BUDGETARY FEDERALISM: FINANCIAL RELATIONS OF THE NETHERLANDS H.G. Warmelink IV E Introduction The Kingdom of the Netherlands comprises three countries: the Netherlands Europe, the Caribbean group of islands of the Netherlands Antilles, and the island of Aruba, which has a status aparte within the Kingdom. The Netherlands antilles, for their part, comprise five insular land territories: Bonaire, Curacao Eustatius and Sint Maarten. Politically, relations between the Kingdom and the three countries show signs of federalism; they have been aid down in a Charter for the Kingdom. The Charteralso establishes the financial relations between the Kingdom and its parts, at least, it gives an outline The Netherlands. the fomer colonizer and the largest of the three countries comprising the Kingdom, has no federal structure itself. Its fom of govemment is the decentralized unitary state Legislative and adm inistrative powers have been left to provinces and municipalities, whose history is longer than the Dutch nationa history. According to the Dutch Constitution, the financial ratio between provinces nd municipa lities on the one hand and the state on the other must be established by law. The Constitution also prescribes, that the question which taxes may be levied by provincialand municipal administrations is la id down by law. 2 The Kingdom of the Netherlands is a party to the Treaties establishing the European Community, which is an intermational organization, and creating a uropean Union, which is a confederate cooperation of 15 European countries European Community membership and the European Union comm itments primarily apply to the Netherlands the Netherlands antilles and Aruba are bound on the basis of assocation only. The Netherands financal contributions to the European Community and the European Union are substantal. Decis ions with regard to the nature and amount of these payments are made both on a national and a European This article compares financial relations within the quasi-federative Kingdom of the Netherlands to the financal relations which exist within the decentralized unitary state of the Netherlands. These relations are also compared with the financal relations between the Netherlands and the European Community. The purpose of this is to establish how the power of the various adm inistrations as regards budgetary and financial matters, relates to the structure of the various political levels In this framework attention will be paid to the following questions Who in the various structures establishes the budget of revenue and expenditure? What do the own resources of the various adm in istrations consist of? University of Groningen, The Netherlands. The plural in Kingdom of the Netherlands does not refer to the three countries which now comprise the Kingdom, but t the fomerly autonomous Dutch provinces, joined together confederacy until 1795 Article 132, paragraph 6, of the Constitution
BUDGETARY FEDERALISM: FINANCIAL RELATIONS OF THE NETHERLANDS H.G. Warmelink* IV E 1 Introduction The Kingdom of the Netherlands comprises three countries: the Netherlands in Europe, the Caribbean group of islands of the Netherlands Antilles, and the island of Aruba, which has a status aparte within the Kingdom. The Netherlands Antilles, for their part, comprise five insular land territories: Bonaire, Curaçao, Saba, Sint Eustatius and Sint Maarten. Politically, relations between the Kingdom and the three countries show signs of federalism; they have been laid down in a Charter for the Kingdom. The Charter also establishes the financial relations between the Kingdom and its parts, at least, it gives an outline. The Netherlands, the former colonizer and the largest of the three countries comprising the Kingdom, has no federal structure itself. Its form of government is the decentralized unitary state. Legislative and administrative powers have been left to provinces and municipalities, whose history is longer than the Dutch national history.1 According to the Dutch Constitution, the financial ratio between provinces and municipalities on the one hand and the state on the other must be established by law. The Constitution also prescribes, that the question which taxes may be levied by provincial and municipal administrations is laid down by law.2 The Kingdom of the Netherlands is a party to the Treaties establishing the European Community, which is an international organization, and creating a European Union, which is a confederate cooperation of 15 European countries. European Community membership and the European Union commitments primarily apply to the Netherlands: the Netherlands Antilles and Aruba are bound on the basis of association only. The Netherlands financial contributions to the European Community and the European Union are substantial. Decisions with regard to the nature and amount of these payments are made both on a national and a European level. This article compares financial relations within the quasi-federative Kingdom of the Netherlands to the financial relations which exist within the decentralized unitary state of the Netherlands. These relations are also compared with the financial relations between the Netherlands and the European Community. The purpose of this is to establish how the power of the various administrations as regards budgetary and financial matters, relates to the structure of the various political levels. In this framework attention will be paid to the following questions: - Who in the various structures establishes the budget of revenue and expenditure? - Who in the various structures is authorized to execute expenditure? - What do the own resources of the various administrations consist of? * University of Groningen, The Netherlands. 1. The plural in Kingdom of the Netherlands does not refer to the three countries which now comprise the Kingdom, but to the formerly autonomous Dutch provinces, joined together in a confederacy until 1795. 2. Article 132, paragraph 6, of the Constitution
