Summary Dutch Parliament's Right to Assess the Budget in Light of European Economic Governance

Chapter 2 focusses on the development of the right to assess the budget and the power struggle between the government and parliament concerning state revenue and expenditure. The origins of the right to assess the budget will be reviewed, including the right of the people’s representation to agree to the spending and subsequently how the right to assess the budget has developed according to constitutional changes and political practice. These developments in the right to assess the budget are relevant for interpreting and assessing this right as laid down in Article 105 of the Constitution. In chapter 3 the meaning of the right to assess the budget is considered as well as the scope of this right and the way in which decisions are taken concerning the budget in practice. This chapter deals in particular with the statutory and constitutional context of the right to assess the budget. These two chapters form the basis for the theoretical framework of the thesis and flesh out the notion of meaningful parliamentary involvement in the budget.

The right to assess the budget guarantees that parliament is involved in the decision-making process on the budget in a meaningful way. In this way, parliament gives democratic legitimacy to state expenditure. After all, parliament represents the citizens who realize the resources and therefore, as the people’s representation, it must be involved in the expenditure and monitoring of this money.

Parliament has both a monitoring and co-determining role in the exercise of the right to assess the budget. Key to this is the direct accountability relationship between parliament and the government, in which parliament has the final say. This entails that in the most extreme case, parliament can sanction the government for policy pursued, or not pursued, by issuing a vote of no confidence in the minister in question, or the entire cabinet.

Article 105 of the Constitution formalises the involvement of parliament in the budget. In advance, through its involvement in the decisions on expenditure by means of adopting the departmental budget Acts, during the implementation of the budget through the adoption of the supplementary budget Acts and finally subsequently by monitoring expenditure using the account approved by the Court of Audit and the adoption of the final departmental Acts. This formal involvement of parliament in the budget – the formal right to assess the budget – is regulated through principles that correspond to the structure of the budget and the budget procedures. These regulating principles should in any case guarantee that parliament can approve the expenditure in advance (authorisation), can influence the distribution of resources (allocation) and can monitor expenditure using the account submitted by the government of expenditure (monitoring and accountability). This ensures that parliament is meaningfully involved in the budget. The formal involvement of parliament in the budget occurs at fixed moments throughout the budget cycle.

Since the budget only has an impact internally – a third-party after all cannot derive rights from the budget and the courts will not want to become involved in budget issues – the implementation of the right to assess the budget is principally determined by the relationship between the government and parliament and how these actors give substance to this in political practice. The government has the upper hand when it comes to drawing up, submitting and implementing the budget. The adoption of the budget is furthermore not an isolated decision that is taken at a certain point of time in the budget cycle, but arises mainly from previous obligations which may or may not be legally binding. For example, the coalition agreement plays a major role in setting fiscal policy and around 95% of all expenditure has already been fixed in the draft budget. So it is important that parliament is involved and can exert influence on all decisions taken by the government that have effects on the budget, both in advance of its adoption and throughout its implementation. The actual involvement of parliament in the budget – the substantive right to assess the budget – therefore occurs in a continuous debate with the government concerning policy proposals and commitments undertaken which are legally binding and enforceable, or not. It must be avoided, after all, that parliament is presented with a fait accompli at the time the budget is adopted. This substantive involvement is based on Article 68 of the Constitution. In highly exceptional situations when the public provision of information and a public debate are not possible, such as in (financial) crisis situations, the provision of information to parliament can be done behind closed doors.

Formal involvement in the decision-making process concerning the budget is a basic principle in the right to assess the budget. However, it should be avoided that formal involvement is not preceded by substantive approval, or coincides with substantive approval. Otherwise the right to assess the budget would become watered down to merely the authorisation of previously agreed commitments where parliament has been able to exert no influence, or only very limited influence. Substantive involvement must guarantee that parliament can still exert influence on the expenditure of resources and should prevent the situation where during the adoption of the budget parliament is presented with a fait accompli. Nonetheless, the condition of substantive involvement is no guarantee for meaningful parliamentary engagement. At all times, it must be followed up by formal consent to the budget by means of a budget Act.

Meaningful involvement in the decision-making process on the budget therefore entails that parliament has a role in the authorisation, allocation, monitoring and accountability of the budget, at set times, but also continuously throughout the budget cycle. At all times, parliament should be able to put questions to the government, enter into debates with the government on policy and its implementation, form an opinion on policy, be able to amend or adjust policy via legislation or in some other way, and in the most extreme case even be able to sanction the minister or the entire cabinet for the policy pursued, or not pursued, by passing a vote of no confidence on the minister in question or the whole cabinet.

From Chapter 2 it is clear that the circumstances under which parliament exercises its right to assess the budget are constantly changing. Parliament has responded to these changing circumstances by adjusting as much as possible the manner in which it exercises its right to assess the budget, in order to still have meaningful involvement in the decision-making process on the budget. Even now circumstances are changing: European economic governance has a significant effect on the decision-making process on the national budget and thus also on the right to assess the budget of parliament.

