Press Release
August 8, 2018

Drilon defends LGU shares from IRA, rejects DBM plan to declare unmanageable fiscal deficit

Senate Minority Leader Franklin M. Drilon opposed a plan of the country's economic managers to resort to a declaration of an unmanageable public sector deficit to allow the President to reduce the internal revenue allotment (IRA) shares of local government units (LGUs) to order to address the potential expense of P200 billion, the projected budgetary requirement caused by the recent Supreme Court ruling in the Mandanas case on the "just share" of LGUs in the taxes collected.

The Supreme Court ruled that the IRA must be computed based on all national taxes, and not solely from national internal revenue taxes collected by the Bureau of Internal Revenue.

There is a concern that the ruling could increase the country's deficit from three percent to four percent, Drilon said. The proposed P3.757 trillion national budget pegged a wider fiscal deficit program for 2019 at 3.2 percent of gross domestic product, equivalent to P624.4 billion.

During the hearing on the 2019 proposed budget on Wednesday, Drilon asked the economic managers: "Where do we source potentially huge amount that we have to add to the NEP (National Expenditure Program)?"

Finance Secretary Carlos Dominguez said that the government "will not absorb a higher deficit. We cannot afford that."

The economic managers later on disclosed they are contemplating to invoke Section 284 of the Local Government Code.

Drilon opposed the plan, saying such move will be detrimental to the local governments, who have their own plans where to use the additional budget that is due them by virtue of the SC ruling.

Drilon explained that by invoking Section 284 of the Local Government Code, the government may declare an unmanageable public fiscal deficit to cut the IRA shares of the LGUs by up to a maximum of 10% from the present level.

Section 284 of the Local Government Code, which states that, "in the event that the national government incurs an unmanageable public sector deficit, the President of the Philippines is hereby authorized, upon the recommendation of Secretary of Finance, Secretary of Interior and Local Government and Secretary of Budget and Management, and subject to consultation with the presiding officers of both Houses of Congress and the presidents of the "liga", to make the necessary adjustments in the internal revenue allotment of local government units but in no case shall the allotment be less than thirty percent (30%) of the collection of national internal revenue taxes of the third fiscal year preceding the current fiscal year."

"This is a power available to them under the Local Government Code, but I strongly advise against using that power."

"Any reduction of the IRA will hit the LGUs and the projects of the LGUs. It may also affect the personnel and their salaries," Drilon said.

"It will also send a very wrong signal to the investors," he added.

The minority leader said that the additional amount necessary to effect the increase in the IRA shares of LGUS, as well as to implement the recently-signed Bangsamoro Basic Law, can be sourced from various items in the budget, including the intelligence fund.

"We just have to look at the entire budget and see where we can source the P200 billion additional amount," Drilon said.

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