WARMELINK Onn which levels are taxes being levied? To what degree do the various govemments monitoreachother financially? The Kingdom of the Netherlands 2.1 The budgets of the countries of the Kingdom With regard to the financal relations between the three countries of the Kingdom autonomy of the parts is taken as the starting-point. In principle, the Netherlands, the Netherlands Antilles and Aruba independently manage their own affairs, including their finances. The Charter for the Kingdom establishes only those financal matters which can be considered to be affairs of the Kingdom Financal relations within the countries are based on the dutch Const itution the Constitution of the Netherlands Antilles. and the Constitution of Aruba ectively The result of this system is, that the Kingdom has no budgetary authority. Each of the countries establishes, according to its own accountancy rules, a budget of revenue and expenditure. These rules differ little, anyway, not only because the nderly ing principles of the Dutch Constitution and the Constitutions of the Antilles and Aruba are the same. but a lso because the government Accounts Acts of the Netherlands Antilles and aruba have been modeled on the dutch government Act 2. 1. 1 The Dutch budget of revenue and expenditure The Dutch Budget Authority is the national legislator, i.e, the govemment and the Chambers of Representatives together. The Dutch government is made up of the ing and the ministers parliar d the States General, consists of an Up Chamberand a Lower Chamber. The proposals fora budget act are presented by the Minister of Finance on the third Tuesday in September. This budget of the Netherlands, the nation, is confusingly called Rijksbegroting (ie. Budget of the Kingdom), and is divided into one or more proposals per ministerial department, which will be discussed separately, first by the Lower Chamber and then by the Upper Cham ber. The Lower Chamber has the right to amend, the Upper Chamber can only accept or reject the budget The legislator does not always manage to establish the Budget before the beginning of the financal year. This is seldom caused by differences of opinion between the government and the parliament but it is usua lly due to the extent of the parliamentary procedure. After its annual General Debate regard ing the total of the Budget, the Lower Chamber usually adopts various, though genera lly small amendments per budget. Constitutionally, the Lower Cham ber is at complete liberty how to amend the budgets. It seldom happens that the total of the amendments leads to a lower level of expend iture. Formally, the amounts established are maximum amounts, however, in practice the Cham bers big-heartedly cooperate in creating supplementary budgets, even after the expenditure has actually been made Budget acts have not been rejectedsince 1919 One part of the Rijksbegroting is the budget of Kingdom Relations, managed by the minister of Home Affa irs and Kingdom Relations. It conta ns the dutch
WARMELINK 2 - Onn which levels are taxes being levied? - To what degree do the various governments monitor each other financially? 2 The Kingdom of the Netherlands 2.1 The budgets of the countries of the Kingdom With regard to the financial relations between the three countries of the Kingdom, autonomy of the parts is taken as the starting-point. In principle, the Netherlands, the Netherlands Antilles and Aruba independently manage their own affairs, including their finances. The Charter for the Kingdom establishes only those financial matters which can be considered to be affairs of the Kingdom. Financial relations within the countries are based on the Dutch Constitution, the Constitution of the Netherlands Antilles, and the Constitution of Aruba, respectively. The result of this system is, that the Kingdom has no budgetary authority. Each of the countries establishes, according to its own accountancy rules, a budget of revenue and expenditure. These rules differ little, anyway, not only because the underlying principles of the Dutch Constitution and the Constitutions of the Antilles and Aruba are the same, but also because the Government Accounts Acts of the Netherlands Antilles and Aruba have been modeled on the Dutch Government Accounts Act. 2.1.1 The Dutch budget of revenue and expenditure The Dutch Budget Authority is the national legislator, i.e., the government and the Chambers of Representatives together. The Dutch government is made up of the King and the ministers. Parliament, called the States General, consists of an Upper Chamber and a Lower Chamber. The proposals for a budget act are presented by the Minister