SC ruling on IRA share to widen fiscal deficit

MANILA, Philippines — The Supreme Court (SC) decision increasing the internal revenue allotment (IRA) of local government units (LGUs) may widen the country’s fiscal deficit to as much as 4.1 percent of gross domestic product (GDP), if no measures are taken, according to the Department of Finance.

Finance Secretary Carlos Dominguez said the SC ruling, which raises the IRA share of LGUs to 40 percent of all taxes collected – from the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) –  starting 2022 from 30 percent of the BIR’s collection, alone, poses risks to the country’s fiscal position.

“That’s going to create a fiscal problem which our estimates, without doing anything, would drive up our deficit from the current ceiling of 3.2 percent to 4.1 percent. That is not acceptable,” Dominguez told Sen. Juan Edgardo Angara during the Senate finance committee’s hearing on the DOF’s 2020 proposed budget.

To mitigate the ruling’s fiscal impact, Dominguez proposed three possible measures that the government may undertake.

For one, he said the national government may devolve some of its functions to the LGUs, therefore increasing the latter’s expenditure requirements.

“There are three possible solutions. The first solution is, along with the additional revenue, we pass on additional costs to the local governments. For example, and this is just an example, the cost of the local schools. Basically, tell them, you pay for the teachers, you pay for the buildings,” Dominguez said.

He also floated the possibility of passing on the implementation of  health care programs, such as the Universal Health Care (UHC), as well as agricultural projects, to the local government units.

“But you know, the problem is – this is my personal view – is that the term of the mayor is only three years…so I’m not sure if their tenure will help there,” Dominguez said.

Another option, he said, is for Congress to pass a law setting the IRA share of the LGUs to a maximum of 30 percent instead of 40 percent, but Angara said this may create a conflict.

“Yes, we understand. That’s why I’m saying it’s a political problem now,” Dominguez said.

He said the last option is for President Duterte to declare the ruling’s impact as “fiscally unmanageable” and to order the return to the original IRA formula. “But that’s also a fight,” he said.