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Division of Powers, Regions and Revenues DIVISION OF POWERS, REGIONS AND REVENUES Dr. Eduardo Araral UP Law Center Project on Constitutional Review and Associate Professor, Lee Kuan Yew School of Public Policy, National University of Singapore [email protected] Presented to the Constitutional Commission to Review the 1987 Philippine Constitution, March 19, 2018, Manila, Philippines Outline of presentation Division of powers What problems are we trying to solve? What solutions do we propose? What have we learned from 25 years of LGC and ARMM? What can we learn from international experience? 10 Principles for dividing powers Proposed division of powers Division of expenditure and revenues Principles Proposal for division of expenditures and revenues Division of regions Criteria Comparison of various models Issues to consider Conclusion The Problem: Centralized / inefficient governance Bicol International Airport 12 years on, not yet finished 500+ signatures to set up solar power project in Negros White elephant wholesale market in Cordillera (planned in MM) Metro Cebu waiting for more than 5 years to have MCA Years of delays in agribusiness SEZ in Mindanao Years of delays in rehabilitating Bicol railways 20 years “talk only” on Mindanao railways DSWD’s CCT and Kalahi CIDS Projects are highly centralized Regional Development Councils are not effective Tourism arrivals only 5% of ASEAN (poor infrastructure) HUGE ECONOMIC LOSSES (JOBS, TAXES, TIME) IN THE LAST 30 YEARS! What we are trying to achieve To hasten and sustain equitable regional economic development To create more jobs, improve service delivery and ultimately reduce poverty in the regions by having more efficient & responsive governance to replace highly centralized imperial manila creating regional governments with own source revenues Expanding powers of local governments and increasing their share in internal revenue from 40% to 60% and making it current by fostering competition and cooperation among regions and local governments Lessons from 25 years of Local Government Code & ARMM Tendency to centralize powers and budgets; No serious effort to downsize national agencies and abolish their regional offices even for devolved functions National government dominance in overall spending (83:17) and overall revenues (92:8) (Miral, 2017) LGUs remain highly dependent on IRA (Provinces 81%; Cities 47%; municipalities 82%) (Miral, 2017) Most LGUs are weak in tax collection (Manansan, 2008) Fiscal commons patronage fragmentation, duplication, corruption IRA ineffective & outdated (fixed 40%, based on 3 years prior, arbitrary allocation, not equitable, is not updated based on needs) Imbalance in revenue powers and expenditure responsibilities Duplication of responsibilities (ARMM and LGUs) (Miral, 2015) Regional Development Councils are not effective drivers of regional development (no powers) Lessons from international experience Per Capita Incomes35,000 Highly decentralized and open economies 30,000 grew faster and have higher per capita incomes as a result of competition among 25,000 VIETNAM PHILIPPINE S 20,000 MALAYSIA CHINA 15,000 INDONESIA 10,000 Growing but 5,000 lagging 0 1 11 21 31 41 51 61 1951 2016 Source: Araral (2018); data from Conference Board Total Economy; Lessons from international experience Need for fiscal discipline and hard budget constraints for regional governments (Mexico, South America, China) Need for equalization fund to address imbalances between national and regional government and among regions (India) Need for Finance Commission to regularly (India) to regularly update (every 5 years) fiscal arrangement Need for formal / informal inter-governmental relations (Australia, Canada) Picket fences federalism (USA) – division of powers negotiated on a case by case, adversarial process Need to clearly define exclusive, shared and residual powers (Canada, India) Need to have capable regional govts and strong watchdogs (China) Need to have better economic coordination among regions (Vietnam) Dual reporting system for regional civil servants (regional civil servants directly report to regional governors and to coordinate with their national counterparts) (India); civil service is national is character Need for mechanisms to deal with separatism (Catalan, Spain; Scotland) One country, two systems (China, Indonesia, Malaysia) Lessons on intergovernmental relations Recommendation: This should be spelled out in the constitution including the powers of the IGR, including powers to resolve conflicts Model Executive Federal Presidential federal Integrated federal Form of Federal Parliamentary Presidential Federal Federal Parliamentary goverment Examples Canada USA, Mexico, Argentina, Germany, Brazil, S. Africa Mechanisms of First Ministers’ No