of Finance on the third Tuesday in September. This budget of the Netherlands, the nation, is confusingly called Rijksbegroting (i.e. Budget of the Kingdom), and is divided into one or more proposals per ministerial department, which will be discussed separately, first by the Lower Chamber and then by the Upper Chamber. The Lower Chamber has the right to amend, the Upper Chamber can only accept or reject the budget. The legislator does not always manage to establish the Budget before the beginning of the financial year. This is seldom caused by differences of opinion between the government and the parliament, but it is usually due to the extent of the parliamentary procedure. After its annual General Debate regarding the total of the Budget, the Lower Chamber usually adopts various, though generally small amendments per budget. Constitutionally, the Lower Chamber is at complete liberty how to amend the budgets. It seldom happens that the total of the amendments leads to a lower level of expenditure. Formally, the amounts established are maximum amounts, however, in practice the Chambers big-heartedly cooperate in creating supplementary budgets, even after the expenditure has actually been made. Budget acts have not been rejected since 1919. One part of the Rijksbegroting is the budget of Kingdom Relations, managed by the Minister of Home Affairs and Kingdom Relations. It contains the Dutch
BUDGETARY FEDERALISM expenditure for the benefit of the relations with the other parts of the Kingdom. Part of this expenditure results from Article 43 of the Charter, which requires that each ountry shall take care of realizing fundamental human rights and freedoms, legal certainty and the good quality of govemment Guaranteeing this is a matter of the Kingdom, so the Charter expressly says. This budget is concerned with expenditure or police cooperation, aw enforcement and the coastguards on Aruba and the Netherlands Antilles, budgeted forabout 15 million euro for 20023. A second category of expenses for the benefit of Kingdom matters is of a slightly different nature and, therefore, included in an other chapter of the Dutch budget. The King, in accordance with the Charter, govems the Kingdom and each of ts countries, but is represented by a Governor in the Netherlands antilles and Aruba The Netherlands finances the office bureaus of the govemors of the netherlands Antilles and Aruba Besides expenditure for Kingdom matters, the Netherlands gives aid and assistance for the promotion of the autonomy of the Kingdom partners. This kind of utual aid and assistance, which the Charter requires of the other countries in the Kingdom as well, focuses primarily on the realization of sound public finances in the various countries4. In her annual speech before the Dutch parliament, in the framework of the opening of the parliamentary year, the Queen formulated this as follows: The Netherlands Antilles, with the help of the IMf, is working at a lasting social and econom ic recovery. The Netherlands is actively contributing to this. In Aruba, balanced development of public finances requires permanent attention. The Dutch contribution to the overseas developments has been budgeted for some 100 million euro in the 2002 Budget and is taking shape in various cooperative programs Finally, part of the Budget is allocated for a fund for the benefit of the enforcement of a proper level of administration in the insular land territories of Bonaire, Saba and Sint Eustatius. This so-called Solidariteitsfonds( Solidarity Fund), required by the Charter in so many words, was called into being after Aruba, which is relatively prosperous, managed to get a status aparte within the Kingdom in 1986 The Netherlands Antilles the Netherlands and aruba each contribute to this fund. In this way, the deficits of the aforementioned insular land territories are prevented from being at the expense of Curacaoand Sint Maarten 2. 1.2 The budgets of the Netherlands antilles and aruba Apart from having their own governments, both the Netherlands Antilles and Aruba havea parliament of their own, called the Staten. The government, with the Governor acting as the representative of the King, and the Staten make up the legislator, The assumption that the coastguard i a matter of the Kingdom, s beng disputed by the Netherlands Antilles and Aruba. The Council of State of the Kingdom, the highest adv sory body, has also judged that the base for tak ingmeasures relatng to the coastguard should be found primarily in Article 38 of the Charter. This means that taking such measures s not appropriate for the bodies of the Kingdom, but that a joint arrangement between the countries will be necessary Article 36 of the Charter Article 36aofthe Chart
