The Philippines stands to lose its investment-grade credit ratings and may have to stop construction of big-ticket infrastructure projects if the Supreme Court ruling that grants local government units (LGUs) a share from “all” national taxes gets implemented, Budget Secretary Benjamin E. Diokno said.
As such, Diokno said they would ask the Office of the Solicitor General to file a motion seeking a reversal of the high court’s decision on LGU’s internal revenue allotment (IRA).
Last week, the Supreme Court ruled that the “just share” of LGUs’ IRA must come from all national taxes, not only from national internal revenue taxes as was the current practice.
“All national taxes” include collections of import duties and other levies imposed by the Bureau of Customs, among other revenue collection agencies.
Internal revenue taxes, meanwhile, referred to those collected by the Bureau of Internal Revenue, including documentary stamp tax, donor’s tax, excise tax, estate tax, income tax and value-added tax.
To recall, former Batangas representative and now Governor Hermilando Mandanas in 2012 filed a petition in the Supreme Court alleging that between 1992 and 2012, P500 billion in IRA was not released to LGUs across the country due to wrong calculations.
During the “Tatak ng Pagbabago: Tatak ng Malasakit at Pagkakaisa” forum, Diokno said that implementing the ruling would cost the government between P1.2 trillion and P6 trillion, based on various estimates.
“We have yet to receive a copy of the decision, so we don’t know exactly how much will be the damage to the government,” Diokno later told reporters.
Even with the varying estimates, he said the government could not afford to shoulder it.
For one, remitting a bigger share of all national taxes to LGUs would widen the government’s budget deficit to 6 percent of gross domestic product (GDP), Diokno said.
“It will be what we call an unmanageable public sector deficit,” he added.
The Duterte administration had capped the budget deficit program to 3 percent of GDP from 2019 to 2022, while this year’s balance was expanded to a 3.2-percent deficit as the government wanted to ramp up spending on infrastructure and social services.
With a larger-than-programmed budget deficit, Diokno warned that the country’s credit ratings would drop.
The Philippines currently enjoys investment grade credit ratings from the top three debt watchers, namely Fitch, Moody’s and S&P.
Credit ratings are a measure of a government’s credit-worthiness. As the stability of state finances is also related to its performance, credit scores serve as a proxy grade for the economy.