Chapter 4 provides an extensive discussion on European economic governance. First a brief overview is given of the history of the EMU, offering an insight into the asymmetrical character of the EMU: its central monetary policy and decentralised economic policy, and how this eventually led to the eurocrisis. Because of the asymmetry in the EMU, problems in one country could have a major impact on other countries in the eurozone so that in the end the stability of the monetary union came under threat. To reinforce the EMU, ensure that the economies of the member states are more in line with each other and to prevent large spill over effects, European economic policy has been significantly tightened up.

The reinforced framework of European economic governance has led to the budget rules being extended, the monitoring of the national budget being tightened up and intensified, and the monitoring, far more than was the case before the crisis, now being geared towards the economic structural policy of the member states. European economic governance is founded on four pillars: the prevention, and where necessary correction, of budgetary imbalances, macro-economic monitoring aimed at preventing spill over effects, the coordination of economic policy aimed at achieving convergence and finally, the conditional financial solidarity between member states in order to guarantee the ultimate stability of the eurozone.

Though the original setup of the EMU in the European monitoring of the national budget was mainly corrective by nature, European economic governance is currently more geared towards preventive control occurring before the national budget is adopted. There is not only more emphasis on the balanced budget rule in the medium term, national member states now also have to report already in spring on their budget plans in light of the EU-wide objectives contained in a Stability or Convergence Programme. Based on this, the Commission and Council draw up policy recommendations which the members states have to take account of when drawing up the national budget. Also in spring, the member states report to the Commission on how the country-specific recommendations have been included in the draft budget. The Commission has been authorised to provide an opinion on the Draft Budgetary Plan and can even ask for a revised budgetary plan, even before the national parliament has formed an opinion. The member state must also have adopted the budget before 1 January. In this way, a common budget line is imposed on the member states for drawing up and adopting the budget. Moreover, regular bilateral meetings are held between the Commission and the member states to consult at a technical level on country-specific issues. As a result, there is a continuous cycle in which the European institutions and the national member states constantly act in light of the decisions taken by the other. This continuous cycle has the additional effect that there is no final decision moment on the performance of the national government in light of the European budgetary rules. A situation exists where previous evaluations, recommendations and reports are constantly being worked on (see also the flow chart in attachment 1).

In general, the country-specific recommendations are very detailed and also deal with social policy, pre-eminently a field of concern for the national member states. The country-specific recommendations, however, are not binding (soft law). And indeed since the recommendations are not binding, they can also deal with areas that lie outside the competence of the EU and therefore touch on the national competences. So though the country-specific recommendations are not binding and are enforced through peer pressure, non-compliance with a recommendation – within the context of budgetary and macro-economic monitoring – can lead to increased control and ultimately to a financial sanction being imposed. This interwovenness of the various elements of soft law and hard law in one cycle, has led to the soft law becoming harder.

The extent to which a member state is steered towards implementing a certain fiscal policy, the intensity of the control on the national budget and the extent to which the member state is bound to the macro-economic and budgetary recommendations increases in relation to the extent to which the Commission identifies budgetary or macro-economic problems. In the most extreme case, if the member state receives financial assistance, it is de facto bound to implement the conditions contained in the memorandum of understanding. European economic governance would appear to be increasingly venturing into the field of redistributive issues.

Monitoring of member states’ fiscal and economic policy in the context of the reinforced European economic governance is becoming increasingly centralised, though fiscal and economic policy is still a national competence. As a consequence, a gap in accountability has arisen. The Council takes official decisions in relation to Europe, but the Commission plays a significant role in the decision-making process and in the monitoring of the implementation at national level. Dawson characterizes this decision-making process as the coordination method. This method, which combines the intergovernmental decision-making procedures of the intergovernmental method and the centralised implementation and harmonisation structure of the Union method, can be distinguished form the ‘classical’ intergovernmental or Union method. Both these decision-making procedures involve the necessary parliamentary accountability mechanisms. The coordination method of decision-making, however, misses these accountability structures. The European Parliament and the national parliaments are limited in their possibilities to influence the decision-making process in this coordination method. This deficit in accountability is moreover reinforced because the rules and procedures are highly complex so that their application is not exactly transparent.

To reinforce democratic legitimacy in current European economic governance, the role of the national parliaments in particular will have to be reinforced. Various solutions and approaches could be considered. First, an effort will have to be made to optimise the national democratic processes in monitoring the government in the (European) Council. In addition, the national parliament must also in other ways, in relation to the EU and at the EU level, be able to demonstrate its influence and checks. This can be done for instance through means of political dialogue between the national parliament and the European Commission and the current interparliamentary cooperation. Since these instruments can only decrease the gap in accountability to a limited extent, another option is to directly involve the national parliament in the decision-making process at the EU level, such as the establishment of a eurozone parliament or perhaps, more realistically, a horizontal dialogue parallel to the (European) Council.

