fiscal administration in the proposed federal systemnational economy and patrimony (section on...

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Fiscal Administration in the Proposed Federal System

Constitutional Design

Strong Federal Government to keep the country as one;

Economically empowered and sustainable Federated Regions;

Fiscal policy exclusive power of Federal Government, with certain taxation powers given to regions and equitable revenue sharing.

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Guiding Principles of the ConCom Draft

1) Fiscal Prudence – this serves as the overriding principle and rule-of-thumb in maintaining a budget deficit ceiling of 3% of the GDP;2) Reasonable sharing of revenues between the Federal Government and theFederated Regions (50-50 of the top four sources); but on a year-to-yearbasis, this sharing can be adjusted based on recommendations by theFederal Intergovernmental Commission (FIGC);3) Essential Federal Expenditures will have the highest priority inexpenditures (e.g. Sovereign debt service & international commitments,education, national security / military / police, Constitutional Bodies, etc.);4) Right Sizing

1. Focus should be on NCR OFFICES right-sizing during theTRANSITION;

2. Federated Region staffing should be subject to zero-based budgetingexercise;

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Guiding Principles of the ConCom Draft

5) Transition starts on 2022; Staffing adjustments to be done on a 3-5year period;6) As per NEDA’s Federal Transition Plan (May 2018), a gradualreduction of Head Office of NCR Staff must be in pace with the buildup of Federated Region staffing strengths in order to enhance skillsets, institutional and absorptive capacities;7) Regional Directors and staff per Federated Region are proposed tobe transferred to Federated Region government together with theirrespective budgets;8) Incentives could be given to NCR personnel to transfer toFederated Regions; roll-out of early separation/early retirement(ESIP/ERIP) programs, when needed;

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Relevant Provisions

Article XIIDistribution of Powers of the Government

Article XIIIFiscal Powers and Financial AdministrationFederal Intergovernmental Commission

Article XVNational Economy and Patrimony(Section on fiscal and monetary policy, central monetary authority)

Article XXII Transitory Provisions 5

Fiscal Administration

Expenditure Assignment

Principle of “finance follows function”;

Principle of subsidiarity in the case of Federated Regions;

Article XII defines the exclusive powers of the Federal Government.

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Expenditure AssignmentPowersexclusivetotheFederalGovernment

ForeignAffairs

NationalDefense

InternationalTrade,Customs&Tariffs

Inter‐regional

infrastructures&publicutilities

PostalServices

Timeregulation,standardsofweights&measures

Citizenship,Immigration&Naturalization

BasicEducation

Science&Technology

Nationalsocio‐economicplanning

Monetarypolicy,banking,Monetarypolicy,banking,currency,&Federal

fiscalpolicy

Competition&competitionregulatorybodies

Regulation&LicensingofProfessions

Promotion&ProtectionofHumanRights

Socialsecuritybenefits

FederalCrimes&JusticeSystem

LawandOrder

Civil,family,property&commerciallaws

Prosecutionofgraft&corruptioncases

IntellectualProperty

Election

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Where the exclusive power is lodged with the Federal Government, the corresponding function, responsibility, cost and accountability is also exclusive to the Federal Government

• National defense and security• Foreign affairs• Foreign trade• Fiscal and monetary policy• Sovereign debt servicing• Etcetera

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Federal government’s powers and funds are intact;

o The funds for the exclusive powers, including defense and security (AFP), foreign affairs (DFA), sovereign debt servicing, fiscal and monetary policy/ administration (DOF, BSP) remain intact.

o The Congress retains the power to appropriate these funds in the GAA.

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economicSocio‐economicdevelopment

planning

CreationofCreationofsources

ofrevenue

FinancialAdministration

Economiczones

Tourism,investment&tradedevelopment

Landuse&housing

Infrastructure,publicutilities&

publicworks

JusticeSystem Municipalwaters

IndigenousIndigenouspeoples’

rights&welfare

Culture&languagedevelopment

Sportsdevelopment

Parks&recreation

Localgovernmentunits

PowersexclusivetotheFederatedRegions

PermitsPermitsand

Licenses

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RealPropertyTax

EstateTax

Donor’sTax

DocumentaryStampTax

ProfessionalTax

FranchiseTax

GamesandAmusementTax

Environment&PollutionTax(andsimilartaxes)

RoadUsersTax

VehicleRegistrationFees

TransportFranchiseFees

Localtaxesandothertaxeswhichmaybegrantedbyfederallaw

• The Federal Government and the Federated Regions shall ensure that taxation is uniform, equitable, and progressive

• Fifty percent (50%) of all collected income taxes, excise taxes, value‐added tax, and customs dutiesshall be divided equally among the Federated Regions

• Three percent (3%) of the General Appropriations Act is reserved for the Equalization Fund

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Sources of Revenue of the Federated Regions

