August 24, 2019
OFFICIALS of the National Economic Development Authority (NEDA) should be reminded of the old adage, “When you point a finger at someone, three of them are pointing back at you.”
In a hearing on the proposed 2020 national budget at the House of Representatives on Thursday, Socioeconomic Planning Secretary Ernesto Pernia and NEDA Undersecretary Rosemarie Edillon bewailed a ruling by the Supreme Court that the internal revenue allotment (IRA) of local governments should be based on all national taxes and not just internal revenue taxes.
The high court ruling set a deadline of 2022 for the government to increase the IRA to its full level, which Edillon estimated would increase the IRA by P300 billion annually. For comparison, the government has disbursed P575.5 billion in local government units’(LGUs) IRA shares from national internal revenue taxes collected in 2016 so far this year.
The ruling represented a successful outcome of a petition filed in 2012 by a group of local government officials led by Batangas Gov. Hermilando Mandanas.
Addressing lawmakers on Thursday, Pernia warned the increased IRA could be a drag on the national economy.
“In light of the [Supreme Court] ruling on the Mandanas case, the absorptive capacity of LGUs may pose risk in terms of the performance of the Philippine economy as a whole,” Pernia said.
Edillon added that the position of NEDA was to view the ruling as a warning for local governments to prepare themselves for the windfall.
“We are asking LGUs to implement at least a 50-percent higher program… More coordination is needed between now and 2022… That is why as early [as] now we are flagging it,” she said.
“It’s really more about empowering LGUs and preparing [them] in terms of institutional capacity,” the NEDA senior official added.
The risks to the economy from the IRA increase were also noted by the major credit ratings agencies last year. Fitch Ratings said the high court ruling “could put upward pressure on the general government debt ratio, as well as creating challenges for effective public finance management.”
Likewise, Moody’s Investors’ Service commented “there may be a gap between the national and local governments with respect to their ability to manage fiscal resources, posing a risk to the improved fiscal discipline that has characterized national government finances over the past decade.”
What the NEDA officials and the ratings giants are saying is true: Many, if not most, of the local government units in the country are to some degree unprepared to efficiently manage a windfall of funds. The risk of waste, either due to plain inefficiency or due to corruption, is quite high. It does pose a threat to the broader economy because the money transferred to the LGUs is money that cannot be spent by the national government, and spending at the local level may not have the same impact. In addition, the reduction of revenues at the national level could increase the need for borrowing, which also could mean less money to spend on programs — due to increased debt service — unless managed carefully.
Since these are national-level economic risks that must be addressed by national-level policy, it becomes a national-level responsibility to address the source of the potential problem. What the NEDA officials are not saying, at least not now, and what they should be saying, is how the national government intends to assist and support LGUs in their fiscal management.
Simply putting the onus on local officials is not enough. If for no other reason, self-preservation ought to encourage a more proactive approach; after all, any downturn in the national economy will reflect on the policymakers at the top.
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