DBM: SC ruling on IRA to affect fiscal stance

The Supreme Court (SC) ruling which increases the share of local government units’ internal revenue allotments (IRA) may harm the country’s fiscal position, and thus lead to a credit rating downgrade, according to the Department of Budget and Management.

Budget Secretary Benjamin Diokno said the ruling, if implemented, would put a strain on the government’s budget with the cost initially estimated at P1.2 trillion to P6 trillion, depending on the nature of the decision.

“We have not yet received a copy of the decision, so we don’t know exactly how much is the damage to the national government. There are varying estimates – P1.2 trillion to about P6 trillion,” Diokno said during the second pre-State of the Nation Address forum in Pasay City yesterday.

Due to this huge requirement, the budget chief said the move may widen the national government’s fiscal deficit to as much as six percent of gross domestic product (GDP), twice the current deficit ceiling of three percent.

“It can potentially increase the deficit to around six percent. You call that unmanageable public sector deficit. We cannot do that,” he said.

The secretary warned that a fiscal deficit of six percent may lead to credit rating downgrades and lower confidence from the international community.

“We’ll have to significantly cut Build Build Build,” he said.

Diokno, however, clarified the said estimates are not yet final, as the DBM has yet to determine the provisions of the SC decision.

“We don’t know yet because it can be forward looking, instead of requiring us to settle the back pay,” he said. “These are only speculations but definitely, there is an effect on the deficit.”

Diokno said the DBM has sought the help of the Office of the Solicitor General to appeal the SC’s decision.

Earlier, the SC ruled that the IRA of LGUs should include all national taxes, and not just from internal revenue taxes.

“The Court interpreted the basis for the ‘just share’ of local government units under Section 6, Article X of the 1987 Constitution as being based on all national taxes and not only national internal revenue taxes, as provided in Section 284 of the Local Government Code,” the SC said.

Internal revenue taxes refer to taxes collected solely by the Bureau of Internal Revenue (BIR). This, including tariffs collected by the Bureau of Customs (BOC), as well as taxes imposed by other government agencies, form part of national taxes.

Under Section 284 of the Local Government Code, provincial, city, and municipal governments must receive 40 percent of the total national internal revenue taxes collected by the central government.

However, Section 6, Article X of the 1987 Constitution provides that LGUs must have a “just share, as determined by law, in the national taxes, which shall be automatically released to them.”