BWorld 179, Federalism dream vs centralized government

* This is my article in BusinessWorld last January 5.

Repeated calls for federalism by the Duterte administration actually point to more centralization of the national government — the complete opposite of what they’re advocating.

Here are some examples.

1. National taxes have been rising, instead of declining, which could have helped prepare federal states to have their own income and value-added taxes, etc. Instead of lowering the top marginal income tax rate of 32%, it was even raised to 35%. Instead of reducing the VAT to 10% or 8% with few exemptions, the 12% was retained but many sectors were also exempted.

2. Expanding the number of departments and bureaus instead of reducing them. The Department of Transportation and Communication (DoTC) has become two departments — the Department of Transportation (DoTr) and the Department of Information and Communications Technology (DICT). Then there are proposals to create a Department of Housing, Department of Fisheries. A good federal set up is to abolish many existing departments (like NEDA, DA, DENR, DoH, DoT, etc.) and allow the state governments to create their own departments as they see fit, create, or expand local or state revenues to finance these state departments.

3. Forcing national legislative franchising like buses and taxi, instead of decentralized regional or provincial franchising. Speaker Pantaleon Alvarez and other House leaders are behind the proposal.

4. Reversing integrated public private partnerships (PPP) where government fiscal exposure is very limited to hybrid PPP where national government budget and foreign borrowings (especially China ODA) is much bigger. A meaningful federal set up will empower the state governments to deal with local infrastructure like airports, seaports, provincial tollways and inter-city MRT/LRT.

5. Centralized declaration of class suspensions. During the anti-martial law rallies in Sept. 21, 2017, Malacañang declared a Luzon-wide or nationwide class suspensions even if many provinces and cities did not even have scheduled rallies. Then during the PISTON jeepney strike in Oct. 16-17, 2017, Malacañang declared nationwide class suspensions, even if many provinces and cities did not even have planned jeep strike. President Duterte should have allowed the mayors and governors to decide, saying something like “the national government will step back from these decisions and it is up to the local governments to decide what’s best for their people.”

Beyond federalism plans contradicted by more centralization of powers and taxation, a long-term alternative would be for the Philippines to split into many new countries and allow these new countries to compete with one another in the field of taxation, governance, infrastructure, trade, and tourism to attract more investors and visitors from around the world. Peace and diplomacy will be retained as fellow ASEAN member-states as well as various multilateral formations and the United Nations.

Many existing Philippine island-provinces are actually comparable in size to existing countries and/or big territories (see table).

This is a far out view and may not be considered in the current decade but would appear more viable through time. Singapore will not be as dynamic and developed as it is now if it was just one of many states of Malaysia.

Under the current activities of the Duterte administration, there lies a danger that when federalism is finally enacted, local entrepreneurs and job creators will be walloped with both high national and high local taxes, fees, royalties and various mandatory spending. This will be a good formula to encourage more corruption and black market business operation, or get out of the country and do business elsewhere.

For the federalism plan to be more attractive to the people, the national government should learn to step back, to tax less, regulate less, bureaucratize less, build confidence among the people and investors in the provinces that indeed they will be given more leeway, more opportunities to craft their own political and economic identity.

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See also:
BWorld 115, Centralization and federalism, March 23, 2017
BWorld 171, Global vs national tax reforms, December 29, 2017 

BWorld 176, Road trips and PPP projects, January 06, 2018 

BWorld 177, On MMDA car towing and impounding, January 07, 2018 
BWorld 178, Top 8 energy news of 2017, January 14, 2018