Revenue Allocation and Responsible Fiscal Federalism

A big government is a lucrative breeding ground for corruption. This makes the government less capable of being disciplined by the governed. This only strengthens the case for pushing a smaller central government whose focus should be shifted away from micro-management tasks. Instead, the national government needs to refocus its functions on issues of truly national and international concerns such as interstate commerce, national defense, federal policing of certain interstate crimes that threaten the stability of the whole country, diplomacy, and other affairs of similar kind.

Advocating for Federalized Revenue Sharing and Allocation

Taxation is perhaps the most important function of the government. Decentralizing the power to tax helps minimize countless problems associated with centralized fiscal arrangement. Under the current fiscal setup, the national government takes the lion's share of all taxes collected and retains the right to allocate the budgets to the LGUs (Local Government Units) according to certain requirements. However, reversing the revenue allocation by giving the national government 20% of the total taxes collected while allowing the local governments to retain 80% of the share, can mitigate so many issues arising from government inefficiency and ineffectiveness. More often than not, when LGUs face criticisms of being less responsive, they are most likely to attribute this problem to lack or insufficiency of funds. Below are some arguments supporting for a reverse revenue allocation in a proposed Federal setup.

1. In a reverse revenue sharing arrangement analogous to the foregoing, political influence of questionable interest groups such as some fake NGOs or other organizations lobbying for government largesse can be reduced. Under this setup, the national government would be forced to confine its roles and responsibilities to national concerns which it can better manage. This makes pork barrel projects less politically attractive which has been the source of contention. This would even incentivize the local governments to be more particularly selective when coming up with projects and the means to concretize them.

2. Placing the power of taxation more to the local governments could mean greater accountability because it would make the political costs of project and budgetary proposals in line with the social costs. In the current fiscal arrangement, the national government is less discriminatory because of its innate ability of figure out what's best for a certain locality to which the projects are intended for. If the peso tax raised by a local government could be spent on the local taxpayers themselves, the government would have the tendency to avoid wasteful spending. Why? Reverse revenue sharing motivates local taxpayers to oppose any projects that may adversely affect their interest. This would even force the local governments to be wiser in managing their local coffers since the issue of taxation is much closer to home. Transferring the bulk of tax revenues from local coffers to the national treasury would only result to underfunding or worst, non-funding at all because the organized interest groups in the Congress would then be motivated to lobby for funds which will not necessarily benefit everyone nationwide.

3. When local governments obtain financial grants or budget allocations from the central government, the peso tax they capture will be directed to finance projects elsewhere. This is the reason why Imperial Manila gets the chunk of development funds while the rest of the country suffers from underfunding.

4. If reverse revenue sharing would be pursued in a Federal setup, vested interests in the national level would not undermine the only source of revenue that local governments have. Right now, we have seen the futility of many local government officials lobbying for funds, no matter how urgent, which are often turned down by national officials citing the limits of budgetary provisions.

5. The 80-20 share can help promote efficiency in government's fiscal activities by encouraging competition among local government units. Quality tax-related decision-making and the ability to spur vibrant economic activities would become a necessity since self-reliance would force local voters to re-evaluate their voting behavior. This would make them re-think of selecting leaders who would best tailor their interests in the context of fiscal reality and discipline.

A reverse revenue-sharing according to 80-20 setup is not only morally fair and economically responsible but also pragmatic in bringing a healthy form of fiscal federalism that is currently absent in the unitary form of government. With all these arguments in mind, I certainly hope that change will be in sight in our lifetime.