Fiscal measures that bind
Before I dwell on this topic, I must primarily affirm the Labour Party’s position, stating unequivocally that a future Labour Government would embrace any positive elements presented in the latest Budget.
This article should therefore be interpreted merely from an academic point of view.
The Budget is surely the most important exercise to be executed by any Parliament. This is embodied by the notion of “no taxation without representation”. In a parliamentary democracy therefore, the Government must, of necessity, seek the approval of Parliament for its yearly expenditure.
Without winning the necessary votes of appropriation for its various ministries, the Government cannot move on. In such a scenario, the Prime Minister would have to dissolve Parliament.
It may be argued that in this particular Budget, the Government has taken the unusual step of not merely providing financial estimates for fiscal year 2013 but of also proposing to bind legislatures to come in certain future fiscal commitments.
The question therefore arises: is this ethically correct?
From the Budget speech we learned that the Government is proposing to reduce the maximum rate of taxation. So far so good. The problem arises when we consider the fact that the Government is envisaging this reform to be carried out over a period of three years.
It is being proposed that for the basic year 2013, the maximum tax rate for those earning less than €60,000 shall be reduced to 32 per cent from 35 per cent. For the year 2014 it shall be reduced to 29 per cent, and for the basic year of 2015, to 25 per cent. Undoubtedly, this appears to be binding prospective legislatures to adopt fiscal measures in the future.
In truth, this issue is mainly political but it could also have legal ramifications. In the US, for example, the courts have long held that Congress cannot bind future Congresses, meaning that it cannot force a future session of Congress to carry on its own policies.
This is a practice known as “legislative entrenchment”.
Some political observers view it as privileging one group of lawmakers over another, binding the future to the priorities set in the present.
In this respect, it is worth quoting the well-known British jurist William Blackstone when he states: “The legislature, being in truth the sovereign power, is always of equal, always of absolute authority; it acknowledges no superior upon earth, which the prior legislature must have been, if its ordinances could bind the present Parliament.”
On the other hand, the only accepted way for Parliament to bind other legislatures and perpetuate a particular bit of legislation is obviously by implementing a constitutional amendment.
Rarely, if ever, has such a practice been adopted with regard to fiscal matters, since these are normally left to be dealt with according to the exigencies of the moment. It is interesting to note, however, that as of late, this practice has been carried out in Malta.
Such an amendment was necessitated on account of Malta’s European stability mechanism obligations. A Bill was presented earlier this year aimed at entrenching in the Constitution the balanced budget rule, which seeks to reinforce stability, as a response to the sovereign debt crisis currently being experienced by the European Union.
This, however, is a measure being taken in extemis and, after all, has the approval of both sides of the House. On the other hand, when we speak of normal budgetary measures and estimates, we should understand that these should reflect the Government’s projections for the particular basic year.
The reason for all this is that any Parliament forced to carry out the desires of a previous Parliament has less flexibility to respond to any eventual crises.
To my mind, both the format and the substance of this present Budget reflect an election Budget, aimed at appeasing the general resentment, even if by unconventional means.
Jose Herrera is Labour spokesman for Justice.