Review of the constitutionality of norms contained in the State Budget Law for 2013.
State based on the rule of law;
Economic and financial crisis;
Financial Assistance Programme;
Principle of equality;
Suspension of the extra holiday month of salary;
Public Administration staff;
Public sector retirees;
Private sector retirees;
Cuts in remuneration paid out of public funds;
Extraordinary Solidarity Contribution;
Amendments to the Personal Income Tax Code (CIRS);
RULING No. 187/13
5 of april of 2013
The Constitutional Court was asked to review the constitutionality of various norms contained in the State Budget Law for 2013:
1. The Constitutional Court declared the suspension of the additional holiday month of salary or equivalent for Public Administration staff (which also applied to the same types of amount payable under teaching and research contracts) to be unconstitutional with generally binding force, because it was in violation of the principle of equality that requires the just distribution of public costs. The Court did not exclude the possibility that, in exceptional economic/financial circumstances and in order to quickly reduce the public deficit, the legislator could lower the income of Public Administration staff, even if such a measure were to lead to unequal treatment compared to persons who earn income in the private economic sector. However, when not matched by equivalent sacrifices on the part of virtually all the other citizens earning income from other sources, the cumulative, ongoing effects of the sacrifices imposed on people who earn income in the public sector represent a difference of treatment for which the goal of reducing the public deficit does not provide adequate grounds. This does instead constitute a breach of the principle of proportional equality, based on the idea that an inequality derived from a difference between situations must be judged from the point of view of whether it is proportional or not, and cannot go too far.
A different treatment for public-sector staff cannot continue to be justified by the idea that pay-reduction measures are more effective than other possible cost-containment alternatives. Nor can the special employment bond that ties such workers to the public interest serve as grounds for continuing to require them to make sacrifices in the form of a unilateral reduction in their salaries. Penalising a given category of people, in a way that is made worse by the combined effect of this reduction in pay and the generalised increase in the fiscal burden, undermines both the principle of equality with regard to public costs and the principle of fiscal justice.
2. Partial suspension of the holiday month for pensioners
The Court considered that the suspension of the holiday month of pensions for public and private-sector retirees should also be declared unconstitutional with generally binding force, for substantially the same reasons as those given in relation to the salaries of Public Administration workers.
The right to a private or public-sector pension is situated on the same level as the right to a salary. If there is a difference, it is in the sense that pensioners possess a legal position which warrants added protection in terms of the principle that trust must be protected. In their case, we are dealing with rights that have already been constituted, and not future rights. At the moment when a person’s professional working life ends and he/she is entitled to start receiving the pension benefit, the pensioner no longer enjoys mechanisms that enable him/her to protect him/herself and to adapt his/her own behaviour to his/her new circumstances. This produces a situation in which there must be increased trust in the stability of the legal order and the maintenance of the rules that serve to define the content of the right to a pension.
The Court recognised the seriousness of the current economic/financial situation and the need to attain the public-deficit goals included in the specific economic policy conditions laid down in the memoranda of understanding between the Portuguese government, the European Union and the International Monetary Fund. However, it was of the view that the different treatment imposed on people who receive pay and pensions that come from public funds, in the form of the suspension of the holiday month, went beyond the limits established by the prohibition on excess where proportional equality is concerned, and that in the case of pensioners the situation of inequality in relation to public costs was even worse.
The imposition of the so-called extraordinary solidarity contribution, which sought to make the reduction in pensions equivalent to that in the monthly pay of public-sector staff, already means that pensioners are experiencing the same fall in disposable income as the latter. The suspension of the holiday month has also further aggravated an already unequal situation, not only in relation to other pensioners whose holiday month was not suspended, but also compared to people with other forms of income, who were only faced with the generalised increase in the fiscal burden applicable to all taxpayers.
3. Contribution payable on unemployment and sickness benefits
The Court declared the norm that provided for a contribution payable on unemployment and sickness benefits to be unconstitutional with generally binding force, because it violated the principle of proportionality.
The Constitution says that workers have a right to material assistance when they involuntarily find themselves in an unemployment situation, and also requires the legislator to provide for forms of material assistance for workers who are ill, in both cases within the context of a social security system. This objective must thus be achieved via the legal regimes that ensure social protection in cases of unemployment and sickness.
It is true that the Constitution does not establish a right to a concrete amount of material assistance, even in the event of unemployment. The scope of the protection provided by a worker’s right to material assistance in situations of unemployment or illness does not mean that it is impossible to reduce the amounts of those benefits, unless the reduction is so great that it de-characterises them by making the welfare function they perform – that of replacing earned remuneration – unviable.
In the cases of both the unemployment benefit and the sickness benefit, the new contribution was accompanied by other measures that increased the amount of the payments to which involuntarily unemployed or ill workers are entitled in certain specific situations (the unemployment benefit is now higher when both spouses are unemployed and have dependent children; and the calculation of the reference remuneration used to determine the sickness benefit has been changed to consider total remuneration from the beginning of the reference period until the day before that on which the beneficiary became unfit for work, thereby taking into account any reductions in income over the course of the reference period).
The ability to fulfil the constitutional programme under which citizens are protected when they are ill or unemployed is dependent on financial and material factors, and it is the legislator’s job to make the content of the corresponding social right operable by defining the list of situations in which protection is required.
The fact that the measure before the Court was exceptional and transitory, with the reductions in the sickness and unemployment benefits imposed solely for the current budget year, could lead to the conclusion that the norm was constitutional.
However, the Court’s view was that the absence of any safeguard clause meant that in practice it was not impossible for the cash amounts involved to be reduced to a point at which, in some cases, the benefit might fall below the minimum level already established in legislation. Such a solution would violate the principle of proportionality by affecting the beneficiaries in the most vulnerable situations, in that it encompasses social benefits whose function is to replace earned pay a worker has been deprived of and whose amount is supposed to be at least equal to the minimum material assistance already guaranteed by law. The fact is that the Constitutional Court has gradually been recognising the existence of a guarantee of a right to a minimum level of subsistence – a right which it has founded on a combination of the principle of the dignity of the human person and the right to social security in situations of need, as measured against the standard of the national minimum wage (SMN) or the guaranteed minimum salary (RMG).
4. Reduction in remunerations paid out of public funds
The Court did not declare the continued reduction in remunerations paid out of public funds to be unconstitutional.
This is the third consecutive year in which this reduction in the remunerations paid within the scope of the legal public employment relationship has been in effect, and in this respect the 2013 Budget Law simply maintained the norms and reductions set out in its predecessors. The Court recalled its previous jurisprudence, in which it said that the rule under which salaries cannot be reduced is not an absolute one, but rather an infra-constitutional rule. The only absolute prohibition is that neither a public nor a private employer can arbitrarily reduce pay, unless a legal norm allows it to do so. The Court thus rejected the argument that there is a right under which salaries are irreducible – a right that was said to exist in labour legislation, but to have been given the nature of a fundamental right under the open clause in the Constitution which says that fundamental rights do not have to be expressly contained in the Constitution itself, but can also be established in infra-constitutional laws or derived from international-law rules that apply in Portugal.
