House Committee on Ways and Means Chairman Albay Rep. Joey Salceda on Thursday said the Mandanas ruling, which has been for implementation in 2022, may reduce economic growth in the short to medium term, but may improve the delivery of basic social services at the local level.
During the World Bank-Philippine Economic Update launch, the economist-lawmaker said the implementation of the ruling could lead to a “modestly negative economic growth” in the short to medium term due to loss of scale as Mandanas ruling accounts for 20 percent of current capital outlay.
He added the ruling could also cause “reduced national government capital outlays, a negative for capital formation, and lower national government borrowing due to a reduction in primary surplus.”
“LGUs [local government units] can borrow but they cannot go to deficit under the current rules, they can borrow but they cannot borrow from ODA [Official Development Assistance] being subnational,” Salceda explained.
With the Mandanas ruling, Salceda said, the Internal Revenue Allotment (IRA) in 2022 is now projected at P1.083 trillion.
Without this Supreme Court ruling, he said the IRA is only projected at P848.44 billion.
“Actually, the increase is only P27.6 billion because they would have received P848.44 billion without the Mandanas. The share [of the IRA after the ruling] to total GDP in 2022 would increase from 3.72 percent to 4.75 percent,” he said.
The SC’s Mandanas ruling expands the basis for the computation of IRA to include collections not only of the Bureau of Internal Revenue but also the customs duties collected by the Bureau of Customs, a part of taxes collected in Bangsamoro Autonomous Region in Muslim Mindanao, taxes from the exploitation of national wealth, excise tax on tobacco products and other taxes provided in the National Internal Revenue Code and franchise taxes.
Long-term
IN the long-term, however, Salceda said that “local economic development, matched with the Corporate Recovery and Tax Incentives for Enterprises or CREATE Act, could boost growth.”
“Inter-local convergence could also offset reduced national interspatial integration. Local governments whose economies are interlocked have to be willing to work together and work beyond their siloes,” Salceda added.
He said the Mandanas ruling could improve the delivery of social services and enhance human development and poverty reduction.
“There are potential improvements in distributional impacts, with more than 70 percent of poverty incidence being rural poverty. This, of course, is possible [through] good governance,” he said.
“The delivery of social services could also improved delivery due to better targeting, lower administrative costs, and better feedback loop at the local level,” Salceda added.
Fiscally, however, Salceda warned that LGUs may “rest on the laurels of increased internal revenue allotment and be more lax in generating their own revenues.”
“The increased IRA is a disincentive to creating more internally generated funds or IGF from local taxes such as real property tax and natural resource taxes such as the sand and gravel tax. So, the Bureau of Local Government Finance has to work really hard to make sure LGUs still work towards public resource generation,” Salceda said.
Political impacts
Salceda also explained that the ruling shifts power from Congress to local governments.
“As a result, we may see more vertical and horizontal consolidation of power among good, or even bad, local leaders. The good leaders can perform better and will be more popular with greater funding. The bad leaders will have more resources to sustain patron-client relationships,” he said.
“So we still need better oversight of the use of local fiscal resources. That is where the role of agencies like the Commission on Audit will come in. But they will have to be less procedural and more impact-oriented. The question of governance is not whether every little detail is perfect, but whether a local project is the most effective and impactful use of public resources,” he added.
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