No Political Sustainability

without Fiscal Sustainability

H. Mayer, PhD

LPP, CIM

Muslim Mindanao Autonomy: Roundtable Discussion Series, Senate of the Philippines

July 13, 2015; Senate of the Philippines, 2F, Committee Room

Part 1: The Theory

Clarifications Setting the frame

Bangsamoro is a Local Government Unit in accordance with Art. X of the 1987 Constitution of the Republic of the

Philippines

Bangsamoro will be an Autonomous Region with far reaching rights and responsibilities

Bangsamoro will not be and cant be a federal state

Decentralization is based upon the principle of Subsidiarity as reiterated in the draft BBL

Comment: Asymmetry can only be between governments of

the same level.

However there can be asymmetric development. This means

certain areas fall back and this is intended

Ingredients of Fiscal Autonomy

An LGU has the power to raise its own revenue AND

Has Command over its own financial resources

Expenditure Power: Plan / Implement / Monitor without outside interference

Own Revenue:

Strengthens the accountability of local politicians and bureaucrats

Improves local service delivery

Adds a degree of developmental freedom

Comment: Always keep and eye on the Transaction costs

Political (decision making)

Administrative (cost of and coordination between bureaucracies)

Economic (excess tax burden)

Fiscal Autonomy (Revenue side)

4 Aspects:

Tax Policy Which level controls tax base and rates? (nothing much and maybe getting less RPT)

Tax Administration Which level administers the taxes? (Bangsamoro BIR)

Tax Assignment Which level of government gets proceeds related to taxes from the location? (situs question is the most important, mining and provincial )

Tax Sharing Which level gets how much from a common source? (Block grant)

Comment: IRA is a constitutional guaranteed source of revenue for Provinces, Cities, Municipalities and Barangays, not for Autonomous Regions. IRA is not a grant, its an entitlement.

Fiscal Autonomy (Expenditure side)

Expenditure Side considered more important than the revenue side (by some)

Guiding principles should govern the expenditure (transparency, participation, accountability, auditing

(monitoring)

It is a matter of trust and not of ceilings and prescriptions

Setting limits / requirements for example for disaster is a disaster for autonomy

Decentralization starts at the center with a commitment to let go

Budget Law in Bangsamoro is thus of HIGHest priority

Comment: Reenacted Budgets are not needed in

parliamentary settings

Part 2: The Figures

The 70 billion Fairy Tale (2015)

Using criteria as just set and funds which are recurring and which are under the full control of a Bangsamoro government

This is only 2.6 billion more than the 2015 ARRM allocation in the GAA

All other items which were listed are one time allocations or under the control of NG or is even the IRA of the LGUs

Comment: Process matters when negotiating fiscal allocations. First one needs to know what the services cost then negotiate the funding

Source Amount Remarks

Block Grant 25.2 2015 figure t-3

New Taxes Too small to list

National Taxes 1.7 2011figure

Total 26.9

How much is Required? (2013 prices)

Not include in the computations are funds for major infrastructure, NG

priority projects, funds for catching up , the Bangsamoro police but for the Bangsamoro justice system.

Major Budget Requirements (reference GAA 2013)

Sector (GAA equivalent) Amount (in billion of PhP) / %

Education incl. SUCs (DepEd) 12.4 /48.9

Social Welfare (DSWD) 2.4 / 9.4

Health (DOH) 2.1 / 8.5

Agriculture (DOA) 1.6 / 6.4

Housing (GOCC Subsidy) 0.9 / 3.7

Others (20 others) 5.9 / 23.1

Total 25.9 / 100

How much is Available? (2013 prices)

* For the whole country 2010

Shortfall 6 billion Pesos or 25% of the estimated Requirement

Almost double the ARMM allocation in the 2013 GAA

Closing the Gap

Mining / natural resources proceeds not significant, Situs could be more significant, but no basis for estimates readily available.

New Taxes (document stamp etc.) have no potential!

Formalizing the Shadow Economy could yield up to about 1 billion Pesos

Expanding the Block Grant Base, it depends

BOC and Vat inclusion + 5 billion Pesos, new deficit 1 billion

50 : 50 sharing (NG : LGU) 5 billion Pesos, new deficit 11 billion

Both +/- 0, deficit remains at 6 billion

Increase of the Tax to GRDP ratio to the same as the Philippines would yield 7.5 billion Pesos

Bangsamoro/ARMM 2.3%

Philippines 12.9%

Malaysia 16.1%

Revenue Increase through higher

Collections is it likely?

Revenue Collection Performance of Bangsamoro / ARMM LGUs (as proxy)

No difference between cities within Bangsamoreo and ARMM

But collection is 50% less than e.g in the Visayas

Provinces inside ARMM collect about 1/100 of provinces outside

RPT collection is as little as 3% of that outside ARMM

LGU level Amount, total & own Own in % of total

All 12.1/ 0.5 3.7

Provinces 4.3/ 0.1 2.9

Cities 1.6 / 0.3 14.0

Municipalities 5.2/ 0.1 1.9

Part 3: Summary &

Recommendations

Bangsamoro Basic Law a Victory for

Decentralization and Autonomy!? Takes decentralization further than the LGC and the Organic Law

of ARMM

The transaction costs could be kept relatively low. Only the different committees and negotiation as e.g. with DOF / BIR are a cause for

concern

The proposed parliamentary democratic setting is the major step in the right direction

BUT

Fiscal Picture is rather bleak

The Center needs to let go

Bangsamoro needs to improve governance performance

Trust is the key to success. Rights come with responsibilities

Major Stumbling Blocks and Possible

Solutions No funds for development investment funds are controlled by the NG

Special multiyear, (interest free) grants (funds), the use should be up to the discretion of the Bangsamoro parliament. Joint auditing.

Setting a signal for fiscal autonomy and turning the tide of recentralization

Model for LGU funding rather than the BuB approach

The PS and MOOE budget is insufficient to deliver the intended services

Per-capita approach (its for the people).

According adjustment of the Block Grant (approx. by 1 to 2 percentage points)

In the medium term (2 -3 years) functional assignment approach incl. LGUs

Own revenue collection performance is substandard

Massive capacity development program online and face 2 face

Merit based promotion. Professional not term based civil service

Unashamed gap filling. Through support of Muslim and other partner countries / organizations

Part 4: Questions Herwig Mayer

herwigmay@gmail.com

Tel: 09178136738