The Court upheld its previous position (Ruling no. 396/2011) on the argument that the reductions in the pay of public-sector workers are in breach of the principle of equality because they only target people who work for the state and other public-law legal persons, and do not apply to workers who are paid for providing subordinate labour in the private or cooperative sectors, independent workers, or anyone else who earns income from other sources. It concluded that there are legitimate grounds for this differentiation, both because no evidence was presented to refute the position that only pay cuts are capable of guaranteeing a sure and immediate reduction in the weight of public spending, and because where this objective is concerned, people who are paid out of public funds are not in the same position as other citizens. For these reasons the Court felt that the additional sacrifice demanded of this category of persons for a transitory period of time does not constitute an unjustifiably unequal form of treatment.
5. Payment of overtime
The Court decided not to declare the unconstitutionality of a norm that provides for a reduction in overtime payments to public-sector staff.
As we have already said, the Court does not recognise the existence of a constitutional guarantee that salaries cannot be reduced. It said that this guarantee is infra-constitutional, and that the reduction in overtime payments does not breach either the principle of trust, or the principle of equality.
Unlike the extra holiday and Christmas-month payments, additional pay for doing overtime does not possess the habitual or regular nature that typically characterises remuneratory payments in the technical-legal sense.
Inasmuch as overtime pay is variable and unpredictable, because it depends on managerial decisions that fall exclusively within the employer’s sphere of authority, this measure is not in violation of the constitutional principle of trust. The Court considered that the reasons why the measures involving the reduction and suspension of elements of people’s pay packets are not unconstitutional to be even more valid here, and that this reduction in overtime payments does not cause damage that can be criticised on constitutional grounds, notwithstanding the fact that the expectation of immutability is actually more consistent and lastingly formed in this particular situation.
6. Extraordinary solidarity contribution (CES) payable on pensions
Nor did the Court find that the norm which subjects pensions to an extraordinary solidarity contribution to be unconstitutional, considering instead that this measure is appropriate and proportional and does not include elements that would constitute a confiscation.
The CES was designed to work in conjunction with other measures to respond to the economic and financial crisis. The combination of a decrease in the revenues of the social security system, a major rise in unemployment and the ensuing increase in expenditure on the provision of support for the unemployed in particular and situations of poverty in general, falling salaries and thus falling social security contributions, and new migratory trends, is all requiring the state to subsidise the social security system. It also means that, within the overall framework of the basic choices available to the political authorities, there is an urgent need to strengthen that system’s financing at the cost of its beneficiaries.
The Court acknowledged that, having reached the end of their professional working lives and secured the right to the payment of a pension calculated on the basis of the social security contributions deducted from their incomes during their working careers, retirees are legitimately entitled to expect continuity in the legislative framework and the maintenance of their legal positions. They cannot be required to have made alternative plans for a possible change in public policy that is capable of having negative effects in their legal sphere.
However, in the present case the Court was of the opinion that a para-fiscal contribution to be made by the universe of pensioners is a measure that is appropriate to the goals pursued by the legislator. It also felt that the measure fulfils the principle of need, in that the Court was not aware of any alternatives which, while remaining coherent with the system of which such measures form a part, would simultaneously cause less damage to the holders of the legal positions at stake and serve the public interest to the same extent.
Nor did the Court find the norm to be disproportionate or excessive, bearing in mind its exceptional and transitory nature and the effort the legislator made to ensure that the sacrifice demanded of private individuals is proportional to their income levels.
7. Changes in the Personal Income Tax Code (CIRS)
The Court rejected the suggestion that the norms in the State Budget Law for 2013 concerning a reduction in the number of taxable income brackets, an amendment to the additional solidarity rate, limitations on tax-deductible items, and the creation of Personal Income Tax (IRS) surtax, are unconstitutional.
On the subject of the reduction in the number of tax brackets and the increase in the normal and average rates applicable to each one, the Court held that the system is still sensitive to differences in levels of income. The initial amount of income that is free of tax continues to be proportionally higher for lower incomes, and the degree of progression from one bracket to the next is substantial. Although the changes do represent a certain reduction in this degree of progressivity, the Court did not consider it to be enough to be unconstitutional.
Under the IRS heading, the petitioners also questioned the constitutionality of the reductions in, or elimination of, tax-deductible items (in this case, deductible from the actual amount of tax payable, as opposed to reductions in the taxable income, which would thus only influence the calculation of the latter).
The Court held that the decision as to whether these measures are compatible with the principle of the capacity to pay taxes, which is itself derived from the principle of equality, is included within the scope of the legislator’s freedom to shape ordinary legislation.
On the question of whether the IRS surtax is capable of breaching the principles of the unitary and progressive nature of income taxes, the Court felt that when the system is taken as a whole, the norm maintains enough progressivity to avoid criticism in constitutional terms.
The Court also found that the exceptional and transitory nature of the measures – designed as they are to offer a response to extraordinary public finance needs – means that they are not in violation of the rule that taxes on personal income must be unitary.
8. Difference between the fiscal treatment of income from work and pensions and the taxation of income from capital
The Court declined to pronounce itself on the question of whether the Constitution – and specifically the principle of equality in the distribution of public costs and the principle of fiscal justice – is compatible with the legislator’s decision to set rates of tax on income from work and pensions that can exceed 50%, while subjecting capital incomes to a single rate of 28%.
The Court was of the view that such a comparison is not viable. Firstly, because such rates apply to forms of income that are not calculated in the same way; and secondly, because the nature of the rates and the ways in which they operate are different, and it is thus not possible to make a comparison based on their nominal amount. What is more, the rates in question correspond to mechanisms that function on the basis of different logics (progressive vs. proportional), and thus concretely distribute the fiscal burden in different manners: the general rates are based on the concept of personal taxation – i.e. the idea that it is people who are taxed on their income; whereas “liberatory” withholding taxes or autonomous taxes represent the direct taxation of a specific item or amount.
1. The Constitutional Court was asked to review the constitutionality of various norms contained in the State Budget Law for 2013. In this ex post facto review case, the Court considered requests made by a number of different petitioners: the President of the Republic; a group of Members of the Assembly of the Republic from the Socialist Party; groups of Members of the Assembly of the Republic from the Portuguese Communist Party, the Left Bloc, and the Ecologist Party “The Greens” (the latter three parties submitted a joint request); and the Ombudsman.
