TRIBUNAL CONSTITUCIONAL Portugal

RULING No. 572/14

30 of July of 2014

Headnotes:

1. A norm that extended the scope of application of the existing Extraordinary Solidarity Contribution (CES) with regard to pensions, reducing both the threshold below which pensions are exempt and the points at which the applicable CES rates are 15% and 40% respectively, is not unconstitutional. This Contribution was implemented by the State Budget Law (LOE) for 2011 and has been imposed on pensions since then, albeit it has undergone significant changes from one year to another.

The Court had already weighed up the constitutionality of the CES in previous Rulings and decided that it could not be criticised on constitutional grounds. The measure’s reconfiguration in LOE2014 remained within the limits outlined by the constitutional-law principle of the protection of trust (legal certainty), defined in the way in which it has gradually been rendered operable in the Court’s unwavering jurisprudence on the subject. Expectations that laws will remain stable were and still are attenuated in the economically exceptional context that justified both the creation of the Contribution and its successive amendments. Expanding the base on which the CES is levied is not an inappropriate means of achieving a budgetary balance. There was nothing that would have enabled the Court to conclude that expanding the CES base was not indispensable to the ability to safeguard the budgetary balance in the 2014 budget year.

2. The Court declined to declare a norm that reverts 50% of the income received from employers’ contributions to ADSE (Directorate-General for the Social Protection of Public Servants) to the state purse unconstitutional. These contributions are themselves made from state funds, because the employer in question is the state, and the norm’s scope of application does not impinge on the principles of the so-called ‘Fiscal Constitution’, which in turn means that it is not in breach of either the principle of the unitary nature of the personal income tax, or the principle of equality.

The Constitution does not require that Central Administration organs possess financial or budgetary autonomy; nor does it prohibit the state purse from receiving revenue from the various public departments and services, or oblige the latter’s revenues to be consigned to their specific missions. The norm does not undermine the state’s duty to subsidise a social security system that protects citizens when they are ill; and it does not affect the National Health Service (SNS), inasmuch as ADSE provides additional protection that supplements the SNS cover, in a scheme which ADSE beneficiaries can choose to join or not.

Summary:

In the present case the Court combined two requests for ex post facto abstract reviews of two norms that amended the 2014 State Budget law (LOE2014): one on the Extraordinary Solidarity Contribution (CES), and one on the reversion to the state of half the revenues from employers’ contributions to ADSE (a fund that provides social healthcare protection for public servants).

The Court found that the first of the two norms was not in breach of the principle of the protection of trust (legal certainty). It considered that pensioners do possess a legal position that enjoys a special degree of protection, maxime with regard to this principle. However, despite the fact that as an acquired right, the right to a pension deserves greater protection from subsequent changes in legislation than rights that are currently under formation, the need to safeguard other constitutionally protected rights and/or interests that must be deemed to prevail over it can legitimate measures which affect pensioners’ legitimately justified rights and expectations. Even if the other requisites for the applicability of the principle of the protection of trust (legal certainty) are in place, there are public-interest reasons which, when weighed against this principle, can justify the discontinuation of the behaviour that generated the expectations.

The CES was designed to work in combination with other measures, in order to respond to the economic/financial crisis situation that has temporarily also required the political authorities to make choices involving an urgent strengthening of the social security system at the expense of its own beneficiaries.

Faced with a combination of a reduction in the social security system’s revenues (due to rising unemployment, falling wages, and new emigratory trends) and an increase in the cost of supporting people in unemployment and poverty, with the ensuing need for the state to subsidise the system and a resulting worsening of the public deficit, the legislator opted to extend the requirement to pay social security system contributions to pensioners.

The Court recalled that three cumulative prerequisites are needed for there to be a situation in which one is legitimately entitled to trust in the existence of a constitutionally protected legal certainty: i) the expectations that the legal regime in question will be stable must have been induced by the behaviour of the public authorities; ii) those expectations must be based on good reasons, which must be evaluated as such within the constitutional-law axiological framework; iii) and the affected citizens must have oriented their lives and made decisive choices based on expectations that this particular legal regime would be maintained.

It is also necessary to consider whether there are public-interest reasons which, when weighed up against the other relevant factors, justify discontinuing the behaviour that generated the expectations concerned. In the present case the Court had to consider the relative importance of the public interest that served as grounds for the creation of the CES: the need to achieve a budgetary balance and reduce the public deficit in a relatively short period of time. This weighing-up process, which must be undertaken using the criteria imposed by the principle that excess is prohibited, is what makes it possible to gauge whether or not the damage done to the trust and certainty is reasonable or justified.

The Court said that when it gauges the applicability of the principle of the protection of trust (legal certainty), it must consider two opposing sets of interests: the private subjects’ expectations that the current legislative framework will persist; and the public-interest reasons that justify discontinuing these legislative solutions. The Constitution recognises these two groups of interest on an equal footing, so it is necessary to confront them with one another and place them on the scales in order to determine each one’s variable weight and draw a conclusion as to which of them should prevail. The method for doing this is the same as the one used to judge the proportionality or substantial adequacy of a measure that restricts rights. Even if one concludes that the public interest in changing and adapting the current legislative framework is an urgent one, it is still necessary to use material and axiological parameters to determine whether the extent of the sacrifice is inadmissible, arbitrary or too heavy a burden.

In the case before the Court the reconfiguration of the CES affected both pensioners who were already subject to the Contribution and others who never had been. It can be said that there was a weakening of the expectations of those now affected by the changed threshold that their legal position would continue unchanged, in that the exceptional economic context that justified creating the levy and successively amending it still existed. The public interest pursued by broadening the base for the subjective incidence of the CES was of key importance to the nation and possessed an urgency that manifestly made it prevalent. The expectations of the pensioners affected by the legislative amendment were incapable of resisting the social security system’s need for additional funding in the 2014 budget year, in the exceptional situation invoked by the legislator.

