TOWARDS A NEW & EQUITABLE PHILIPPINES

Philip G. Camara, Subsidiarity Movement / Kilusang Pinatubo, February 10, 2010

ILLUSIONARY BASIS OF METRO MANILA’S CENTRALITY TO THE PHILIPPINE ECONOMY

The illusion given by most economists is that Metro Manila is the economic
powerhouse of the whole country. While the Visayas has its Cebu City and Mindanao
its Davao City, by far Metro Manila will appear in economists’ analysis as showing it
alone as tops. Take for example the usual presentation of our component Regional
Gross Domestic Product (RGDP = the income generated from the land, labor and
capital utilized in a given year in that Region):

Regional Accounts of the Philippines

Unit: In Billion Pesos
LEVELS AT CURRENT PRICES
GROSS REGIONAL DOMESTIC PRODUCT
2007

REGION / YEAR PhP

PHILIPPINES 6,647.3
NCR METRO MANILA 2,478.5
CAR CORDILLERA 136.1
I ILOCOS 185.4
II CAGAYAN VALLEY 117.2
III CENTRAL LUZON 499.2
IVA CALABARZON 749.1
IVB MIMAROPA 138.8
V BICOL 168.6
VI WESTERN VISAYAS 438.7
VII CENTRAL VISAYAS 462.2
VIII EASTERN VISAYAS 140.8
ZAMBOANGA
IX PENINSULA 151.6
NORTHERN
X MINDANAO 311.4
XI DAVAO REGION 295.9
XII SOCCSKSARGEN 221.8
XIII CARAGA 96.3
ARMM MUSLIM MINDANAO 55.9

Well, you say, don’t figures speak for themselves? They do but we must get a
glimpse of how those numbers and GDP (and GNP) are put together in the first
place. The only real point to understand in these GDP/GNP figures whether for the
Philippines as a whole or by its component regions is that the starting point of the
data are the corporate and enterprise accounts. The incomes reported by selected
enterprises per industry are studied and compiled by sector and added up for all
sectors of the country. With some adjustments that becomes the GNP figure and the
RGDP is done the same way but for the enterprises within the region.

CONCENTRATION OF DATA NOT ECONOMIC ACTIVITY IS SOURCE OF ILLUSION

Take for example the telecom industry. Practically all of its GDP contribution is
booked or accounted for in Metro Manila only for the reason that its head office is in
Metro Manila. But the cell sites which are its productive base are located all over the
country AND more important, the service is consumed also all over the country. If
the production and consumption are occurring all over the country, why is Metro
Manila claiming all of the productivity?

The same can be said for mega-sectors of our economy: retailing (think malls),
banking, real estate development, BPOs, Food processing, pharmaceuticals,
exporters of crafts, etc. The fact that their corporate headquarters are in the city, all
the economic activity is booked in the city.

TAX COLLECTION GEOGRAPHIC SOURCE IS BASED ON ILLUSION

Thus, it is not surprising at all that if we take the BIR collection figures by region we
get the following picture:

Regions BIR
P000 (2007) Collection
Per Region
Grand Total 717,23
3.58
National Capital 622,23
Region 1
Region 4.21 4,20
CAR 7.02 2,97
Region 2 4.01 2,15
Region 3 3.96 13,10
Region 4 9.79 32,03
Region 5 7.99 3,76
Region 6 9.91 6,96
Region 7 1.44 8,75
Region 8 2.20 3,26
Region 9 2.21 2,01
Region 10 8.91 3,93
Region 11 0.22 6,50
Region 12 8.66 2,71
Region 13 3.43 2,08
ARMM 6.89 5
12.73
With these figures at hand it is not hard for the political, social and economic
masters to justify the concentration of tax spending for, policy bias towards and
cultural dominance of Metro Manila. Because, supposedly, Metro Manila is the most
productive region in terms of GNP and tax revenue generation.

EQUITABLE REGIONAL DEVELOPMENT

Not surprisingly then, simply because of the way we compute GDP and assign Tax
revenue collections the Philippines suffers markedly from inequitable area
development. This inequity in turn feeds urban migration which in turn leads to
worsening social conditions, the collapse of rural economies and incomes, and
further concentration of most power in the urban centers to the detriment of the
countryside.

Unless this crucial illusion is addressed, trying to promote equitable regional

development will prove quixotic.

Equitable regional development can start from our present system by allowing a
regional consciousness to emerge by decentralizing national government functions
to existing Regional Development Councils (RDCs) with broader powers and
authorities (see author’s paper “Towards Regional Governance”). Empowered RDCs
can become Regional Development Authorities or RDAs.