BUDGETARY FEDERALISM 3 expenditure for the benefit of the relations with the other parts of the Kingdom. Part of this expenditure results from Article 43 of the Charter, which requires that each country shall take care of realizing fundamental human rights and freedoms, legal certainty and the good quality of government. Guaranteeing this is a matter of the Kingdom, so the Charter expressly says. This budget is concerned with expenditure for police cooperation, law enforcement and the coastguards on Aruba and the Netherlands Antilles, budgeted for about 15 million euro for 2002 3 . A second category of expenses for the benefit of Kingdom matters is of a slightly different nature and, therefore, included in an other chapter of the Dutch budget. The King, in accordance with the Charter, governs the Kingdom and each of its countries, but is represented by a Governor in the Netherlands Antilles and Aruba. The Netherlands finances the office bureaus of the Governors of the Netherlands Antilles and Aruba. Besides expenditure for Kingdom matters, the Netherlands gives aid and assistance for the promotion of the autonomy of the Kingdom partners. This kind of mutual aid and assistance, which the Charter requires of the other countries in the Kingdom as well, focuses primarily on the realization of sound public finances in the various countries 4 . In her annual speech before the Dutch parliament, in the framework of the opening of the parliamentary year, the Queen formulated this as follows: The Netherlands Antilles, with the help of the IMF, is working at a lasting social and economic recovery. The Netherlands is actively contributing to this. In Aruba, balanced development of public finances requires permanent attention. The Dutch contribution to the overseas developments has been budgeted for some 100 million euro in the 2002 Budget and is taking shape in various cooperative programs. Finally, part of the Budget is allocated for a fund for the benefit of the enforcement of a proper level of administration in the insular land territories of Bonaire, Saba and Sint Eustatius. This so-called Solidariteitsfonds (Solidarity Fund), required by the Charter in so many words, was called into being after Aruba, which is relatively prosperous, managed to get a status aparte within the Kingdom in 1986.5 The Netherlands Antilles, the Netherlands and Aruba each contribute to this fund. In this way, the deficits of the aforementioned insular land territories are prevented from being at the expense of Curaçao and Sint Maarten. 2.1.2 The budgets of the Netherlands Antilles and Aruba Apart from having their own governments, both the Netherlands Antilles and Aruba have a parliament of their own, called the Staten. The government, with the Governor acting as the representative of the King, and the Staten make up the legislator, 3. The assumption that the coastguard is a matter of the Kingdom, is being disputed by the Netherlands Antilles and Aruba. The Council of State of the Kingdom, the highest advisory body, has also judged that the base for taking measures relating to the coastguard should be found primarily in Article 38 of the Charter. This means that taking such measures is not appropriate for the bodies of the Kingdom, but that a joint arrangement between the countries will be necessary. 4. Article 36 of the Charter. 5. Article 36a of the Charter
WARMELINK responsible for establishing landsverordeningen(ie. Acts of the Netherland Antilles and Aruba ) These Antillean and Aruban acts are equivalents to Dutch acts The Constitutions of the Netherlands Antilles and Aruba stipulate that the budget shall be established by law, which makes the government and the Staten the common In both countries, govemment presents a draft budget to the Staten each ye The budget of the Netherlands antilles is presented no later than the second Tuesday in September, the final date for the Aruban budget to be presented is September Ist Officially, the Staten have the authority to modify the budget, however, in practice there appears to be relatively little room for it. Not only does a arge part of the expenditure result from comm itments already adopted, the Govemment Accounts Acts of the Netherlands Antilles and Aruba also require that the budgets be balanced. Such a legal obligation does not rest with the dutch budgetary authority Besides expenditure intended for the country s own matters, the budgets of the Netherlands Antilles and Aruba conta in items for Kingdom matters as well. The Charter requires that the Netherlands antilles and Aruba contribute, in accordance with their means, towards the expenses involved in defending the Kingdom and maintaining its independence, as well as towards the expenses involved in taking care of other Kingdom matters as faras this care is intended to benefit these countries All in all, there is little difference between expenditure for own matters and for Kingdom matters, the Antillean and Aruban expenditure for the Kingdom will usually benefit their own countries, and staff expenditure of the two countries for the organization of the Kingdom is lim ited The budgets of the Netherands Antilles and Aruba do include the expend for the ministers plenipotentary, one for each country, who represent the govemments of these countries in Kingdom matters. Together with the fifteen Dutch) Ministers appointed by the King, they make up the Council of Ministers of the Kingdom. Anyway, their say in this Council is quite limited. There is no separate ingdom parliament; the Dutch States-General function as such in Kingdon Besides Kingdom matters, there is a category of matters of cooperation existing on the basis of a cooperative arrangement made between the Netherlands Antilles and Aruba. As a result of this arrangement, which is an example of a joint arrangement between the countries based on the Charter/, Aruba and the Netherlands Antilles