Thereafter chapter 5 provides an outline of how European economic governance, with all its complex procedures and rules, has an impact on decision-making in relation to the budget. Firstly, European economic governance has had an effect on the national legislation: with the advent of the Sustainable Public Finances Act, fiscal rules are now contained in an Act and no longer just in the coalition agreement. In addition, the Advisory Division of the Council of State has been given a new task in the budget cycle: independent budgetary surveillance. Twice a year, the Council of State provides an assessment; firstly on the national budget plans and secondly on the draft budget in light of the (European) fiscal rules. However, the timeline determined by the European semester subsequently means that the national fiscal procedures come under pressure because they are not entirely synchronised with the European Semester and the common fiscal timeline. In addition, decision-making on the budget is substantially framed by the tightened fiscal rules, the intensive and constant surveillance and the fact that the surveillance is increasingly related to the economic structural policy. This has resulted in a marginalisation of the political room for manoeuvre at the national level. The more financial problems the Commission observes, the more marginal this room for manoeuvre becomes. After all, the more financial problems are identified, the stricter the surveillance by the European institutions and the more mandatory and specific the recommendations. Furthermore, if the Netherlands violates the European fiscal rules, there is no room to implement trend-based fiscal policy and cut-backs will have to be made immediately to correct the identified deficits. The continuous cycle and the constant dialogue between the European institutions and the national member states have also led to a situation where national and European decision-making procedures have become intertwined. The government is accountable to both the European institutions and parliament for the national budget and fiscal plans. This leads to a somewhat blurred accountability relationship between the government and parliament in relation to fiscal decision-making, in which the monitoring of the government is hindered.

In addition, an increasing amount of institutions at European and national level provide a (technical) appraisal of the budget, such as the Commission, the European Central Bank (ECB) and the Council of State, in which there is less scope for political processes.

It is concluded that although the formal involvement of parliament in decision-making on the budget remains unimpaired, the paradoxical effect of the current model is that at the same time parliament no longer has a final say in all areas of fiscal policy: the authority to shape fiscal and economic policy has, after all, been partly transferred to the EU level. As a result, the right to assess the budget and the opportunity for parliament to have substantial, meaningful influence on the budget has greatly diminished, in favour of the European institutions and the government, who more than before now has the upper hand in drawing up and adopting the budget. The substantial involvement of parliament in the budget is changing, parliament now has a more monitoring role at the expense of its co-determining role and moreover there are clear confines on the procedures for exercising the right to assess the budget.

In chapter 6 it is considered how parliament is now involved in the budget in light of European economic governance, and to what extent its meaningful involvement in the national budget can be safeguarded. It can be concluded from this chapter that the manner in which the budget is drawn up is influenced by European economic governance and the European Semester and that for parliament to be meaningfully involved in decision-making on the budget it is important that the deployment of its competences, both the moment and the manner, are in tune with this. In addition, the continuous cycle, the cohesion between the various components, the decision-making procedures and the exchange and connections between the European and national decision-making procedures should be taken into account. This means in the first place that parliament should be involved in the decision-making process on the budget from the first semester. Secondly, parliament should also be involved in the decision-making process in the European context and subsequently that parliament should also be involved in the implementation of the decisions in the European context at the national level. If parliament is merely involved in the decision-making process on budget plans at the stage of the implementation of the agreements made on the draft budget in the European Semester, it will only be able to exert limited influence on the fiscal policy. The important factor here is timeliness. The moment when influence can be exerted is usually at the stage prior to the formal decision-making procedures in the Council or, at a national level, in autumn.

The complicating factor, however, in relation to the deployment of competences is the timetable which is dictated by the European Semester. Pressure is put on the national budget process which means that the involvement of parliament in the decision-making process on the budget also comes under pressure. Insufficient time for the budget procedures can be detrimental for the information position of parliament, leading to a situation where the authorisation and allocation function are adversely affected.

On the other hand, the introduction of new budget procedures has led to more transparency in the budget process. Parliament can now influence the budget plans of the government by spring, and in addition parliament has the advisory opinions from the Council of State at its disposal. The complexity of the European Semester and the amount of information can however form an obstacle to a correct review by the government and the decision-making in relation to Europe. It is therefore equally important that parliament has a clear picture of this complex cycle, the cohesion between the various sections of the European Semester and the interaction and interrelatedness of the European and national decision-making procedures. In order to enhance the alignment of parliament’s working methods and in particular those of the House of Representatives, with the decision-making process in the context of EU decision-making, a more integral working method for handling the European Semester could be introduced in the House of Representatives on the basis of the reports of the European Commission.

In Chapter 7 the findings from the previous chapters are summarised and a response is formulated to the central question. Although parliament has a final vote in the adoption of the budget, the role of parliament in decision-making on the budget has become more of a monitoring role in light of European economic governance, to the detriment of its co-determining role. This affects the substantive, meaningful involvement of parliament in the budget which is curtailed. European economic governance thus has a major impact on the substantive involvement of parliament in the decision-making process on the budget. Fiscal policy is no longer only formulated at a national level; discussions on fiscal policy have moved in part to the European level, so that the competence to take decisions on fiscal policy has correspondingly been partly transferred to the EU level, though parliament has no deciding vote on there. Parliament only has a say in the formation of this EU-policy through the monitoring of the minister in the Council. In addition, the exercise of the right to assess the budget via the budgetary rules, the resulting decisions and the budget timetable are clearly demarcated both substantively and procedurally so that the implementation of the right the assess the budget is more procedural in nature.sss