2. The norms before the Court concerned: the suspension of the payment of the extra holiday month of salary or its equivalent; the same suspension for retirees from both the public and the private sectors; the imposition of an “extraordinary solidarity contribution” payable on pensions (at rates of between 3.5% and 10%, with pensioners already paying the 10% rate subjected to an additional 15% rate on the part of their pensions that exceeds 12 times the reference amount used to set, calculate and update contributions, pensions and other social benefits (the so-called Social Support Index Value – IAS), and to a rate of 40% on the amount of their pensions over and above 18 times the IAS; a reduction in the pay of public-sector staff; a reduction in the remuneration, and suspension of the extra holiday month, payable under teaching and research contracts; a reduction in the sums payable as overtime; the imposition of a contribution payable on sickness and unemployment benefits; and changes to the personal income tax (IRS) brackets.
3. Various grounds were given for the different allegations of unconstitutionality, including violations of: the principle of a state based on the rule of law; the proportionality dimension of the principle of equality; the principle of the protection of trust; the right to a salary; the right to social security; the right to collective bargaining and collective labour agreements; the right to subsistence with a minimum level of quality; the essential core of the material-asset aspect of the rights to property; various principles set out in the so-called “Fiscal Constitution” – namely those of an annual nature, the unitary and progressive nature of income tax, and the principle of the capacity to pay taxes; and the principle of respect for past judgements issued by the Constitutional Court with generally binding force.
4. The Court began by offering a framework for and general description of the budget consolidation measures set out in the State Budget Law for 2013 (LOE2013), and by contextualising them within the scope of the need to implement a set of strategic guidelines to which the Portuguese State committed itself as part of the budget consolidation effort provided for in the Financial Assistance Programme (FAP) agreed by the government, the IMF, the European Commission and the ECB. This Programme lays down the terms and conditions governing the financial assistance provided to Portugal by the International Monetary Fund, and within that framework, the figures for the budget deficit in 2012, 2013 and 2014. The overall programme includes memoranda that are binding on the Portuguese State, to the extent that they are based on International and European-Law instruments – the Treaties creating the international entities concerned, and to which Portugal is a party – which are recognised by the Constitution. It should be noted that the government has said that, although the budget deficit limits have been revised since the original agreement with the international creditors – on the grounds that there has been a change in the pattern of the adjustment process, in the form of a larger than expected fall in domestic demand and total wages, which has in turn led to both a drop in tax revenues (by 1.6% of GDP) and social security contributions (-0.4%) and an increase in the cost of unemployment benefits (+0.2%) – the State Budget for 2013 represents an especially difficult exercise, particularly in terms of the need to adopt additional budgetary consolidation measures on both the revenue and the expenditure sides of the equation.
5. The Court recalled that the question of knowing how long norms remain in force when they are contained in budget laws which, whether or not they explicitly state their own time limit, affect the amount of pay received by public-sector workers, had already been addressed in the review of the constitutionality of a norm in the State Budget Law for 2011 (LOE2011). That norm was the first to reduce monthly remunerations paid out of public funds (see Ruling no. 396/11).
On the issue of whether such reductions are definitive or merely transitory, in Ruling no. 396/11 the Court found that the absence of any provision establishing a particular length of time did not lead to the conclusion that the measure in question was definitive – a position it based on the nature of the norms concerned and the constitutional precepts governing the time period for which Budget Laws remain in force.
In the present case the Court was of the view that, although there might be doubts about the specifically budgetary nature of the norms before it, they did have an immediate financial effect, inasmuch as they were designed to directly reduce the amount of the expenditure set out in the budget for the year they targeted, and could therefore not be considered “cavaliers budgétaires” (non-financial provisions included in financial legislation).
The Court thus took the position that these were norms whose function was to provide normative support for a given spending provision, and, because their application was indispensable to the correct execution of that provision, that they had direct effects on the budgetary framework itself, of which they formed an essential component.
It therefore concluded that the norms possessed a budgetary nature, and that the necessary application of the constitutional principle of annual budgets thus meant that there was no need to autonomously state the end of the period for which they remained in force.
6. Having said this, the Court considered that it was necessary to bear in mind that the ultimate goal of the pay cuts set out in LOE2011 was to reduce the budget deficit to a precisely quantified amount that respected the limit which the European Union had established within the framework of the rules governing economic and monetary union. It was therefore appropriate to conclude that these measures would last for more than one year, without thereby undermining their transitory nature as a normative response to an exceptional conjunctural situation that the legislator was urgently seeking to correct and return to normality.
7. The problem of the determination of the temporal scope of the force of budget-law norms that affect the amount of the pay received by public-sector workers was again brought before the Court during the review of the constitutionality of the State Budget Law for 2012 (LOE2012). The latter suspended payment of the extra holiday and Christmas months and any other payments corresponding to the 13th and/or 14th months of salary for public-sector staff with a base monthly wage of over €1,100 – a measure that was to last for the duration of the FAP.
In that case, which was decided in Ruling no. 353/12, the question was whether the inclusion of this measure in a budget law would cause the period for which it was to remain in force to be subject to the time limits established in the Constitution and the ordinary law, or, on the contrary, its temporal scope should be determined in a specific clause included in the 2012 Budget Law, in which case it would cover not only 2012 itself, but also 2013 and 2014 – i.e. the lifetime of the FAP.
In the 2012 case, the Court adopted the latter understanding and held that the suspension of payments required by LOE2012 should last for at least three years, thus encompassing 2012, 2013 and 2014.
The Court ruled that there was no breach of the constitutional principle that budgets must be annual, because although the temporal clause established a time limit for the norm to remain in force that went beyond the current year, this did not result in a revenue or expenditure provision with that duration, and this in turn meant that the legislator was not dispensed from reiterating it in the subsequent budget laws passed during the period in which the FAP remained in force.
8. In the present case, given that the temporal structure of the norms in LOE2013 and those in LOE2012 was the same, the Court said that there was no reason to diverge from the position on the temporality of the challenged measures that underlay the judgements set out in Rulings nos. 396/11 and 353/12.
9. The Constitutional Court entirely rejected the allegation by one of the petitioners that the norms on reductions in pay and the suspension of the holiday month, including amounts payable under teaching and research contracts, were unconstitutional because they were contrary to its own previous decisions.
This allegation was based on the declaration of unconstitutionality in relation to norms contained in LOE2012 that was handed down in Ruling no. 353/12.
The Court was of the opinion that the jurisprudential grounds for a past finding of unconstitutionality can serve as a guideline for future legislative decisions, but that it is constitutionally inadmissible to say that those grounds can constitute res judicata and thus invalidate a new legislative solution in their own right. In addition it felt that the content of the norms before it was different in terms of precepts, notwithstanding the consideration that the extent of their possible effect on the assets of the categories of subject covered by them might be the same.
10. On the fact that the imperative nature of the pay-cut regime means it prevails over both other norms and collective labour regulation instruments and employment contracts – a fact that some of the petitioners said violated the constitutional right to collective bargaining and collective labour agreements – the Court’s position was that the existence of imperative legal norms does not contradict the right to such agreements. It recalled that the constitutional norm that awards trade unions the competence to exercise the right to enter into collective labour agreements also gives the legislator a wide-ranging freedom to issue ordinary legislation. The right to collective contractual autonomy is a right that must be exercised under the terms of the ordinary law; and the constitutional obligation under which the ordinary legislator must always leave a minimally significant set of matters open to collective bargaining is not grounds for saying that the necessarily imperative nature of budget norms which, in pursuit of the public interest and on an exceptional and transitory basis, require cuts in the pay of public-sector staff, makes the norms unconstitutional.
