Summary

This dissertation is about ‘the power of the purse’ of the Dutch parliament, which is the right of parliament to control the national budget. According to Article 105 of the Dutch Constitution, the annual national budget is adopted by an Act of Parliament. Because such Act is established by the central government along with parliament, both chambers of parliament are able to impact economic and budgetary policy. According to some legal scholars, this power of the purse at the national level is diminishing because of European integration. At the European level, more and more coordination takes place of the budgetary policies of the various member states. The central question of this dissertation is: ‘What are the judicial consequences of European economic and monetary integration for the power of the purse of the Dutch parliament?’

This research study consists of four parts. The first part addresses the power of the Dutch parliament to impact budgetary policy. The second part then looks at the different phases of European integration and the reaction of the Dutch parliament to these. Part three compares the Dutch situation to that in Germany. In the fourth and final part I draw conclusions and provide an answer to the central question.

In Chapter 2, I discuss general aspects of the power of the purse, such as its definition, its functions and the process for the adoption of the annual budget. This chapter shows that the power of the purse is strictly aimed at expenditures that are covered by the annual budget. This means that expenses that are financed by means other than the national budget do not fall under the power of the purse of parliament. This is an important limitation of the budgetary power of parliament. For example, social contributions fall outside the scope of the national power of the purse: expenses for health care, social security and the labour market are financed by social contributions instead of via the national budget. Unlike tax revenues, the designated use of these contributions is fixed in advance. These social contributions, which constitute a major part of total public revenues, are not considered part of the national budget, and so the power of the purse does not apply to them. Together with other limitations to the power of the purse, research by the Netherlands Court of Audit (Algemene Rekenkamer) shows that, of total public spending, only 52% falls within the scope of the parliament’s power of the purse.1 This is important when considering the influence of the European Union on the parliamentary budgetary power. Parliament does, however, have a say when it comes to the content of the national laws governing social contributions.

Chapter 2 also briefly covers national budgetary norms. Same as at the European level, there are national budgetary norms that influence the drafting of the government budget. Moreover, the accounting system that is used to establish budgets and the way budget proposals are presented affect the way parliament can apply its power of the purse.

Chapter 3 discusses the rights of both chambers of the Dutch parliament in the context of the power of the purse. As with other legislative proposals, the Lower House (Tweede Kamer) has the power to accept, reject or amend a budget proposal that is introduced by the central government. The Senate (Eerste Kamer) can only approve or reject a budget proposal. Neither chamber has rejected a budget proposal since long. Also, the Lower House seldom amends a budget proposal in a significant way, both when considering the number of amendments and their financial impact. This is partly due to compulsory expenses: some are based on former laws or agreements and are therefore mandatory. This reduces the scope for the Lower House to amend a budget proposal. The concept of budget flexibility shows the extent to which budgets can be amended. Research into the level of compulsory expenses for various ministries in 2015 shows that 70.1 to 99.7% of all expenses were mandatory.2 However, these numbers should be taken with a grain of salt because parliament itself concurred with the legislation that made part of the expenses mandatory. Chapter 3 also looks at the ways to ensure that the budget proposal is adopted by both houses before year-end (which is not always realised).

Chapter 4 deals with the role of various national public institutions that are in some way involved in the budgetary process. It discusses the Netherlands Bureau for Economic Policy Analysis (Centraal Planbureau, CPB), the Court of Audit (Algemene Rekenkamer), the Council of State (Raad van State), the Social and Economic Council (Sociaal-Economische Raad, SER), the Dutch central bank (De Nederlandsche Bank, DNB), Statistics Netherlands (Centraal Bureau voor de Statistiek, CBS) and the Central Economic Commission (Centraal Economische Commissie). The chapter shows the different ways in which these institutions impact the budgetary process. Some provide the figures that budgets are based on, others advise the central government on economic issues. Often, there is a statutory basis for this involvement (sometimes in the Constitution) but not always. Also, an overview of the activities of the Netherlands Bureau for Economic Policy Analysis shows that the legal status of an institution and its actual role can significantly differ. In this way, Chapter 4 presents a complete picture of the budgetary process. It makes clear that, although the central government and parliament adopt the national budget, they are not the only institutions that contribute to the Dutch budgetary process. This chapter also makes clear that the EU is not the only institution that influences the exercise of the power of the purse.

