The Constitutional Court recognized the amount of financial support granted to the State road fund in 2011 as constitutional
On 03 February 2012, the Constitutional Court adopted a judgment in the case No. 2011-11-01 “On Compliance of Sub-programme 23.00.00 of the Law “On the State Budget 2011” with Article 1 of the Satversme of the Republic of Latvia”.
On the procedure of budget elaboration and the right of the legislator to review methodology for budget elaboration
Contested Norm (the particular wording is in force up to 01.01.2012)
Annex 4 “Deciphering of Income into and Expenditures from the State Basic Budget by Programmes and Sub-programmes” of the Law “On the State Budget 2011” established that in 2011, the State road fund (programme code 23.00.00) (hereinafter – the Contested Sub-programme) shall be granted resources for covering its expenses at the amount of 80 675 980 lats.
Explanatory note:
In Section 12 (4) of the Law “On Roads”, the legislator had established the amount of resources to be granted for funding State roads. Namely, the norm provides that funding granted to the State road fund programme cannot be less than income into the State budget from the annual vehicle tax planned in the respective year or less than 80 per cent of the planned income into the State budget from the excess duty from oil products, or less than the one granted the previous year. It can be concluded, from explanatory note to the Law “On State Budget 2011”, that in 2011 income from the excess duty from oil products was planned at the amount of 220 200 000 lats. However, the Contested Norm established granting of only 80 481 980 lats for funding of State roads.
The Facts
According to the Applicants, twenty members of the 10th Saeima, the Contested Sub-programme infringes the principle of legitimate expectations and that of the rule of law that follow from Article 1 of the Satversme. The principle of legitimate expectations shall be applicable to the case under consideration in a way that merchants participating in public procurements in the field of reconstruction and construction of roads have the reason to trust, since 1 January 2007, into the amount of funding established in Para 2 of Transitional Provisions of the Law “On Roads”, whilst since 1 January 2010 – into the amount of funding established in Section 12 (4) of the same law. By failing to establish a lenient transition to the new funding procedure and amount, the legislator did not have the right to refuse fulfilling duties stipulated in the above mentioned clauses. Moreover, drivers who purchase oil products and pay excess duty, could also trust into the fact that favourable consequences, namely, increase in quality of roads, would be assured at least at the previous level.
The principle of legitimate expectations shall be understood in a way that the legislator is bound to what has been established by law, and it does not have the right to fail to observe legal regulatory framework adopted by it. Section 111 (2) of the Saeima Rules of Procedure establishes that, if, upon passing a draft law, contradictions arise between this law and the laws already in force, the Saeima shall rule that the new law or its separate parts take effect simultaneously with the amendments to the laws already in force. However, action of the Saeima, when adopting the Contested Sub-programme, has led to the fact that two contradictory regulatory frameworks are in force.
The Applicants are also of the viewpoint that, when adopting the Law “On State Budget 2011”, the legislator has breached Article 69 of the Satversme establishing the duty of the State president to proclaim laws adopted by the Saeima no earlier than on the tenth day and no later than on the twenty-first day after adoption of them. The above mentioned law has been adopted on 20 December 2010, and consequently it could not come into force on 1 January 2011.
The Applicants ask the Constitutional Court to recognize the Contested Sub-programme as non-compliant with Article 1 of the Satversme and declare it as null and void as from the date of adopting of it.
Findings and Ruling of the Court
On the basis permitting continuing legal proceedings
As from 1 January 2012, the Contested Norm has lost its force, which is one of the reasons why, pursuant to the Constitutional Court Law, the Constitutional Court can terminate proceedings in the present case before a judgment is announced. However, the Constitutional Court has reiterated in its case-law that loss of effect of a contested norm as such does not serve as grounds for terminating legal proceedings.
The Constitutional Court decided that its jurisdiction in the present case, taking into account the claim of the Applicants, cannot extend assessment of the fact whether the procedure of adoption of the State budget was compliant with legal principles following from Article 1 of the Satversme based on the working of Section 12 (4) of the Law “On Roads” that was in force up to 1 January 2012 [9].
The Constitutional Court indicated that its decision may play an important role in assurance of the principle of the rule of law in the field of preparation, elaboration and adoption of the State budget in the future. Consequently, the Court is committed to provide its assessment in respect to such an important constitutional issue [9].
