Topic for reflection: constitutional limitation on spending and indebtedness of States

James Buchaman criticized Keynesianism, which he considered a disease, since the “spend now/pay later” attitude is similar to that of a credit card holder who encourages spending, a moral deviation, which leads him to mortgage the future.(2)

Budgetary stability was promoted by the European Union in the Maastricht Treaty of 1992, in the Protocol Annexed to the Treaty on Limiting Excessive Deficits and Limiting Debt, as well as the Stability and Growth Pact agreed in Amsterdam in 1997, promoted by Germany.(3)

This requirement, which represents an appearance of sovereignty, has thus been gradually incorporated into European constitutions. We will now refer to some constitutions that have adopted the above-mentioned principle.

Reformulated constitutions

Among them, Poland (1997)which prohibits the signing of loans and financial guarantees that result in a national public debt exceeding three-fifths of annual GDP.

Switzerland amended its Constitution in 2001.ordering that the confederation must maintain a balance between its income and its expenses, establishing a flexible rule that the limit of expenses will depend on the estimated income.

The important thing is that this reform originated in the federal states where the cantons had a leading role, which is why the rule of fiscal federalism was fulfilled. This golden rule must be closely monitored, avoiding deviations from the objective, which must be perfectly reflected.

Germany (2009), in the basic lawestablishes a general prohibition on preparing federal and state budgets, stating that income must come from credit items, with exceptions, in which case they will be obliged to repay these credits when the emergency is over.

It is a clear limit to the deficit and a constitutional stability clause to which he added that, by means of a federal law, there should be a control body, the new Stability Council, for the continuous supervision of the budgetary management of the Federation and the Länders, a reform that has been mostly praised by doctrine and considered exemplary by other states.

Spain reformed its Constitution in 2011 adopting the recommendations of France and Germany, stipulating that the state and the autonomous communities cannot incur structural deficits that exceed the margins established by the European Union for its member states.

Sweden (2012) has contemplated an interesting mechanism, known as the “Swedish Model”, conceived as one of the best in the Union, where the debt does not exceed 40 percent, despite being a Welfare State, requiring multi-annual planning rules within the Budget.

Essentially they follow Keynes’ economic policy but anticipating the crisis, that is, increasing the Treasury in times of expansion and using the funds in the recession.salaries are negotiated with unions to allow companies to be competitive, and there is a strategy on funding research which is considered a priority, and professional training is taken care of. (4)

Already in our region, Chile (2012), under the influence of Hayek’s ideas, incorporated the obligation of a budget surplus.

For his part in USA since the 19th centurymost states contemplate budgetary stability in their constitutions, starting with New York in 1846. The same goes for the provinces of Canada.

It is important to note that the Federation in the USA refuses to bail out delinquent or bankrupt states, this being imposed by the States themselves as a golden rule and not by the Federation, since only in necessary cases, starting with the “New Deal”, cooperative models have been implemented.

In times of crisis, the Federal Reserve also implements Keynesian models with the possibility of financing itself with federal bonds, sets the interest rate for American bonds, monitors the inflation rate and the level of employment, as a formula for equilibrium.

A necessary implementation

Evidently, from the above, the necessary implementation of the constitutional limitation on spending and a clear conclusion arises, that no state can go into debt permanently and disproportionately, either by increasing the deficit or by issuing unsupported or false money, given that citizens will have a greater tax burden, who are ultimately the ones who end up paying that debt, with the aggravating factor that if in turn, to pay for said excessive spending a distorting and recessive tax system is built to the detriment of economic activity, as happens in our country, we have a double problem that is impossible to solve, a disproportionate amount of spending and indebtedness via loans from multilateral and/or internal organizations, paid with higher inflation, then depreciation of the value of the currency and recession, all sides of the same “coin.”

An urgent correction is therefore required, given that the tax system should be the source of financing that covers public spending, based on the principle of legality in a state of economic well-being; otherwise, we are leading to a clear perversion of the democratic system and tax legality.

It is therefore imperative to have a limit on spending, on indebtedness and on the issuance of money without backing to finance the state, which should be in the National Constitution and in the laws that are enacted as a result, and should contemplate sanctions for those who irresponsibly alter these values, which are nothing more and nothing less than essentially democratic values ​​because they respond to the protection of the freedom and equality of citizens, an essential condition for their existence.

