Economic team sets meet on federalism
Amid concerns that the fiscal provisions of the draft federal Constitution were unclear, the Duterte administration’s economic team will meet this week to come up with unified assumptions on the cost of shifting to a federal form of government.
Undersecretary Rosemarie G. Edillon of the National Economic and Development Authority (Neda) told reporters that the meeting on Aug. 29 would be attended by the economic managers.
Cost of federalism
While the Neda already had its own report containing assumptions on the cost of federalism, Edillon said that “we defer to the DBM (Department of Budget and Management) as the final authority on the numbers.”
“What we can do is inform [the DBM] what were our assumptions,‘these are the numbers,’” Edillon said.
Edillon added that the Neda’s estimates were “conservative.”
Neda chief and Socioeconomic Planning Secretary Ernesto M. Pernia earlier said that shifting to a federal form of government would incur additional cost of up to P130 billion per year, and could hence disrupt the country’s economic growth momentum.
For the part of the Department of Finance (DOF), its chief economist and Undersecretary Gil S. Beltran earlier estimated that if implemented next year, the fiscal provisions of the draft federal Charter could bloat the budget deficit to a record P1.2 trillion such that the national government would have to cut on jobs as well as infrastructure expenditures.
Beltran had warned that the projected budget deficit equivalent to 6.7 percent of gross domestic product (GDP) would be the widest ever.
Based on Beltran’s computations, the draft federal Constitution’s fiscal provisions would allot P744.9 billion to the federal regions, on top of P251.1 billion in capital transfers.
Another P131 billion would be allotted to the equalization fund, Beltran added.
Under the draft Charter, the equalization fund, which should not be less than 3 percent of the annual national budget, would be allocated for each federated region based on its needs.
Bigger amounts would be given to regions that need larger support to become economically and financially sustainable, as assessed by the Federal Intergovernmental Commission.
Also, taxes transferred to the federal regions will cost P168 billion, while the block grants to the Bangsamoro and Cordillera autonomous regions would be about P100 billion each.
Due to these additional expenditures, Beltran said that the federal government would be forced to cut down on national expenditures, equivalent to P560 billion, or an amount that currently funds 95 percent of the government’s personnel services, in order to keep the medium-term budget deficit cap of 3 percent of GDP.
‘Not viable’
For 2019, the fiscal-deficit program was P624.4 billion, equivalent to 3.2 percent of GDP, as the government wanted to accelerate the ambitious “Build, Build, Build” infrastructure program.
But Beltran said that a 6.7-percent fiscal deficit was “not viable.”
For his part, Finance Secretary Carlos G. Dominguez III said that slashing the expenditure program to maintain the budget ceiling would force the national government to “lay off 95 percent of its employees or reduce the funds for the ‘Build, Build, Build’ program by 70 percent, or a combination of both.”
‘Very confusing’
The head of Duterte’s economic team, Dominguez, had also told the Senate that the fiscal provisions of the draft federal Charter were “very confusing.”
Dominguez had warned that the country’s investment-grade credit ratings, which makes it cheaper to borrow money, could “go to hell” and interest rates could shoot up as the draft Constitution was “unclear” if expenditures to pay the national debt, military and diplomats as well as provide additional capital to the central bank would come before or after the proposed 50-50 sharing of the regions and the national government of total revenue collections.
Members of the consultative committee claimed that the splitting of revenues would be after the said expenses, but Dominguez had said: “When I read the draft, it doesn’t say so there.”
Given the different figures and assumptions, Budget Secretary Benjamin E. Diokno had sought a more in-depth and unified study by the economic team on the planned change in form of government.
During the Meet Inquirer Multimedia forum this month, Diokno said that the DBM, the DOF and the Neda should agree on the assumptions.
