Financial Reform is essential for development and real change to happen.
Why? Because LGUs play a very important role not only in achieving national and sub-national development goals, but mainly because they are directly responsible for the delivery of basic services to the people.
While most of our NGAs’ functions and programs have been devolved to LGUs, central authorities still control 84% of the national budget, leaving a measly 16% to be apportioned among all 43,703 LGUs. This is way below the 34% average in the Asia Pacific.
Federal States provide more transfers and tax revenues for its SNGs compared to local governments in unitary countries.
According to a recent UCLG study, “The dependence of Sub-National Governments (SNGs) on central government funding through grants and transfers reflects “vertical imbalances” in intergovernmental relations between revenue and expenditure, which drives a wedge between the marginal costs and benefits of the goods and services provided by SNGs.”1
The bigger the gap or mismatch between expenditure responsibilities and revenue sources, the more LGUs are restrained from carrying out all its devolved tasks, unfunded mandates and delegated tasks from central authorities. Insufficient financial, human, and technical capacity makes things even more difficult for local officials to cope.
Fiscal Equalization Reform through the LGCode amendment may be achieved within 2-3 years. What is immediately achievable is to lobby for additional conditional grants in the 2019 budget similar to the CMGP or KALSADA and ADM based on LGUs’ performance and implementation of higher good governance standards, as affirmed by President Duterte in his 2017 budget message.
Hopefully, with more funds that can be downloaded directly to LGUs to increase its % to public spending, people can also directly participate in governance and demand more transparency and accountability which is the essence of genuine decentralization.
(To be continued…)