The ECHR and limits to the freedom of the State to regulate its Public Finance Management MATRA, Public Finance Management, The Hague, November 16, 2017 Dr. Michiel L. van Emmerik

Contents Introduction European Convention on Human Rights The right to property of Article 1 First Protocol: some highlights Case law of the Strasbourg Court: the right to property hindrance for the state to regulate its Public Finance Management? Conclusion

Introduction European Convention on Human Rights (1950), Council of Europe (1949) Originally 6 member states, now 47 European Court of Human Rights (Strasbourg)

Article 1 First Protocol (1952) (1) Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. (2) The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties

Three distinct rules ECtHR Sporrong and Lönnroth v. Sweden (1982): the principle of peaceful enjoyment of possessions (the first sentence of the first paragraph); (II) deprivation of possessions (the second sentence of the first paragraph); and (III) control of use (the second paragraph).

Autnonomous meaning The concept of property, or “possessions”, is very broadly interpreted. It covers a range of economic interests. The following have been held to fall within the protection of Article 1: Movable or immovable property, tangible or intangible interests, such as shares, patents, an arbitration award, the entitlement to a pension, a landlord’s entitlement to rent, the economic interests connected with the running of a business, the right to exercise a profession, a legitimate expectation that a certain state of affairs will apply, a legal claim, and the clientele of a cinema.

Existing property The protection of Article 1 of Protocol No. 1 only applies when it is possible to lay claim to the relevant property. Article 1 does not protect the right to acquire it is only existing property and not the right to acquire property in the future which is protected. It follows that an expectation to inherit property in the future, for example, will not be protected under Article 1. ‘Legitimate expectation’ not ‘the mere hope’

Legitimate interference Legal basis: legal certainty requires the existence of and compliance with adequately accessible and sufficiently precise domestic legal provisions, which satisfy the essential requirements of the concept of “law”. Legitimate objective: in the public, or general, interest Proportionality: fair balance between the demands of the general interests of the community and the requirements of the protection of the individual’s fundamental rights (“individial and excessive burden”)

Wide margin of appreciation ECtHR James v.UK (1986): ‘Because of their direct knowledge of their society and its needs, the national authorities are in principle better placed than the international judge to appreciate what is "in the public interest". Under the system of protection established by the Convention, it is thus for the national authorities to make the initial assessment both of the existence of a problem of public concern warranting measures of deprivation of property and of the remedial action to be taken […]. Here, as in other fields to which the safeguards of the Convention extend, the national authorities accordingly enjoy a certain margin of appreciation. Furthermore, the notion of "public interest" is necessarily extensive. In particular, as the Commission noted, the decision to enact laws expropriating property will commonly involve consideration of political, economic and social issues on which opinions within a democratic society may reasonably differ widely. The Court, finding it natural that the margin of appreciation available to the legislature in implementing social and economic policies should be a wide one, will respect the legislature’s judgment as to what is "in the public interest" unless that judgment be manifestly without reasonable foundation. In other words, although the Court cannot substitute its own assessment for that of the national authorities, it is bound to review the contested measures under Article 1 of Protocol No. 1 (P1-1) and, in so doing, to make an inquiry into the facts with reference to which the national authorities acted.’(par. 46)

Very wide margin of appreciation in tax matters The power of the State to secure the payment of taxes or other contributions or penalties (within the third rule of Article 1 of Protocol No. 1) has been held to be particularly wide. But a taxing measure is nevertheless subject to the requirements of proportionality and non-discrimination. Also possibility of retroactive effect of tax measures, although with the restriction of not affecting pending proceedings

But sometimes violation In cases of exceptional hardship, e.g. ECtHR N.K.M. v. Hungary (2014): This case concerned a civil servant who complained in particular that the imposition of a 98 per cent tax on part of her severance pay under a legislation entered into force ten weeks before her dismissal had amounted to an unjustified deprivation of property, with no remedy available.

N.K.M. v. Hungary The Court found that there had been a violation of Article 1 of Protocol No. 1. Despite the wide discretion that the Hungarian authorities enjoyed in matters of taxation, it held that the means employed had been disproportionate to the legitimate aim pursued of protecting the public purse against excessive severance payments. Nor had the applicant been provided with a transitional period in which to adjust to the new severance scheme. Moreover, in depriving her of an acquired right which served the special social interest of reintegrating the labour market, the Hungarian authorities had exposed the applicant to an excessive individual burden.

But generally no violation Very wide margin of appreciation in particular in case of economic crisis, e.g. ECtHR 1 September 2015, Da Silva Carvalho vs. Portugal This case concerned the reduction of retirement pensions following austerity measures taken in Portugal, in particular the extraordinary solidarity contribution (“CES”). The applicant, a pensioner belonging to the public-sector pension scheme, maintained that these measures had breached her right to protection of property, alleging in particular that the CES was no longer a temporary measure as it had already been applied to her pension in 2013.

Da Silva Carvalho v. Portugal In this connection, in examining whether the appropriate balance was struck, the Court takes cognisance of the fact that the CES, and other austerity measures, were adopted against the background of an actual and unexpected budgetary crisis in Portugal. In this regard it further notes that the Portuguese Constitutional Court has delivered different rulings on the issue of social rights (see paragraph 21 above) in which it grounded its decisions on the principle of the “proviso of the possible” (reserva do possível, known in German as the Vorbehalt des Möglichen), according to which a State cannot be forced to comply with its obligations in the framework of social rights if it does not possess the economic means to do so. In this context, the budgetary constraints on the implementation of social rights can be accepted as long as they are proportionate to the public aim pursued (…) and do not reduce social rights’ claims to purely symbolic sums (…). The international recognition of the country’s economic situation indicates that the present budgetary constraints constitute an imperative, which however did not reduce possessions originating in a statutory social right’s claims to a level that deprives the right of its substance (….).

