DBM chief warns of SC ruling’s fiscal risk

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Benjamin E. Diokno
Budget Secretary Benjamin E. Diokno said the national government cannot afford to give local governments a much-bigger share of national tax collections that will be required by the Supreme Court decision.

By Elijah Joseph C. Tubayan

THE GOVERNMENT’S fiscal position may be at risk from the Supreme Court (SC) ruling that local governments’ share in state revenues includes all national government taxes, not just those collected by the Bureau of Internal Revenue (BIR), Budget Secretary Benjamin “Ben” E. Diokno said on Wednesday.

Mr. Diokno said the national government will file a motion for reconsideration through the Office of the Solicitor General (SolGen), as it cannot afford to comply with the ruling.

“As of now, hindi pa namin nantatanggap ‘yung (we have not received a copy of the) decision,” Mr. Diokno said in a panel discussion at the second Pre-State of the Nation Address Forum in Manila.

“We don’t know how much the damage sa national government. There are varying estimates: it’s P1.2 trillion to about P6 trillion. ‘Yun ‘yung (that is the estimated) effect niya sa gobyerno (on the government),” said the head of the Department of Budget and Management (DBM).

“So ‘yun yung ipapa-apela namin sa (we will ask the) SolGen to (file an appeal to) reverse the decision. Hindi natin kaya ‘yun ganong kalaki (We cannot afford such a huge reduction in retained national government revenues).”

He told reporters afterwards that complying with the high court’s ruling may double the national government’s budget deficit to an equivalent of six percent of gross domestic product (GDP) from a programmed three percent.

“Definitely may (there will be an) effect sa (on) deficit, aabot ‘yung deficit namin ng mga six percent. Ang tawag dun unmanageable public sector deficit. So hindi kaya.”

Although local governments will have more revenues to funds their projects, Mr. Diokno said global debt watchers may take away the country’s investment-grade credit rating — making it harder for the government to secure relatively cheaper credit at a time it implements its more-than-P8-trillion infrastructure development program until 2022.

Babagsak yung credit rating natin. International confidence will go down. We’ll have to cut significantly ‘Build, Build, Build’,” he said.

The Budget chief described his estimate as “all speculation” as his department has yet to compute the ruling’s impact.

His figures compared to the “P498.85 billion or very close to P500 billion” due local governments for 1992-2012 that was estimated by Batangas Governor Hermilando I. Mandanas, who raised the issue to the high court in January 2012 as legislative representative then of the province’s second district.

Republic Act No. 7160, or the Local Government Code of 1991, provides for internal revenue allotments (IRAs) for local governments amounting to 40% of “national internal revenue taxes based on the collection of the third fiscal year preceding the current fiscal year”.

IRAs are a key source of local government funding, although development planners and economists have taken such units to task for being too reliant on such doleouts and lulling them to complacency in improving their own collections of local taxes for business and real property, as well as fees for services.

Economists interviewed yesterday were divided on the ruling, with one arguing that many local government units (LGUs) have a poor track record in spending wisely and another saying that LGUs are in the best position to identify and implement projects they need for development.

“LGUs have not displayed the capacity to spend resources productively. That’s why I am very skeptical about federalism because it is not very clear about how they will spend resources,” Raul V. Fabella, a retired professor of the University of the Philippines School of Economics, said in a phone interview, adding that carrying out the Supreme Court decision “will cripple or slow down the national government program”.

Describing the ruling as a “bad move,” Mr. Fabella explained that “development of the countryside is dependent on infrastructure spending.”

“You think LGUs with more money will spend it on meaningful infrastructure? I doubt it,” he said.

“I think they’ll spend it on frivolous things. More resources in the hands of Ben Diokno is probably more conducive to regional development than otherwise.”

“The country needs arterial infrastructure which needs huge fiscal resources. Diffusing and dissipating resources is wrong-headed. More basketball courts will not do,” Mr. Fabella said.

But Bernardo M. Villegas, an economist at and one of the founders of the University of Asia and the Pacific, said separately in an e-mail: “I agree with the decision.”

“This can make federalization completely unnecessary. Under the Local Government Code… LGU heads can partner with the private sector to do their own Build Build Build, such as roads, railways, airports, seaports, government centers, public markets, school buildings, etc.,” Mr. Villegas said.

“I know of a good number of very competent mayors and governors who can implement these PPPs (public-private partnerships) more effectively and quickly than the national government agencies,” he explained.

“The IRA that goes to the LGUs can be used by them as the counterpart for these PPP. The national government can just delegate some of the public works and other expenditures on educational and health facilities to the LGUs. By devolving part of these projects to the LGU, the national government does not have to increase its deficit as Secretary Diokno maintains.”

Mr. Fabella, however, said that many local government projects are not bankable compared to those of the national government, hence, may not be attractive to the private sector.

Department of Budget and Management data show P522.75 billion worth of IRAs to 43,607 LGUs this year, 7.37% more than last year’s P486.89 billion.

RA 7160 also requires local governments to spend no less than 20% of their IRA on social development projects.