Fix the leaks instead of a shift
Not everybody can be a local government leader. Secretary Jesse Robredo said that he must be "marangal, magaling, at matino." (honorable, effective, and efficient). He can be no less. The challenges that face him are daunting. He is the father, the leader, the provider, the protector, the visionary, the resource provider, and, the enforcer. His constituency prefers to have everything for free. They have been spoiled by paternalistic politicians who bought their loyalty through dole-outs and patronage.
Many other odds are against him. He cannot finance his expenditures with the resources that he has. The revenues that he can raise are of martial law vintage (and even earlier). These are the real property tax and local business taxes. The tax rates have been fixed by law and he has no power to increase them. What is worse is that even without consulting him, Congress weakened his power through the legislation of tax exemptions. For example, preferred industries like tourism, and economic zones, are exempt from the real property tax.
In contrast, he has to deliver so many services. Under the devolution program (Local Tax Code), he is in charge of primary health care, helping farmers increase their yield, management of forests, promotion of tourism, solid waste management, school building projects, and social welfare. Let us not forget that from time to time, local governments are asked to do many things for the central government, e.g. drug control and rehabilitation, without being given additional resources. These are what are called "unfunded mandates." In a study that I conducted in the past, I noted that local governments financed 20.48% of the total expenditures of government. However, their revenues only accounted for 8.1% of the total. What a raw deal indeed! Even now, the budgets of departments whose functions have been transferred to local governments like health, tourism, and environment are increasing! This is devolution in reverse.
Does the share of local governments from national taxes help bridge the gap between their revenues and expenditures? Unfortunately, the answer is NO. Twenty-five percent (25%) of the Internal Revenue Allotment or their share from taxes collected by the BIR, is given based on "equal sharing." This means dividing the pie equally among all local governments. Every city, municipality, and province gets the same amount regardless of needs and resources. The equal share of Makati City is the same as the equal share of Cotabato City. This has long been pointed out but the formula for allocating the IRA has been untouched by Congress for more than 25 years.
Equal sharing has made local governments dependent on their IRA share since they will get their share even by doing nothing. Notice the many local governments that have not revised property values or flexed their muscles in increasing their tax collection.
There are hundreds of big and small things that can strengthen local governments instead of a radical shift to federalism. Foremost among these is the political reform. Can the central government ever cut the apron strings that bind local governments to political patronage? Notice the exodus of local governments to the major party in power. Although many of the local leaders find this hard to swallow, they have to take the bitter pill lest they get no resources from the central government or they be harassed through creative means.
The political reform is key. All the other things will follow: The matching of revenue and expenditure assignments and the design of an equalization formula. Is it time to give local governments the power to impose an income tax or a surtax on the VAT? Can government take out the equal sharing factor in favor of an indicator on poverty and economic growth? Should grants consider efficiency in performance as well? So many questions to ask and the answers are within our reach. Government has only to listen.
mguevara@synergeia.org.ph