Business groups: Weigh costs, risks of federalism

MANILA, Philippines — In support of concerns raised by economic managers, seven of the country’s biggest business groups yesterday called on legislators to weigh the costs and risks of the proposed shift to a federal system of government.

The Cebu Business Club, Employers Confederation of the Philippines, Financial Executives Institute of the Philippines, Makati Business Club, Management Association of the Philippines, Philippine Chamber of Commerce and Industry and Philippine Exporters Confederation Inc. urged Congress in a joint statement to consider the implications of the shift to federalism on the country’s public finances.

“We, too, believe in the need to adhere to the public finance principle ‘funds follow function.’ Accordingly, we echo the concerns of fiscal and economic experts about the ambiguous provisions on the division of revenue and expenditure responsibilities between the proposed federal government and its federated regions,” the groups said.

Citing preliminary estimates of the Philippine Institute for Development Studies (PIDS), the groups said the would-be multi-level government under a federal system is estimated to incur cost of P72 billion to P130 billion.

The groups also said the fiscal deficit is estimated to reach 6.7 percent of the gross domestic product, way beyond the three percent target of fiscal managers.

The three percent target is also a limit observed by the European Union for its member countries.

“We worry about the dire consequences that such fiscal imbalance could have on the economy and the flagship Build, Build, Build program of the current administration,” the groups said.

The groups said they welcome the move of the Department of Finance, Department of Budget and Management, National Economic and Development Authority, Bangko Sentral ng Pilipinas, as well as researchers in the PIDS to share their analysis and air their concerns to the public.

“We support and join their call for a more detailed analysis of the fiscal impact of federalism to serve as basis for the deliberations in Congress,” the groups said.

The groups also said it is important to have full and open dialogues on the proposed shift to federalism and take into account its long-term impact.

“As always, the business community stands ready to work with our political and economic leaders to bring about sustained and inclusive economic growth in the country,” they added.

Heed warnings of economic chiefs

Senate President Pro Tempore Ralph Recto also advised the federalism advocates to heed the warnings of economic managers led by Finance Secretary Carlos Dominguez.

Recto issued the statement after Dominguez and other economic managers were criticized by proponents of federalism.

“You don’t shut them out of the discussions; you bring them in—because the cost of federalism is front and center of the issue,” Recto said.

The Senate committee on economic affairs, chaired by Sen. Sherwin Gatchalian, is set to hold a separate inquiry into the effects of the proposed shift to federalism on the economy.

The committee on constitutional amendments, chaired by Sen. Francis Pangilinan, is currently holding hearings on the draft federal constitution written by the consultative committee (Concom).

Recto said those who raise revenues and manage the economy “can provide a reality check if a proposal is financially feasible and fundable.”

“Before we communicate what federalism is, can we not first calculate what its cost will be?” he said

“Every proposal has a cost. Scratch the surface of every provision of a bill, and there is a price tag underneath. We are often told the benefits of a project but not the price,” he added.

While he himself does not often agree with the views of the economic managers on many issues, Recto said he listens to them, value their views, and appreciate where they’re coming from because it will be the economic managers who will raise the revenues in implementing proposals politicians love to sponsor.

In the case Dominguez, he must raise P10 billion a day to finance the operations and the programs of the government.

“Collecting this P10 billion daily quota from the people is a thankless job,” Recto said. “That’s why if the finance secretary says ‘wait, let’s see how much is the cost’, let’s listen to him. He may be wrong but it is to our benefit that we must listen to him.”

Recto said every proposal, like federalism, should undergo a fiscal responsibility check, like a “four-way test” on its cost, whether new taxes or borrowings are needed, and the per capita burden a federal government will impose.

“Running the numbers is a politics-free exercise. You cannot bend it to suit one’s position. If it is financing federalism, then the results of the studies and simulations should be the basis of how to move forward,” Recto said.

Senator Pangilinan also said proponents of federalism in the Duterte administration should heed the warnings made by the government’s own economic team of possible job losses with the shift to a federal form of government.

“Top public officials say that 95 percent of the 1.46 million employees of the national government will lose their job. That’s about 1.387 million people, or the equivalent of the combined populations of Pateros, Makati, San Juan and Mandaluyong in 2015,” he said.

In pushing for a separate hearing, Gatchalian cited the divergence of opinion between government economic managers and economists — who say that the country is not yet ready for a change in the system of government — and Malacañang, which has countered that the federal shift would have no adverse effect on the economy.

“Meanwhile, members of academe such as University of Asia and the Pacific senior economists Victor Abola and Bernardo Villegas have also expressed concerns that the country might experience hyperinflation as it shifts to federalism,” he said.

Moody’s Investors Service has similarly opined the shift to federalism, accompanied by the prospective changes to governance frameworks, could have negative implications for public finances and could be a risk for the country’s institutional and fiscal profile, he added.

For professor Edmundo Garcia, one of the framers of the 1987 Constitution, the Local Government Code must be reviewed and strengthened before shifting to a federal system of government.

Garcia said the government should start decentralizing the economy to improve the living standards in many areas.

“So if there will be federalism at some stage in our history there will be a great chance of success,” Garcia said in an interview with dzXL.

Garcia noted that only three regions in the country are self-sufficient: the National Capital Region, Luzon and Central Visayas.

He also said a lot of reforms that federalism proponents want to implement can be found in the Local Government Code.

“Was there ever a time a thorough review was conducted to strengthen Local Government Code?” Garcia said. “I asked 14 senators, ‘Have you reviewed this (Local Government Code) in the past 20 years?’ They answered no.”

“For me, there are many preparations that should be done before going to an unknown, in a sense, experiment, which is federalism, because once you’re there you can no longer retreat.

“And it’s too costly. It’s a very expensive experiment,” he added. – With Paolo Romero, Helen Flores