On essence of the “budget law”
When assessing the process of preparation and confirmation of the State budget, as well as the rights and duties of constitutional institutions in respect to elaboration and confirmation of the State budget, the Constitutional Court concluded that the State budget as a State governance plan shall be regarded as an external normative act approved according to an established legislative procedure. However, the Contested Sub-programme shall be regarded as a part of the State budget expense plan that reflects financial possibilities of the State in respect to covering of planned expenses of the State road fund [10].
On the content of the term “law”
According to the Saeima, in the frameworks of the present case, the Constitutional Court should assess the term “law” used in Article 16 (1) of the Constitutional Court Law by thus establishing whether the Constitutional Court has the right to assess constitutionality of an act that can only formally be regarded as a law.
The Constitutional Court indicated that a law is a legal act issued according to the procedure established in the Satversme. This definition of a law includes both, material and formal meaning of the term [11.1].
Interpretation suggested by the Saeima, namely, that the Constitutional Court is entitled to asses constitutionality of such legal norms only that are regarded as law not only in the formal but also in the material meaning, would not only threaten guaranteeing of comprehensive priority of constitutionally important norms of the Satversme, but it would also lead to ungrounded limitation of the competence of the Constitutional Court, which would in certain cases deny the possibility to persons to protect their fundamental rights established in the Satversme [11.1].
On establishment of the amount of the Budget Sub-programme and allocation of resources as issue of political usefulness
The Constitutional Court recognized as ungrounded the opinion of the Saeima that the funding established in the Contested Sub-programme is an issue of political decision-taking and its amount cannot be assessed by the Constitutional Court. The Constitutional Court cannot reassess actions taken by the Cabinet of Ministers and the Saeima when elaborating and adopting the budget based on economic assessment or prognosis in respect to economic issues of the State. Insofar as resolution of issues related to the State budget does not exceed the principle of separation of powers, for instance, by denying to any constitutional institution the possibility to exercise its tasks or functions established in the Satversme, the Cabinet of Ministers and the Saeima enjoy freedom of prognostication and decision-making in this respect [11.2].
The Constitutional Court indicated that it falls within its jurisdiction to assess whether, in the process of elaboration and adoption of the State budget, constitutional institutions have observed the principle of legitimate expectations and that of the rule of law [11.2]
On collision of legal norms
Taking into account the fact that the participants of the case did not have a common opinion on the fact whether the State budget law and a part of it, namely, the Contested Sub-programme should be regarded as a later and a special legal norm if compared to Section 12 (4) of the Law “On Roads”, the Constitutional Court assessed its feasibility.
However, representative of the Applicants indicated that, taking into account the State budget law, Section 12 (4) of the Law “On Roads” had to be taken into account, and its provisions could not be amended by means of the Contested Sub-programme.
The Constitutional Court recognized that, pursuant to the generally accepted methods for solving of legal norm collision, the Contested Sub-programme should be assessed as a special and a later legal norm if compared to Section 12 (4) of the Law “On Roads”, the latter being a general and older legal norm.
The Constitutional Court concluded that the subject-matter of the particular legal norms is different: Section 12 (4) of the Law “On Roads” includes such a regulatory framework that prohibits establishing funding to the State road fund less than State budget income from the annual vehicle tax and less than 80 per cent of planned incomes into the State budget from the excess duty paid for oil products, as well as less than the amount granted in the previous year. However, by means of the Contested Sub-programme, a particular finding to be granted to State road fund in 2011 was established. Consequently, the Court concluded that collision of legal norms is apparent, and the particular case cannot be solved by applying special character of a legal norm and temporal relations thereof [12].
On compliance of the Contested Norm with the principle of legitimate expectations
The Constitutional Court indicated that Section 12 (4) of the Law “On Roads” did not create any legitimate expectations to private persons; consequently, the Contested Sub-programme did not infringe the principle of legitimate expectations because granting of more resources to maintenance of roads, designing, reconstruction and management thereof would proportionally imply increase in amount or number of procurements to be made, wherein merchants could participate and conclude a procurement agreement in case of winning a tender. However, merchants do not have any subjective right to request, from the State administration, organization of such procurement procedure or performance of particular works, or establishment of a particular remuneration. Likewise, Section 12 (4) of the Law “On Roads” did not create any legitimate expectations to drivers who purchase oil products into the fact that certain amount of budget resources would be transferred to maintenance of roads. It neither follows from the Satversme that the legislator would have the duty to cover expenses, by means of incomes from a certain kind of tax, incurred in a certain field [13].
