III Changes to national (constitutional) law
Nature national instruments
What is the character of the legal instruments adopted at national level to implement Euro-crisis law (constitutional amendment, organic laws, ordinary legislation, etc)?
So far, no implementation laws are in force, apart from those that preceded Euro-crisis law. The intent of the Nečas Government has been to adopt Fiscal Constitution, which would be detailed in ordinary laws. To ensure stability of the new fiscal legislative framework, the Fiscal Constitution Bill requires implementing laws to be adopted by both chambers of Parliament (Art. 14). Certain technical changes (e.g. the European Semester) occurred only in the practice of the Ministry of Finance and the Office of Government.
Have there been any constitutional amendments in response to the Euro-crisis or related to Euro-crisis law? Or have any amendments been proposed?
Two constitutional amendments were submitted by the Government to the Parliament:
- Constitutional bill on fiscal responsibility (Fiscal Constitution Bill) setting the BBR, MTO and sanction mechanism for both the state and territorial self-government budgets.
- Constitutional bill amending the competences of the Supreme Auditing Office so that it can audit organs of territorial self-government (regions and municipalities) and private companies. The constitutional bill passed in the Chamber of Deputies, but was rejected in the Senate.
The Fiscal Constitution Bill represents a major internal reaction to the Euro-crisis, therefore I shall develop more on its political context, legislative process, content, and implications. The Nečas Government prepared a constitutional amendment on fiscal responsibility (Fiscal Constitution Bill). The constitutional amendment was submitted to the Chamber of Deputies of the Parliament on November 10, 2012; the first reading took place on February 6, 2013 and the second reading on June 11-12, 2013. The political crisis that started in June 2013 and ended with a confidence vote to new government in February 2014 (after early elections in October 2013) stayed the legislative process. An opposition party (TOP 09) resubmitted the original Fiscal Constitution Bill to the Chamber of Deputies. However, the new government is unlikely to accept the Bill in its current version. Despite these uncertainties, let me present the current version of the Fiscal Constitution Bill as it is the only proposal at the moment and has been subject to extensive debate over the past years. It is important to emphasize, that the Fiscal Constitution Bill aimed to implement certain parts of the Council Directive 2011/85/EU, which had to be transposed by December 31, 2013 (that means CR is currently in default on its obligation). One of the problems is that without an amendment to the Constitution, the Government does not dispose of sufficient tools to control fiscal responsibility of regional and municipal self-governments, including an enforcement of medium-term budgetary objectives. The Fiscal Constitution Bill aimed to enter into force on January 1, 2014 with exceptions indicated below.
Draft Fiscal Constitution as amended by the Budgetary Committee of the Chamber of Deputies of the Parliament:
- All public institutions must have medium-term budgetary outlook for at least two years beyond the annual budget.
- The draft establishes National Fiscal Council – see question VII.5.
- Debt brakes: Corrective measures activate on the 15th day of the month following the month in which the debt to GDP ratio was announced. The draft works with two indicators – debt (or level of indebtedness) and public debt – debt (level of indebtedness) is the amount of public debt minus the amount of state debt incurred by an emission of state obligations from which a financial reserve for financing state debt is created.
- If the debt is between 45-50% GDP, the Government informs the Chamber of Deputies and submits, after consulting the National Fiscal Council (NFC), measures to slow down the debt raise. New state guarantees may be issued only after agreed to by the absolute majority of the Deputies and the absolute majority of the Senators.
- If the debt is between 50-55% GDP the same measures are activated plus, first, the Government shall lower the expenses for the current budget year (this is valid only for the first year, in case the debt over 50% GDP continues to exist) with exceptions enlisted in laws (such laws must be agreed to by both Chambers of the Parliament); second, the Government shall not increase the expenses for the following budget year above the expenses of the current year (with the exception enlisted in laws – such laws must be agreed to by both Chambers of the Parliament); third, the Government shall not submit to the Parliament laws decreasing revenues from taxes and fees, with an exception of international obligations); fourth, the Government shall consent only to balanced budgets of health insurance companies, that provides public insurance (surpluses from previous years may be included); fifth, the base for public officials salaries shall decrease by 20% in the following year.
