Government News Analysis

The Union of Philippine Federal States

President Rodrigo Duterte wants to move the Philippines from a unitary form of government to a federal one and he wants a framework for that in place within this year. And prep-work for a possible Constitutional Convention which would open the way to implement such a framework has already started.

Switching to a federalist system is a massive undertaking. In the case of the Philippines it will involve a total restructuring and in some cases the creation of new fiscal and administrative institutions. It will also need the backing of the country and changes to the Constitution.

All that has been given a rough time table of between three and four years, but in any event Duterte expects that a federal union of Filipino regions will be a reality before the end of his term in 2022.

Quite what that framework will be exactly, remains to be seen, though the government’s constitutional lawyers are unlikely to want to reinvent he wheel. They will take, most likely, one of three routes: a federal presidential constitutional republic, like Brazil, Mexico and the US; a federal parliamentary republic, as in Austria, Germany and India, or a federal multi-party directional republic like Switzerland – any of which will also incorporate Filipino nuances to address the country’s specific ethnic, cultural, religious and linguistic narratives.

How many states would make up a United States of the Philippines is also not known, although one suggestion made back in 2008 by federalism advocate, Senator Aquilino Pimentel Jr, was that it should be comprised of 11 states created from the country’s existing political subdivisions.  Under that system, Metro Manila would be the federal administrative centre much like Washington DC is to the US.

Presently, there is only one federal system operating within the Association of Southeast Asian Nations. That is Malaysia which is a federal parliamentary democracy under an elective constitutional monarchy. All the others are unitary republics with the exception of Brunei, Cambodia and Thailand which are unitary monarchies.

Duterte’s purpose in all this is to rebalance the administrative power of the country, allowing the federal states to be greater masters of their own destiny – and not least in the area of taxation.

Under the present unitary system, 60% of all tax revenues from the provinces – everything from income tax and VAT to excise levies and documentation-stamp charges – go to the Bureau of Inland Revenue (BIR) in Manila. The remaining 40% is apportioned back to local governments via a complex and contentious system known as the Internal Revenue Allotment (IRA).

How local government spends that 40% under IRA rules is determined first by the Local Government Service Equalization Fund and secondly by Congress which sets the amounts to be outlaid for provincial projects. What remains after that is then divided between the provinces (23%), cities (23%), municipalities (34%) and barangays (20%).

In all this, federalists argue, there is very little fiscal or budgetary autonomy. Furthermore, while seeing little direct benefit from the 60% retained for the national coffers, what is returned to local government units (LGUs) in real terms is often below what is required to run the primary services for which the LGUs are responsible. Duterte has suggested a more equitable division of revenue from the provinces would be for the regions to retain 70% leaving 30% for the BIR.

Fedaralists also argue that there is a vast discrepancy in budgetary allocations between Manila and the regions with respect to population sizes.

In the 2016 national budget, the National Capital Region (Metro Manila), with a population of 12.8 million was allocated 14.27% of the total, amounting to PHP428.5 billion (exclusive of the budget for the Office of the President, the Office of the Vice President and Congress). Meanwhile, Luzon, with north of 42 million people got 20.94% of the national budget, or PHP638.3 billion; the Visayas 19.4 million people received 9.94%, PHP298.3 billion; Mindanao with around 24 million people was awarded 13.23% or PHP 396.9 billion.

But this is not solely about taxes, the national budget and a fair distribution of wealth. It is about giving the regions more direct control of their land, the development of their industries and the welfare of their people by decentralising power and supporting regional independence.

And one more thing – and probably the biggest of all – champions of federalism believe that it can provide the best way forward for lasting peace in Mindanao.

In the short term, what is likely is that elements of federalism will start to appear, preparing the country for the transition. Moving the Department of Tourism from Manila to Cebu, for example, is a symbolic shift from the centre’s unitary control. Switching the venue for ministerial-level planning meetings from Manila to Davao sends the same signal.

These are relatively small tweaks but they are undoubtedly the first single steps in the proposed Philippine Federacy’s journey of a thousand miles.