Faking Federalism in the Philippines

By: Darwin Mariano

There is something fake about the charter change conversation in the Duterte era. While certainly not new – the Ramos, Estrada and Arroyo administrations all tried to change the 1987 Constitution – current proposals have a number of disturbing characteristics.

Giving more resources to local governments does not require federalism

First, Duterte ran on a platform that included charter change. He, in fact, called the shift to federalism the “centerpiece of my campaign.” Unlike previous attempts in the last 25 years, only Duterte can argue that part of his mandate includes support for charter change from the 16.6 million Filipinos who voted for him. In the campaign, Duterte complained about the “tiny budget” that local governments receive from the national government. His PDP-Laban Model of PH Federalism echoes this: “changes in the allocation of funds to the regions are at the heart of the shift in the system of government. The unequal distribution of public funds to the regions is one of the major causes of underdevelopment in the country.”

The German experience with financial equalization (similar to the Equalization Fund the PDP-Laban draft constitution proposes) is helpful here. To achieve “equalization” between rich and poor states in Germany, the governments of richer (donor) states are required to pay into the financial equalization scheme which will then be redistributed to the poorer (recipient) states. Unfortunately, it has not worked. Kristina van Deuverden of the German Institute for Economic Research (DIW Berlin) explains: “the higher the degree of disparities (across states), the lower the degree of equalization you can attain without rejection (by the other states).” In fact, Bavaria is the only German state to have moved from being a recipient state to donor state since the beginning of the system. And even in Bavaria’s case, growth was not due to the financial equalization mechanism but rather external factors that led to its development.

Here in the Philippines, Duterte and his allies have not admitted or do not understand that federalism is not needed to his keep his promise to provide more resources to local governments or to achieve any sort of financial equalization. All that is required is the passage of a law that revises of Articles 284 and 285 of the Local Government Code on the sharing of the internal revenue taxes between the national and local governments.

The lesson here is that while equitable revenue sharing between national and local governments is important, and can be used to support poorer local governments in particular, it will not be enough to guarantee their development. Good governance through effective, empowering and ethical leadership as well as respect for the rule of law are all more important than mere resource reallocation.

How much will federalism cost the Filipino people? Can we afford it?

Second, Duterte is the only president after the EDSA Revolution to call for federalism as part of the constitutional reform debate. Ramos wanted to shift to a parliamentary form of government and remove term limits, Estrada wanted to remove foreign ownership restrictions, and Arroyo wanted a shift to a parliamentary form of government and greater decentralization. Former Senator Nene Pimentel proposed a shift to federalism in 2008 but it never took off out of fear that it would be used to extend then President Arroyo’s term in office.

One would assume that given Duterte’s preference for federalism, he would be prepared to disclose the complete details and full impact of his plan. An executive summary and a draft federal constitution are terribly insufficient when trying to understand the impact of what is really being proposed.

Duterte and his allies must show how much such a shift to federalism will cost the Filipino people. The Philippines (called Asia’s third worst bureaucracy) already had 1.3 million government employees in 2010, and personnel costs of the Philippine government have jumped from P746 billion in 2015 to a whopping P990.5 billion in 2017! How many more new employees will the government need to hire to support all the new offices and agencies to be created in a federal setup? How much additional resources (construction and rental of new offices, equipment and supplies, training, etc.) will be needed to support these new officials, employees and offices? Given that the Philippines already has the second highest personal and highest corporate income tax among the six biggest ASEAN countries, how much additional taxes (and what kind) will be imposed in order to finance an even more bloated bureaucracy (that is growing faster than the population it serves)? Finally, and more importantly, can we afford it?

Note that if we were to follow the German model as Senate President Koko Pimentel suggests, and unlike the existing Local Government Code, future states would not have the power to impose new taxes or create their own sources of revenue. In any event, all the expenses of a much larger government will have to be financed through additional taxes on everyone in the country, without regard to whether your future state is rich or poor.

Is this about constitutional reform or an attempt to seize absolute power?

Third, Duterte’s actual objective does not seem to be constitutional reform but rather a “bid for total power” to avoid being held accountable when his term expires. Note that even the German ambassador to the Philippines Gordon Kricke reminds us that “it is crucial that democratic principles are implemented at every level. Independent institutions, an active civil society, free and critical media, the fair competition of political parties and the rule of law everywhere from the local to the national level are the indispensable pillars of a federal democratic state.”

This does not seem to be the case here. I agree with John Nery of the Philippine Daily Inquirer when he argued:

“President Duterte is now aware that he faces an existential threat, not of ouster but of being held to the strictest accounting even after his term. His bank accounts pose the most risk to him, but he is vulnerable on other counts, too: The continuing EJKs make an International Criminal Court investigation all but inevitable; the billion-peso shabu smuggling leads all the way back to Davao; the fractures in his coalition are widening, now with the Arroyo group in the ascendant.”

For me, this explains not just Duterte’s more recent proposal for a revolutionary government but also the many versions of federalism his government and allies have been pushing for. It explains his support for the Marcos and the Arroyos. It explains his reluctance to sign bank account waivers or investigate the P6.4billion shabu shipment from China. It explains why he has not lifted Martial Law in Mindanao despite the liberation of Marawi and the death of Isnilon Hapilon.

There are many more questions than need to be answered. But after trying to understand both the Philippine and German context, Duterte’s fake federalism isn’t the answer to many of them.