Also, by eventually shifting away from a Value-Added-Tax system (that can only be
implemented under the current illusory accounting) to a Sales Tax system the
equalization process can make good headway. Here is how the Income and
Consumption Values of the region look like in 2006:

Region Estimated Ave. Family Ave. Family

No.
of Expenditure Income
National Capital Region Households
2,310 257 310,
Cordillera Administrative Region ,685
304 ,930
150 860
192,
Region 1 ,149
909 ,508
123 126
142,
Region 2 ,181
610 ,502
117 358
142,
Region 3 ,297
1,944 ,889
170 770
197,
Region 4-A ,196
2,348 ,347
186 640
209,
Region 4-B ,622
511 ,287
92 749
108
Region 5 ,958
1,021 ,999
110 ,946
125,
Region 6 ,960
1,368 ,498
115 184
129,
Region 7 ,729
1,279 ,946
123 905
144,
Region 8 ,726
782 ,618
104 288
125,
Region 9 ,587
646 ,070
98 731
125,
Region 10 ,019
790 ,675
116 445
141,
Region 11 ,487
831 ,667
115 773
134,
Region 12 ,331
765 ,125
95 605
113,
Region 13 ,816
458 ,836
99 919
118,
Autonomous Region of Muslim ,696
824 ,949
74 146
88
Mindanao
Source: National Statistical Coordination Board,159 ,838 ,632
If only based on family consumption values with a 10% sales tax and an average of
10% personal income tax the Regional Tax Collection would become more equitable
and balanced. (note that the author is not suggesting that these become actual tax
rates but rather uses the calculation to indicate likely fiscal resource generation
from regions. There are many other sources of taxes aside from sales and personal
income taxes, the bigger ones being corporate income tax, “sin” taxes, transaction
taxes, import tariffs etc, natural resource use taxes, etc.)

Region Estimated Total 10% Estimated Personal Income

Total
Family Income Tax (10% of TFI)
Family Expenditure Sales Tax
National 595,995,085 59,599,508,522.2 718,299,663,4 71,829,966,344.4
Capital
CAR Region ,222 0
4,577,679,748.8 44
58,434,853,9 05,843,485,392.3
45,776,797,489
8 24 6
Region 1 112,285,696 11,228,569,656.2 129,429,217,2 12,942,921,726.9
Region 2 ,562
71,947,350 4
7,194,735,018.8 70
87,132,159,7 68,713,215,979.8
Region 3 ,189
331,188,024 6
33,118,802,415.0 98
384,250,976,4 0
38,425,097,649.6
Region 4-A ,151
437,517,746 8
43,751,774,651.4 96
492,621,115,8 0
49,262,111,587.8
Region 4-B ,514
47,611,600 0
4,761,160,064.1 78
55,775,798,0 05,577,579,805.7
Region 5 ,642
112,924,491 8
11,292,449,188.0 57
127,932,990,5 2
12,793,299,056.6
Region 6 ,881
158,698,606 8
15,869,860,625.5 66
177,804,688,7 4
17,780,468,878.3
Region 7 ,256
158,197,119 6
15,819,711,922.0 83
184,649,047,3 0
18,464,904,737.2
Region 8 ,221
81,443,849 8
8,144,384,990.4 73
98,395,471,2 89,839,547,124.3
Region 9 ,904
63,745,905 0
6,374,590,509.0 43
81,039,828,3 28,103,982,836.6
Region 10 ,090
92,223,793 0
9,222,379,349.5 66
112,069,770,1 0
11,206,977,016.0
Region 11 ,496
95,706,935 8
9,570,693,532.5 60
111,901,255,4 2
11,190,125,541.3
Region 12 ,325
73,392,761 0
7,339,276,134.3 13
87,241,015,6 08,724,101,568.7
Region 13 ,343
45,846,206 2
4,584,620,650.4 88
54,193,097,6 85,419,309,761.6
ARMM ,504
61,678,411 0
6,167,841,124.2 16
73,046,860,4 07,304,686,048.8
TOTAL ,242 0
258,618,038,1 88 0
303,421,781,056
03 303,421,781,056