formal mechanisms b/c shared powers are clearly IGR Conference (PM and states are sovereign defined; national legislation RM); Regional Premiers’ requires approval of both federal Conferences, and the inter‐provincial Council of and sub‐federal legislatures; Federation regular consultation fora for coordinating legislation and policy attended by PM (like LEDAC) Formalization Formal Ad hoc Formal Strengths Allows autonomy for Each state fights for its Collective responsibility for provinces own interests policy and implementation; Weaknesses Lack of clarity in the Fragmented; picket fence Works better under federal division of powers federalism; ad hoc; each parliamentary set up policy issue has its own between jurisdictions has IGR b/c states are led to politicized IGR sovereign; coordination across policy fields difficult 10 Principles for Dividing Powers (Recommendation: to be spelled out in the Constitution) 1. Adequate & clear – regions & local governments should have adequate powers (clearly defined as exclusive / shared/ residual) and budgets to fulfill their mandate to hasten equitable regional / local economic development 2. Fiscal equivalence – finance follows functions 3. Fiscal discipline – hard budget constraints and need to address the tragedy of the fiscal commons 4. Externality – if the effects are national in scope, then national government is responsible; if regional then regional; if local, local 5. Asymmetric / evolving – assignment of powers based on competencies 6. Subsidiarity – national govt. should not do what regions/LGUs can do 7. Inter-governmental relations (IGR) – formal and informal mechanisms of cooperation & conflict resolution 8. Bayanihan federalism– self rule with shared rule; IGR first before courts 9. Polycentric – allow for multiple political, administrative and economic arrangements (essence of federalism); allows for one country, two systems 10. Least transition cost / least disruption to our growth momentum PROPOSED DIVISION OF POWERS Recommendation: Should be spelled out in constitution but details in a separate legislation) Responsibility for Category of Service Policy, Standards & Oversight Provision & Administration Defense and police Federal Federal Foreign Affairs Federal Federal International Trade Federal Federal Monetary Policy, Currency & Banking Federal Federal Fiscal Policy (Tax & expenditure) Federal, Regional Federal, Regional, Province, City, Municipality Immigration Federal Federal Airlines, railways, telecom, internet, Federal Federal, Regional post Inter-regional commerce Federal Federal Regulation / Licensing Federal Region, Province, City, Municipality Labor / Employment Federal, Regional Federal, Regional Environment and natural resources Federal, regional Federal, regional Civil Service Federal, regional Federal, Regional Agriculture & Fisheries Federal, Regional Regional, Provincial, City, Municipal Education (Basic, Higher, Vocational) Federal, Regional Federal, Regional Health Federal, Regional Regional, Provincial, City, Municipal Social Welfare Federal, Regional Federal, Regional, Provincial, City, Municipal Water, Sewage & Garbage Federal, Regional City, Municipal Fire Protection Federal, Regional City, Municipal Highways Federal Federal, Regional, Provincial, City, Municipal Energy (exploration, devt, generation, Federal, Regional Federal, Regional transmission) DIVISION OF REGIONS COMPARISON OF DIFFERENT PROPOSALS TO DIVIDE REGIONS MODELS PDP LABAN /Pimentel 5 REGIONS ULAP CDPI 17 (North & Central Luzon, Features Metro Manila, Bicol, CAR; Eastern, Central, Western Visayas, Mimaropa, 5 (Luzon, Metro Manila, Evolutionary (provinces/ Southern Mindanao, Visayas, Mindanao, Bangsa 81 (Provinces as Regions) cities decide to form Northern/Western Moro) region) Mindanao, Muslim Mindanao (main/island) + retain current LGUs Already familiar set up; Economies of scale; lower Closest to the Federalism will evolve established administrative administrative cost in the long population; already organically overtime units; minimal disruption; run established; lower Strenghts accounts for regional administrative cost in identities; not readily the long run captured by existing political dynasties Assignment of regional Still too large administratively; Provinces are too small / Selection bias (strong Weaknesses capital can be controversial Instead of imperial manila, we fragmented to be effective regions have no incentives (better let regions decide); could end up with imperial drivers of regional to join weaker regions and Cebu, Davao; high cost of economic development; share their financial Unclear about other transition (regional govt. no track record of resources unless they have indigenous groups in the center);does not differentiate building, operation
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