- If the debt is between 55-58% GDP, first, the measures under point a. are activated; second, the Government must lower the expenses for the current budget year (this is valid only for the first year, in case the debt over 50% GDP continues to exist) with exceptions enlisted in laws (such laws must be agreed to by both Chambers of the Parliament); third, the Government shall not submit to the Parliament laws decreasing revenues from taxes and fees, with an exception of international obligations); fourth, the base for public officials salaries shall decrease by 20% in the following year (that is measures under point a. and selected measure under point b.); plus fifth, the Government submits to the Parliament balanced or surplus budget of the state and state funds; and sixth the Government shall consent only to balanced budgets of health insurance companies, that provides public insurance (surpluses from previous years may NOT be included). If the debt of the territorial self-government is higher than 55% GDP, the self-government shall adopt balanced or surplus budget, unless the deficit can be financed from a previous years surplus or returnable financial assistance. If the debt is over 55% GDP, public institutions (state, state funds, health insurance companies, territorial self-governments) shall not take any new long-term liabilities increasing the debt.
- If the debt is 58% GDP and above or if the public debt is above 60% GDP, the measures under point c. above activate plus the Government shall return to the Parliament for the vote of confidence without delay.
- The exceptions from the corrective measures may be provided by implementing laws in case of, first, significant worsening of the economic development or worsening of security situation of the state; second, state of emergency; third, natural disaster; and fourth, expenses resulting from international obligations.
- A territorial self-government’s (TSG) overall debt shall not exceed 60% of its revenue average in the last four years. If a TSG exceeds the limit, it shall correct the debt following the procedure prescribed in the implementing laws. If a TSG does not comply, the state may put on hold the revenues from taxes designated for the TSG, in the level of 5% of the difference between the debt and 60% of its revenue average in the last four years. These revenues can be used for paying the debts incurred before the year the revenues were put on hold. These measures aimed to enter in force on January 1, 2018.
Implementing (ordinary) bills were submitted to the Parliament on June 27, 2013 – Government Bill on the Rules on Fiscal Responsibility and Government Bill Amending Selected Laws in Connection with Adoption of the Law on the Rules on Fiscal Responsibility. The laws aimed to create an independent Committee for budgetary forecasts (Výbor pro rozpočtové prognózy), which would evaluate economic and budgetary forecasts of central government and territorial self-governments. Forecasts evaluated as realistic or conservative would represent the basis for the preparation of an annual budget. The laws would further introduce sanctions for territorial self-government units (regions and municipalities). If a territorial self-government unit exceeds 60% of the average revenues in the last four years, the Ministry of Finance suspends the unit’s share on the revenues from the VAT and income tax in the amount corresponding to the breach of unit’s obligation.
The Fiscal Constitution Bill and implementing bills have not gained support of the then main opposition party, the Social Democrats. Finance Minister Kalousek called the Social Democrats hypocrits for urging the Government to sign the Fiscal Compact on the one hand, but, on the other hand, being unwilling to support the Fiscal Constitution, despite the Government’s will to compromise. Kalousek reiterated that the same text of the Fiscal Constitution would be needed if CR signed the Fiscal Compact; and so, the Fiscal Constitution Bill in fact implements the Fiscal Compact. The opposition (Social Democrats and Public Affairs) criticized that the draft would limit the future government ability to restore economic growth – that it would forbade to lower taxes and increase investments (by endangering a co-financing ability of CR regarding the EU funds and EIB loans and so limit the ability to use these funds and credits; endangering public-private investment projects for the same reason, etc.). In sum, the opposition claimed that such constitutional limitations are unacceptable at this stage of economic cycle. A fraction of Civic Democrats criticized the Fiscal Constitution Bill for taking fiscal and tax sovereignty from the Parliament (by entrenching debt and deficit limits in the Constitution) as well as not preventing that increase in taxes would not be used for further spending, but for lowering the debt. Then opposition leader Bohuslav Sobotka (now PM) further warned that by entrenching the fiscal limits in the Constitution gives new powers to the Constitutional Court to review an annual budget for possible breach of the Constitution. Also, he pointed out that the limits posed by the Fiscal Constitution Bill are not observed by the Government itself – the multiannual budgetary frameworks counts with deficits in the next three years which would lead to reaching the debt limit of 55% of GDP in 2016 with a consequence that for 2017 there would have to be a balanced budget, or else the Constitutional Court will strike down 2017 budget law. At the same time, the current tax reforms lowers the predicted revenues for these years. This puts the future government in double unfavourable position – lowering the revenues, while preventing large investments and obliging the future government to considerably cut expenses between 2016 and 2017 (by around 10%). Also, he emphasized that the debt breaks in the version before the compromise made in the Budgetary Committee are activated when the public debt reaches 40% (the first break), then when it reaches 45% (the second break), and finally when it reaches 50% (the third break), while at the end of 2013, the public debt is predicted to reach already 48%.
