No Political Sustainability

without Fiscal Sustainability

H. Mayer, PhD
LPP, CIM
Muslim Mindanao Autonomy: Roundtable Discussion Series, Senate of the
Philippines
July 13, 2015; Senate of the Philippines, 2F, Committee Room

Part 1: The Theory

Clarifications Setting the frame

Bangsamoro is a Local Government Unit in accordance with
Art. X of the 1987 Constitution of the Republic of the
Philippines
Bangsamoro will be an Autonomous Region with far reaching
rights and responsibilities
Bangsamoro will not be and cant be a federal state
Decentralization is based upon the principle of Subsidiarity as
reiterated in the draft BBL
Comment: Asymmetry can only be between governments of
the same level.
However there can be asymmetric development. This means
certain areas fall back and this is intended

Ingredients of Fiscal Autonomy

An LGU has the power to raise its own revenue AND

Has Command over its own financial resources

Expenditure Power: Plan / Implement / Monitor without outside interference
Own Revenue:

Strengthens the accountability of local politicians and bureaucrats

Improves local service delivery

Adds a degree of developmental freedom

Comment: Always keep and eye on the Transaction costs

Political (decision making)

Administrative (cost of and coordination between bureaucracies)

Economic (excess tax burden)

Fiscal Autonomy (Revenue side)

4 Aspects:
Tax Policy Which level controls tax base and rates? (nothing
much and maybe getting less RPT)
Tax Administration Which level administers the taxes?
(Bangsamoro BIR)
Tax Assignment Which level of government gets proceeds
related to taxes from the location? (situs question is the most
important, mining and provincial )
Tax Sharing Which level gets how much from a common
source? (Block grant)
Comment: IRA is a constitutional guaranteed source of revenue
for Provinces, Cities, Municipalities and Barangays, not for
Autonomous Regions. IRA is not a grant, its an entitlement.

Fiscal Autonomy (Expenditure side)

Expenditure Side considered more important than the
revenue side (by some)
Guiding principles should govern the expenditure
(transparency, participation, accountability, auditing
(monitoring)
It is a matter of trust and not of ceilings and prescriptions
Setting limits / requirements for example for disaster is a
disaster for autonomy
Decentralization starts at the center with a commitment to let
go
Budget Law in Bangsamoro is thus of HIGHest priority
Comment: Reenacted Budgets are not needed in
parliamentary settings

Part 2: The Figures

The 70 billion Fairy Tale (2015)

Using criteria as just set and funds which are recurring and which are
under the full control of a Bangsamoro government
Source

Amount

Remarks

Block Grant

25.2

2015 figure t-3

New Taxes

Too small to list

National Taxes

1.7

Total

26.9

2011figure

This is only 2.6 billion more than the 2015 ARRM allocation in the GAA
All other items which were listed are one time allocations or under the
control of NG or is even the IRA of the LGUs
Comment: Process matters when negotiating fiscal allocations. First
one needs to know what the services cost then negotiate the funding

How much is Required? (2013 prices)

Not include in the computations are funds for major infrastructure, NG
priority projects, funds for catching up , the Bangsamoro police but
for the Bangsamoro justice system.
Major Budget Requirements (reference GAA 2013)
Sector (GAA equivalent)
Education incl. SUCs (DepEd)

Amount (in billion of PhP) / %

12.4 /48.9

Social Welfare (DSWD)

2.4 / 9.4

Health (DOH)

2.1 / 8.5

Agriculture (DOA)

1.6 / 6.4

Housing (GOCC Subsidy)

0.9 / 3.7

Others (20 others)

5.9 / 23.1

Total

25.9 / 100

How much is Available? (2013 prices)

* For the whole country 2010

Shortfall 6 billion Pesos or 25% of the estimated Requirement

Almost double the ARMM allocation in the 2013 GAA

Closing the Gap

Mining / natural resources proceeds not significant, Situs could be
more significant, but no basis for estimates readily available.
New Taxes (document stamp etc.) have no potential!
Formalizing the Shadow Economy could yield up to about 1 billion
Pesos
Expanding the Block Grant Base, it depends
BOC and Vat inclusion + 5 billion Pesos, new deficit 1 billion
50 : 50 sharing (NG : LGU) 5 billion Pesos, new deficit 11 billion
Both +/- 0, deficit remains at 6 billion

Increase of the Tax to GRDP ratio to the same as the Philippines

would yield 7.5 billion Pesos
Bangsamoro/ARMM

2.3%

Philippines

12.9%

Malaysia

16.1%

Revenue Increase through higher

Collections is it likely?
Revenue Collection Performance of Bangsamoro / ARMM LGUs (as
proxy)
LGU level

Amount, total & own

Own in % of total

All

12.1/ 0.5

3.7

Provinces

4.3/ 0.1

2.9

Cities

1.6 / 0.3

14.0

Municipalities

5.2/ 0.1

1.9

No difference between cities within Bangsamoreo and ARMM

But collection is 50% less than e.g in the Visayas

Provinces inside ARMM collect about 1/100 of provinces outside
RPT collection is as little as 3% of that outside ARMM

Part 3: Summary &

Recommendations

Bangsamoro Basic Law a Victory for

Decentralization and Autonomy!?
Takes decentralization further than the LGC and the Organic Law
of ARMM
The transaction costs could be kept relatively low. Only the different
committees and negotiation as e.g. with DOF / BIR are a cause for
concern
The proposed parliamentary democratic setting is the major step in
the right direction
BUT
Fiscal Picture is rather bleak
The Center needs to let go
Bangsamoro needs to improve governance performance

Trust is the key to success. Rights come with responsibilities

Major Stumbling Blocks and Possible

Solutions
No funds for development investment funds are controlled by the NG
Special multiyear, (interest free) grants (funds), the use should be up to the discretion
of the Bangsamoro parliament. Joint auditing.
Setting a signal for fiscal autonomy and turning the tide of recentralization
Model for LGU funding rather than the BuB approach

The PS and MOOE budget is insufficient to deliver the intended services

Per-capita approach (its for the people).
According adjustment of the Block Grant (approx. by 1 to 2 percentage points)

In the medium term (2 -3 years) functional assignment approach incl. LGUs

Own revenue collection performance is substandard

Massive capacity development program online and face 2 face
Merit based promotion. Professional not term based civil service
Unashamed gap filling. Through support of Muslim and other partner countries /
organizations

Part 4: Questions
Herwig Mayer
herwigmay@gmail.com
Tel: 09178136738