Removing the ability of collective bargainers to agree to derogations from the regime laid down in the norms in question does not represent an intrusion into the material cores which the ordinary legislator is constitutionally obliged to include in the material scope of the exclusive right to collective bargaining.
11. Turning to the suggestion that the budget norm which suspended payment of the holiday month or equivalent breached norms included in the “Fiscal Constitution” because the suspension allegedly constituted a real tax, in that it cut the annual income of the people at whom the norm was targeted, the Court considered that in order to be able to qualify the suspension measure as possessing the nature of a tax, it would be necessary for it to match the characteristics that typify a tax. In other words, the measure would have to be a unilateral coercive pecuniary payment, could not possess the nature of a sanction, and would have to be demanded by the state either in order to pursue public goals, or as a para-fiscal payment.
This has not been the position taken in constitutional jurisprudence, as expressed in Rulings nos. 396/11 and 353/12. The Court made a distinction between the actions of the state as the holder of sovereign political power, which take the concrete form of the issue of norms that are directed at and imposed on citizens as a whole, on the one hand, and the actions of the state-employer, which occur within the scope of its labour relationship with public-sector staff, on the other.
The Court analysed the norms in question on the basis of the right to remuneration inherent in the legal public-employment relationship, and maintained the earlier understanding. These are situations in which the state enters into a binding relationship with private individuals that obliges it to pay remuneration in return for the supply of a certain form of activity.
The fact that the state simultaneously possesses the qualities of the active party in the legal tax relationship and the passive party in a labour relationship that requires it to pay wages, can diminish the clarity of the differentiation between its interventions in the two spheres. However, if one were to take a guarantee-based stance under which any correction of the budget imbalance that conflicted with individual positions could only be undertaken constitutionally in the form of taxation, this would limit the exercise of sovereign political power to the mere orientation of the measures to be taken in the public finance field. The Court considered the withholding at source of an additional tax imposed solely on Public Administration staff and owed to the fiscal state on the one hand, and the transitory suppression of part of the remuneration owed by the employer state on the other, to be distinct.
12. The Court also considered that, albeit there is a requirement that salaries cannot be reduced to below a minimum amount, the idea that they cannot be reduced at all is not required either by the principle of the dignity of the human person, or because it can be said to constitute a primary or essential asset. These are the material criteria that serve to determine whether we are in the presence of a subjective right which, despite the fact that it is not enshrined in the Constitution, can be deemed fundamental and therefore enjoys the same regime.
It is uncontested in both legal doctrine and the Court’s jurisprudence that the right to be paid is a fundamental right whose nature is analogous to that of the constitutional freedoms and guarantees. However, it should not be confused with a right to be paid a specific, concrete amount that cannot be reduced by law. It is thus not possible to say that the concept that salaries are untouchable constitutes a guarantee-based dimension which is included within the scope of the protection afforded to the right to be paid for one’s work, or that a reduction in the remuneratory quantum means that that right is being affected or restricted.
13. Inasmuch as there is no rule with constitutional value that directly prohibits reductions in remunerations, and given that such a guarantee cannot be inferred from the fundamental right to be paid, the Court was of the view that the only way to gauge the constitutional conformity of the normative solutions before it was to apply valuation parameters derived from constitutional principles – particularly those of trust and equality.
The fact that the right under which the amount of a salary is “untouchable” lies outside the scope of the protection provided by the fundamental right to be paid means that, when ordinary-law criteria have been used to determine the content of the right to one’s salary, a negative effect on that content brought about by legislative change is not subject to criticism from a constitutional point of view. However, in order to be in conformity with the Constitution, the legislative measure must be adequately justified in the light of the pertinent constitutional principles – i.e. it cannot violate the principle of the protection of trust or the principle of proportional equality.
For there to be a breach of trust, it would be necessary for the ordinary legislator to have drafted the norm in such a way as to oppose the legitimate expectations of private individuals that there will be continuity in the legal order and that any changes in it will be predictable.
In Ruling no. 396/11 the Court held that, in principle, a pay cut that affects the whole universe of people who are paid out of public funds does not fall within the area of predictability of the behaviour of the relevant decision-makers, and that there is a consistent expectation on the part of people that at least their existing pay packets will be maintained. This non-predictability of changes means that people make plans and choices based on the continuity of the existing situation.
Although the Court considered that the cuts that were made in 2011 contradicted the normality that had been established by the earlier actions of the public authorities in this domain and thus frustrated grounded expectations – all the more so in that the reductions were significant and capable of making it difficult, or more difficult, to maintain lifestyles and fulfil undertakings to which citizens had committed themselves – it contextualised the measures against the background of a conjunctural situation that was absolutely exceptional from the public-resource-management point of view. This was a situation that was characterised by the major pressure on Portuguese sovereign debt brought about by the budget imbalance, with a progressive escalation in interest rates and with the Portuguese State and economy facing serious difficulties in obtaining funding. Given this state of affairs, the Court said at the time that it was legitimate to question the continued validity of the reasons which, in a normal situation, had justifiably led to the attribution of consistency and legitimacy to expectations that pay levels would not be touched.
14. In the present case, the Court said that the fact that the exceptional financial situation was still ongoing means that the expectations that might legitimately be created with regard to the impossibility of reducing remunerations payable out of public funds had to be seen as even more pressingly and clearly relative.
It was foreseeable in 2011 that these measures would last for several years and that it would be necessary to include them in the budget laws for the following periods, as a means of providing a normative response to an exceptional conjunctural situation that their authors wanted to correct.
The Court felt that it was thus not in the presence of a change in the legal order of a kind that the people targeted by the norms cannot really count on, and that the public-interest reasons that led to the legislative amendment made by the LOE2013 norm made it possible to consider that there were valid grounds for it. It would therefore not be appropriate to deem the norm unconstitutional for being in breach of the principle of legal security.
The existence of a violation of the principle of the protection of trust, which is included in the constitutional principle of a state based on the rule of law, would depend on it being possible to say that the pay-cut measures were excessively arbitrary or onerous for the purposes of the protection of the principle of legal security. The Constitutional Court has defined the material aspect of trust contained within this principle of legal security with reference to two essential preconditions: as we have already said, expectations must be unfavourably affected in a way that constitutes a change in the legal order that cannot reasonably be expected by the targets of the norms; and the norms cannot be necessary in order to safeguard constitutionally protected rights and interests that must be considered to prevail over the principle of legal security, seen in the light of the principle of proportionality.