regulate certa in matters together or in a uniform way. The financal and budgetary consequences of this cooperation are small: its main purpose is to bring about legal and administrative unifom ity. Expenditure is made for the aforementioned Solidarity Fund, but the resources of the Netherlands Antilles and Aruba may not be sufficient for them to be able to make the compulsory payments. It has been agreed that, in that case, the Netherlands will help out In practice, presenting and establishing the budgets of these countries in time has proven to be quite a job, particularly as far as the Netherlands Antilles are concemed. The complicated internal structure of the Antilles is a contributing factor to this problem. The presentation and establishment of the budget of the Netherlands Article 35 of the Charter Article 38 of the Charter
WARMELINK 4 responsible for establishing landsverordeningen (i.e. Acts of the Netherlands Antilles and Aruba). These Antillean and Aruban acts are equivalents to Dutch acts. The Constitutions of the Netherlands Antilles and Aruba stipulate that the budget shall be established by law, which makes the government and the Staten the common budget authority. In both countries, government presents a draft budget to the Staten each year. The budget of the Netherlands Antilles is presented no later than the second Tuesday in September, the final date for the Aruban budget to be presented is September 1st. Officially, the Staten have the authority to modify the budget, however, in practice there appears to be relatively little room for it. Not only does a large part of the expenditure result from commitments already adopted, the Government Accounts Acts of the Netherlands Antilles and Aruba also require that the budgets be balanced. Such a legal obligation does not rest with the Dutch budgetary authority. Besides expenditure intended for the country s own matters, the budgets of the Netherlands Antilles and Aruba contain items for Kingdom matters as well. The Charter6 requires that the Netherlands Antilles and Aruba contribute, in accordance with their means, towards the expenses involved in defending the Kingdom and maintaining its independence, as well as towards the expenses involved in taking care of other Kingdom matters as far as this care is intended to benefit these countries. All in all, there is little difference between expenditure for own matters and for Kingdom matters; the Antillean and Aruban expenditure for the Kingdom will usually benefit their own countries, and staff expenditure of the two countries for the organization of the Kingdom is limited. The budgets of the Netherlands Antilles and Aruba do include the expenditure for the ministers plenipotentiary, one for each country, who represent the governments of these countries in Kingdom matters. Together with the fifteen (Dutch) Ministers appointed by the King, they make up the Council of Ministers of the Kingdom. Anyway, their say in this Council is quite limited. There is no separate Kingdom parliament; the Dutch States-General function as such in Kingdom matters. Besides Kingdom matters, there is a category of matters of cooperation , existing on the basis of a cooperative arrangement made between the Netherlands Antilles and Aruba. As a result of this arrangement, which is an example of a joint arrangement between the countries based on the Charter7 , Aruba and the Netherlands Antilles regulate certain matters together or in a uniform way. The financial and budgetary consequences of this cooperation are small: its main purpose is to bring about legal and administrative uniformity. Expenditure is made for the aforementioned Solidarity Fund, but the resources of the Netherlands Antilles and Aruba may not be sufficient for them to be able to make the compulsory payments. It has been agreed that, in that case, the Netherlands will help out. In practice, presenting and establishing the budgets of these countries in time has proven to be quite a job, particularly as far as the Netherlands Antilles are concerned. The complicated internal structure of the Antilles is a contributing factor to this problem. The presentation and establishment of the budget of the Netherlands 6. Article 35 of the Charter. 7. Article 38 of the Charter
BUDGETARY FEDERALISM Antilles partly depend on the question whether the budgets of the insular land territories have been presented and fixed in time. Partly as a result from conditions to be discussed below, these budgets invariably show large deficits, which subsequently have to be eliminated from the Antillean budget, whether or not with the help of the Solidarity Fund. These problems regarding content are not the only improvement as well ough budgetary discipline as such seems to have room for causes of the delays, the 2.2 Revenue and expenditure of the countries of the Kingdom The authority to execute expenditure for the purpose of implement ing their budgets belongs to the govemments of the various countries of the Kingdom. Adoption of the budget should be regarded as an authorization to the governments to execute expenditure. If there is no such authorization, the Government Accounts Regulations of the various countries offer an interim regulation to the effect that execution of expenditure may temporarily be based on the previous