Federalism

TUNAY NA PAGBABAGO

25 th CREBA Annual National Convention

Baguio City,14 October 2016
 Presentation Outline

1. How are we doing?

2. Where should we go?
3. How do we get there?
4. Implications for PH real
estate sector
 Left behind
Rank Other Asian
Country (1= poorest, 185 = richest) countries have
Singapore 183 progressed
steadily, while the
Brunei 182
Philippines has
Malaysia 141 been left behind
Thailand 106 by one after
Indonesia 83 another of its
neighbors.
Philippines 63
Vietnam 60 •2015 Rankings on Gross
Domestic Product (GDP)
Laos 58 based on purchasing-
power-parity (PPP) per
Myanmar 55 Capita.
Cambodia 43 Posted by Global Finance
 In the whole of
Asia, the
Philippines is
unique for being
the only country
to fail to halve
poverty in 25
years, from 1990
to 2015.
Source: UNESCAP, 2015. From Atty Rita Linda
Jimeno, Member, 2005 Consultative Commission
 Unsettled times

HukBaLaHap/HMB CPP/NPA Political Warlords Failed Agrarian

Reform
UNSETTLED POLITICAL SITUATION:
• Insurgency
• Moro Rebellion
• Social Unrest (due to injustice, poverty, corruption, political
warlords and dynasties, and failed agrarian reform)
 Real GRDP/capita (in millions PhP)
Real
GRDP/Capita
(in millions
PhP) 2009 2010 2011 2012 2013 2014 Average
Region
2009-2014
NCR 162.32 171.44 173.06 181.75 195.07 203.13 181.13
Luzon 45.16 47.24 47.49 48.82 50.60 52.51 48.64
Visayas 37.33 39.53 40.76 41.68 43.35 44.75 41.23
Mindanao 33.79 34.91 35.52 37.67 39.35 41.51 37.12
Average 69.65 73.28 74.21 77.48 82.09 85.48
High 162.32 171.44 173.06 181.75 195.07 203.13
Low 33.79 34.91 35.52 37.67 39.35 41.51
250.00

200.00 Source: PSA, ChartPoints and Bloomberg

150.00

100.00

50.00

-
2009

2010

2011

2012

2013

2014

2009

2010

2011

2012

2013

2014

2009

2010

2011

2012

2013

2014

2009

2010

2011

2012

2013

2014
NCR Luzon Visayas Mindanao
 Presentation Outline

1. How are we doing?

2. Where should we go?
3. How do we get there?
4. Implications for PH real
estate sector
 Change is coming.

Rodrigo Duterte wins on

promise of real change
 One proposed change: from Unitary
to Federal

Malacañan decides how In Federalism, states can

much to give to local make decisions with little
governments. interference from
national government.
What is Federalism?

A form of government where

sovereignty is constitutionally
shared between a central
authority and states or regions
National government focuses on
national interests such as
foreign relations, national
security, and monetary policy
Autonomous regions or states
will be responsible for delivery
of public goods and social
services and local economic
development.
Constitutional basis
 AdvAdvantages of “the federal idea”

1) EMPOWERMENT :
It will empower our citizens
to become more involved in
government decisions at the
local level. They will be more
willing to pay taxes to finance
government programs and
services that they can directly
create and oversee.
AdvAdvantages of “the federal idea”
2) BETTER DECISION-
MAKING :
It will improve the ability
of local government
executives to quickly
make decisions that
respond to their unique
circumstances. Over time,
we will bring up a better
class of leadership.
 AdvAdvantages of “the federal idea”

3) GREATER
ACCOUNTABILITY:
It will bring government
officials closer to their
constituencies,
strengthening oversight.
Over time, platform and
performance will replace
personality-based politics.
AdvAdvantages of “the federal idea”
4) HEALTHY
COMPETITION:
States or regions will have
to compete with each
other to attract domestic
and foreign trade,
investment and credit.
Over time, good
performers and policies
will prevail over bad ones.
 AdvAdvantages of “the federal idea”
6) DIVERSITY AMID UNITY:
The federal idea ensures a just
and enduring framework for
peace among the various
ethnic, religious, and cultural
communities. The legitimate
interests of Moros and other
indigenous peoples will be
addressed and protected.
AdvAdvantages of “the federal idea”
6) DECONGEST METRO
MANILA:
Manila will become decongested
as the different regions catch up
in economic growth and
employment opportunities. This
catching-up will also propel us
for the first time towards
genuine self-sustaining growth
as a country.
 Presentation Outline

1. How are we doing?

2. Where should we go?
3. How do we get there?
4. Implications for PH real
estate sector
 x
Modes of charter change

People’s Initiative
?
Constitutional Convention


Constituent Assembly
Source: Centrist Democratic Party (CDP)
 Advantages of the Federal System of
In a federal system of
Government CENTRAL
government, states (or
regions) will have the power
to exercise taxation and
keep the revenues for
themselves, remitting only
their respective contributions
to the national government.
LGU
 Rebalancing gov’t responsibilities

• Primary service responsibilities (National)