Sobotka also made clear the position of Social Democrats towards the Fiscal Compact. CR must accede to the Compact in the future and must implement the debt break on the constitutional level, however, it is CR who must choose proper time for these changes – now the Government needs more flexibility to regain sufficient economic growth. Social Democrats published in February 2013 five conditions under which they were willing to support the Fiscal Constitution Bill: First, ratification of the Fiscal Compact (which goes well beyond the Fiscal Constitution Bill, especially in the enhancing the economic and fiscal cooperation; though in particularities Social Democrats raised objections to the Compact – e.g. that the requirement of structural deficit of 0.5% of GDP is harming in the current stage of economic cycle); second, full implementation of EU legislation into the Fiscal Constitution Bill (current indicators are not compatible with EU standards); third, revelation of hidden debts created by the Nečas Government, so that the future government is fully aware of its limits; fourth, submission of implementing laws (done by the Government in the end of June 2013 only); fifth, change of the limit for debt break activation from 40-50% to 45-55%, given that the public debt have risen from 28,28% in 2006 to 45% at the end of 2012, that is during the conservative governments.
The Communists have not fully rejected the Fiscal Constitution Bill, however they first urged for an exemption of health insurance sector from the public debt and deficit rules (arguing that given the current bad economic situation of the health care sector, deficit financing is necessary and entrenching the fiscal rules on the health insurance sector in the Constitution would soon create a conflict with the constitutional right for accessible and quality health care). Further, the Communists claimed that the fiscal limits set by the Fiscal Compact are unsustainable and that the EU considers changing the course anyway towards more investments, which can be financed under the current situation by increasing the debt only. Also they claimed that fiscal constitutions do not work on their own (e.g. Spain), but need a rational economic policy (that is, it is indifferent whether CR enacts a fiscal constitution or not), nor such institutions as an independent fiscal council proves successful (e.g. Hungary).
MP Paggio (from a junior coalition party LIDEM) pointed to the fact that the criticism of the Fiscal Constitution Bill was in fact a criticism of the Fiscal Compact. He also called for more flexibility and differentiated approach to Member States (one size does not fit all). Also, he stated that the Fiscal Compact was only a message for financial markets and cannot and will not be respected by many MS. MP Šeich (Civic Democrats) reminded the Parliament that balanced budget rule was nothing exotic or atypical, as it could have seemed from the debate, but that proposals for balanced budget rule were made already in 1995 (first Klaus Government; within annual budgeting practice) and again in 2002 (by Klaus as well, this time in the form of constitutional amendment). If CR had adopted the balanced budget constitutional rule in 2002 (rejected by a Social Democratic Government at the time), it would have been one of few countries (after Germany (a weak version of “golden rule” before the 2009 reform), Poland (1997 reform), and Switzerland (2001 reform)) with such rule on a constitutional level; and to have such rule then would have made much more sense and brought results given the growth was about 6% in the subsequent years.
The implementing laws have not been discussed in the Parliament.
If national constitutional law already contained relevant elements, such as a balanced budget rule or independent budgetary councils, before the crisis that are now part of Euro-crisis law, what is the background of these rules?
No, the Czech constitutional order has not contained any of these.
Purpose constitutional amendment
What is the purpose of the constitutional amendment and what is its position in the constitution?
In general, the constitutional order of the Czech Republic consists of several constitutional acts – Constitutional Act No. 1/1993 Coll., the Constitution of the Czech Republic in the strict sense, and a number of other constitutional acts and their amendments. The constitutional order forms a referential framework for the Constitutional Court for evaluating constitutionality of all other acts. All constitutional provisions, disregarding in which constitutional act they are to be found, have the same legal status with one exception: the eternity clause in Art. 9(2) of the Constitution grants ‘higher status’ to “the essential requirements for a democratic state governed by the rule of law”, whose changes are impermissible. Intermediate status between constitutional law and ordinary law is assigned to international treaties ratified by the Parliament (which possess application priority over ordinary laws in case of conflict). The European Union law and its interpretation by the EU institutions, to provide a rather simplified answer, is in compliance with the Czech constitutional order as long as it does not breach the “the essential requirements for a democratic state governed by the rule of law” protected by the eternity clause as interpreted by the Constitutional Court. The Constitutional Court reviews the existing EU law and acts of the EU institutions from the point of compliance with the eternity clause. However, in case of ex ante review of international treaties (after they are signed, but before their ratification), the Court reviews their compliance with the entire constitutional order (not only the eternity clause). For more on the constitutional review of international treaties see the answer on questions related to the ratification of the European Council Decision on Art. 136 Amendment below).