On compliance of the Contested Norm with the principle of the rule of law
When assessing content of the Contested Norm, the Constitutional Court concluded that the norm could not be regarded as a guideline or principle for elaboration of the State budget. It can be regarded as a guideline only insofar as it did not provide any particular money sum that should be granted to the State road fund by establishing particular amounts in the State budget law. At the same time, it established enough precise and effective provisions for establishment of the State budget sub-programme “State Road Fund” that should have been taken into account in the process of budget elaboration [14.1]. The Court held that Section 12 (4) of the Law “On Roads” is a legal norm that established necessary financial means to the State road fun in the State budget law [14.2].
On the adoption procedure of the Contested Norm
When assessing whether, when adopting the Contested Sub-programme, the stipulated budget elaboration procedure has been observed and whether public institutions involved in budget elaboration had the duty to prevent contradiction between the Contested Sub-programme and Section 12 (4) of the Law “On Roads”, the Constitutional Court indicated that in 2009, as the economic situation of the State rapidly deteriorated, it was urgently necessary for public institutions to revise budget elaboration methodology and to elaborate balanced budget by also establishing reducing in resources pursuant to real possibilities to cover planned expenses. This meant, however, that the legislator had the duty to introduce amendments into normative acts establishing necessary funding for covering planned expenses, in order to ensure observance of the principle of the rule of law. This did not release the Cabinet of Ministers from the duty to prevent all contradictions between effective legal norms and the draft State budget [15.2].
On terms of budget elaboration
The Constitutional Court established insufficient cooperation between the Cabinet of Ministers and the Saeima to ensure the principle of the rule of law when adopting the Law “On State Budget 2011” [16.2].
When assessing whether this breach of the procedure for budget elaboration has caused any legal consequences, due to which the Contested Sub-programme fails to comply with Article 1 of the Satversme, the Constitutional Court concluded that the formal procedure for adoption of the draft State budget has been observed in the case under consideration [17.1].
Likewise, the Constitutional Court concluded that, if the procedure for elaboration and adoption of the draft State budget would have been observed previously, legal consequences would be equal to the present ones: Section 12 (4) of the Law “On Roads” would have been amended and the funding established in the Contested Sub-programme would have been likewise reduced. Although the Contested Sub-programme failed to comply with Section 12 (4) of the Law “On Roads”, under the circumstances of economic recession it helped ensuring balance of the State budget and therefore it complies with the general interests of budget balancing [17.3].
Consequently, the Constitutional Court concluded that in case if the procedure for adoption of the State budget would have been completely complied with, the regulation to be adopted would still be identic to the present one [17.3].
On threat of important interests of the society and the State
When assessing whether material interests of the society and the State have been threatened, the Constitutional Court indicated that, additionally to the fact that in the case under consideration legitimate expectations of persons have not been infringed, there is no reason to hold that non-compliance of the Contused Sub-programme with Section 12 (4) of the Law “On Roads” would have denied any constitutional institution to fulfil its duties and functions established in the Satversme [17.4].
The Constitutional Court indicated that the duty of constitutional institutions to assure elaboration and adoption of a sustainable State budget follows from Article 66 of the Satversme. Namely, when deciding on the State budget, it is necessary to assure long-term balance between economic possibilities of the State and welfare of the entire society. Conclusions made in the judgment on facts of the case manifest that financial measures as such selected in the frameworks of the Contested Sub-programme do not cause any non-compliance with Article 1 of the Satversme because use of State budget resources should be balanced with the amount of financial resources at the disposal of the State [17.5].
The Court concluded that constitutional institutions have not arbitrarily breached procedural rules for adoption of the Contested Sub-programme. Funding established in the Contested Sub-programme testifies that, in the particular situation, balance between State economic possibilities and the necessity to ensure welfare of the society has been observed. Likewise, funding granted to the State road funds in the frameworks of the Contested Sub-programme has not caused any considerable threat to interests of the society or the State [17.5].
The Constitutional Court recognized that the sub-programme 23.00.00 of Annex 4 “Deciphering of Income into and Expenditures from the State Basic Budget by Programmes and Sub-programmes” of the Law “On the State Budget 2011” does comply with Article 1 of the Satversme of the Republic of Latvia.
The judgment of the Constitutional Court is final and not subject to appeal, it shall come into force on the date of publishing it.
Linked case: 2011-11-01