June 10th, 2021
Salceda says Mandanas ruling may improve social services, but “modestly reduce” growth in the short-term
House Ways and Means Chair and Appropriations Vice Chair Joey Sarte Salceda (Albay, 2nd district) says that the Mandanas ruling, which is set to be implemented in 2022, may reduce economic growth in the short to medium term but may also improve the delivery of basic social services, “depending on the quality of local governance.”
In remarks to the World Bank – Philippine Economic Update launch today, Salceda said that the implementation of the ruling could cause a “modestly negative in short to medium term due to loss of scale (20% of current capital outlay), lower fiscal space for capital expenditures on spatial convergence.”
Salceda adds that the ruling could also cause “Reduced national government capital outlays, a negative for capital formation, and lower national government borrowing due to a reduction in primary surplus.”
In the long-term, however, Salceda believes that “local economic development, matched with the Corporate Recovery and Tax Incentives for Enterprises or CREATE Act, could boost growth.”
“Interlocal convergence could also offset reduced national interspatial integration. Local governments whose economies are interlocked have to be willing to work together and work beyond their siloes,” Salceda added.
Better social services, if leaders are good
Salceda also emphasized that the Mandanas ruling could improve the delivery of social services and enhance human development and poverty reduction.
“There are potential improvements in distributional impacts, with more than 70% of poverty incidence being rural poverty. This of course is possible good governance.”
“The delivery of social services could also improve, Improved delivery due to better targeting, lower administrative costs, and better feedback loop at the local level,” Salceda added.
Fiscally, however, Salceda warned that local governments may “rest on the laurels of increased internal revenue allotment and be more lax in generating their own revenues.”
“The increased IRA is a disincentive to creating more internally-generated funds or IGF from local taxes such as real property tax and natural resource taxes such as the sand and gravel tax. So, the Bureau of Local Government Finance has to work really hard to make sure LGUs still work towards public resource generation,” Salceda said.
Political impacts
Salceda explained that the ruling “shifts power from Congress to local governments. As a result, we may see more vertical and horizontal consolidation of power among good, or even bad, local leaders. The good leaders can perform better and will be more popular with greater funding. The bad leaders will have more resources to sustain patron-client relationships.”
“So we still need better oversight of the use of local fiscal resources. That is where the role of agencies like the Commission on Audit will come in. But they will have to be less procedural and more impact-oriented. The question of governance is not whether every little detail is perfect, but whether a local project is the most effective and impactful use of public resources.”
Salceda also outlined capacity development and integration of local and national plans as continuing challenges even after 2022.
“Helping LGUs get better will always be a national government function. As will socioeconomic planning for the whole country. So, we still need better regional development and national development planning and equity,” Salceda said.