It is worth highlighting the constitutional incorporation in Germany, which was the product of a reflective process, as Ridaura (5) states, where temporary indebtedness is permitted, an interesting body called the “Stability Council” was created to monitor the federal accounts and those of the “länders” (provinces), formed by the Federal Ministers of Economy and Technology of the Federation and those of the Länders, who monitor the execution of the budgets of the two and in particular the progress of the eastern Länders, recipients of consolidation aid. (6)

This system can be imitated in our country to consolidate a true federal revenue sharing law that returns to the provinces the altered tax powers, in order to safeguard their own tax system, and also, in case of requiring federal aid, to control the income and expenditure of each of them to avoid the waste of public funds received, the creation of fiefdoms and to promote progress.

It is also important to remember that, according to the principles, tax law is a branch of public law, since the Common Good is at stake, therefore, in the German system tax collection is the responsibility of the State through the constitutive administrative act.

Rethinking alternatives

Unlike our system, which is carried out by means of the sworn declaration of the individual, imposing the burden of establishing the link. Therefore, as Celina del Rosario Aguirre (7) says, “the comparative study of the German collection system and its procedure invites us to rethink alternatives to achieve the efficiency and transparency of ours. Thus, by allowing the provinces to manage the taxes (especially those that originally correspond to them) they will be able to guard their fiscal resources with fiscal and economic responsibility, which is why it is necessary to eliminate the arbitrary system of co-participation, which has not brought greater benefits in terms of development and return to the separation of tax sources.”

Then, by imposing only a duty of collaboration on the individual for the creation of the tax legal relationship by the State through the determining act, as occurs in Germany, it will give certainty to the tax law, preventing individuals from using their own criteria or personal preferences, which will also be beneficial to simplify the current tax system that contains more than a hundred taxes, between the Nation, province and municipalities.

The objective is to achieve the rule of law, since it makes the legal system transparent, since the Treasury official, when applying the law, “does not respond to the interest of the Treasury, he has no duty to collect all possible taxes by any method. The increase in collection cannot be the stimulus or the measure of the Treasury official’s performance. His ideal is rather to protect tax law, in the manner of a trustee of the solidarity community made up of all taxpayers” (8).

It should not be overlooked that when applying the law, the official is bound by the Constitution and has the duty not to alter its values, and may demonstrate, even if only internally, the unconstitutionality of the laws that he must apply.

In turn, the constitutional incorporation of the budgetary balance and its control by the Stability Council, to monitor the federal accounts and those of the Länder, which not only audits the budget but also the progress of the economy both at the federal level and in the Länder, are examples of comparative law that our country should reflect on “so that law truly exists, which is not abstract but concrete, meaning by this, “that compliance is an essential part of the notion of law.” (Miguel Ángel González). (9)

Note prepared with the collaboration of Nicanor Martín Aguirre.

Lawyers. Members of the Aguirre & González Zanoni Law Firm. Lawyers.

(1) Budgetary Stability and the Establishment of the Constitutional Brake on Indebtedness. Javier García Roca and Miguel Ángel Martínez Lago Thomson Reuters., Civitas, p. 22.

(2) Buchaman; James M. Limits of Liberty, Between Anarchy and Leviathan, Liberty Fund, Madrid 2009.

(3) Cited note 1, p. 28.

(4) Ob. cited in note 1, p.70

(5) Ridaura Mª Josefa, “The reform of art. 135 CE, Can markets break the constitutional consensus?” in Constitutional Theory and Reality, No. 29, 2012.

(6) cited work 1, p.71.

(7) Redefining the collection procedure Brief review of the German system. Journal of Doctrine and Jurisprudence. Tax law. The Law. Digital citation “El Derecho, ED-DU XLII-239.-June 2023.

(8) Klaus Tipke, “Tax Ethics of the State and of Taxpayers”, Marcial Pons, Legal and Social Editions SA, Madrid Barcelona, ​​p. 80

(9) Values ​​in Tax Law, Ed. Errepar, page 134.