Given the power to collect the following: (Sec. 2, Art. XIII)o Donor’s, Documentary stamp, Estate taxeso Real property taxo Professional taxo Franchise taxo Games and amusement taxo Environmental, pollution and similar taxeso Road users taxo Vehicle registration fee o Transport franchise fees o Local taxesEstimate is about 50-70 BILLION (based on data available)

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Assurance of fiscal discipline among Federated regional governments

Fiscal Administration Provisionso Fiscal and monetary policy is exclusive power of the Federal

Government (Sec. 1 (g), Art. XII)o Federal Government basically retains taxation power except

those granted to the Federated Regions (Sec. 1, Art. XIII)o The Federal Government and Federated Regions shall ensure

that taxation shall be UNIFORM, EQUITABLE, and PROGRESSIVE. (Sec. 3, Art. XIII)

o NO DOUBLE TAXATION SHALL BE ALLOWED (Sec. 3, Art. XIII)

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Assurance of fiscal discipline among Federated regional governments

Fiscal discipline is covered by the provisions on the Federal Intergovernmental Commission and National Economy and Patrimony

o DBM and DOF are members of the FIGC (Sec. 8, Art. XIII)o Ascertain the effectiveness and efficiency of the fiscal

administration and management of the Regional Governments (Sec. 9(c), Art. XIII)

o Assess the capability of the Regional Governments in raising revenues to determine and reduce causes of financial imbalance (Sec. 9(c), Art. XIII)

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Assurance of fiscal discipline among regional governments

Fiscal discipline is covered by the provisions on the Federal Intergovernmental Commission and National Economy and Patrimony

o Recommend to Congress appropriate legislation (Sec. 9(g), Art. XIII)

o Borrowings of Federated Regional governments are subject to federal law and with the prior concurrence of the BSP and compliance with generally accepted standards of creditworthiness and fiscal stability (Sec. 27, Art. XV)

o All these assure fiscal prudence and discipline

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Sharing of Revenues

Based on 2017 Data 19

2/3 for Federal Government;

1/3 for Federated Regions


Alternative Formula

The 50-50 sharing of the top four revenue sources can be adjusted.

A provision that empowers the Federal Transition Commission to adjust the formula based on the needs of the Federal Government and the Federated Regions can be formulated.

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All the funds lodged in the Federated Regions are from the existing pool of funds of the NG;Hence, the deficit ceiling should not be breached; it should not affect credit standing;The same funds are moved from one pocket to the other;Federalism transfers control of the same funds from the National/Federal Government to the Regional Governments (planning, prioritization, allocation & program/project execution);Federal oversight based on audit and anti-graft measures are intact.

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Estimated Incremental Cost Directly Attributed to Federalism Features

Particulars Current Amount (GAA, 2018)

Quantity (Maxed) Incremental Cost(Billion Pesos)

Senate 5.8BPhP 242M/Senator 12 New Senators 2.9

House of Representatives

11.1BPhP 38M/Congressman

108 New Representatives(1/3 of current)

4.06

Regional Assembly Governor: PhP2.4M/annum

450 New Regional Assemblymen 1.08

Additional budget perFederated Region for PS and

MOOEOn top of Regional

Director/Staff Budget

200M 18Federated Regions 3.6

Capex & Contingency 50M 18 Federated Regions 0.9

Intergovernmental Commission None 1 1

TOTAL INCREMENTAL COSTS: PhP 13.54B

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CAVEAT

o Amount used from GAA 2018;o Senate staffing may double but there will be additional

Senators who’ll have to share chairmanshipso Computed within the 5% increase in GAA and will

happen by 2022;o This computation does not factor in savings from the

rationalization of the national bureaucracy;o In the long run, we can expect more savings than

expenditures.

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Effect on economy / layoffs

No drastic change occurs after ratification

Transition is to be carried out in phases with hardly any disruption in the economyand fiscal administration. The Federal Transition Commission to formulateTransition Plan upon ratification of the Constitution.

First phase of implementation takes place in 2022 after the election / formation ofthe Regional Governments

The Transition Plan can provide for a system whereby the Exclusive Powers of aFederated Region will be gradually exercised in step with its financial capability,institutional capabilities and absorptive capacityFlagship programs like Build, Build, Build will continue unhampered as

infrastructure of such nature would be an Exclusive Power of the FederalGovernment and the funds are untouched

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Effect on economy / layoffs

The Regional Offices of the National Government Departments shall be absorbed into the Federated Regional Governments, hence minimal layoffs or displacement;

Opportunity for right-sizing of government by providing affected personnel incentives for Early Separation/Early Retirement (ESIP/ERIP) programs;

Transition Plan should seize the opportunity for the two levels of Government to practice zero based budgeting and right sizing in designing organizations, staffing patterns and plantilla positions;

Fiscal prudence is constitutionally imposed therefore on a year-to year basis, the desired key result areas might have to be scaled down or spread out in a longer period of implementation.

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