Public finance in times of crisis: The constitutional functions of President and Parliament

By Asanga Welikala and Suren Fernando

The potentially major economic consequences of the coronavirus pandemic the world over reminds us that, even in more normal times, the raising and spending of public money is a matter that has serious constitutional implications in democracies. Every constitutional democracy recognises that the Executive leads in a time of crisis, but every constitutional democracy also steadfastly holds that it is the Legislature that controls public money.

There are two central principles that ensure the accountability at the heart of the democratic ideal. The first is that the Executive cannot raise or spend a cent of public money without the prior approval of the Legislature. Thus, both the policies of the Government that involve the expenditure of public funds, and the plans and laws for imposing the taxes through which those moneys are raised, must first be approved by Parliament.

Parliamentary approval is usually signified by the annual Appropriation Act, although other legislation and procedures also provide a legal basis for Government expenditure. The second principle, which flows from the first, is that the Legislature must have the power to oversee public spending, and to ensure that the Executive adheres to the taxing and spending plans that the Legislature has approved.

Both these critical principles are clearly reflected in the Constitution of Sri Lanka (see Articles 148-152), underpinning the whole framework of the relationship between the Executive and Parliament in ensuring our system of democratic accountability. There are, however, limited exceptions.

For example, the coronavirus crisis, and the unanticipated Government expenditures in meeting it, have happened at a time when Parliament is dissolved ahead of elections. The Constitution anticipates these situations and provides rules to govern them, recognising that the President in such situations may need access to urgent resources which it is not possible for Parliament to sanction, because Parliament has been dissolved. But these rules are narrowly framed to ensure that, while the President is given recourse to necessary funds, the requirement of Parliamentary approval is met as soon as possible.

Coronavirus crisis

It is clear that the coronavirus crisis is unprecedented in scale, even in a country used to ethnic conflicts, insurgencies, and natural disasters like the tsunami. It follows that the Government will accordingly need to take extraordinary measures to help us overcome this challenge.

Nevertheless, any Governmental response must also take care to ensure respect for other aspects of our national life that some may regard as dispensable during a crisis. The constitutional principles of public financial accountability outlined above are some such values that must be protected even at a time of crisis.

Adherence to such values is what makes us a democracy governed by the rule of law. Devaluing them will not only place us in breach of the Constitution, but in adversely impacting on the democratic structure of the State, will risk a negative spill-over effect on the rights of the citizenry in the long-term.

It is in this context that we examine the Government’s response to the coronavirus crisis, and in particular, the implications for public financial accountability of that response. After the election of President Gotabaya Rajapaksa and the formation of a new government under him in November 2019, it was decided not to present a full budget for the fiscal year 2020. The reason seemed to have been that the new President wanted to dissolve Parliament at the earliest opportunity, to enable him to obtain a parliamentary majority at a General Election before properly commencing his programme.

Parliament can be dissolved unilaterally by the President only on the expiration of four-and-a-half-years of its five-year term. Accordingly, the President dissolved Parliament on 2 March 2020, setting 25 April 2020 as the date for the election, and 14 May 2020 as the date for the first meeting of the new Parliament.

Despite not having approved a budget, the Government had parliamentary approval for expenditures until 30 April 2020, because a Vote on Account had been passed for that purpose by the previous Government. A ‘Vote on Account’ is a parliamentary procedure used all over the Commonwealth by which the government is given a grant in advance until a full budget is passed, or to bridge shortfalls before the next budget.

Vote on Account

After the dissolution, on 23 March 2020 the Government issued its ‘Pre-Election Budgetary Position Report’ as required by the Fiscal Management (Responsibility) Act 2003. On page 12 of this report, under the heading ‘Vote on Account March-May 2020’, the Government makes the following statement:

“His Excellency, the President proclaimed to dissolve Parliament on March 02, 2020 by Extraordinary Gazette Notification No. 2165/8. Accordingly, as per the Article 150 (3) of the Constitution of Sri Lanka, His Excellency the President may “… authorise the issue from the Consolidated Fund and the expenditure of such sums as he may consider necessary for the public services until the expiry of a period of three months from the date on which the new Parliament is summoned to meet.” As such, Vote on Account for three months commencing from March 06, 2020 has been prepared. The total provision of Rs. 1,229 billion has been provided for the Government expenditure comprising Rs. 715 billion for recurrent expenditure and Rs. 150 billion for capital expenditure which includes the spillover expenditure from 2019. Rs. 360 billion has been allocated for the loan repayment. The estimated Government expenditure for the respected period is Rs. 420 billion.” [Our emphasis in bold]

The Government is thus claiming several powers which attract comment on Constitutional grounds. It is interpreting the power of the President under Article 150(3) to spend money without Parliamentary approval in very broad terms, and without adequate regard to the limitations imposed by the Constitution on the exercise of those powers.

The Government is also not taking into account the emergency in the form of the coronavirus pandemic that has arisen since Parliament was dissolved, for situations like which the Constitution makes separate provision including the declaration of a State of Emergency and the recall of Parliament. Even more implausibly, the Government says a Vote on Account has been prepared to cover these expenditures, when it is not possible to pass a Vote on Account when Parliament stands dissolved.

