Biz groups’ stand on federalism: Clarity on shift needed

Local business groups have flagged uncertainties in the government’s move towards federalism, including concerns that an ill-prepared shift “could force big and small businesses to shut down.”

These 6 groups, which included the Makati Business Club and the Philippine Chamber of Commerce and Industry, are concerned not only about the proposal per se, but with the current state of local government units (LGUs).

In a position paper, they urged the government to provide more clarity on the shift, such as on the division of financial powers, as well as addressing current problems like political dynasties.

The following business groups have also signed the paper: the Financial Executives Institute of the Philippines, the Management Association of the Philippines, the Semiconductor and Electronics Industries of the Philippines Foundation Inc., and the Cebu Business Club

The paper, however, read neither as an opposition against federalism nor an all-out support for the shift. Rather, the groups just raised their reservations, as they noted that they are “ready to support the government” in this initiative.

Magnifying the powers of ‘political bosses and dynasties’

“We are concerned that well-entrenched political bosses and dynasties will strongly resist any plan to consolidate provinces into federal regions [or] states,” the paper read.

Because of these political forces, they said that the new form of government would duplicate many of the provincial agencies and operations, thereby resulting in higher government costs and turf wars, or the new federal regions will be weak and unable to deliver on the promised benefits of a shift to a federal system.

“In any case, we are concerned that in a shift to a federal system, political dynasties’ competition for control and patronage will escalate and intensify, thereby offsetting at least some of the hoped-for benefits of a federal system,” the groups said.

Current capabilities

Moreover, they also said that the government needs to improve the capabilities of LGUs before the latter take a bigger role under as federal regions.

“This situation needs to be addressed squarely if it is contemplated that the national government shall eventually turn over to the local governments more power and authority over critical processes such as taxation and regulation if a shift to a federal system is implemented,” they said.

Uncertain financial powers

The groups are also concerned about the draft proposals from the House of Representatives and the Consultative Committee to Review the Constitution.

These proposals, they said,  leave a lot in terms of the division of financial powers “between the national government and the federal regions for future politicians to decide or dispute.”

In a nutshell, they said investors are concerned about the additional powers that these federal regions may have, as well as their likelihood to abuse these added capabilities.

This uncertainty leads to at least three results that involve a state’s power to tax, to spend, and the planned equalization fund, which is meant to transfer undefined amounts of funds during a transition period from more economically strong states to weaker ones.

On governance and financial issues

They also said that “some data” show that only some prospective federal regions would have the production and trading capacity to support their population with a degree of independence.

“One or both of these factors could force big and small businesses to shut down, thereby triggering higher unemployment and making our people’s economic burdens even heavier, sparking a downward spiral in the overall quality of life of our people,” they said.

This, the groups said, could also compel the national government to bail out several, if not many of the proposed federal regions and states, resulting in a bleak scenario for the national government and economy.

“We are concerned that the likelihood that these economically detrimental scenarios could, in fact, materialize thereby triggering a significant decline in investments and a reversal of the strong economic profile achieved painstakingly by the country in the past years,” the paper added.

Economic managers need to look into implications

They said that Department of Finance, the Department of Budget and Management, and the National Economic Development Authority should be able to weigh in on the comprehensive economic implications of a shift to a federal system.

“It appears that these agencies have not had sufficient opportunity to focus on its wide-ranging implications. We trust that the country’s economic management team will do what is needed to ensure that this does not happen,” the paper said.

With these concerns in mind, the group recommended some actions to the government, which included determining and reviewing the objectives of the shift in the form of government.

Upon review, they said the government should see which goals could be addressed immediately by amending the Local Government Code and other laws, or by enacting new laws and other measures while deliberating on whether to change the Constitution.