MANILA, Philippines – Malacañang countered the assertion of Socioeconomic Planning Secretary Ernesto Pernia that the shift to federalism would “wreak havoc” on the country’s economy.

Presidential Spokesperson Harry Roque insists that federalism would have no effect on the government’s budget and would not harm the economy.

“The shift to federalism, we reiterate, would have no adverse effect on the Philippine economy. Our budget would remain the same,” he said on Wednesday, July 18, in a statement.

Without citing any data or source of analysis, Roque explained that national projects would simply be funded by the budgets of local government units.

“Identified national projects would be devolved and transferred to the internal revenue allotment (IRA) of local government units. These projects include maintenance of barangay roads and bridges, water supply services, barangay health centers and daycare centers, solid waste disposal system of municipalities, among others,” he said.

Roque added that the Palace has “discussed and clarified the matter” with Pernia.

The day before, Pernia, a US-educated economics professor, said that, with the huge government expenses needed to fund the federalism shift, the fiscal deficit could balloon to at least 6%. The fiscal deficit is the difference between total revenues of the government and total expenditures. It’s the amount the government would have to borrow to cover the difference.

“Expenditure will be immense if we go to federalism, and we estimate that the fiscal deficit to the GDP (gross domestic product) ratio can easily jump to maybe 6% or more, and that’s really going to wreak havoc in terms of our fiscal situation,” Pernia said in an interview with One News’ The Chiefs.

Over-simplification?

But Roque’s explanation of why federalism wouldn’t change the national budget or harm the economy far from covers points raised by economic experts warning of the dangers of the shift.

Some economists foresee federalism causing hyperinflation if the government is unable to control spending by local governments given their new sources of income and new powers.

The government would also have to fork up an additional P44 billion to P72 billion for the shift to federalism, according to a study by Rosario Manasan, senior research fellow of the Philippine Institute for Development Studies (PIDS).

The amount includes the salaries of governors and vice governors of the states, senators – whose numbers would increase under a federal government, politicians’ staff, and the offices’ operating expenses.

A close reading of the draft federal constitution of the Consultative Committee (Con-Com) shows the cost could be even higher since the committee also created 4 high courts, 6 constitutional commissions, and 18 regional legislative assemblies – all of which would require funding to set up.

Then there is the cost of holding a plebiscite to vote on the new constitution, plus elections of the transitional president and vice president as called for in the Con-Com draft. – Rappler.com