Da Silva Carvalho v. Portugal The Court then notes that the CES reduced the applicant’s annual pension by EUR 1,286.88 (4.6% of her total annual social security benefits) in 2013 and in 2014, which amounted to a cumulative loss of EUR 2,573.56 in the two years combined. In addition, the CES was only applicable to her pension for a period of two years (2013-2014), on a year-by-year basis. The interference by section 76 of the 2014 State Budget Act with the applicant’s right to peaceful enjoyment of her possessions was therefore limited both in time and in quantitative terms. The Court takes further note that the Portuguese Constitutional Court, in its analysis of the CES, considered that there were no other alternatives which could pursue the same public aims affecting the holders of social rights to a lesser degree (…). Moreover, since the legislature remained within the limits of its margin of appreciation, it is not for the Court to decide whether better alternative measures could have been envisaged in order to reduce the State budget deficit and overcome the financial crisis (…). Thus, as regards the personal burden which the applicant sustained on account of the impugned measure in force in 2014, the Court notes that she did not suffer a substantial deprivation of income.

Mamatas v. Greece ECtHR Mamatas a.o. v. Greece (2016): This case concerned the forcible participation by the applicants, who were private individuals holding Greek State bonds, in the effort to reduce the Greek public debt by exchanging their bonds for other debt instruments of lesser value. The applicants complained in particular that the exchange of their bonds (…) had amounted to a de facto expropriation which had deprived them of their property or, in the alternative, an interference with their right to respect for their property.

Mamatas v. Greece (…) The Court held that there had been no violation of Article 1 of Protocol No. 1. It noted in particular that this forcible participation amounted to an interference with the applicants’ right to respect for their property for the purposes of Article 1 of Protocol No. 1. Nevertheless, that interference pursued a public-interest aim, that is to say preserving economic stability and restructuring the national debt, at a time when Greece was engulfed in a serious economic crisis. The Court therefore held that the applicants had not suffered any special or excessive burden, in view, particularly, of the States’ wide margin of appreciation in that sphere and of the reduction of the commercial value of the bonds, which had already been affected by the reduced solvency of the State, which would probably have been unable to honour its obligations under the clauses included in the old bonds before the entry into force of the new Law (…)

Sometimes excessive burden ECtHR Asmundsson v. Iceland (2004) The applicant received a disability pension after sustaining serious injuries in a work accident. As a response to the economic crisis in Iceland, the government removed the disability pension entitlements in their entirety from specific classes of recipients, including the applicant.

Asmundsson v. Iceland (…) However, the Court is struck by the fact that the applicant belonged to a small group of 54 disability pensioners (…) whose pensions, unlike those of any other group, were discontinued altogether on 1 July 1997. The above-mentioned legitimate concerns about the need to resolve the Fund’s financial difficulties seem hard to reconcile with the fact that after 1 July 1997 the vast majority of the 689 disability pensioners continued to receive disability benefits at the same level as before the adoption of the new rules, whereas only a small minority of disability pensioners had to bear the most drastic measure of all, namely the total loss of their pension entitlements. In the Court’s view, although changes made to pension entitlements may legitimately take into account the pension holders’ needs, the above differential treatment in itself suggests that the impugned measure was unjustified for the purposes of Article 14 of the Convention, which consideration must carry great weight in the assessment of the proportionality issue under Article 1 of Protocol No. 1. (…)

Asmundsson v. Iceland Against this background, the Court finds that, as an individual, the applicant was made to bear an excessive and disproportionate burden which, even having regard to the wide margin of appreciation to be enjoyed by the State in the area of social legislation, cannot be justified by the legitimate community interests relied on by the authorities. It would have been otherwise had the applicant been obliged to endure a reasonable and commensurate reduction rather than the total deprivation of his entitlements Article 14 : Prohibition of discrimination: The enjoyment of the rights and freedoms set forth in this Convention shall be secured without discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status. See also 12th Protocol

Another example ‘Fair balance’/ Proportionate? ECtHR Lakićević e.a. v. Montenegro and Serbia (2011) ‘Even having regard to the wide margin of appreciation enjoyed by the State in the area of social legislation, the impact of the impugned measure on the applicants’ rights […] cannot be justified by the legitimate public interest relied on by the Government. It could have been otherwise had the applicants been obliged to endure a reasonable and commensurate reduction rather than the total suspension of entitlements […] or if the legislature had afforded them a transitional period within which to adjust themselves to the new scheme. Furthermore, they were required to pay back the pensions they had received […], which must also be considered a relevant factor to be weighed in the balance.’ (par. 72)

Conclusion The right to property: very wide concept Wide possibilities for the state (very wide margin of appreciation) to pose legitimate restrictions to this right and to regulate its Public Finance Management, in particular in tax matters and vis-à-vis austerity measures in time of economic crisis But there are some limits: proportionality (are there cases of extreme hardship, is the burden divided equally or is there a small minority that suffers in particular?) and the principle of non-discrimination (art. 14 ECHR, 12th Protocol) The legislator cannot intervene in pending court cases and has to respect the legality principle in criminal cases (Art. 7 ECHR)