Major businesses raise concern on federalism shift

MANILA, Philippines — The country’s largest business groups have raised major concerns on the planned shift to a federal form of government, citing apprehensions over its potential implications on the economy, uncertainties it may bring to investors and the possibility of strengthening political dynasties.

Six of the country’s business groups – the Makati Business Club, Management Association of the Philippines, Philippine Chamber of Commerce and Industry, Financial Executives Institute of the Philippines, Semiconductor and Electronics Industries of the Philippines Foundation Inc. and Cebu Business Club – issued yesterday a joint position paper on the government’s move towards federalism wherein they outlined concerns and recommendations for the proposed shift.

The groups said they are concerned that the Department of Finance, Department of Budget and Management and National Economic and Development Authority have not had sufficient opportunity to focus on the federal system’s wide-ranging implications.

They said these agencies should be given “meaningful opportunity to weigh in on the comprehensive economic implications of a shift to a federal system, let alone its tremendous implications on the size of the national budget, given the possibly huge incremental cost of creating additional bureaucracy for the proposed new federal states and regions.”

“We trust that the country’s economic management team will do what is needed to ensure that this does not happen,” the groups said.

With the eventual shift to federalism implying the significant expansion of the coverage of power and authority that will be transferred from the national government to the proposed federal states and regions, the business groups also expressed concern that “well-entrenched political bosses and dynasties” will strongly resist any plan to consolidate provinces into federal regions or states.

“Therefore, either the proposed new federal regions will duplicate many of the provincial agencies and operations, thereby resulting in higher government costs and turf wars, or the new federal regions will be weak and unable to deliver on the promised benefits of a shift to a federal system,” they said.

“We are concerned that in a shift to a federal system, political dynasties’ competition for control and patronage will escalate and intensify, thereby offsetting at least some of the hoped-for benefits of a federal system,” the groups added.

The business groups are also worried that the draft proposals emanating from the House of Representatives and the consultative committee to review the Constitution would bring about uncertainties among investors, as many aspects of the division of financial powers between the national government and the federal regions are left for future politicians to decide or dispute.

“First, investors are unsure if the proposed states will have the power to increase taxes and, if so, which states would use such power, affecting corporate bottom lines,” the groups said.

“Second, investors are unsure as to how much new spending power the local governments will exercise and then whether the local governments will use this power wisely or in risky ways. Third, investors are also concerned about a planned equalization fund, which is meant to transfer undefined amounts of funds during a transition period from more economically strong states to weaker ones,” the groups noted.