The first part of this study closes with Chapter 5. Because this dissertation is pointed at the judicial consequences of European economic and monetary integration for the national power of the purse, it is necessary to determine the scope of this power. The chapter therefore makes a distinction between a formal and a material interpretation of the power of the purse. This distinction plays a central role in the rest of this study. The formal interpretation is aimed at the adoption of the budget by the central government and the parliament. In this sense, it does not matter who decides the actual content of the budget bill; this might be the EU, based on its recommendations. Within this approach, the national government together with parliament could practically transfer the power of the purse to European institutions, provided that they continue to formally adopt the budget. Secondly, the power of the purse can be seen as a material norm. Looking at it that way, the power of the purse involves more than just the adoption of the budget. It also presumes that parliament has an actual say regarding the distribution of public finances. In this view, it is impossible to transfer budgetary power completely to the EU. This approach emphasizes the control that parliament needs to have over public finances.

Article 105 of the Dutch Constitution does not make clear how the power of the purse should be interpreted. It merely states that the budget must be adopted by an Act of Parliament. Both interpretations – of the power of the purse as a formal right and as a material norm – are possible when considering the text of this article. The budget needs to be adopted by an Act of Parliament, which falls within the formal interpretation of the power of the purse. However, with this article in hand it can also be argued that, because parliament needs to approve the budget, it must have a say in public spending. That makes a material interpretation of the power of the purse also possible.

Because Article 105 of the Dutch Constitution allows both interpretations, Chapter 5 then turns to the origins and the development of the power of the purse. It examines whether the history of this article and the intention of the law would plead for a formal or instead a material interpretation of the power of the purse. Also, reflections by judicial scholars about the legal nature of the power to establish the budget are taken into account. This more historical outline advocates for a material reading of the power of the purse, because the development of this power and the related discussions mostly reflect the idea that parliament should have an actual say in the spending of public finances. At the same time, the power of the purse can be interpreted in a more formal way. After all, the way it has developed does not decisively argue against this interpretation. Therefore, although there are indications that would argue for a material reading of the power of the purse, parliament ultimately has to decide how it wants to exercise this right.

The second part of this dissertation considers how the Dutch parliament has itself interpreted the power of the purse in the context of European integration. In this part, I examine the different steps of European integration one by one, each followed by an overview of how this step was discussed in parliament. In this way I analyse the meaning that the parliament has given to the power of the purse. Chapter 6 looks at the development of European integration, from shortly after World War II to the Treaty of Maastricht. Chapter 7 focuses on the establishment, implementation and first revision of the Stability and Growth Pact. Chapter 8 then discusses the measures that were taken in response to the euro crisis. It focuses mainly on the temporary and permanent aid funds that have been established since then, including the European Stability Mechanism (ESM). Chapter 9, the last chapter of the second part of this dissertation, deals predominantly with the ‘six-pack’, the ‘two-pack’ and the Fiscal Stability Treaty.

Examination of the way the Dutch central government and parliament have discussed the different steps of European integration shows that the power of the purse has been interpreted in formal terms. During the ratification of the Treaty of Maastricht, discussions took place about the compatibility of the treaty and Article 105 of the Dutch Constitution. It became clear that the treaty would result in less room for parliament to decide about economic and budgetary policy. The Dutch government did not, however, consider this a breach of Article 105 because the power of the purse meant that parliament merely adopts the annual national budget. The right to adopt the budget apparently does not safeguard the freedom of choice of parliament to determine economic policy. Also during the euro crisis, government and parliament applied a formal interpretation to the power of the purse. This is evidenced most clearly when considering the European emergency funds, such as the ESM. Parliament was satisfied with merely approving these funds, without having a further say in their actual application. According to both government and parliament, the right to decide about the budget did not include the power to rule on individual aid requests.

The third part of this study turns to Germany. Chapter 10 discusses how the German parliament (Bundestag) and the German constitutional court (Bundesverfassungsgericht) have responded to different steps of European integration. It shows how this has resulted in a material interpretation of the budgetary power in Germany and how this material way of looking at the budgetary power takes shape. Article 20 of the German Constitution (Grundgesetz, GG) is central to this material interpretation. This article states, inter alia, that Germany is a democratic and social federal state and that all state authority is derived from the people. As such, the democratic organisation of Germany and the idea of popular sovereignty are protected by the Constitution. For the exercise of these principles, article 38 GG, which contains the right to vote, is eminent.

According to the Bundesverfassungsgericht, the democracy principle involves more than just casting a vote in elections. This principle also includes the right to participate in the legitimation of state authority and to influence the way it is exercised. The act of voting would lose its meaning if the Bundestag did not have sufficient responsibilities and competences. As such, there is a limit to the transfer of competences from the national level to the European level. There has to be a lebendige Demokratie (living democracy) at the national level.

To ensure this, the German constitutional court decided that, inter alia, fundamental decisions about public revenues and public expenditures should be made at the national level: the power of the purse must be a responsibility of the Bundestag. According to rulings by the Bundesverfassungsgericht, the power of the purse cannot therefore be transferred to the European level. Moreover, budgetary obligations must be adequately defined. The Bundestag cannot agree with measures that have incalculable consequences. It would be a violation of the principle of democracy if the budget autonomy of the Bundestag were, at least for an appreciable period of time, to be not merely restricted but effectively fail.