Region Increase/
Total Sales Tax & BIR (Decrease)
Personal Inc. Tax Collection in Tax Collection
National Capital Region 131,429,474,8 622,234,21 (490,804,735,13
66.60 0,000 3.40)
Cordillera Administrative Region 10,421,165,1 2,974,0 7,447,155,1
41.24 10,000 41.24
Region 1 24,171,491,3 4,207,0 19,964,471,3
83.20 20,000 83.20
Region 2 15,907,950,9 2,153,9 13,753,990,9
98.66 60,000 98.66
Region 3 71,543,900,0 13,109,7 58,434,110,0
64.68 90,000 64.68
Region 4-A 93,013,886,2 30,477,3 62,536,496,2
39.20 90,000 39.20
Region 4-B 10,338,739,8 1,560,6 8,778,139,8
69.90 00,000 69.90
Region 5 24,085,748,2 3,769,9 20,315,838,2
44.72 10,000 44.72
Region 6 33,650,329,5 6,961,4 26,688,889,5
03.86 40,000 03.86
Region 7 34,284,616,6 8,752,2 25,532,416,6
59.36 00,000 59.36
Region 8 17,983,932,1 3,262,2 14,721,722,1
14.72 10,000 14.72
Region 9 14,478,573,3 2,018,9 12,459,663,3
45.60 10,000 45.60
Region 10 20,429,356,3 3,930,2 16,499,136,3
65.60 20,000 65.60
Region 11 20,760,819,0 6,508,6 14,252,159,0
73.80 60,000 73.80
Region 12 16,063,377,7 2,713,4 13,349,947,7
03.10 30,000 03.10
Region 13 10,003,930,4 2,086,8 7,917,040,4
12.00 90,000 12.00
Autonomous Region of Muslim 13,472,527,1 512,7 12,959,797,1
Mindanao 73.00 30,000 73.00
562,039,81 717,233,58
9,159 0,000

The difference between the P562 billion and the 2007 BIR actual of P717 billion may
be accounted for by the other taxes mentioned outside of the sales and personal
income taxes of households.

REGIONAL SELF-RELIANCE

The sales tax system will result in better fiscal self-reliance but because of historical
neglect and the effects of the Metro Manila-centric policies many regions will still
not be fiscally self-reliant:

P000 LGUs Total Central Total Estimated Surplus/

Governmen 10%Total
Sales
Income Regional (Deficit)
t Tax
Expenditure Expenditure & Personal
2007 for the Income Tax
Regions
2007
National Capital 46,778,4 137,531,9 184,310,3 81,429, (52,880,9
Region* 01 11,410,0 9514,371,2 9625,781,3 475 10,421, 22) (15,360,1
Region 1
60 6,223,7 48 7,499,5 0813,723,2 165 24,171, 43) 10,448,
CAR
10 9,160,5 1410,132,7 2419,293,3 491 15,907, 267 (3,385,3
Region 2
69 20,888,9 5921,590,0 2842,478,9 951 71,543, 77) 29,064,
Region 3
21 35,866,5 1327,646,9 3463,513,5 900 93,013, 966 29,500,
Region 4
90 10,993,9 3315,101,3 2326,095,3 886 10,338, 363 (15,756,5
Region 5
73 16,679,8 4218,419,9 1535,099,7 740 24,085, 75) (11,014,0
Region 6
41 15,555,4 5514,027,6 9629,583,1 748 33,650, 47) 4,067,
Region 7
55 8,687,3 8112,732,9 3621,420,2 330 34,284, 194 12,864,
Region 8
22 7,781,5 62 9,821,7 8417,603,3 617 17,983, 333 380,
Region 9
31 73 04 932 628
Region 10 11,300,4 11,512,4 22,812,8 14,478, (8,334,3
06 10,170,5 9010,980,1 9621,150,7 573 20,429, 23) (72
Region 11 96 83 79 356 1,423)
Region 12 8,285,2 8,623,7 16,909,0 20,760, 3,851,
49 7,545,2 77 7,146,5 2714,691,7 819 16,063, 792 1,371,
Region 13
45 7,354,7 37 8,753,8 82 16,108,5 378 10,00 596 (6,104,6
ARMM 02 83 85 3,930 54)
234,682 335,893,0 570,575, 548,567
TOTAL ,572 44 617 ,292
Source: Commission on Audit Financial Reports 2007

Therefore, to make up for the historical inequity, richer regions will transfer funds
through the Central Government as is what is done in the USA and in the EU for
their poorer member-states.

ECONOMIC, POLITICAL AND CULTURAL REVIVAL OF A NEW PHILIPPINES

With more equitable regional development we may very well witness, in only a
decade of so, the emergence of a new Philippines. With more government funds
equitably distributed and with power shared with Regional authorities that in turn
empower Local Governments and communities to take various integrated initiatives
a virtuous cycle of development will unfold. Unity in diversity, peace and
development, national harmony are what the National Government can champion
and project.

WHAT HAVE WE GOT TO LOSE?

A new President, whoever he is, will have a chance to take the historic break from
our colonial past and its Manila-centric dominance to the detriment of most other
areas. It is a bold move but badly needed if we are not to become a completely
failed state or even one that exists only for the political and economic superiors.