The CES is an exceptional, transitional measure imposed in a budgetary norm and designed to respond to a situation of economic and financial emergency and budgetary imbalance. As such, the Court was of the opinion that from the specific perspective of the principle of the protection of trust (legal certainty), the renewed and amended version of the CES included in LOE2014 deserved a substantially different assessment from the one the Court had made of the analogous measure in LOE2013.

The Court also said that there was no breach of the principle of proportionality, and that there was no reason in the present case to differ from its previous finding on the appropriateness of and need for a CES, within the overall framework of a programme intended to achieve a balanced budget.

In abstract terms, broadening the base of CES contributors is not an inappropriate way to achieve budgetary balance, and where the need for the chosen option is concerned, it cannot be said that expanding the CES’s objective scope is not the instrument that is least burdensome for the interests that are negatively affected in pursuit of that goal.

The Court said it was necessary to ask whether the amount of time that had passed since the Financial Assistance Programme for Portugal began and the measures taken alongside the CES were introduced, required the legislator to find alternatives to prevent the prolonging of the differentiated treatment from becoming clearly excessive for its targets. The legislator was not dispensed from looking for alternative measures that would make it possible to lessen the severity of the demands made on retirees and pensioners in the last few years, thereby sharing public costs out fairly between the recipients of every different type of income. However, this fact was not enough to exclude the possibility of renewing and reformulating a CES-type measure for 2014 from the legislator’s ability to shape the country’s budget legislation.

The Court considered that notwithstanding the intensity of the sacrifice suffered by the private spheres affected by the new Contribution, the public interest at stake was of such key importance and urgency that it manifestly prevailed in this case. It said that one must accept that the combination of the temporary and exceptional nature of the norms underlying the monthly payment demanded of the social security beneficiaries now covered as a result of the expansion of the CES base, and the goals those norms are designed to pursue, means that this sacrifice is not a particularly excessive and unreasonable one that would imply a violation of the principle of proportionality which could be criticised on constitutional grounds.

On the question of the norm that reverts 50% of the revenue from employers’ ADSE contributions to the state purse, the Court recalled that under the current legal regime the social protection subsystem linked to healthcare provided by ADSE is characterised by: the fact that membership of the scheme is voluntary and that any public servant can join as a beneficiary, regardless of the form of legal public employment relationship under which they work; and also by the freedom to continue to belong to the scheme or not, given that beneficiaries can leave it at any time.

This norm does not seek to permanently institute a new legal regime governing employers or equivalents’ contributions to ADSE. It instead represents a typical budget transfer measure that only remains in force for one year at a time.

The challenged norm reverts 50% of the income from employers’ contributions to the state purse, but it does not so revert any other ADSE revenues – namely those derived from the deductions made from beneficiaries’ basic pay and retirement pensions. All these other revenues are consigned to payment of the benefits that ADSE awards its beneficiaries in the fields of promoting health, preventing illness, and treating and rehabilitating patients. The norm does not directly or indirectly allocate these revenues to any other ends; in particular, it has not transferred them to the state purse in order to fund the state’s general activities.

The precept established by the norm does not affect the contributions that public servants or other beneficiaries pay to ADSE, but rather the contributions paid by the state’s own integrated and autonomous departments, services and funds. The norm itself does not provide for payments or asset-related sacrifices to be made by private individuals. It limits itself to transferring revenues from contributions paid to ADSE by public integrated and autonomous departments, services and funds – revenues that come from the public coffers in the first place. The norm’s scope of application is entirely outside the scope of applicability of the principles of the so-called ‘Fiscal Constitution’, such as the principle of the unitary nature of the personal income tax (i.e. that there can only be one such tax) or the principle of equality. These principles operate in cases in which the state acts by affecting or imposing sacrifices on private incomes. This is not the case with this norm, which limits itself to changing the destination of the revenues obtained from the contributions paid to ADSE by the various integrated and autonomous departments, services and funds. These contributions do not constitute personal income that would demonstrate ADSE beneficiaries’ capacity to contribute.

The legislator has been expressly stating the objective of making the social protection subsystem linked to ADSE healthcare self-sustaining – i.e. that it should be funded solely by its beneficiaries’ contributions; and that this is to be achieved by progressively increasing the deductions from their pay packets or pensions and progressively decreasing the employers’ contributions.

The fact that the norm does not require part of the income from deductions from pay and pensions to be transferred to the state purse means that it is impossible to conclude that the norm has created a personal income tax (one that would be different from the IRS Personal Income Tax) that affects ADSE beneficiaries, and there is thus no breach of the principle of the unitary nature of the personal income tax.

The reversion to the state purse of funds that would otherwise serve to finance ADSE represents a taking back – at least in the current budget year – of the public funding of a social security system designed to protect beneficiaries against illness. However, the Court said that this does not mean one can question the state’s fulfilment of the duty to subsidise a social security healthcare system, inasmuch as the state can comply with this duty just by organising and maintaining the public social security system – something that is not affected by this measure.

In the light of all the above, the Court declined to find either of the norms before it unconstitutional.

Supplementary information:

Six Justices dissented from the majority decision on the norm regarding the CES, and one from that on ADSE. In addition, two Justices attached concurring opinions to the Ruling.

Cross-references:

Rulings nos. 287/90 (30-10-1990); 128/09 (12-03-2009); 396/11 (21-09-2011); and 187/13 (05-04-2013)