At the end of this third part of my dissertation, I compare the formal interpretation of the power of the purse in the Netherlands and the material interpretation of this budgetary power in Germany. This shows that the two countries interpret the right to decide on the budget in quite different ways. In Germany, because of the material reading, it is not possible to make the EU the decisive force behind budgetary policy. Also, German law sets out that the Bundestag needs to approve every use of European emergency funds. The Dutch parliament has a weaker position, due to the formal interpretation of the power of the purse. Although there are major differences between the two systems (such as the aspect of constitutional review, which plays an important role in Germany unlike in the Netherlands), these do not form a barrier to a material interpretation in the Netherlands. The choice between both interpretations of the power of the purse lies with the Dutch parliament.

Chapter 11, the final chapter of this dissertation, provides an answer to the central question of this dissertation. This study focuses on the judicial consequences of European economic and monetary integration for the Dutch power of the purse. The second part of the dissertation examines, one by one, the different steps of European integration to see what mechanisms affect the use of the power of the purse. A distinction must be made between, on the one hand, the impact of the EU on the national budget and, on the other hand, its impact on the national budgetary process.

At the European level, a system has been established with requirements and regulations for national budgets, with European supervision and, in the end, with penalties in case of non-compliance. Member states are firstly faced with preventive multilateral surveillance under the Stability and Growth Pact. That applies so long as a member state’s deficit is tolerable, which is the case when the national deficit remains below the threshold of 3% of gross domestic product (GDP) and government debt does not exceed 60% of GDP. Under the terms of preventive multilateral surveillance, member states must submit stability programmes. This is to be done in the context of the European Semester, which is the European calendar for the budgetary process. Recommendations are then made by the EU to the member states. European influence increases as and when the economic position of a member state worsens. If a member state has an excessive deficit, then the corrective arm of the Stability and Growth Pact and potential fines come into play. In practice however, these have never been imposed. Member states must also take into account the norms for the medium-term objective when adopting a budget. If a member state deviates too much from this objective, recommendations will follow and sanctions are in the end possible. Moreover, member states are subject to the so-called macroeconomic imbalances procedure. This is meant to broaden the monitoring of the economic policy of individual member states to more than just budgetary control. Through a scoreboard with various indicators, the EU monitors whether a member state has an excessive imbalance. If so, then again recommendations and eventually sanctions can follow. All these different mechanisms are intended to prevent that a member state makes an aid request to the ESM. Should this nonetheless be necessary, then strict policy conditions are agreed in exchange for the financial support. Although the parliament of a country that receives aid still has to formally adopt the budget, together with the national government, the actual material control of such parliament over the budget is minimal.

Aside from this European influence over national budgets through norms, recommendations and possibly penalties, the European rules also impact the national budgetary process. However, this effect should not be exaggerated. Several dates have been added to the Dutch budget cycle when information needs to be sent to the European institutions, but this has not led to a fundamental change of the national procedure for adopting a budget.

The European coordination of economic policy of the various member states through the above mechanisms appear to have made less room for national parliaments in deciding budgetary policy. The influence of the EU on the national budget and the exact freedom of decision that a national parliament has in deciding budgetary policy very much depends on the economic state of a country. As to the Netherlands, however, it is necessary to bear in mind the general limitations to the parliamentary budgetary power that were previously addressed, namely the high level of expenses that fall outside the scope of the power of the purse and the limited room for the Lower House to amend a budget proposal because of mandatory expenses. At the same time, member states do not have the best reputation when it comes to implementing recommendations from the EU. In that sense, it may be argued that there still is plenty of room, in practice, for member states to decide about their national budgets, especially since fines have never been imposed.

While the above European mechanisms that influence the national power of the purse are the same for the Netherlands and Germany, the judicial consequences of these steps of European integration are not, because of their different interpretations of this right. Considering the more formal interpretation in the Netherlands, the Dutch parliament has a much weaker position than its German counterpart when it comes to European crisis measures such as the ESM.

As stated, parliament itself must ultimately decide how it wants to apply its power of the purse. The choice between a formal or a material interpretation of the power of the purse is therefore up to each national parliament. Should the Dutch parliament at some moment in time choose for a material reading of the power of the purse rather than a formal one, then an amend-ment of the law is not necessary. After all, Article 105 of the Dutch Constitution already allows such a material interpretation. Parliament could suffice with applying the different interpretation in actual practice. Furthermore, this research study explores different options for codification in Dutch law of a material interpretation of the power of the purse.