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Commentary

Deception by omission

/ 12:20 AM September 22, 2016

Former Sen. Aquilino Pimentel Jr. said the federal system that the Philippines will adopt will need “fine-tuning,” a euphemism that there will be problems (“Federalization not a panacea, Opinion, 8/4/16).  He did not indicate how long this fine-tuning will take. In the case of the Canadians, it has been going on for 149 years, and counting. In 149 years, at the current rate of population growth, we will have 500 million people.

This fine-tuning will be done mainly by the courts. Unfortunately, we love litigation. Witness how many cases reach our Supreme Court compared with the miniscule number of cases decided by the US Supreme Court. Our overburdened courts will referee the federal-states dispute. Thus, pressing national problems will be sidelined while the federal machinery that will deliver the services is still being “fine-tuned.”

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There are also key issues that the proponents of federalization are omitting. An additional structure of government—the state governments—will be inserted between the national and the local governments. Save for the Departments of National Defense and of Foreign Affairs, most of the Cabinet positions in the national government will be replicated at the state level. There will also be a big number of elective officials and a state bureaucracy.

The proponents of federalization have not told our countrymen that they must pay taxes to both the federal and state governments. These taxes—on income and sales—should have been presented up front. The US Tax Foundation gives us an indication of the tax burden on each citizen in a federal system:

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Heavily taxed states, percentage of income: New York, 13.12; Hawaii, 11.86; Maine, 11.13. Least taxed states: New Hampshire, 6.88; Tennessee, 6.56; Delaware, 5.91. Sales taxes account for around 50 percent of the tax burden in most states.

Even the tax burden of New Yorkers may be low if we federalize. Each US state has a broad tax base with a big middle class, plus myriad businesses. Save for the National Capital Region, each state in our federal system will have a limited tax base; the taxes will be paid by a small number of taxpayers. More worrisome is who will pay the taxes. Our current system of taxation relies heavily on the value-added tax, which is a flat tax. Everyone pays an equal amount of 12 percent for an item worth P100: The schoolteacher pays P12, and so does Henry Sy. But it is a regressive practice because what the schoolteacher earns in one year, Sy likely earns in one day. The tax burden under our present system is thus borne by the poor and will become worse: The sales tax to be imposed by each federal state is also a flat tax.

Based on the experience of Third World countries with federal systems, autonomy becomes meaningless if a state cannot raise sufficient revenue; it will have to depend on doles from the federal government. Such doles to a perennially bankrupt state will have strings attached and will always be a source of conflict. It is a perpetual subsidy by well-off states to their poor siblings. In time, the affluent states will try to keep their revenues for their own use.

Increasing the size of government also goes against the global trend. Privatization became the norm from the 1990s onward in international forums. It has been shown that the government is an inefficient consumer of resources; the private sector is more efficient. Creating additional government agencies in Third World countries often means creating additional sources or levels of corruption.

We have experienced this in our country. Years ago, traffic laws were enforced by policemen: They collected tong. So new enforcers, the traffic aides, were appointed. Now, the traffic aides are also collecting tong.  If we create still another layer called assistant traffic enforcers, in due course we will have a third layer of tong collectors.

Or consider a farmer from La Trinidad Valley who brings his produce to Metro Manila. To get to the NCR now, he has to deal with just one corrupt agency—the police. Under the federal system, he will have to deal with the federal police and the state police of each state that he will traverse. Instead of paying tong once, he will end up paying additional tong to get his produce to the NCR.

Our biggest worry is the additional elective officials that will be produced by federalization, like state legislators, governors, vice governors, etc. Such positions will be occupied by political dynasties. Thus, when we talk about federalization with Filipino features, it will mean: We will impose new taxes to run the federal government, to be paid mainly by the poor. We will use these taxes to create new job openings for political dynasties. Will this mix result in a more honest and efficient government, rendering better services to the people, and hastening our development? Will increasing the number of politicians result in less corruption and a more efficient government?

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We can be constructive by proposing a Plan B and giving federalization a chance: Elect a constitutional convention barring dynasts from running, to make sure that the new Constitution will ban political dynasties. Provide in the Constitution that taxation will be in the form of a steeply progressive income tax so that the burden of paying for the cost of running the federal government will be borne by the rich.

Frankly, Plan B sounds like a daydream.

Retired Ambassador Hermenegildo C. Cruz holds a master of arts degree in law and diplomacy, major in international development studies, jointly conferred by Tufts and Harvard Universities.

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TAGS: Aquilino Pimentel Jr., federal government, federalism, federalization, taxation, taxes
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