2018News

Equalization fund for federal regions a must–Con-com

By Bernadette D. Nicolas, September 2 2018; Business Mirror

https://businessmirror.com.ph/equalization-fund-for-federal-regions-a-must-con-com/

Image Credit to CNN Philippines

THE Consultative Committee (Con-com) is standing pat on keeping the equalization fund in its draft federal Charter to help regions become economically viable and sustainable, even though the Department of Budget and Management (DBM) said the fund will be an “added fiscal burden” to the national government.

In its presentation last week before the Economic Development Cluster and Con-com, the DBM said it supports in principle the shift from unitary to a federal form of government but also raised concerns on the proposed federal Charter.

Con-com Spokesman Conrado I. Generoso disputed the DBM’s claim. He said the equalization fund will not be an added fiscal burden because the fund is actually within the regional expenditures of the national government.

“That is not an added fiscal burden because that is already part of what you are spending in the regions,” Generoso told the BusinessMirror.

Since some regions might need financial assistance, especially during the transition, the Con-com decided to have an equalization fund equivalent to 3 percent of the annual General Appropriations Act. The fund will be administered by a 15-man Federal Intergovernmental Commission based on the regions’ need, but with priority to those that require financial support.

However, the DBM pointed out in its presentation—a copy of which was obtained by the BusinessMirror —that the equalization fund “effectively defeats the purpose of local autonomy granted to them, and burdens the national government for additional fiscal transfer to regional governments.”

Moreover, the DBM said the fund “may no longer be needed with a good revenue-sharing formula in place.”

Temporary fund only

“Should the equalization fund be pursued, it should be temporary, and/or provided as needed,” the DBM said in its presentation.

Thus, the department suggested that Con-com promote an equalization fund, which is provided when “extraordinary circumstances warrant and that there should be definition of these circumstances in the draft Constitution and the formula or bases to be used for allocating it.

Con-com member Atty. Susan Ubalde-Ordinario agreed the DBM that the fund is just temporary, as she stressed that not all regions will be given an equalization fund, as those regions who need it will get a share of it. “[The] equalization fund is not something permanent, nor is it going to be given to everybody,” she told the BusinessMirror.  However, Ubalde-Ordinario pointed out that many regions are not yet capable of immediately developing.

Aside from the equalization fund, the DBM noted that giving multiple financing support —such as the revenue share of the federated regions (FRs), the equalization fund, and additional funding from the federal government (FG)—to the federated regions will weaken the capability of the latter to develop fiscal autonomy.

The DBM, meanwhile, suggested limiting transfers to the FRs to basically the tax shares from the Federal Government. “The additional support weakens local autonomy as it promotes fiscal dependence on the FG, removing the concept of hard fiscal ceilings to the FRs,” the DBM said, adding that the article of the draft federal Charter on fiscal powers and financial administration lacks a section to further firm up fiscal autonomy by providing for the nonrecourse to the FG for debt burden and other financial crises issues.

For her part, however, Ubalde-Ordinario said the Con-com’s proposed fiscal design and the assignment of powers for FRs in the draft Charter should enable the regional governments to generate their own revenues. Thus, the regions should instead become more independent rather than be fiscally dependent on the FG.

Cost of the shift

Last Wednesday the National Economic and Development Authority said that the cost of the shift to federalism could cost the national government an additional P243.5 billion annually. The estimate is double the initial estimates made by experts on the true cost of shifting to federalism.

The DBM also had a slide on bureaucracy expansion, where it also suggested to the Committee to “rethink the size of the FG and FR bureaucracy to reduce overhead costs.”

According to the department, the increase in the number of senators from 24 to 36, of congressmen from 287 to 400, the increase to four Supreme Courts and the proposed setup of six Constitutional Commissions will “substantially increase the cost for personnel services [PS] in the FG, as well as the budget for Maintenance and Other Operating Expenses and Capital Outlays.”

The DBM said the number of senators, for instance, will create 312 additional positions for technical support, which will raise PS alone from P561 million to P842 million.

Still, the Con-com has said that the shift to federalism will not result in a bloated bureaucracy. “If you bring down the personnel staffing [of the national government to the regional governments], the national bureaucracy will shrink,” Ubalde-Ordinario said.

The budget department also wants Con-com to remove the Philippine Competition Commission among the list of constitutional commissions, noting that PCC is simply a regulatory body over private firms and corporations.

“The regulation of the private actors [e.g., business entities] need not be a constitutional commission, which functions as a check on the government’s policies of human resources, financial management election of officials,” the DBM said.

Generoso, however, defended the Committee’s decision to elevate PCC as an independent constitutional commission, stressing the need to ensure “it does not  become a political tool of any administration.”

The proposed sharing of total government revenues is two-thirds for the FG and one third for FRs.

Based on 2017 data, total FG funds will amount to P2.2 trillion, while the total for FRs  is P1.1 trillion.

The Con-com’s draft also said the FRs will have a share of not less than 50 percent of all collected income taxes, excise taxes, value-added taxes and customs duties—the top revenue sources of the central government. The other 50 percent will go to the FG.

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