The chief economist of the Finance department said Monday that the government would incur a budget deficit of P1.2 trillion or about 6.7 percent of gross domestic product under the provisions of the draft federal constitution, a situation that he said was not viable.
“That’s [an] additional P1.2-trillion deficit if we follow what we think they are talking about,” said Finance Undersecretary Gil Beltran in a briefing Monday. “For instance, allotment to federal regions will go up to P744.9 billion based on the formula of 50 percent. And capital transfers would be P251.1 billion. So that is already almost P1 trillion. And the equalization fund would be about P131 billion.”
Other expenses would be taxes transferred to the federal regions (about P168 billion), a block grant to the Bangsamoro region (about P100 billion) and a similar grant for the Cordillera Autonomous Region (P100 billion).
“If you add all of those, it will be about P560 billion, which would be taken out of the federal government, meaning we would be cutting federal government expenditures. You know the P560 billion [is] about 95 percent of the [budget for] personnel services,” Beltran said.
Beltran said the highest deficit the country incurred in history was about 5 percent of GDP during the time of global financial crisis in 2008.
He added that the department did not do simulations based on a deficit of 6.7 percent of GDP because it felt this was not viable.
Finance Secretary Carlos Dominguez III last Friday called for a dialog on the federalism issue, saying the draft federal constitution contains ambiguous provisions on the allocation of expenditures for the would-be federated government and its federated regions.
In a statement, Dominguez said these things underscored the urgency of opening more discussions on this proposed document drafted by the consultative committee (Con-Com) tasked to review the 1987 Constitution.
Dominguez made it clear that while the economic team was not against federalism, it has the responsibility to point out the ambiguous and unclear provisions in the proposed draft charter, “especially when the possible repercussions could result in dire, irreversible economic consequences.”
“We welcome a discussion on the draft so that it is clear and unambiguous. We do not want the revenue assignment and the expenditure assignment to be misunderstood, as what happened in the recent case involving the Internal Revenue Allotment [of the local government units],” Dominguez said.
As for the call of Con-Com member Ranhilio Aquino for President Rodrigo Duterte to fire him and Socioeconomic Planning Secretary Ernesto Pernia for stating their views on the proposed federal
Charter, Dominguez said: “We respect the opinion of Fr. Aquino, but we believe that such attitude would not enrich the level of discourse on the proposed Constitution.”
Dominguez said that while the draft charter contained provisions on the taxation powers of the Federal Government and the Federated Region and a provision on revenue assignment in which the Federated Regions shall be given a 50-percent share in income, excise, value-added taxes and customs duties, “there is no provision on expenditure assignment.”
The draft constitution also enumerated the exclusive powers of the federal government and the federated regions but was silent on the funding source for the exercise of these powers, he said.
“As we pointed out earlier, we never stated that we are against federalism. Rather, with respect to the fiscal provisions of the proposed Constitution, there are ambiguous provisions on revenue assignment and there are no provisions on expenditure assignment,” the Finance chief said. “There are, likewise, principles on revenue sharing that do not appear to be well studied.”
Citing an example, Dominguez said that although the draft constitution provided for an Equalization Fund, which shall not be less than 3 percent of the annual General Appropriations Act, it did not state whether this would be taken from the share of the federal government or of the federated regions.
Over the weekend, influential business organizations appealed to legislators to weigh carefully the costs and risks associated with the proposed monumental shift to a federal system of government.
The organizations—The Philippine Chamber of Commerce and Industry, the Employers Confederation of the Philippines, the Management Association of the Philippines, the Philippine Exporters Confederation Inc., the Financial Executives Institute of the Philippines, the Makati Business Club, and the Cebu Business Club—threw their support behind Dominguez and Pernia.
Meanwhile, Finance Undersecretary Bayani Agabin denied Con-Com member Edmund Tayao’s claim that the committee had sought inputs from the country’s economic managers “since Day 1” and asked for their presence during the meetings.
“That’s not true,” Agabin said in an interview with the ANC news channel.
He said the economic managers were asked to attend one meeting on April 24, and it was not even about the fiscal provisions of the proposed charter.
There was no discussion then about the division of taxing powers and spending responsibilities between the proposed federal and regional governments, he said.
The Palace said Monday that President Rodrigo Duterte is determined to push through with federalism despite the concerns raised by his economic managers.
Presidential Spokesman Harry Roque said the President wants solutions for the concerns of economic managers and business groups as he urged Congress to assess the costs and risks of the proposed shift to a federal form of government.
“This is, of course, an input that the President will consider. And we’re hoping that the legislature [that] will tackle Charter change will also consider the position of the business community,” Roque said.
Also on Monday, Senator Sherwin Gatchalian, chairman of the Senate committee on economic affairs, said his panel was set to look into the potential impact that the shift to federalism would have on the economy. With Vito Barcelo and Macon Ramos-Araneta
