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P1.65-T add’l cost needed under federal charter

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By Chino S. Leyco

The draft federal constitution, if adopted and implemented beginning next year, will require more than a trillion pesos in additional expenditures for the government until 2022, data from the Department of Finance (DOF) showed.

 

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DOF logo

Based on a DOF document obtained by Manila Bulletin, a hefty P1.651 trillion is needed to comply with the draft federal charter’s 50:50 revenue sharing scheme, which will be given in a form of internal revenue allotment (IRA) to the federated regions.

Under the proposed charter, the federal government shall give the federated regions a 50 percent share in income, excise, value-added taxes and Customs duties collected by the Bureau of Internal Revenue and the Bureau of Customs.

Based on the DOF computations, the national government, or the federal, will require additional P342 billion next year under the draft Constitution. This amount would increase further in 2020 to P389 billion, and another P424 billion the following year.

The needed spending requirement will continue to rise with additional P496 billion by the time President Rodrigo R. Duterte’s term ends in 2022.

Considering the hefty cost under the draft constitution, Finance Secretary Carlos G. Dominguez III has already sought for dialogues with the proponents of the federated government.

Dominguez, who already briefed Duterte about the risks if they now shift to a federal form of government, noted that the chief executive “now has a good appreciation of this draft’s fiscal implications.”

Dominguez reiterated that the Duterte administration’s economic team is not against federalism, but he maintained that the draft constitution needs further discussions as it has “dire, irreversible economic consequences.”

Duterte’s chief economic manager warned that the current draft would result in massive job losses in the public sector, derail the government’s ambitious infrastructure plan, and widen the budget deficit, leading to skyrocketing interest rates. Dominguez said that based on the fiscal provisions of the draft, the federal government would incur a budget deficit of 6.7 percent.

To avoid the negative economic consequence and maintain the current deficit target of three percent, Dominguez said “the federal government will have to cut its expenditure program by P560 billion.”

For this reason, Dominguez said that there is an urgency of “opening more discussions on this proposed document crafted by the Consultative Committee (Con-Com) tasked to review the 1987 Constitution.”

“We welcome a discussion on the draft so that it is clear and unambiguous. We do not want the revenue assignment and the expenditure assignment to be misunderstood, as what happened in the recent case involving the Internal Revenue Allotment,” Dominguez said.

“As we pointed out earlier, we never stated that we are against federalism. Rather, with respect to the fiscal provisions of the proposed constitution, there are ambiguous provisions on revenue assignment and there are no provisions on expenditure assignment,” he added.

“There are, likewise, principles on revenue sharing that do not appear to be well studied,” he added.

He said that given these ambiguities, “it is our duty and responsibility to point these out and engage in a healthy, level-headed discussion, especially when the possible repercussions could result in dire, irreversible economic consequences.”

“We believe that these should be set out clearly so that they adhere to the principle that ‘funds follow function and funds follow program’, ” Dominguez said.

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