Neda chief wary of risks of giving LGUs bigger funds

Giving local governments a bigger share of national revenue could slow economic growth if the local governments failed to use the funds efficiently, the country’s chief economist said on Thursday (Aug. 22).

At a hearing of the House appropriations committee, Socioeconomic Planning Secretary Ernesto M. Pernia said the recent Supreme Court ruling on a broader computation of local government units’ (LGU) shares in revenue “may pose a risk in terms of the performance of the economy as a whole.”

The ruling sets the basis of computing LGUs’ internal revenue allotment, or IRA, as all taxes collected by the national government, not just tax revenue collected by the Bureau of Internal Revenue (BIR).

These would include revenue from duties and other collections by the Bureau of Customs.

LGUs’ IRAs currently rely on BIR collections of documentary stamp tax, donor’s tax, excise, estate tax, income tax and VAT, or value-added tax.

The High Court ruling expanding rhe basis for computing IRA will be implemented in 2022.

Pernia, who heads the state planning agency National Economic and Development Authority (Neda), said some LGUs could have difficulty absorbing the additional funds expected as a result of the SC ruling.

“Unless they [LGUs] are well-prepared to absorb these funds, it’s just a risk and we are just flagging that as an uncertainty,” Pernia said.

He added, though, that “not all LGUs are created equal” as were ready to implement the ruling.

Pernia later said in an interview that the increase in LGUs’ IRA allocation will be “huge,” as their share would grow to 50 percent from 30 percent at present.

Economic Planning Undersecretary Rosemarie G. Edillon said implementing the Supreme Court ruling will cost the national government about P300 billion.

“We’re just flagging it as a risk, so we need to prepare,” Edillon said.

“We are asking LGUs to implement at least a 50-percent higher program so they have to be well-prepared for it in terms of manpower and capacity,” she said.

“Between now and 2022, we need more coordination. It’s really more about empowering LGUs and preparing in terms of institutional capacity,” Edillon added./TSB