In the current case there were signs consistent with a need to maintain budget restraint measures, along with clear public-interest reasons justifying the legislative amendments. It was therefore not possible to say that the changes constituted an unjustified framework of instability in the legal order.
On the hypothesis of a breach of the principle of equality, the Court’s jurisprudence uniformly indicates that such a violation only occurs when the ordinary legislator opts for normative regimes that cause people to be treated in different ways and those differences are not based on grounds that are understandable and reasonable in the light of the constitutional goals they are designed to pursue.
The question raised by this norm was whether the combination of the continued reduction in base monthly pay, the suspension of the payment of the holiday month or equivalent, and the maintenance of other measures designed to restrain pay (the prohibition on progressions to higher pay grades for public-sector staff, for example), constituted treatment that is proportionally differentiating and thus violates the principle of equality in the distribution of public costs.
In order to gauge whether the principle of proportional equality is being complied with, one must look at the situation in context. One must take account of the full range of teleologically unified measures accompanying the measures involving the continuation of the reductions in base monthly pay and the suspension of one of the two annual extra-month payments.
The Court said that it was also necessary to remember that the impact of the public-sector pay cuts came on top of the generalised increase in the fiscal burden imposed by the personal income tax (IRS), from which both public-sector staff and other taxpayers would be suffering.
In its rulings on the 2011 and 2012 budget norms, in this respect the Court held that the efficacy of the measures that had been adopted in terms of securing a result that was of unequalled and important public interest justified the different treatment meted out to people who were paid salaries and received pensions from the State Budget. It accepted that this was an option that was particularly effective when it came to achieving a short-term reduction in the deficit, and was therefore coherent with an action strategy which the legislative decision-makers were entitled to define within the scope of their freedom to shape policies.
The Court also accepted that it was admissible for there to be some differentiation between persons who receive income from public funds and persons who are active in the private sector of the economy. It thus excluded the idea that, within the economic and financial context prevailing at the time, any pay-cutting measure directed solely at the former would be unjustifiably discriminatory.
The Court maintained its earlier position in this regard in the present Ruling.
15. On the question of the constitutionality of the norm that suspended the extra holiday month or equivalent, the Court took the position that constitutional commands are sensitive to possible reductions in the level of concrete legislative implementation of the right to be paid, in the sense that that which is guaranteed is not that pay cannot be cut per se, but rather that both the cuts themselves and the extent of any decrease in that implementation must be justified. This control is operationalised by the principles of the protection of trust, equality, and proportionality, which in turn render the principle of a democratic state based on the rule of law operable.
Although using the ordinary law to impose a significant cut in the income that public-sector staff earn from their labour is not constitutionally precluded under the same terms as is the suppression, suspension or abolition of the right to be paid itself, it is still something that needs to be checked from a constitutional viewpoint. In order to judge its legitimacy, one must first clarify the public-interest reasons that led the state to unilaterally intervene in this manner in the public employment relationship by which it is bound as employer.
The Court attached weight to the fact that the budget consolidation measures proposed for 2013 were underlain by the desire to safeguard key structural values and principles of the Portuguese constitutional order, in a conjunctural economic and financial situation whose exceptional nature was demonstrated by the international financial assistance to which the country had seen, and was continuing to see, itself forced to resort. The Court thus accepted that these circumstances could justify the new budget consolidation measures. However, it said that the latter must be judged in the light of the principles of proportionality and the protection of trust, which underpin the relations between state and citizens in any state based on the rule of law.
The clear existence of a public interest in achieving budgetary goals which are essential to the rebalancing of the public finances and at which the measures before the Court were directed, excludes the possibility of deeming them arbitrary. However, the Court felt that it was necessary to determine whether, from the point of view of the legal position affected by the measures, the way in which the ordinary legislator made a comparative value judgement between this public interest and the affected interests, and the option which that judgement led the legislator to adopt, constitute an intervention that is prohibited by the principles of the protection of trust, equality, and/or proportionality.
The Court recalled that the principle of the protection of trust involves an idea of protecting the confidence which citizens and the community have in the legal order and in the state’s actions – something that ensures a minimum degree of certainty and security with regard to people’s rights and their legally created expectations. In the present case the Court did not consider that the adoption of this particular measure warranted constitutional criticism when viewed exclusively from the perspective of the protection of trust. Suspension of the holiday month also forms part of the pursuit of the real public interest in preserving the state’s capacity to fund both itself and the obligations it undertakes.
The Court said that if one looks directly at the criterion used to determine inequality (and setting aside the extent of any such inequality), one sees that it is based on the objective situation in terms of the income the people who are the targets of the cuts earn by working: given that they are the only ones who are paid via an allocation of public resources, and that for this reason the state is unable to submit persons who are not paid out of those resources to the same measure, there are no constitutional grounds for the view that the principle of equality precludes any reduction in salaries, regardless of the state of the country’s public finances.
While there is no doubt that, theoretically, the budget consolidation policy could adopt other options, this is the domain in which the definition of policy guidelines is reserved to the democratically legitimated legislator. It is not the Court’s place to assess whether the measures implemented by the legislator are good or bad; its role is solely to judge whether the challenged solutions are arbitrary. However, for the measures to be constitutionally valid, the option to differentiate must also be proportional. The principle of proportionality permits – and may even require – that that which is unequal be treated unequally, but the limits on the extent of that difference must be respected. There must be proportionality in both the measure and the extent of the difference, and it must be justified by the reasons given for it.
At stake here are limits on the additional sacrifice imposed on the subjects affected by the measure: if it goes beyond a certain quantum, this increased sacrifice constitutes unfair and disproportionate treatment, and cannot be justified by whatever comparative advantages this form of budget consolidation may present.
It was also necessary to bear in mind that the generalised increase in taxation will constitute an equal additional burden on the situation of people who are paid out of public funds. It will add to the effort these particular taxpayers are being required to make by the continuing cuts in their pay and the suspension of the payment of their extra holiday month of salary. Even the IRS surtax – a measure that was allegedly adopted in order to compensate for the fact that the re-institution of the extra Christmas month of salary means that the reduction in public spending will be less than planned – also encompasses the taxpayers whose pay was cut.
The present measure means that people who are paid salaries by public entities would continue to be required to make an additional effort that has not been demanded of the recipients of other forms of income in general, and of the recipients of income derived from the provision of their labour in the private sector in particular.
The Court considered that, at the moment when the country was entering the third consecutive year in which the budget sought to fulfil the terms of the FAP, the value of the argument that the holiday-month suspension measures were more immediately effective than other options was no longer consistent enough to justify worsening (compared to the State Budget for 2012) the pay levels of subjects who receive their income from public funds.
It was no longer possible to justify the suppression of one of the extra months of salary included in the remuneration of Public Administration staff by saying that the only possible option that would lead to immediate, certain effects in terms of a reduction in the deficit was to reduce public-sector pay by cutting the extra month.
