Federalism and the IRA

THE QUESTION I am often asked by people involved in local governance is: What will happen to the Internal Revenue Allotment (IRA) if our country shifts to a federal structure of government?

Will it be abolished completely? Will it be replaced by an improved system? Or will it be retained but with the share of the local government unit (LGU) drastically increased?

There is no definitive answer to these questions as of now because defining the specifics of fiscal autonomy is part and parcel of the federal design process. Fundamentally, however, the fiscal regime of a federal structure simply mirrors the allocation of state functions between the federal and subnational level of governments.

Meaning, greater political and administrative autonomy for the subnational government should be complemented with more comprehensive and far-reaching taxation and revenue-raising powers. Thus, it is highly possible in such an instance that the IRA would no longer be retained.

In this scenario, we have to ask: How will national mandates such as national defense and foreign affairs be funded? Will the designated federal-level taxes be enough? Will

there be a need to impose additional levies on business and personal incomes?

And what about other highly specialized government bodies that have nationwide jurisdiction, such as the constitutional commissions, the Commission on Human Rights, the National Commission on Indigenous Peoples and similar agencies? Will the subnational government then subsidize these state offices?

On the other hand, if the IRA or any similar fund-transfer mechanism is again instituted in the federal structure, then this would imply that the devolution of state functions may only be as substantive as the one implemented under the

Local Government Code (LGC).

Such a scenario seems contradictory to the very spirit of federalism that envisages the subnational government assuming responsibility for state functions except only those beyond their capability (i.e., national defense and foreign affairs). And worse, it may also fail to deliver the economic boost proponents always promise to justify the move to federalize.

Clearly, the discussion on fiscal autonomy under a federal structure can commence only after a definitive picture of how state functions are divided between the federal and subnational levels of government has emerged.

Ostensibly, such a rational allocation arrangement cannot simply be formulated from nothing. And where else can this be drawn save from a robust and thorough analysis of decentralization under the LGC? But this can be a tricky task.

According to the Philippine Development Plan 2011-2016 which guided the previous administration, the majority of LGUs still lack the will to raise adequate local revenues and are unduly dependent on the IRA. Obviously, this assessment does not convey the picture of local leaders demonstrating an autonomous governance mindset, and thus does not exactly inspire expanding fiscal autonomy even further.

On the other hand, the work of the Galing Pook Foundation also proves that the decentralization of government functions can produce good outcomes. Its website is replete with real-life examples demonstrating that the proper use of the LGC can bring socioeconomic benefits to local communities.

Interestingly, the final word on this apparent paradox shown by analyses on the impact of the LGC comes from economists who wrote in “Regional Development Dynamics and Decentralization in the Philippines” that: “Decentralization in the Philippines has been neither a notable success nor a disappointing failure.”

At this point, many of us will be asking: Why should we even pursue the federation of the Philippines? What good will this massive political reform bring to more than 100 million Filipinos?

I believe the quest for a proper and reasonable response can commence with Senate Joint Resolution No. 10, which was filed by the foremost proponent of federalism in the country during his time in the Senate, Aquilino Pimentel Jr. The first four “whereas” clauses in the Explanatory Note truly set us on the right train of thinking:

“Whereas, the Constitution provides for a unitary system of government where the country’s development programs are centrally determined, planned, funded and implemented by the national government in Manila;

“Whereas, the concentration of such enormous powers in Manila has created only one center of finance and development in the country resulting in a highly centralized system of government;

“Whereas, the highly centralized system of government has brought about a spotty development of the nation where preferential treatment has been given to localities whose

officials are friendly with or have easy access to an incumbent administration;

“Whereas, this lopsided arrangement has spawned a host of problems including massive nationwide poverty to runaway insurgencies and rebellions that feed on the societal inequalities in the nation.”

Obviously, our utter dissatisfaction with the status quo is feeding our aspiration to federalize. We are quite literally at the end of our tether. Indeed, the list of government failures is endless.

But at the core of this lengthy enumeration is basically our severe anxiety over our overcentralized government. The net effect, according to President Duterte in his inauguration speech, is “the erosion of confidence in the capacity of our public servants to make the people’s lives better, safer  and healthier.”

Therefore, regardless of whether federation is well-suited for the Philippines or not, it would certainly be beneficial for us to give studying the intricacies of federalism a good go.

And this would require complying with the caveat raised by the scholar Raphael N. Montes, who wrote in “Understanding Federalism”: “The peculiarities of a country would define the different features of its own brand of federalism. It would be useful to seek out relevant models but these models would only serve as guideposts since a country’s federal system should reflect the unique conditions of its society.”

Correspondingly, the public discourse on federalism should be conducted with more pragmatism. Our analysis should therefore revolve around issues and concerns involving the current decentralization framework established by the LGC. This is the only way we can truly understand our “peculiarities” and “unique conditions.” More importantly, this can verily reveal the answers to the challenging questions posed here.

Michael Henry Ll. Yusingco, a practicing lawyer, is the author of the book “Rethinking the Bangsamoro Perspective.” He conducts research on current issues in state-building, decentralization and constitutionalism.