budget. Both the Netherlands Antilles and Aruba have to make use of this provision frequently and even sometimes, fora long time, and every now and then the Netherlands a lso need resort to this possibility The items of revenue can be grouped in various categories. Major income are resources from taxation and from money loans. Additional revenue can result from fees, participation in company profits, revenue from state property, etc Authorization to receive these revenues does not spring from the budget Authorization to collect taxes is based on the act or landsverordening by which that tax is imposed. Contracting loans requires a specific authoriation by act or landsverordening, and the chamber of representatives needs to be notified a bout the founding of or participation in a legal person governed by private law. On the basis of this notification, the parliament can enforce authorization by act or Concerning the contracting or guaranteeing of loans outside the Kingdom, there is an additional cond ition that decisions about them must be taken in hamony with the wishes of the Kingdom govemment. The govemment of the Kingdom has to assess whether Kingdom interests are compatible with these decisions. If so, the Council of Ministers will have to agree with the plan. It goes without saying, that this provision rather affects the power of decision of the Netherlands Antilles and Aruba than it affects the Dutch say, because of the origins ofthe Council s Ministers and because of the judicialand actual relations within the Kingdom Similar conditions apply with regard to entering into econom ic or financial agreements. If the governments of the Netherlands Antilles or Aruba want to conclude such an international treaty, only for their own country, the Kingdom According to Articl 110 of the Netherlands Antilles Insular Land Territories Regulation deficit on the budgets of Bonare, Saba Sint Eustatius and Sint Maarten must either be approved by act of the Netherlands Antilles or altered n such a way that the altered balance brings about a balanced island budget Article 29 of the Charter
BUDGETARY FEDERALISM 5 Antilles partly depend on the question whether the budgets of the insular land territories have been presented and fixed in time. Partly as a result from conditions to be discussed below, these budgets invariably show large deficits, which subsequently have to be eliminated from the Antillean budget, whether or not with the help of the Solidarity Fund8 . These problems regarding content are not the only causes of the delays, though; budgetary discipline a s such seems to have room for improvement as well. 2.2 Revenue and expenditure of the countries of the Kingdom The authority to execute expenditure for the purpose of implementing their budgets belongs to the governments of the various countries of the Kingdom. Adoption of the budget should be regarded as an authorization to the governments to execute expenditure. If there is no such authorization, the Government Accounts Regulations of the various countries offer an interim regulation to the effect that execution of expenditure may temporarily be based on the previous budget. Both the Netherlands Antilles and Aruba have to make use of this provision frequently and even, sometimes, for a long time, and every now and then the Netherlands also need resort to this possibility. The items of revenue can be grouped in various categories. Major sources of income are resources from taxation and from money loans. Additional revenue can result from fees, participation in company profits, revenue from state property, etc. Authorization to receive these revenues does not spring from the budget. Authorization to collect taxes is based on the act or landsverordening by which that tax is imposed. Contracting loans requires a specific authorization by act or landsverordening, and the chamber of representatives needs to be notified about the founding of or participation in a legal person governed by private law. On the basis of this notification, the parliament can enforce authorization by act or landsverordening, if necessary. Concerning the contracting or guaranteeing of loans outside the Kingdom, there is an additional condition that decisions about them must be taken in harmony with the wishes of the Kingdom government. The government of the Kingdom has to assess whether Kingdom interests are compatible with these decisions. If so, the Council of Ministers will have to agree with the plan.9 It goes without saying, that this provision rather affects the power of decision of the Netherlands Antilles and Aruba than it affects the Dutch say, because of the origins of the Council s Ministers and because of the judicial and actual relations within the Kingdom. Similar conditions apply with regard to entering into economic or financial agreements. If the governments of the Netherlands Antilles or Aruba want to conclude such an international treaty, only for their own country, the Kingdom 8. According to Article 110 of the Netherlands Antilles Insular Land Territories Regulation, deficits on the budgets of Bonaire, Saba, Sint Eustatius and Sint Maarten must either be approved by act of the Netherlands Antilles or altered in such a way that the altered balance brings about a balanced island budget. 9. Article 29 of the Charter