The Court was of the view that the reasons that would have allowed one to recognise that it was impossible for the legislator to find substitute measures, in a context in which there was an urgent need to obtain results – reasons the Court accepted in Ruling no. 396/11, with reference to the pay cut provided for in the 2011 State Budget – were no longer as convincing in relation to subsequent budget years. The passage of time implies an increased requirement on law-makers to find alternatives that prevent the temporal prolongation of the differentiated treatment from becoming excessive for the people subjected to it; and it also means that they must justify their decision by giving figures for the various possible alternatives involving increases in revenue or reductions in spending.
Taking the measure suspending the holiday month in conjunction with both the public-sector staff pay cuts that had already been in place since the 2011 budget year and a large generalised increase in taxation on income from labour, the Court was unable to find adequate justification for it in the principle that public-sector staff are bound to the public interest.
That which unifies and lends meaning to the specific regime governing the civil service is the need to pursue the public interest and only that interest, which is the constitutional objective of the Public Administration. The main consequence of the bond between a civil servant and the public interest is that he/she is in a situation in which he/she possesses a status that is different from a typically contractual one, because what is at stake is an objective legal situation that is defined in laws and regulations and can be unilaterally modified by the state when it issues new legal norms. The legislator possesses the freedom to shape the civil service regime to the public-interest needs that exist at any given moment in time.
What does not make sense is to use the bond between Public Administration staff and the public interest – as characterised by the above situation or by the legal status of the public labour contract – as grounds for continuously imposing sacrifices on such workers by unilaterally cutting their salaries, when the purpose of doing so do is nothing more than the pursuit of a general objective in the attempt to fulfil deficit-reduction goals.
The Court reiterated its view that the qualitative status of Public Administration workers, compared to that of their private-sector counterparts, is not relevant as a parameter for determining value under the principle of equality, when what is at stake is the imposition of a specific burden that only affects one of the two categories of worker.
The Court said that one cannot see the idea of the unchangeability of the public employment bond as an established foundation, and then use it as grounds for treatments that differ from those applied to other sectors. That bond is already being questioned at the moment, because virtually every worker who exercises public functions is now subject to a regime that is identical to the one governing private labour relationships. At the same time, it is not possible to establish a framework for a quantitative comparison between the rates of pay earned in the two sectors of activity, inasmuch as they involve different types of work and professional statuses.
The imposition of more intense sacrifices on workers who exercise public functions cannot be justified by macroeconomic factors linked to the economic recession and the rise in unemployment, which must be solved via general economic and financial policy measures, and not by means of a greater penalisation of workers who, on the employability level, may not be subject to the recessionary effects of the conjunctural economic situation, or at least not to the same extent.
In making a political choice, the legislator should have attached autonomous importance to the principle of equality in the distribution of public costs, which tends to be fulfilled by means of the fiscal system. The Portuguese State is a fiscal state based on the rule of law, and one in which the normal financial basis for the performance of state tasks is the imposition of general taxes.
The pay cut applied to Public Administration staff by means of the combined effect of the reduction in monthly remuneration, which had been in effect since 2011, and now the suspension of one of the two extra months of salary, objectively contorted the principle of equal contributions to public costs, in that it implied that certain taxpayers (chosen on the basis of a certain occupational status) would now have less economic capacity to pay the increase in the fiscal burden that was imposed on all citizens in a generalised fashion. The penalisation of a certain category of persons via a combination of more onerous fiscal measures and pay cuts undermines the way in which public costs should be distributed.
On top of this, the pay cut was accompanied by (among others) additional measures entailing a freeze on promotions and progressions to higher pay grades, which objectively also represent a significant change in the legal position of Public Administration staff.
The Court acknowledged that the government had taken measures with a general scope that might ensure a better distribution of public costs, but this had not been done in a way that completely replaced the measures which only affect civil servants and equivalent workers. They were instead additional measures on both the revenue and the expenditure sides of the equation, which were being accumulated with the pay cut and the suspension of the extra holiday month. The Court even noted that some of the latter measures either especially affect the professional situations and pay levels of workers who exercise public functions, or more generally affect income derived from labour. This is the case of the additional cut in the remuneration paid for overtime done on normal working days, and the 25% cut in the pay supplement owed for each hour of overtime worked on an obligatory or complementary weekly rest day or on a public holiday. Other examples are the prohibition as a general rule on pay increases due to promotions or progressions to higher pay grades, the prohibition on the award of management bonuses to the managers of state-owned enterprises, regulatory entities and public institutes, and the 2% annual reduction in staff numbers. The staff-cost rationalisation measures also include a reduction in the number of resolutive fixed-term labour contracts, a change in the rules governing the attribution of a fixed allowance to cover work-related travel expenses, and other measures such as the overall cut of at least 3% in the number of staff compared to 31 December 2012 (except for hospitals).
The Court thus found that although the norm that required the suspension of payment of the extra holiday month of salary for Public Administration staff was accompanied by a broader range of fiscal measures that affect virtually all taxpayers, the combination of its effects and those of the norm that maintains the pay cut means that it does not comply with the principles of proportional equality and the fair distribution of public costs.
16. On the violation of the fundamental right to a decent standard of living that was alleged to exist by some of the petitioners, the Court’s jurisprudence recognises the dignity of the human person to be a primary regulator of the legal order and to constitute both grounds and a precondition for the validity of that order’s norms. The essential core of the guarantee of a decent standard of living, which is an inherent part of the respect for the dignity of the human person, has been judged from a perspective that uses the amount of the national minimum wage (SMN) as its point of reference. Given that the measures before it only affected workers whose monthly pay is higher than the SMN, the Court held that, in the light of the criteria that have been followed and operationalised in its jurisprudence, in this case there was no violation of the principle that persons are entitled to a minimally dignified level of subsistence.
17. The Court then addressed the constitutionality of the LOE2013 norm that reduced the hourly overtime rates payable to public-sector workers while the FAP remains in force. This norm cut the hourly supplement payable for overtime done on a normal working day to 18.75%, while that payable for overtime worked on an obligatory or complementary weekly rest day or public holiday had already been reduced to 25%.
This regime is an imperative one and prevails over any other norms, including those contained in collective labour regulation instruments and labour contracts.
Albeit to a different extent, the exceptional budget stability measure that is intended to apply for as long as the FAP remains in effect and consists of a cut in all the supplements payable for overtime done by public-sector workers on normal working days, was already included in the State Budget Law for 2012.
The Court said that it was important to determine whether this reduction in the coefficients used to calculate the overtime supplement for public-sector workers breached the principle of equality, which the petitioners also cited as grounds for their request for a declaration of the norm’s unconstitutionality.
At first sight, the applicable point of comparison is the overtime supplement owed to private-sector workers in the same circumstances. Their regime was also recently changed, with the supplement cut by half, to 25% for the first hour or part thereof and 37.5% for each subsequent hour or part thereof, and to 50% for each hour or part thereof worked on an obligatory or complementary weekly rest day or public holiday. The public-sector figures are precisely half their private-sector counterparts, and this is a very significant difference. However, to the Court’s mind this difference does not correspond to an absolute value that would suffice, without margin for doubt, to identify a situation of unreasonable inequality, and this was enough to say that it was impossible to state with the required degree of evidence that this constitutes treatment that is unequal without reasonable grounds for being so.
