A federal system of government is best embodied in the traditional motto of the United States of America. Adopted by an Act of Congress in 1782, that motto is E pluribus unum—Latin for “Out of many, one.”
Federal systems are created from individual states, kingdoms, or other types of government units coming together under the umbrella of a national central government. The powers granted to the US national government were specifically limited. Powers are granted to the federal government in Article I, Section 8 of the Constitution, which include the power to coin money, to regulate commerce, to declare war, to raise and maintain armed forces, and to establish a Post Office. Further, Amendment 10 of the Constitution states that powers not given to the national government and not forbidden to the states are reserved to the states.
Therefore, federal states are given the power of taxation, spending, and the right to pass laws on issues that were not reserved for the central government and do not contradict national law. Over the centuries all national governments have taken away a great amount of the original power of the individual states under federalism.
But the heart of a federal system is that these local units have their individual taxation and spending power.
The Philippine Supreme Court just rendered a decision increasing the internal revenue allotment of local government units (LGUs) to 40 percent of all taxes collected—from the Bureau of Internal Revenue and the Bureau of Customs—starting 2022, from 30 percent of the BIR’s collection.
The initial reaction from the Department of Finance was
immediate and clear. Finance Secretary Carlos Dominguez said: “That’s going to
create a fiscal problem which in our estimates, without doing anything, would
drive up our deficit from the current
ceiling of 3.2 percent to 4.1 percent. That is not acceptable.”
To make a federal system work, local units must have more control over their own spending. Granting a percentage of the national government revenue has been provided by law for some time. However, the national government will always continue to need the bulk of revenues collected to fund national based programs.
But if LGUs are going to have the power to decide how public money is spent, then they must also be responsible for collecting those funds from their own residents.
Secretary Dominguez went on to say that there are some solutions. LGUs should take over the funding and administration of some national government programs. “For example, and this is just an example, the cost of the local schools. Basically, tell them, you pay for the teachers, you pay for the buildings.”
LGUs with an agricultural based economy might also take over the funding and spending for projects directly related to agriculture. The variations could go on and on.
What this legal ruling does, though, is highlight that changing to a federal system entails detailed planning and making sure that all the financial specifics are clear before any change is made. Federalism is not only about the political aspects—such as a parliament—but the more important and critical economic aspects.