Constitutional framework governing public finance

Let us consider the constitutional framework governing public finance (giving effect to the democratic principles mentioned earlier). Article 148 provides that: “Parliament shall have full control over public finance. No tax, rate or any other levy shall be imposed by any local authority or any other public authority, except by or under the authority of a law passed by Parliament or of any existing law.”

It is in the exercise of this important constitutional function of exercising control over public finance that Parliament annually enacts an Appropriation Act (i.e., the Budget). However, as noted, the government that assumed power in November 2019 failed to present an Appropriation Bill for the approval of Parliament. It is in these circumstances that the government now claims that Article 150(3) of the Constitution grants the President authority to adopt a Vote on Account.

Article 150(3) provides that: “Where the President dissolves Parliament before the Appropriation Bill for the financial year has passed into law, he may, unless Parliament shall have already made provision, authorise the issue from the Consolidated Fund and the expenditure of such sums as he may consider necessary for the public services until the expiry of a period of three months from the date on which the new Parliament is summoned to meet.” [Our emphasis].

Article 150(3) cannot be read in isolation; it is part of a framework set out in the other provisions of that Article as well as the broader provisions of Chapter XVII concerning public finance and accountability. In particular, Articles 150(1) and (2) set out the general principles applicable to charges upon the Consolidated Fund: “(1) Save as otherwise expressly provided in paragraphs (3) and (4) of this Article, no sum shall be withdrawn from the Consolidated Fund except under the authority of a warrant under the hand of the Minister in charge of the subject of Finance. (2) No such warrant shall be issued unless the sum has by resolution of Parliament or by any law been granted for specified public services for the financial year during which the withdrawal is to take place or is otherwise lawfully, charged on the Consolidated Fund.”

It is thus evident that in the ordinary course, it is mandatory that prior parliamentary approval be obtained for the specified public service, or other expense or payment, sought to be charged on the Consolidated Fund. It is only consequent to such approval that the Minister of Finance may issue a warrant authorising a withdrawal.

The exception to this rule is found in Article 150(3) which permits the President, where Parliament is dissolved prior to the passage into law of the Appropriation Bill for the relevant year, to authorise the issuance of funds as are necessary for public services, from the Consolidated Fund. However, Article 150(3) does not create an exception to the constitutional stipulation that Parliament shall exercise full control over public finance. It is a provision which must be narrowly and restrictively interpreted to provide for unforeseen expenditure relating to public services. It does not grant the President any constitutional authority to adopt a ‘Budget’ or a ‘Vote on Account’. In any event, it cannot by any stretch of the imagination extend to loan repayments (as the Pre-Election Budgetary Position Report, above, purports to do), which are not ‘public services’, but the servicing of debt.

Further, since Parliament has already adopted a Vote on Account for the first four months of 2020, the President would have no authority to authorise withdrawals from the Consolidated Fund until the end of April 2020. This is because, in terms of Article 150(3), Parliament has already made provision for this period by the Vote on Account. The President’s temporary power to charge expenditures on public services without parliamentary approval only commences when that period expires. The important consequence of this is that the purported Vote on Account commencing 6 March 2020, mentioned in the Pre-Election Budgetary Position Report, is clearly unconstitutional.

Usurpation of the Legislature by the Executive

In any case, as its name suggests, a Vote on Account is an interim budget proposal that has to be voted on by Parliament. When Parliament is dissolved, there can be no vote. The Government therefore seems to be implying that this can be done by an act of the President. Such a suggestion is not only absurd, but also chilling: it is a usurpation of the Legislature by the Executive.

This is aggravated by the fact that this situation has arisen due to the very conduct of the Government. It did not table an Appropriation Bill, or obtain approval for a Vote on Account in Parliament (the current Vote on Account having been passed by the previous Government). It chose to dissolve Parliament on 2 March 2020 to enable an early election, six months ahead of the expiry of the parliamentary term. And after the situation materially changed after the outbreak of the pandemic, the Government has refused to recall Parliament by using either the emergency provisions of the Constitution, or by rescinding the proclamation of dissolution.

Thus, having created the situation in which there are no financial allocations for 2020 (apart from the Vote of Account for the first four months of 2020 adopted by the previous government), and having prematurely dissolved a Parliament which would have otherwise continued till September 2020, it is not open to the President to seek cover under Article 150(3) to adopt a de facto budget or Vote on Account without parliamentary approval. To put it starkly, to permit such a course would be to open the door to presidential authoritarianism.

Way forward

So, what is the way forward? If the Government is to act consistently with the Constitution and the democratic principles we have discussed, it is inescapable that there must be a Parliament to act in concert with the Executive in dealing with the crisis.

There are two constitutional routes to recalling Parliament. The first is under Article 70(7), which provides that: “If at any time after the dissolution of Parliament, the President is satisfied that an emergency has arisen of such a nature that an earlier meeting of Parliament is necessary, he may by Proclamation summon the Parliament which has been dissolved to meet…” The other option is for the President to simply rescind the proclamation of dissolution, which brings the dissolved Parliament back to life for the remainder of its term (i.e., until 1 September 2020).

A Parliament so summoned would be competent to approve a Vote on Account or pass an Appropriation Act.

Courtesy:Daily FT