Constitutional Fiscal Rule
In Decision No. U-I-129/19, dated 1 July 2020 (Official Gazette RS, No. 108/20), upon the request of a group of deputies of the National Assembly, the Constitutional Court reviewed the constitutionality of a provision of the Amending Budget of the Republic of Slovenia for the Year 2019 (hereinafter referred to as the AB2019) and provisions of the Implementation of the Republic of Slovenia Budget for 2018 and 2019 Act (hereinafter referred to as the IRSB1819).
Although at the end of the budget year 2019, the effects of the AB2019 ceased to be in force and the IRSB1819 was no longer valid, the Constitutional Court opted to decide on the merits of the request to review constitutionality in the part in which the applicant alleged the unconstitutionality of the mentioned acts. It took into consideration the following two factors: firstly, that the challenged acts are regularly adopted for a certain period of time and as a rule have effects in the specified period or they cease to be in force when this period of time expires; and secondly, that it is not possible to exclude the possibility that the duration of validity of the act is too short for the Constitutional Court to decide on the merits of such law before its validity expires. The decision-making process in the case at issue led to exactly such a situation. The request to decide on the constitutionality of the AB2019 and the IRSB1819, in the part addressing the issue of their consistency with the Constitution, raised a number of particularly important precedential constitutional questions of a systemic nature to which the Constitutional Court has thus far not had the opportunity to respond as they refer to the interpretation of the Constitutional Act on the Amendment of Article 148 of the Constitution. In the remaining part, i.e. in the part in which the AB2019 was challenged with regard to its alleged inconsistency with the Fiscal Rule Act, and in the part in which the Decree on the Framework for the Preparation of the Budgets for the State Sector for the Period from 2018 to 2020 was challenged, the request did not address such questions, therefore the Constitutional Court rejected it in this part.
In its decision on the merits, the Constitutional Court first took a position on the question of whether it is competent to decide on the consistency of the AB2019 with the second paragraph of Article 148 of the Constitution or with the relevant provisions of the Fiscal Rule Act. In order to respond to the question of competence, it had to take a position on the legal nature of the budget and its classification in the hierarchical system of general legal acts. It concluded that a state budget is a sui generis legal act. As a general and abstract legal act with external legal effect, it has the power of a law. The same applies to a budget that amends it. This follows not only from hitherto constitutional review, but also from its content, weight, and significance for the financing of the exercise of state authority, and from the regulation of the procedure for adopting a budget, which is essentially similar, although not identical, to the legislative procedure. The special hierarchical position of the state budget, indicating its importance for the functioning of the state and dictating its statutory power, also follows from the fact that the state budget is a constitutional category. The state budget’s legal nature of a regulation and its hierarchical position being that of a law must therefore be acknowledged, as well as the fact that the Constitutional Court is competent to review its consistency with the Constitution. This entailed that in the case at issue the Constitutional Court was competent to review the constitutionality of Article 2 of the AB2019. The Constitutional Court further explained that the democratically elected parliament has broad discretion when adopting a budget; therefore, a constitutional review of the state budget must be restrained.
The constitutional fiscal rule is contained in the second paragraph of Article 148 of the Constitution. In the assessment of the Constitutional Court, the interpretation of the first sentence of the second paragraph of Article 148 of the Constitution, which contains the principle of the medium-term balance, was decisive. In the framework of this part of the review, the applicant’s allegations that the Fiscal Rule Act assumed constitutional content and de facto became part of the Constitution had to be addressed in particular. The Constitutional Court pointed out that the constitutional order of the Republic of Slovenia does not allow for the existence of laws that are hierarchically equal to the Constitution or superior to regular laws. In light of such, the Constitutional Court established that, in relation to the constitutional fiscal rule, the Fiscal Rule Act is neither an act that amended the Constitution nor an act that determined the implementation of a new constitutional regulation or transition to such. The Fiscal Rule Act is thus not an act amending the Constitution and does not have a special hierarchical position. Although the mentioned act is an implementing act for the constitutional fiscal rule and is adopted by a qualified majority, in relation to the Constitution it is not equal, and the level of such legal regulation is by no means constitutional.
The Constitutional Court therefore interpreted the significance of the constitutional fiscal rule without directly basing its interpretation on statutory fiscal rules. By means of the generally established methods of legal interpretation, particularly historical and teleological interpretation, it ascertained that the second paragraph of Article 148 of the Constitution dictates a rational and long-term sustainable fiscal policy that, based on a reasonable professional assessment, will not lead to the inability of the state to finance its own functions. The intention of the constitutional authority was to ensure the long-term sustainability of the state’s fiscal policy at the constitutional level and prevent excessive indebtedness and the occurrence of budget deficits and high levels of public debt, which could lead to the illiquidity and insolvency of the state and consequently cause the inability of the state to fulfil its obligation to ensure the constitutionally guaranteed values. In the assessment of the Constitutional Court, the medium-term balance determined in the constitutional provision entails the duty to manage and plan a fiscal policy that focuses on the state of public finances throughout the entire economic cycle and not only in the current budget year, and takes into account the current state of the national economy in the cycle for each year. The medium-term balance of state budgets without having to borrow may be achieved in several ways, whereby the constitutional authority left the choice of the manner thereof to the legislature.
The applicant failed to submit its allegations against the AB2019 in a manner that takes into consideration the stated interpretation of the constitutional fiscal rule and the principle of medium-term balance. It based its allegations exclusively on the violation of the statutory fiscal rule. The Constitutional Court could not accept the applicant’s understanding of the constitutional fiscal rule according to which the formulae determined by Article 3 of the Fiscal Rule Act reach the constitutional level or the content thereof could be raised to such a level by interpretation and taken into consideration as a direct criterion for a review of the constitutionality of the state budget. The Constitutional Court therefore held that Article 2 of the AB2019 was not inconsistent with the second paragraph of Article 148 of the Constitution.
The applicant challenged the IRSB1819 for the same reasons that it challenged the AB2019. The Constitutional Court assessed that the applicant’s allegations concerning the unconstitutionality of the IRSB1819 were manifestly unfounded; therefore, it decided that the challenged statutory provisions thereof were also not inconsistent with the Constitution.