1.2-trillion deficit if we follow what we think they are talking about,” he said, noting this would translate to a record budget deficit of 6.7 percent of gross domestic product (GDP).

If this materializes, he said the budget shortfall would exceed the record five percent of GDP incurred during the height of the Global Financial Crisis (GFC) and continue to increase in the succeeding years.

“The highest was about five percent and we did that during the GFC. We did not do simulations moving forward because we think 6.7 percent is not viable,” Beltran said.

Earlier, Finance Secretary Dominguez said the federal government would incur a deficit of 6.7 percent that could result in a downgrade of the country’s investment grade credit rating from Moody’s Services Corp., S&P Global Ratings and Fitch Ratings.

“A credit rating downgrade would lead to higher interest rates,” Dominguez had said.

Dominguez has maintained that the draft federal constitution contains ambiguous provisions on the allocation of expenditures for the would-be federated government and its regions, which underscore the urgency of opening more discussions on this proposed document crafted by the consultative committee (Concom) tasked to review the 1987 Constitution.

The DOF chief made it clear that while the economic team is not against federalism, it has the responsibility to point out the ambiguous and unclear provisions in the proposed draft charter, “especially when the possible repercussions could result in dire, irreversible economic consequences.”

The draft charter contains provisions on the taxation powers of the federal government and the federated region and a provision on revenue assignment wherein the regions would get 50 percent share in income, excise, value added taxes and customs duties, but “no provision on expenditure assignment.”

Beltran said the transfer of taxes to federal regions would amount to about P560 billion.

“If we take these out of the federal government that will mean that we have to cut significantly the Build, Build, Build that is 70 percent of the capital outlays, and 95 percent of personnel services,” Beltran added.

Concom member Ranhilio Aquino had asked President Duterte to fire Dominguez and Pernia for stating their views on the proposed federal Charter.

‘Should have raised issues’

Political science professor Edmund Tayao, a member of the Concom reviewing the 1987 Constitution, said the government’s economic managers and business groups should have raised their issues on fiscal matters regarding the federal system of government during the drafting of the proposed new charter.

Tayao said the Concom, led by former chief justice Reynato Puno, had invited both government officials, mostly undersecretaries, and professional groups for discussions but did not hear any recommendations from them.

“Instead they simply commented on how we intend to approach the drafting of the provisions,” he said.

He also recalled that he and fellow Concom members former senator Aquilino Pimentel Jr., Art Aguilar and Roan Libarios went to the office of Dominguez to brief him about the proposed federal charter.

Tayao said they briefed Dominguez and they heard no negative response and he asked for a copy of the draft constitution and that they sit down again and do a more intensive study.

He said the Concom never heard anything from Dominguez again.

Tayao also emphasized that the Concom “consulted no less than the congressional panel in budget resource department who is intensively involved in budgeting and determination of revenue and expenditure assignments.”

While he agreed that there would be additional costs to put up a federal government, Tayao said this would be used to “streamline national government because we would bring down the functions of the federated regions.”?Department of the Interior and Local Government (DILG) Assistant Secretary Jonathan Malaya said a shift to a federal system government could speed up the development of Eastern Visayas. “When power is brought down to the region, the regional government will gain enough foothold to streamline development projects and programs to benefit the Eastern Visayas’ economy,” Malaya said.? –

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