18. The Court then moved on to the norm that partially suspended payment of the extra holiday month for public and private-sector retirees, which applied over and above the extraordinary solidarity contribution that was also provided for in LOE2013.
Among other arguments, the petitioners said that this norm was unconstitutional for the same reasons (albeit with certain adaptations) as the norm that suspended part or all of the holiday month for serving public-sector staff. They also alleged that this norm was not in compliance with the principle of the protection of trust. They argued that while in the case of public-sector staff, constitutional jurisprudence accepts that within certain limits a fiscal treatment that is unequal in relation to that imposed on private-sector workers can be justified for reasons based on the criterion that public-sector workers are paid out of public funds, this justification does not apply in exactly the same way to retirees, because pensions received from public sources are the counter-value for contributions that the workers and their employers made to the social security system during the former’s working lives.
Constitutional jurisprudence acknowledges a substantial difference between the situation of an active worker and that of a retiree; and, on the level of the conditioning factors derived from the performance of his/her functions, it is not legitimate to confuse the situation of an active public servant with that of a public-sector retiree.
The Court noted that the scope of the norm which suspended payment of the holiday month or equivalent for both public and private-sector retirees and that of the norm which did the same thing for Public Administration staff were not exactly the same, either in terms of amounts, or with regard to the ways of calculating the variable reduction in pensions and pay. However, the very small quantitative difference between them in terms of their objects was not such as to change the Court’s evaluation of the suspension of the holiday month for active civil servants, notwithstanding the fact that in the case of the present norm, the assessment was now centred on the legal position of the subjects it affected – i.e. on a pensioner’s right to a pension, and not on a worker’s right to a wage.
The Court also characterised the constitutional-law status of the right to a pension, in order to decide whether it could serve as grounds for a protection that would make that right resistant to any suspension of payment. It said that the question was whether the circumstance that the issue before it was the right to a pension and not the right to a wage introduced a valuation factor with the ability to justify a different finding from that handed down in relation to active staff.
The Court defined the right to receive a public-sector retirement pension as a manifestation of the right to social security, which is recognised in the Constitution and rooted in the principle of the dignity of the human person. It also considered that some dimensions of the right to a public-sector retirement pension, such as the calculation of length of service for retirement purposes, can possess a nature analogous to that of constitutional rights, freedoms and guarantees. When this is the case, those dimensions are subject to the regime applicable to the latter.
The right to social security, from which the pensioners’ right is derived, is an economic, social and cultural right. The Court was therefore of the opinion that all those of its aspects that go beyond its core content are subject to a broad margin in which the legislator is free to shape their legislative implementation. Given that the fulfilment of this right depends above all on the payments that current contributors make to the social security system, and at the end of the day on the state, it is the legislator that is responsible for making the necessary value judgements which guarantee both the system’s sustainability and a just allocation of resources. The right to social security is not configured in a way that makes it immune to a shaping of its concrete application by the legislator. The legislator is not precluded from defining the conditions governing access to the right of public-sector staff to retire, the concrete way in which their pensions are calculated, and the resulting amount of those pensions.
In the past it has been held that, although they are covered by the principle of the protection of trust, both the requisites for acquiring the right to a pension and the actual amount thereof and the rules for calculating it can, subject to certain conditioning factors, give way to the public interest that justifies the ability to revise laws.
There can be no doubt that it is important to distinguish between rights that have not yet been constituted and those that have – in the present case, the latter being legal positions of citizens who have already definitively acquired the status of pensioners, with a content which is already perfectly defined by the legal rules that were in force at the moment in time that was relevant to its calculation. However, from the point of view of the right to social security, this fact is not enough to deny recognition of a broad margin within which the legislator is entitled to shape legislation.
In the situation before the Court, there is an undeniable and important public interest in the form of the need to guarantee the economic/financial sustainability of the state. From the perspective of the principle of equality, there is thus not a very significant difference between people who have already acquired pensioner status on the one hand, and workers who have already accumulated a long history of contributions and therefore nearly fulfil the legal requisites for attaining the same legal condition on the other.
Recognition of the right to a pension and the specific protection that right enjoys therefore cannot, prima facie, preclude the possibility of reducing the concrete amount of the pension. The Constitution guarantees the right to a pension, not to a certain amount in the form of a pension. That amount results instead from the application of criteria that are laid down by law, but possess an infra-constitutional value.
The petitioners also argued that the norm might undermine the “pensioner/social ownership” aspect of the right to private property.
Germanic constitutional doctrine and jurisprudence generally accept that the scope of the protection provided by the guarantee of private property extends to subjective public-law legal positions with an asset-based content. On the constitutional-law level, the grounds for both the protection, and the extent and consequences, of pensioners’ rights can be found in the right to property.
The German Federal Constitutional Court has thus held that the legal positions regarding the payments which are made by the public social security system, have been granted to an individual holder of the right to a pension and are based on specific payments by the right-holder, should be considered equivalent to the ownership of property.
The same Court also found that it is not possible to divide up the payment of a retirement pension that is funded partly by the state and partly as the result of contributions made by the recipient of the pension, and that the constitutional guarantee applicable to property encompasses the whole of the legal position in question.
Application of the criteria set out in the general dogma on property to the issue of social security benefits means that the validity of legislative norms that come to affect legal positions regarding social benefits must be gauged in the light of the criteria for establishing the content and limits of property, which the German Constitutional Court determined in accordance with the principle of proportionality.
It is also common for this connection to be made at the level of international conventional law. The European Court of Human Rights (ECHR) has repeatedly stated that in general terms the principles linked to the right to property apply to situations where pensions are at stake. When a state has legislation that requires and regulates the payment of pensions, regardless of whether the latter are contributory or not, that legislation generates a “proprietary interest” that falls within the scope of the Additional Protocol to the European Convention on Human Rights. The reduction or cancellation of a pension can thus be considered an interference in the enjoyment of property and one that must be based on adequate grounds. As such, there must be a legislative intervention that is itself justified by the need to pursue a public interest and must respect the various aspects of the principle of proportionality (for all these questions, see the Judgement of the ECHR in the case of Grudic v. Serbia, 17 April 2012).
However, the fact is that in situations in which the catalogues of fundamental rights that define the parameter for the validity of legislative and/or administrative measures that may undermine pensioners’ acquired rights do not contain provisions regarding economic, social and cultural rights, and especially the right to social security, both doctrine and jurisprudence have sought the grounds for the protection of pensioners in the right to property. At the same time, the doctrinal and jurisprudential criteria that have been suggested for the delimitation of the consequences of the protection of social benefits, including pensions, under the fundamental right to private property, end up leading back to the evaluation of whether measures that might affect the legal positions in question are in conformity with the principles of the protection of trust and above all proportionality, and particularly where the latter is concerned, with the aspect of the prohibition on excess. It may thus also be necessary to review an intervention that affects the income of persons who are paid out of public funds – even if that intervention only involves a reduction in their amount – from this standpoint.
