Economic managers flag costs of federal charter

By Camille A. Aguinaldo, Reporter
FINANCE Secretary Carlos G. Dominguez III on Wednesday said he was left “confused” with the proposed federal charter following a meeting with members of the Consultative Committee (ConCom) to review the 1987 Constitution.
During the second day of the national budget briefing of the Development Budget Coordination Committee (DBCC) to the Senate on Wednesday, Mr. Dominguez said the draft charter did not clearly provide a road map on how to deal with the national debt, among others.
“The draft, as it is right now, does not lend itself for financial analysis. I’ll give you an example: I sat with members of the Commission and my first question was how will they see that the national debt will be paid, the military, the foreign affairs, central bank will be paid? They said, ‘Don’t worry about that, the split will be after the national — those expenses,’” he said, reiterating what he said Tuesday on the first day of the budget briefing.
“But I said it’s not in the draft. It’s not there. So I said, what are you telling me? How can we compute? We don’t know what the final road map is going to look like. So I had a long discussion with them. And quite frankly, I was more confused than when I started,” he added.
Asked by Senate Minority Leader Franklin M. Drilon if Mr. Dominguez will vote against the ratification of the draft Charter, the Finance Secretary gave a resounding reply: “Absolutely! Yes. But it is good that it is being discussed by the wise legislators. You have to bring out those points.”
At the briefing, senators quizzed the economic managers on the possible cost and impact of the shift to a federal form of government. Senator Francis G. Escudero questioned the funding of the information campaign on federalism when the proposed Charter remained a draft, being still subject to changes.
Socioeconomic Planning Secretary Ernesto M. Pernia said the cost of federalism may be P120 billion, based on their estimates.
“But this is just a direct cost. Remember there will (be) indirect cost like disruption in the projects and other things, maybe our growth momentum will be disrupted also,” he said.
Senator Loren B. Legarda, chair of the Senate committee on finance, turned cautious upon hearing Mr. Pernia’s remarks and requested the economic team to provide a comprehensive report on the direct and indirect costs, as well as the impacts of the draft Federal Constitution’s implementation.
“That will affect everything if projects will be delayed because of the change of the form of government. And we’re not even sure if we’re changing from the present to what?” she said.
Senate President Pro Tempore Ralph G. Recto also asked Mr. Dominguez about the possible effects of the draft Charter if applied to the 2019 budget, especially the provisions giving federated regions 50% share of collected taxes.
Mr. Dominguez said the government will incur a very large deficit that would affect the country’s credit rating.
“What would happen to our credit rating?” Mr. Recto asked.
“Oh, it will go to hell,” Mr. Dominguez replied.
“When the credit rating goes to hell, what happens to the Philippines?” Mr. Recto pressed.
“Everybody pays higher interest rates,” the Finance Secretary said.
Asked about the impact of federalism to the government’s Build, Build, Build infrastructure program, Mr. Dominguez also said, “Well I guess it will be, maybe it’s not Build-three, it’s minus three, derailed.”
CONCOM RESPONSE
In a statement responding to the remarks at the Senate by Mr. Duterte’s economic managers, ConCom Senior Technical and Media Officer Conrado I. Generoso said, “Fiscal administration is quite clear in the draft Constitution. The Federal (national) government basically retains the taxation power, except for selected taxes and fees the collection of which will be transferred to the regional governments. Using 2017 data, these amount to about P60-70 billion.”
Mr. Generoso added: “The sharing of the collections from top-four sources of revenues shall be 50% for the federal government and 50 percent for the regional governments. In 2017, these amounted to over P2 trillion. This means the regional governments shall receive at least P1 trillion divided equally among them or P57 billion per regional government—it is money that will be released to them automatically.”
“Internal revenue allotment will no longer be a concern of the federal government. The power to distribute the shares of the LGUs will belong to the regional government. The corresponding amount is part of the one trillion pesos that correspond to the 50 percent share of the regions in the top four revenue sources.”
“Who will pay for the national debt, military, DFA, Bangko Sentral? By definition of exclusive powers that belong to the federal government, these will all be concerns of the federal government. The budgets allotted for debt service, national defense, foreign affairs are untouched and remain intact with the federal government under the draft charter. Congress continues to have the power to appropriate the budgets for these concerns—which are all federal. The BSP is the single agency responsible for monetary policies, which is an exclusive power of the federal government, thus if it ever needs additional capital, the federal government will provide for it.”
“In all, the federal/national government has more than P3 trillion cash each year (based on 2017 data), including borrowings. A little over P1 trillion will go to the federated regions — the taxes and fees that they will collect and the equal share in the top four revenue sources. The federal government will have more than P2 trillion left in its coffers, which will cover for the cost of its operations, including the budgets for national defense, foreign affairs and debt service. Much of the functions and duties of the regional offices of the different departments will be transferred to the regional governments, thus there will be a corresponding reduction in the regional budgets of the different departments,” Mr. Generoso said.