Odd

The Supreme Court asked government to explain the potential economic impact of implementing the expanded VAT law in the event the temporary restraining order is withdrawn.

That strikes me as rather odd.

The suits filed against the expanded VAT law drew the Supreme Court into this debate mainly because they questioned the constitutionality of one provision allowing the executive branch to implement a 2 percent hike in the tax measure next January once several specified conditions are met. The provision, inserted by the senators who were not inclined to accept the political fallout from an additional revenue measure, raised a constitutional issue. It is valid for the Court to look into the merits of the suits on this basis.

With all due respects, it is probably beyond the compass and the competence of the Court to consider the economic repercussions of the measure.

Quite obviously, there will be pain to be endured by consumers once the new revenue measure is applied. All tax measures cause pain.

The additional 2 percent in the VAT rate will have predictable effects on prices. It will cause predictable pain on consumers. Any increase in tax rates have that effect.

Unlike other forms of taxation, however, the VAT will not have a cascading effect on prices. Whether the new tax measure will have major or minor effect on the prices our consumers will need to pay once this measure is cleared for implementation is not the issue before the Court.

The Court simply has to settle the constitutional issue raised. It will have, sooner or later, to rule on the legal sufficiency of the measure.

It is not the proper function of the Court to pass a judgment on the acceptability or unacceptability of a revenue measure. If consumer comfort is the issue, then that is properly a matter in the province of Congress, not the Court.

Let the fiscal experts decide on whether this additional tax will cause a drag on our economic growth. Let the economists squabble among themselves on such issues as the effect of expanded VAT on consumption patterns, investment decision, prices and jobs. That is their areas of competence.

Let the executive branch of government take responsibility for the boon or bane that comes out of implementing the expanded VAT. That is a matter that tests political will.

It is, after all, the executive branch that will take responsibility for the fiscal disarray that will come as a consequence of failure to enforce new revenue measures. It is the call of the executive branch to accept whatever rise there will be in the misery index brought about by additional taxation.

The Court is not there to manage the inflation rate or balance the budget. The Court is there to ensure that the actions of the other branches of government comply with the standards of constitutionality.

For all these reasons, the Supreme Court’s request for a brief on the effects on consumers and on the economy of a higher VAT rate is odd. Government, of course, has no choice but to deliver to the Court a brief on economic consequences.

Full understanding of the economic implications will, hopefully, help the Court decide on the matter brought before it. The economic implications will, hopefully, not be the basis for the Court to decide one way or the other on the constitutional issues brought before it.

Our Supreme Court, because of a strange provision in the 1987 Constitution commanding it to look after the public interest, has compiled a long record of judicial interventionism. On several instances, Court intervention caused profound damage on investor confidence.

On the Manila Hotel case a few years back, the Court ruled that on the basis of the constitutional clause on "national patrimony", the service contract could not be awarded to the highest bidder. In the same decision, the Court went on to award the contract to the rival bid.

On the PEA-Amari and Piatco cases, the Court abrogated the contracts entered into between government and winning bidders in the name of "public interest". Although there were enough reasons, in both case, to demonstrate anomalies in the award of contracts, the Court’s action undermined confidence in the sanctity of contracts and the finality of awards in the Philippines.

At great cost in investment opportunities, the Court ruled against the Mining Act, only to reverse itself many years later. By that time, billions of dollars worth of valuable investments in our economy were lost.

The TRO issued on the VAT did cost us a credit rating downgrade. It definitely damaged confidence that we can well manage our fiscal situation. It brought adverse reaction in our stock market and in the exchange rate of the peso.

Whatever inflationary effect the VAT might have will now be magnified by the weakening of the peso. Whatever our final fiscal numbers might be at the end of the year, those might have been better had the VAT been put into effect immediately after the long-delayed passing of the law.

The worse that can happen now is that the VAT law is rejected by the Court on the basis of the justices’ perception of its effect on "public interest." If that revenue measure is rejected, it should be on strictly constitutional grounds, In which case, the situation is reparable by passing an amended law where Congress finally takes responsibility for an additional revenue measure.

The markers, fortunately, took a more benign interpretation of the Supreme Court’s request for a brief on the economic consequences of lifting the restraining order on the VAT law. Based in the behavior of the stock market and the currency exchange, it appears investors took the request as a signal the Court was ready to allow the VAT measure to take effect.

The truth, however, is that we really don’t know how the Court will decide. Its record of intervention on economic policy is not very encouraging so far.