Businessmen see upside in federalism, but wary of pesky politics

Ralf Rivas

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Businessmen see upside in federalism, but wary of pesky politics
Lemuel Magracia, former president of the Philippine Chamber of Commerce and Industry- Rizal says strengthening local governments will encourage good business competition among provinces

MANILA, Philippines– Several business groups expressed optimism in the proposed shift to a federal form of government, but warned that the current political climate might defeat its intended purpose.

Lemuel Magracia, former president of the Philippine Chamber of Commerce and Industry (PCCI)- Rizal said giving more powers to local governments will encourage “fierce competition between provinces.”

He also said the war against poverty could start from the grassroots under federalism.

Moreover, the local government can also directly offer incentives to businesses under the system and will further attract foreign and local investors. 

But Magracia warned that proponents must carefully analyze the shift.

“Further study is needed since our historical roots do not support it in terms of knowledge and experience. What we have now is a long experience of power of centralization in the national government,” he said in a federalism and competitiveness forum organized by the Asian Institute of Management (AIM).

Coco Alcuaz, executive director of the Makati Business Club (MBC), also expressed concern over the move, as its deliberations are being held along with other controversial measures.

The lower house is currently discussing the features of the 2nd tranche of the Tax Reform for Acceleration and Inclusion (TRAIN) law, which aims to cut corporate taxes and repeal tax incentives.

“This area of uncertainty is not positive for business, many changes for taxes… these things are happening at the same time,” Alcuaz said.

He also said businessmen are also wary of the distribution of financial powers, taxation and spending of public funds under federalism.

“Our current tax system now is uniform and it’s good for ease of doing business. If you have different rates in different regions, that’s negative,” Alcuaz said.

Temario Rivera, board chairman of the Center for People Empowerment in Governance (CENPEG), warned of the problems that may arise in powering up incompetent local elites.

He said that local officials might not have the capacity to handle more responsibilities and may use their position to forward their interests. While he sees the benefits of giving more powers to local officials, he stressed that it can be done without federalism.

“One pragmatic proposal is increase the share of local governments. But do you have to transform? No! You can do that by simply amending the local government code,” Rivera said.

Socioeconomic Planning Secretary Ernesto Pernia previously warned that federalism might “wreak havoc” to the economy.

Some economists even said that the shift may lead to hyperinflation

Moody’s Investors Service also expressed that the shift might lead to a lower credit rating. – Rappler.com

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Ralf Rivas

A sociologist by heart, a journalist by profession. Ralf is Rappler's business reporter, covering macroeconomy, government finance, companies, and agriculture.