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I-CONnect Symposium on “The Euro-Crisis Ten Years Later: A Constitutional Appraisal”–Part II: Budgetary Procedures under the Irish Constitution

[Editor’s Note: This is the second entry in our symposium on the “The Euro-Crisis Ten Years Later: A Constitutional Appraisal.” The introduction to the symposium is available here and Part I is available here.]


–Ailbhe O’Neill, Trinity College Dublin

Collins v. Minister for Finance [2016] IESC 73 required the Irish Supreme Court to explore for the first time since the founding of the State the role of the parliament in approving spending under Bunreacht na hÉireann. The case raised fundamental questions about the balance of power between institutions envisaged under the Constitution and the degree of discretion that can be validly delegated to and exercised by the executive in respect of expenditure.

The financial crisis in Ireland was precipitated by a property bubble and subsequent bursting of that bubble which left a number of systemically important banks insolvent. (For background, see Honohan, The Irish Banking Crisis Regulatory and Financial Stability Policy 2003-2008, 2010 Nyberg, Misjudging Risk: Causes of the Systemic Banking Crisis in Ireland).

In 2010, it became clear that there were significant capital shortfalls and that Anglo Irish Bank Corporation (“Anglo”) was unable to access liquidity funds from the Central Bank of Ireland’s emergency liquidity fund due to this insolvency. These shortfalls in Anglo’s funds had arisen as its assets (i.e. its property-backed loans) were transferred to the National Asset Management Agency, an entity established by the National Asset Management Agency Act 2008 with the express purpose of taking on such loans in an effort to work out the debt. Bearing in mind that the government had given a State guarantee of all debts of Irish banks pursuant to the Credit Institutions (Financial Support) Act 2008 (“the Act”) in 2008, it was imperative that this situation be stabilised.

At that time it was not open to banks to seek funding from the financial markets and the issuance of government bonds would have had very damaging effects on the cost of public borrowing. Relying on the Act, the Minister for Finance therefore provided a series of promissory notes to Anglo (and another institution known as EBS) which were intended to have the effect of addressing the capital shortfall in those institutions. These notes were essentially promises to pay. Unlike government bonds, however, which normally involve periodic repayment of interest with a single repayment of capital at the end of the term, the promissory notes were required to be amortising, providing for the regular repayment of both capital and interest. The amounts concerned were thus significant. In the case of Anglo, the State advanced €30.6 billion in promissory notes during 2010 and the terms of the notes required repayments on an annual basis until 2031 of €3.06 billion every year between 2011 and 2024, decreasing until the promissory notes were completely repaid in 2031.  (For context, the Estimates for 2011 presented to the Dáil provided for total State expenditure of €49 billion.)

The key point raised by the plaintiff in Collins was that the way in which these transactions had been orchestrated had avoided what she claimed was the constitutionally required approval of the lower house of Parliament, the Dáil. She made a number of arguments in relation to this. She argued that the repayment on the promissory note of over €3bn made in 2011 was an enormous item of State expenditure in that year which was made without Dáil approval. She also argued that the requirement to make an annual payment in excess of €3 billion had itself a significant impact on budgetary decisions which were made by the Government and required to be approved by the Dáil. Finally, she made the point that the Act, in permitting the Minister for Finance to incur a liability on the part of the State without any limit set in the legislation itself, constituted an abdication of key parliamentary functions by the Dáil to the Minister. This, she argued, rendered the Act unconstitutional because it avoided the constitutional scheme which provides that both raising of revenue and expenditure of funds be approved of, and therefore controlled by, the Dáil.

The Supreme Court noted that the framers of the 1937 Constitution had, in large part, continued the approach taken by the Westminster parliament. It was part of the Minister’s submission that there had always been a distinction, under the Westminster system, between voted and non voted expenditure. The High Court in Collins had heard evidence about the practice and procedure around budgetary measures which relied in large part on a handbook and practice operated by the Department of Finance rather than any statutory provisions. The Supreme Court noted that the Constitution of Ireland “does not purport to regulate with precision the financial affairs of the State. No one would have an understanding, even in broad terms, of the operation of the public finances of the State from a mere reading of the constitutional text. Instead, the Constitution controls certain important features of that process and by that direct control of specific matters exercises a degree of indirect control of other aspects.”

