Some LGUs not ready for devolved government services, says economist

MANILA, Philippines — The architects of the devolution system transferring basic state services and facilities from the national government to the local government units (LGUs) may have the best of intentions, but the move could be fraught with serious oversights and end up with undesired results.

An economic expert raised this concern during a recent half-day webinar that tackled two relatively new laws on excise taxation in the country – Republic Act (RA) 11346 and RA 11467.

The discussions were organized by the Center for Local Governance and Professional Development Inc. to “raise awareness and further create public value for several societal issues and concerns.”

Novel Bangsal, executive director of the budget and tax research bureau of the House of Representatives, expressed apprehensions that some LGUs may not be ready to handle additional responsibilities as an offshoot of the decentralization process.

He suggested that assigning basic but vital government services to “ill-equipped” LGUs might not be a good idea.

This is held extremely significant in light of the so-called Mandanas-Garcia 2018 ruling by the Supreme Court (SC) set to take effect this year and is expected to exacerbate the problem even more.

The SC decision is meant to “lessen the fiscal impact of having to transfer more financial resources to the LGUs and the national government has started to identify spending responsibilities for select devolved mandates to be transferred back to local governments.”

The World Bank noted, however, that some LGUs “have started to raise concerns regarding their financial and technical capacity to absorb re-devolved mandates, while maintaining full autonomy in planning and managing the additional resources coming from the Mandanas-Garcia ruling.”

“Underspending by local governments may worsen, as many local governments do not have the capacity to absorb a significant increase in revenues,” the World Bank said.

Under the 2018 decision championed by Batangas Rep. Hermilando Mandanas and Bataan Rep. Enrique Garcia, the LGUs’ share of the national revenue collections would increase by 55 percent in the 2022 budget, reaching P1.08 trillion or 4.8 percent of the country’s gross domestic product compared to 3.5 percent in 2021

The World Bank cited the ruling, but warned that the government faces a significant risk that the transition process could lead to a large gap in service delivery, as a lack of coordination between the national and local government and weak implementation capacity could delay the transition towards increased decentralization.”

Finance Secretary Carlos Dominguez said earlier that the GDP may grow three percent lower once the SC ruling is implemented.

“Based on our estimates, the implementation of the SC ruling will yield lower economic growth because local governments spend less efficiently,” Dominguez said.

The High Tribunal ruled that the LGUs’ “just share” of revenues includes all national government taxes, and not limited only to Bureau of Internal Revenue (BIR) collections.

The SC decision effectively raised the base for computing LGU’s share or National Tax Allotment (NTA) – formerly known as the Internal Revenue Allotment (IRA) – of the national government taxes.

During the webinar, economist Miguel Antonio Estrada, a representative from the Senate tax study and research office, said RAs 11346 and 11467 basically addressed two major issues: increased revenue collection through higher sin taxes on tobacco and alcohol product; and enhanced healthcare delivery services.

He said demand for cigarettes went down by five to 11 percent for every 10 percent hike in excise taxes on tobacco.