MANILA, Philippines — The Department of Finance will thoroughly examine the new Supreme Court ruling ordering the immediate release of a higher share of national government revenue to local government units, which two global debt watchers said could harm the Philippines’ public finance management program.
In a landmark decision, a copy of which was released on Monday, the high court said the “just share” of LGUs should be computed and sourced from all national taxes, and not just from internal revenue collections.
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The SC also directed the “automatic” release of increased transfers from the central to local government units “without need of further action,” adding that the adjustments in IRA of LGUs need not wait for next year's General Appropriations Act, which would still undergo legislative approval.
Two of the so-called “Big Three” debt watchers, Fitch Ratings and Moody’s Investor Service, earlier warned of the SC ruling’s fiscal risk.
Asked if the government can afford to immediately follow the SC’s decision, Finance Secretary Carlos Dominguez said in a text message: “Will comment after a thorough study.”
“We should communicate that this issue is not a simple matter. Both Fitch and Moody’s have put a red flag as warning regarding this Supreme Court ruling. They are fully aware of the [ruling’s] possible risks,” Dominguez said in a separate statement.
The Finance chief earlier said the IRA arrearages could reach P1 trillion to P1.5 trillion if the SC’s decision is retroactively implemented.
Meanwhile, Budget Secretary Benjamin Diokno said the ruling would put a strain on the government’s budget with the cost initially estimated at P1.2 trillion to P6 trillion, depending on the nature of the decision.
It can also potentially increase the government’s fiscal deficit to around six percent of gross domestic product, twice the current deficit ceiling of three percent, Diokno said.
“We’ll have to significantly cut Build Build Build,” he said, referring to the Duterte administration’s ambitious infrastructure program that aims to upgrade the country’s aging ports and roads to supercharge economic growth.
The Department of Budget and management has sought the help of the Office of the Solicitor General to appeal the SC’s decision. — with a report from The STAR/Edu Punay