Constitutional amendment can take form of a separate constitutional act or a change to existing constitutional act. There is no legal difference in these forms. A constitutional amendment requires adoption by three-fifths of all Deputies and three-fifths of Senators present (Art. 39 (4) of the Constitution).
Constitutionality of a constitutional amendment can be assessed by the Constitutional Court for compliance with the “the essential requirements for a democratic state governed by the rule of law” protected by the eternity clause. The Czech legal order provides for both ex ante (abstract review) and ex post constitutional review (concrete review). Under the ex ante review the Constitutional Court has power to annul statutes or individual provisions thereof if they are in conflict with the constitutional order and to annul other legal enactments or individual provisions thereof if they are in conflict with the constitutional order or a statute. A petition, proposing the annulment of a statute, or individual provisions thereof, may be submitted the President; a group of at least 41 Deputies or a group of at least 17 Senators; a Panel of the Court in connection with deciding a constitutional complaint; the government if an international court finds that an obligation resulting for the Czech Republic from an international treaty has been infringed by the encroachment of a public authority. Under the ex post or concrete review, the Constitutional Court has a jurisdiction over constitutional complaints of natural or legal persons against final decisions or other encroachments by public authorities infringing constitutionally guaranteed fundamental rights and basic freedoms.
Both constitutional bills indicated in the answer to question III.2 were proposed by the Government as part of its programme of fiscal responsibility agreed to after the general elections of 2010. While the Fiscal Constitution Bill aimed to be adopted as a separate constitutional law, the Supreme Auditing Office Constitutional Bill aimed to amend the Constitution. However, this difference is purely technical (all constitutional laws form together a ‘constitutional order’). All constitutional laws have same legal force (with an exception of the eternity clause in Art. 9(2) of the Constitution that grants ‘higher status’ to “the essential requirements for a democratic state governed by the rule of law”, whose changes are impermissible – the self-government is one of such ‘essential requirements’ according to the Constitutional Court). The two constitutional bills neither explicitly regulate their relationship to other constitutional provisions, nor do they directly affect them.. For the relationship with other constitutional provisions and problems it raises (judicial review of annual budgetary laws; affect on economic and social rights, such as affordable healthcare) see the political debate on the Fiscal Constitution Bill in answer to question III.2.
Relationship with EU law
Is the constitutional amendment seen as changing the relationship between national and European constitutional law?
No. The draft constitutional law on Fiscal Constitution partly implements the Directive 2011/85 and the Regulations 2275/2011 and 1177/2011. However, the Czech Republic is not party to the Fiscal Compact or the ESM. The second draft constitutional law did not implement any EU or international obligations of CR.
Have there been changes to organic laws or other types of legislation that are of a different nature or level than ordinary legislation, in relation to Euro-crisis law or the budgetary process?
The concept of organic laws does not exist in the Czech legal order. Intermediate status between constitutional laws (that forms together a constitutional order with ‘essential requirements for a democratic state governed by the rule of law’ having kind of supra-constitutional force) and ordinary laws is assigned to international treaties ratified by the Parliament (which possess application priority over ordinary laws in case of conflict).
Constitutional amendment and ordinary law
If ordinary legislation was adopted in conjunction with a constitutional amendment, what is the relationship between the two?
No constitutional amendment has been adopted yet. However, both constitutional bills mentioned above require implementing laws. Two implementing (ordinary) bills to the Fiscal Constitution were drafted. Implementing law must be, of course, in compliance with the constitutional law and other parts of the constitutional order. Especially regarding the obligations imposed on territorial self-governments, it must be restrictive.
Perception source of legal change
In the public and political discussions on the adoption of ordinary legislation, what was the perception on the appropriate legal framework? Was the ordinary legislation seen as implementing national constitutional law, or Euro-crisis law?
For thorough analysis see answer to question III.2. So far, no implementation laws are in force. The changes already made (which were mostly realized as part of the Government programme on fiscal responsibility) were not perceived as implementing Euro-crisis law. Given that both constitutional bills mentioned above are not perceived as direct implementation of Euro-crisis law (for political intertwining of the Fiscal Constitution Bill and the Fiscal Compact see answer to question III.2), also the implementing laws would not be perceived as such.
What other information is relevant with regard to the Czech Republic and to changes to national (constitutional) law?