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Friday, March 29, 2024

Mandanas ruling has reduced interest in federalism

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Mandanas ruling has reduced interest in federalism"Truth to tell, this case is a no-brainer."

 

 

In deciding the complaint filed by two LGU (local government unit) heads against the Secretary of Finance and the Secretary of Budget and Management—on the issue of the LGU’s IRA (internal revenue allotments), the Supreme Court (SC) very probably did not realize that they were simultaneously deciding another important constitutional question, viz., whether the Constitution should be amended so as to install the federal form of government in this country. Because the principal complainant was the government of Batangas, Hermilando Mandanas, the SC decision has come to be known as the Mandanas ruling.

Truth to tell, the issue in the Mandanas-Garcia case was a no-brainer and, as such, should have been brought to court by the LGUs a long time ago. The Local Government Code of 1991 mandates that the LGU’s IRA is 40 percent of the collection of all national taxes, but the Department of Finance, of which the BIR (Bureau of Internal Revenue) and the BOC (Bureau of Customs) form part, has through the years been interpreting “all national taxes” to mean only taxes collected by the BIR.

The SC has repeatedly stated, and every student of statutory constitution is taught, that interpretation is not necessary where there is no ambiguity. The Local Government Code’s wording is unambiguous; the phrase “all national taxes” means not some but all national taxes and what the BOC collects are unquestionably “national taxes.”

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The Mandanas ruling has come as an enormous bonanza for Batangas, Bataan, and other LGUs, which are grouped into 15 regions – 12 regular regions and three special administrative regions – comprising 83 provinces and the Bangsamoros entity.

The difference between the LGUs’ total IRA (since renewed national tax allotment, or NTA) for this year and DOF’s computation of the amount payable to the LGUs in 2022 is P291 billion (P695 billion vs P986 billion). That is a lot of money, and it is virtually certain that the provinces, cities, and municipalities will not have the necessary absorptive capacity for that.

Indeed, the World Bank and the Asian Development Bank have stated that the 2022 fiscal operations of the LGUs as a group will be characterized by underspending. The World Bank estimates that the LGUs will underspend as much as P155 billion of their IRA (NTA) in 2022. Of course, as time passes and they get used to the idea of collecting more revenue, the LGUs will find ways to spend the additional funds and the underspending will stop. These ways will include the health, agricultural, and other unfunded responsibilities that were devolved to them by the Local Government Code.

At the outset, I stated that with its Mandanas ruling, the Supreme Court has simultaneously settled the issue of whether this country should shift to the federal form of government. One of the major campaign promises that President Rodrigo Duterte made in 2016 was that he would work for the replacement of this country’s unitary structure of government with the federal structure. He soon learned that such a shift is difficult to bring about, and he gave up. Nothing has since been heard of federalism and any well-organized move in that direction is unlikely in the foreseeable future.

The truth of the matter is that revenue is at the heart of whatever efforts have been undertaken to install federalism in this country. Except for what has come to be known as NCR Plus (the National Capital Region and its immediate neighbors and a few other provinces), revenue adequacy has always been the principal problem of the LGUs.They are always strapped for cash; there never is nearly enough money for the things that the governors and mayors would like to do. And the national government has always been niggardly with their provinces, cities, and municipalities’ tax allotments, especially when political considerations come into the picture.

Now with their considerably bigger slice of the national revenue pie, the leaders of the LGUs believe that they are as close to real fiscal autonomy as they can get. Their provinces and localities will now get their fair share of the national revenue. They will now have more – in many cases, much more – money to spend.

With the impact of the Mandanas ruling on local governance, there very likely will be far less interest in, and agitation for, federalism. With its ruling, the Supreme Court has wittingly or unwittingly stuck a blow in support of those who believe that the federalist form of government is not suited to this country.

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