In Ireland, the main point of control within the 1937 Constitution is that the  appropriation and therefore expenditure of all monies is required by Article 11 to be provided for “by law”, and to be recommended to Dáil Éireann by a message of the Government signed by the Taoiseach (prime minister) (Article 17.2). Under the Irish Constitution, therefore, there is provision for the parliament to consider annual the estimates of expenditure but the key point of control by parliament is where the Dáil must approve expenditure.

The Dáil must consider (and vote) on the annual estimates, pass an appropriation Act, and provide for specific expenditure by statute. In all cases both the fact of, and the manner of appropriation of funds, require legislation, or a Dáil vote.

The Court was faced in this case with considering for the first time the status of non-voted expenditure. The Court accepted the evidence that such expenditure had been possible under the Westminster parliamentary system and that it continued to be possible since the enactment of the 1937 Constitution. The examples were given of judges’ salaries and the national debt. Both of these items are paid and payable without any requirement of a Dáil vote.

In considering the constitutional provisions, the Court noted that they provide a “double lock” on expenditure because the Dáil is not permitted to require expenditure by vote of resolution and the Oireachtas may not enact a law providing for public expenditure except on the formal recommendation of the Government which must be accompanied by a money message signed by the Taoiseach (Article 17.2). On the other hand, the Government is not entitled to expend monies which are not authorised “by law”, both as to purpose and manner of expenditure (Article 11). This means that there must be a lawful measure passed by the Oireachtas or a vote by the Dáil authorising the expenditure concerned. Thus, neither the Government, nor the Dáil, nor the Oireachtas can validly authorise the expenditure of public monies without the approval of the other branch.

Ultimately, in analysing the Act, the Court noted that “it was enacted in response to the extraordinary events posing a substantial threat to the economy of the State.” (at paragraph 70). It was, as set out in the long title: an Act to provide

“…in the public interest, for maintaining the stability of the financial system in the State, and for that purpose to provide for financial support by the Minister for Finance in respect of certain credit institutions.”

The Court also had regard to the fact the Minister could only rely on the Act to provide financial support after consulting the Governor of the Central Bank and after forming the opinion first, that there is a serious threat to the stability of credit institutions in the State generally, or that there would be such a threat if the functions under the Act were not performed; second, that the performance of those statutory functions is necessary for maintaining the stability of the financial system in the State; and third, that the performance of those functions is necessary to remedy a serious disturbance in the economy of the State. For all of these reasons, the plaintiff in Collins was unsuccessful in her claim. The case represents “the first meaningful exposition of the budgetary process as it is governed by the Constitution and the roles played by the Oireachtas and the Government within that process” (S. Coutts, “The Oireachtas and the Eurocrisis: empowerment through crisis” (2018) Irish Jurist 66, at 87) and has provided guidance on some previously uncharted constitutional territory. By confirming that non-voted expenditure remains valid post-1937, it has provided useful clarity for the budgetary process. The Court has also made it clear that the “double lock” is a key constitutional mechanism which must be observed. Finally, in noting at length the unusual context in which this challenge arose and the safeguards built into the Act, the Supreme Court has signalled the limitations of executive discretion in this area and the necessity for careful calibration of any future responses to a crisis in this area.

Suggested Citation: Ailbhe O’Neill, I-CONnect Symposium on “The Euro-Crisis Ten Years Later: A Constitutional Appraisal”–Part II: Budgetary Procedures under the Irish Constitution, Int’l J. Const. L. Blog, Feb. 21, 2019, at: http://www.iconnectblog.com/2019/02/i-connect-symposium-on-“the-euro-crisis-ten-years-later:-a-constitutional-appraisal”–part-ii:-budgetary-procedures-under-the-irish-constitution

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Published on February 21, 2019
Author:          Filed under: Analysis
 

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