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Is Federalism Pro-poor?

Jul 7 2016 - Poverty, according to the United Nations, is “a denial of choices and opportunities, a violation of human dignity. It means lack of basic capacity to participate effectively in society. It means not having enough to feed and clothe a family, not having a school or clinic to go to, not having the land on which to grow one’s food or a job to earn one’s living, not having access to credit. It means insecurity, powerlessness and exclusion of individuals, households and communities. It means susceptibility to violence, and it often implies living in marginal or fragile environments, without access to clean water or sanitation.”

Constitutional experts contend that our unitary system’s centralized form is the culprit for poverty in the country. The top-to-bottom approach (pinatulo governance, as we call it) limits the powers, authority and resources of its own local governments, impairing gravely the decision-making process. Planning and programs for the communities are divorced from the realties on the ground.

In effect, local governance are inefficient in providing even the public services that majority of Filipinos need and expect—health care, education, employment and housing; a state of affairs contrary to the promise of the 1987 Freedom Constitution, where framers have been mandated to create one that is “truly reflective of the aspirations and ideals of the Filipino people.”

A research by the Economic Intelligence Unit (EIU), in 2015, affirms that the Philippines remains one of the poorest in Southeast Asia despite robust economic growth in the past few years.

The current and slow increase of the minimum wage cannot partner with the rising prices of commodities; we have the highest income tax rate (32 percent) compared to our neighboring countries in the Asean: Singapore, 2 percent; Vietnam, 20 percent; Malaysia, 11 percent; Cambodia, 20 percent; Laos, 12 percent. We also are a highly corrupt country, ranked 85th out of 175 countries). “Leakages” in our country are far beyond normal—and we don’t prosecute. (The Napoles corruption cases involving senators and congressmen have barely gone up through our justice system and those nominal “name brands” incarcerated may be freed soon with the advent of a new administration).

Rogier van den Brink, of the World Bank (WB), says the perennial challenge is to channel economic growth toward the poor to make the economy inclusive, thus, ending poverty. Rogier adds this can be achieved if investments in infrastructure, health, and education are increased; including an enhanced competition to level the playing field; simpler regulations to promote job creation, especially for micro and small enterprises; and the protection of property rights.

Karl Kendrick Chua, senior country economist of the WB, says both tax administration and tax policy reforms are needed to generate the revenues required to finance the decades-old investment deficit in infrastructure, health and education.

While tax policy reforms can be implemented, however, under a unitary system, national taxes remitted to the center will still take away much of the wealth and revenues generated by agriculture and other industries in various local communities around the country. Major corporations, including banks, pay their taxes in Metro Manila whose cities benefit more from their activities than the provinces and other cities in which the branches of the corporations operate.

Local officials will continue to spend much of their energy and limited funds seeking the assistance and approval of national government officials in Metro Manila. Local dependence will continue to stifle local initiative and resourcefulness, and hamper local business and development.

Although new taxes and fiscal reforms have been initiated, the government lacks funds and is heavily in debt from too much borrowing.

Federalism, in contrast to our current unitary system (that only concentrates political powers and authority in the national government), emphasizes regional and local self-rule and self-reliance in governance based on the principle of subsidiarity. In short, the decisions are made at the lowest possible level where local problems can be solved. In addition, while regions or state governments are designed to be autonomous, the federal government will provide assistance to various regions and states, especially the less developed ones. In most federal governments this is called the “Equalization Fund,” designed to lift the less endowed states to a decent level, meeting the basic needs of its constituencies. This fund is raised by contributions from all the states in the federal republic and expensed by federal government.

As Atty. Josephus Jimenez emphasized in a Philippine Star column, “Once we are under a federal system, all component states collect their own taxes and contribute only a small fraction of their revenues to the federal or central government for only three centralized functions, namely: National Defense, including the National Police, Justice and Foreign Affairs. All the rest shall be left to each state, including health, education, labor and employment, trade, transportation, communication, agriculture, agrarian reform, justice, environment, natural resources. The states will manage mining and forest matters and shall control all natural resources.”

A federal republic will provide better policies and implementation that will enable the people to raise their standard of living. At the same time,

• Citizens will be more willing to pay taxes that will finance government programs and services for their direct benefits, as they see where their money goes;

• Equitable regional development will be promoted;

• Faster political, economic, social, and cultural development and modernization will take place; and

• There will be inter-regional competition in attracting domestic and foreign investments and industries, professionals, and skilled workers.

It is true that there will be inevitably some “leakages,” but corruption on a local level is much more transparent through a vigilant local community now empowered to run its own affairs.

Let us take note at how America has empowered its people and become the most powerful country in the world through federalism:

“So long as local affairs are reserved to the greatest possible extent for the localities themselves and so long as the people are both interested in and capable of understanding and handling their own problems, then the philosopher’s stone has indeed been discovered and a large measure of both freedom and order are possible.” – Dr. George Charles Roche III.

Ms. Jeresa May C. Ochave is communications director of the Centrist Democracy Political Institute (CDPI). A graduate of the Mass Communications program in Ateneo de Davao University (AdDU), she currently serves as secretary of Centrist Democratic Party of the Philippines (CDP) – Davao Chapter and was elected as regional chairperson of the Centrist Democratic Youth Association of the Philippines (CDYAP) – Region XI. Ms. Ochave is also a part-time professor at the University of the Immaculate Conception, in Davao City, and is taking her masters in Public Administration, major in Public Policy, at the AdDU.

This story was originally published by The Manila Times, Philippines