– What services can only be provided by the National
Government? (e.g. Defense)
• Secondary service responsibilities (Shared)
– What services does the National Government have a
significant interest in but are best delivered by a lower
unit of government? (e.g. Education, Health)
• Tertiary service responsibilities (Local)
– What services are of primary concern to local
communities? (e.g. Policing, Agriculture, Fire Protection)
DAI/Facilitating Public Investment (FPI) Project

22
 Redefining taxation and fiscal transfers

• Primary National Government Services <=

Federal Tax
• Secondary National Government Services
<= Conditional Grants
• Tertiary National Government Services <=
Block Grants
• Limited Scope Special Infrastructure
Transfers
• Transfers to Improve Fiscal Management
DAI/Facilitating Public Investment (FPI) Project

23
 Another view on rebalancing

Source: LoGoDeF, 2016

 Sharing taxation powers
Tax/Level Federal States Counties

Natural Resource Taxation (Profits) Policy X

Administration/Collection X

Customs Duties Policy X

Administration/Collection X

Corporate Income Taxation Policy X

Administration/Collection X

Personal Income Taxation Policy X

Administration/Collection S S

Value Added Taxation Policy X

Administration/Collection X

Sales Taxation Policy X

Administration/Collection S S

Excise Taxation Policy X

Administration/Collection S S

Natural Resources (Royalties, Fees, X

Charges, Severance Taxes) Policy S S
Administration/Collection

Presumptive Taxation Policy S S

Administration/Collection S S

Property Taxation Policy S S

Administration/Collection X

Index
X = Sole responsibility
S = Shared Responsibility

DAI/Facilitating Public Investment (FPI) Project

25
 Another view on sharing taxation powers

Source: LoGoDeF, 2016

 Presentation Outline

1. How are we doing?

2. Where should we go?
3. How do we get there?
4. Implications for PH real
estate sector
 Issues
•Continuing restrictions on land ownership by
Legal and foreigners (not just in PH but also in other ASEAN
countries like Indonesia and Myanmar). These may
political limit full positive impact from freer cross-border
investment flows post-ASEAN integration.

Industry •BSP concern that industry is dominated by

conglomerates controlled by less than a dozen
structure families, most of whom have aggressively borrowed.

•Low-income housing deficit projected by SHDA to hit

Supply- 5.8 MM by 2030.
•Possible oversupply at the high-end of residential
demand market. BSP supposed to release new “housing price
index” in 2015 to monitor overheating.
imbalances •Poor physical infrastructure hampers proper matching
of property supply and demand.

Sources: Wall Street Journal; Lamudi;

MyProperty.ph
28
Housing demand & supply
 Outlook
•PH will lead ASEAN in real estate market growth.

Philippines •“There is no truth to the rumor that there will be a

real estate bubble!” – Eduardo Ong, Chair, Board of
Real Estate Service

•MM dislodged Madrid to join JLL Top 30 list in 2014.

•From 28th largest city GDP in the world in 2010, MM
will rise to 25th place in 2020 and 18th place in 2030.
•MM far more geared to IT than its regional peers.
Metro Manila Ranked 10th in Tech-Rich Cities global index for
1Q’15, above San Diego, Osaka, Munich, and Beijing.
•MM real estate market has one of the highest
absorption rates in Asia, and is still one of the most
affordable in the world.

Sources: CBRE 2015 APAC Real Estate Markets Outlook; PWC/ULI Asia Pacific Report
2015; JLL Global 300 Index report , 2014
30
 Opportunities (2015)
• Puregold and Vista Land will invest Php 3.5 BN
Investment and PhP 15 BN respectively to expand into
retail over the next 5 years.
niches • Megaworld has doubled to 20 the number of
township projects in its national portfolio

• New “business hubs” like the PhP 1.5 BN

development in Palayan City, Nueva Ecija.
Provincial cities • Developers expanding into Cavite, Batangas,
Laguna, and other provincial cities as Metro
Manila becomes saturated.

• Prospective new office demand from ASEAN

ASEAN companies expanding into PH

integration • ASEAN brands entering PH retail market, eg

H&M’s first mall in 2014.

Sources: Wall Street Journal; Lamudi;

MyProperty.ph
31
 Regionalization of real estate sector (1)

• One international airport per state?

• More seaports on long PH coastline
Infrastructure buildout • Improvement in access infrastructure, eg “last
mile connectivity” from tourist access point to
tourist destination

• New provincial hubs will drive the creation of

Business expansion
interstate value chains, whether in agricultural
and demographic processing, manufacturing, or services sector
shifts • Growth of suburbs

• Will a new constitution allow states to permit

Lift foreign investment majority land ownership by foreigners?
restrictions • FDI policies could then become a competitive
tool of states

32
 Regionalization of real estate sector (2)
• No more one-size-fits-all national land use code
that is hostile to real estate and commercial
Land use policies
development
and administration • Land use policies become still another
competitive tool of states
• Strong and autonomous states can provide
credit support to mortgage instruments during
Mortgage finance rollout of primary and secondary markets
market • The Bangsa Moro state can serve as conduit for
other states into the billion-dollar regional
Islamic finance market

• More creative policy responses will come from

Low-cost housing state- and lower-level housing development
backlog agencies, eg exemption for low-income housing
bonds from state and municipal taxes

33
 Thank
you!

Gary B. Olivar
Convenor
President Duterte Constitutional
Reforms Towards Federalism
(PDu30 CoRe)