Federalism: Too costly, won’t help poor?


An additional P10 billion would be spent on building new offices for each of the 18 federated regions.

Don’t look now, but the Federalism train claimed to bring the nation to an unprecedented era of peace and prosperity just might be stopped dead in its tracks by questions about its financial viability and its promise of accelerated economic development.

Lawmakers who might one day find themselves sitting as members of a constituent assembly tasked to come up with a new Constitution that would replace the current unitary system of government with a federal one should study very carefully the financial aspects and economic costs of such a shift.

According to the National Economic and Development Authority (NEDA), the shift to Federalism would cost a whopping P253.5 billion and this will be on top of the total cost of running the government.

The agency recently warned that the proposed federal charter would lead to “inevitable disruptions to the economy’s growth momentum and progress in infrastructure improvement efforts” and would bring about “fiscal pressures” and pressure on the budget deficit cap.

Under two scenarios using the draft federal charter, the incremental cost of Federalism would be a minimum of P156.6 billion and a maximum of P253.5 billion on average.

In the first year of implementation, for instance, an additional P10 billion would be spent on building new offices for each of the 18 federated regions. The incremental costs running to billions of pesos will cover personnel services, maintenance and other operating expenses, as well as the equalization fund equivalent to not less than three percent of the annual national budget.

NEDA’s conclusion: The proposed shift would lead to “unquantifiable economic costs” and it would be “difficult to ascertain whether or not a federal structure will work in the Philippines.”

From another direction, this time the academe, Federalism also faces formidable roadblocks.

A study by the University of the Philippines School of Economics concludes that Federalism is a “strong predictor” of higher income inequality in developing economies and higher poverty on average for all countries.

“The pro-Federalism position claims that Federalism will cause poverty to fall and the distribution of income to be more equal. Our regression results bear neither of these claims,” said economists Raul V. Fabella and Sarah Lynne Daway-Ducanes in their paper entitled “Federalism and Inclusion in Developing Economies.”

“On the contrary, Federalism strongly predicts greater income inequality in developing countries. Our results also show that Federalism strongly predicts higher poverty incidence and severity on average: it does not reduce poverty incidence and severity in developing economies,” they added.

The research covered 105 countries during the 1987-2016 period, and used the Gini coefficient as a measure of inequality while the poverty gap ratio and poverty head count ratios were used as measures of poverty.

The Gini coefficient looks at the distribution of a nation’s income and is most widely used as measure of inequality.

The poverty gap ratio, on the other hand, shows the average shortfall of the total population from the poverty line and reflects both the severity and incidence of poverty.

While the paper showed that Federalism “negatively associates” with income inequality on average, it has an “inequality-increasing effect” in developing economies… Federalism thus appears to be on the wrong side of inclusion — in terms of both poverty reduction and greater income equality.”

The authors concluded: “On the debate whether we should shift to Federalism, if inclusion is the criterion, our research results find no support in favor of such despite the claims of proponents. Indeed, the results show that poverty incidence and income inequality could become worse. The contemplated shift appears to be a jump from the frying pan to the fire.”

While at this, former Senate President Aquilino “Nene” Pimentel Jr. recently wrote a letter to the editor in another daily where he took to task an official advocating the declaration of a “revolutionary government.”

Here’s the brief note: “As an avid exponent of the proposal to adopt Federalism in our country, I do want the system embodied in our Constitution changed the soonest possible.

“But I am alarmed by the stand of one top official of the Department of Interior and Local Government, who is pushing a revolutionary government, ostensibly to facilitate the adoption of the federal system in our country.

“That is an outrageous suggestion, to say the least.

“It is also unsavory, undemocratic, unconstitutional.

“I hope the interior secretary can rein in the overzealousness of his subalterns.

“Otherwise, the merits of the Federalism proposal could be derailed by those baseless commentaries that might have, in fact, been fueled by motives other than the best interests of our country and people.”

Email: ernhil@yahoo.com