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Business

Apart from timing, Cha-cha for sake of investments, LGU revenues questioned

Ian Nicolas Cigaral - Philstar.com
Apart from timing, Cha-cha for sake of investments, LGU revenues questioned
Philippine President Rodrigo Duterte gestures as he delivers his state of the nation address at Congress in Manila on July 22, 2019.
AFP / Noel Celis

MANILA, Philippines — Fresh plans to amend the Constitution amid a pandemic need “further study,” although failure to do so appears unlikely to hinder local governments’ bid for a bigger share of state revenues nor its success would automatically invite more foreigners to invest in the country.

“They are interesting initiatives and deserve further study,” Finance Secretary Carlos Dominguez III told Philstar.com in a Viber message when sought for comment on proposals by administration stalwarts to amend the Charter.

In the past, Dominguez, as well as the rest of economic managers, have voiced opposition to President Rodrigo Duterte’s campaign promise of a shift to a federal form of government, one that has since been abandoned due to lack of public trust as well as failure of the Lower House and the Senate to agree on which mode to amend the 1987 Constitution.

This time, Cagayan de Oro Rep. Rufus Rodriguez, chair of the House’s constitutional amendments committee, said he would reopen contentious discussions on charter change as soon as Congress begins a new session when Duterte delivers his penultimate State of the Nation Address next week.

Cha-cha proponents, including 1,400 mayors who supposedly support the changes, now float a different reason for the need to revise the Constitution: cities, municipalities and provinces need a bigger share of state revenues while foreign limits of up to 40% equity need to be lifted to attract investments and support economic recovery from the pandemic.

But experts disagree. “It diverts from doing the enormous work needed to fight the pandemic,” lawyer Antonio La Viña said in a text message. “It divides the people when we should be united to overcome the health and economic challenges today.”

Cid Terosa, dean of the University of Asia and the Pacific School of Economics, is also doubtful lifting foreign restrictions would automatically bring in investments. “Since the outcome of the Cha-Cha talks is still uncertain, investors will maintain current investments and hold back further…,” Terosa said in a text message.

Malacanang had already distanced itself from the charter change moves by its allies in Congress.

Mandanas ruling up for implementation

Of the two reasons cited for charter amendments, it was the first time that proponents used the so-called Mandanas ruling, a 2018 Supreme Court decision that ordered the national government to calculate internal revenue allotment (IRA) to LGUs using all national taxes and not only levies collected internally in the country. 

IRA pertains to the 40% share of LGUs on all state revenues. When the high court issued the Mandanas ruling, named after petitioner Batangas Governor Hermilando Mandanas, magistrates want the government to include tariffs and customs duties in computing for IRA, thereby inevitably increasing the allotments to cities and provinces.

Cha-cha proponents say there is a need to “institutionalize” the Mandanas ruling by amending the Constitution. Former Supreme Court Associate Justice Antonio Carpio, who was among the justices who promulgated the Mandanas decision, disagreed. 

“The Mandanas ruling, which states that the share of LGUs shall be based on ‘national taxes’ is already part of the Constitution because Section 6 of Article X of the present Constitution already so provides,” former Supreme Court Associate Justice Antonio Carpio said in a text message.

“There is no need to amend the Constitution to institutionalize the Mandanas ruling,” he added.

Indeed, Budget Undersecretary Laura Pascua said preparations are underway to enforce the Mandanas decision by 2022, following the schedule by the high court. One issue in the ruling are the costs it entails. Since more money are essentially flowing to LGUs, without increasing the revenue base, the decision creates a gap in state budgeting that can affect the provision of public services.

To fix this, Pascua said the plan is to “permanently devolve” some national government functions to LGUs such as healthcare and education, but to efficiently do so, LGUs have to be trained to handle such big funding. Initial budget estimates put the cost of the Mandanas ruling up to P1 trillion over time. 

“We have been crafting an EO (executive order) with DILG, NEDA, and DOF to ask agencies to prepare a transition plan and start to redeploy their people to other tasks in 2021,” Pascua said in a Viber message.

“The EO will also mandate DOF and DILG to start capacity building program for LGUs so they can assume and manage the devolved activities starting 2022,” she added.

Murky waters

Neither a Cha-cha for foreign investments’ sake looks reasonable at this time when investors are on a wait-and-see attitude due to the coronavirus pandemic. While businesses have long clamored for the lifting of foreign prohibitions, Terosa said the impact of these amendments, if pursued, will only be realized long after the Duterte administration.

Meanwhile, Calixto Chikiamco, president of Foundation for Economic Freedom, a group of former finance secretaries, has a warning against potential insertions in the new charter that go beyond economic revisions.

“It depends on how the Constitution is amended. If it’s amended in such a way that other changes can be introduced at the last minute, it would create a lot of uncertainty among investors and possibly stir political unrest,” Chikiamco said.  — with Kristine Joy Patag

CHARTER CHANGE PHILIPPINE ECONOMY
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