MANILA, Philippines — Unfunding some of the national projects that can be devolved to local government units (LGUs) may be the “most prudent option” for coping with the increased LGU share in national taxes resulting from a Supreme Court ruling, according to the Philippine Institute for Development Studies (PIDS).
In a recent publication, the state-run think tank said the decision of the SC last year poses a threat to the country’s fiscal sustainability if not managed carefully.
In April, the court ruled with finality that the internal revenue allotment (IRA) share of all LGUs must be sourced from all national taxes – including those collected by Customs – and not just from the national internal revenue taxes.
This increase in the IRA of LGUs will take effect in 2022.
The Development Budget Coordination Committee (DBCC) estimated in December 2019 that the IRA of LGUs would reach P1.1027 trillion in 2022, an increase of P225.3 billion.
PIDS said there are several options for funding the increase in LGUs’ share of tax collection, while ensuring fiscal sustainability. “One is to look for new revenue measures on top of existing ones. This, however, may be difficult to realize because of the pending tax reform initiatives in Congress,” it said.
The national government may also increase its fiscal deficit target annually by an amount equivalent to the increase in the IRA.
But while this is seen to be fiscally sustainable in the short term because of the government’s low debt-to-gross domestic product (GDP) ratio, “implementing a long-term expansionary fiscal stance will be risky from a fiscal perspective.”
Unfunding some of the programs, activities, and projects currently funded under the budgets of some national government agencies, therefore, is seen to be the most prudent option.
These projects must be those that can be relegated to LGUs according to the 1991 Local Government Code.
Examples of these are the rehabilitation and construction of various local infrastructure projects, such as provincial, municipal and city roads and bridges by the Department of Public Works and Highways.
Likewise, the upgrade of local health facilities and deployment of health personnel to such by the Department of Health.
These may also include the provision of farm-to-market roads under the Department of Agriculture, as well as the supplementary feeding program under the Department of Social Welfare and Development.
If pursued, PIDS said the government must still ensure that there will be no diminution in the overall delivery of public services despite the reduction in the national government’s spending for these services.
In turn, LGUs must prioritize the provision of devolved services when they allocate their budgets. Given, however, that the IRA is a block grant, LGUs will have full discretion over its utilization.
PIDS urges unfunding some national projects