The Court said that even if one were to admit the existence within the Portuguese constitutional framework of a proprietary dimension to the right that pertains to pensioners, the idea that that right is entitled to protection within the specific scope of the article of the Constitution on the right to private property is a doubtful one, inasmuch as there is a norm that expressly addresses the right to social security, which includes the right to a pension. Moreover, in our social security system there is no direct relationship between the pension a beneficiary receives and the amount of the contributions that have been deducted from his/her income during his/her working life. This is because the welfare system is not based on an individual capitalisation system, but on one in which the various participants share the responsibility for the financial flows. Today’s pensioners receive pensions funded not only by their past contributions, but also by their former employers’ past contributions and by the current contributions made by today’s workers. It is thus not possible to consider that the retirement pensions that are being paid at the present time correspond to a return on the actual contributions the beneficiary made in the past.
There would be grounds for saying that the right to property – in this case, the right to a pension whose amount was already established in the past – provides a greater degree of protection, if it were in turn possible to say that the effects of a suspension of part of a pension in the sense of a reduction in its amount were fully equivalent to an expropriation in the public interest. In that case we would find ourselves dealing with the essential core of a dimension of the right to property whose nature was analogous to that of the constitutional rights, freedoms and guarantees.
However, there are no grounds for such an equivalence, inasmuch as partial reductions in the amount of a social benefit cannot be deemed a partial expropriation. Firstly, because we are not talking about using a legal act to take something away from a concrete legal position, but rather the determination of the content of a whole category of rights; and secondly, because we are in the presence of a position with a major social component, which corresponds to participation in a joint solidarity fund that is organised by the state on the basis of contributions made by every worker and employer and is partly financed by transfers from the general state budget. All of which means that the source of this legal position does not lie solely within the right-holder’s own sphere.
After looking at the norm that suspended the holiday month for pensioners in the light of the principles of the protection of trust, equality and proportionality, the Court reaffirmed the position that, from the point of view of the protection afforded by constitutional law, the protection of the right to a pension is not substantially or qualitatively different from the protection of the right to a wage. Both cases involve economic fundamental rights.
The Constitution is considerably more explicit about the high degree of protection it affords to wages, in that it establishes a right to fair pay for work – a calculation that must take account of the duration, intensity, arduousness and/or dangerousness of the tasks that are performed, as well as the demands they pose in terms of knowledge, practices and capabilities. Where retirement pensions are concerned, the Constitution says nothing about the regime governing the social-security benefit system. Having said this, the right to a retirement pension must always result from a systematic, combined interpretation of the right to social security and the right of elderly persons to economic security.
The Court also recalled that it is important to consider the fact that, within the subjective scope of the question before it, this measure came on top of the extraordinary solidarity contribution. Although the latter is directed solely at pensions, in practice it places pensioners with pensions of more than €1,350/month in a situation that is equivalent to that of active workers, in that the contribution ends up being equal to the pay cut that has been applied to the latter since 2011.
At the same time, the trust that has been generated in the idea that the exact amount of pensions calculated at the moment of retirement will be maintained is legitimate, because our system is one in which benefits are defined.
This is reflected in the protection of the investment in trust, which the right-holder has presumably made, and which is derived from the circumstance that his/her reliance on the defined nature of the benefit may mean that he/she has justifiably not felt the need to make other provisions for a possible loss of income.
Where the principle of the protection of trust is concerned, the circumstance that our social security model is not configured on the basis of a capitalisation system must be taken into account when one weighs up the public-interest reasons that may justify the measure. These reasons are added to by the need to ensure the social security system’s sustainability and its capacity to go on functioning in relation to future generations.
All things considered, the exceptional nature of the public interest in question and the transitory nature of the measure mean that at the limit one might consider that the suppression of 90% of the holiday month for pensioners did not disproportionately injure the protection of trust, and that it would thus be justifiable to find that, with reference to this evaluation parameter, the norm at stake was not in conflict with the Constitution.
However, the Court said that it was also necessary to specifically weigh up the legal position of pensioners in terms of the principle of equality. The comparative reference points here were the situations of: civil service staff, who were being subjected to pay cuts plus the suspension of the holiday month, but not to the extraordinary solidarity contribution; recipients of income who were not the object of any of these measures; and pensioners who were subject to the extraordinary solidarity contribution, but not to the suspension of the holiday month, because they were not part of the public welfare system.
The fact that the precepts before the Court (when articulated with other State Budget Law provisions that increased the fiscal burden) do not respect the principle of the capacity to pay taxes or contributions, to the extent that they do not take the income and needs of each household into account, is capable of generating situations in which retirees’ incomes are subject to retroactive taxation.
The Court said it was important to determine both whether there were grounds for this unequal situation in which the retiree and pensioner is required to make a specific effort to contribute to the public purse precisely because he/she is a retiree and a pensioner, and whether or not this effort violates the principle of the prohibition of excess.
Given the specific situation of public and private-sector retirees and the added protection owed to them, even in the face of a public interest that must imperatively be fulfilled and the transitory nature of the cuts, the frustration of their legitimate expectations as a result of the challenged norms did not appear to be constitutionally tolerable when set against the evaluative parameters derived from the principle of the protection of trust. The things that stand out most are the intense extent to which the position of trust of the persons who were specifically targeted by the measures was affected, and those measures’ excessively onerous nature, as represented by the significant losses caused to the assets of the citizens they touched. This effect and the extent of this burden can be criticised in constitutional terms, precisely because they are in breach of the principles of the protection of trust and the prohibition of excess, both of which are sub-principles of the principle of a state based on the rule of law which serve to make that primary principle operable.
The Court felt that there were good reasons for saying that the situation of inequality with regard to public costs was more evident where pensioners were concerned. The combined effect of the range of measures that were applied to them meant that pensioners were now being subjected to a penalisation greater than that which public-sector staff had experienced in the 2012 budget year.
Pensioners were subjected to an extraordinary solidarity contribution that was equal to the pay cut that active workers had already undergone in the case of pensions up to €5,030.64 per month, and much greater than that pay cut in the case of pensions between that figure and €7,545.96, which were subject to an additional 15%, and even more for pensions above the latter amount, on which there was an additional rate of 40%.
What is more, taxpayers in general were subjected to a 3.5% surtax which, when applied to the recipients of private or public-sector pensions, in practice absorbed the payment of the extra Christmas month that was restored to them. On this level, this left pensioners in the same situation as serving public-sector staff, whom the surtax deprived of the amount of the extra Christmas month of salary. On top of all this came the major increase in the general fiscal burden brought about among others by the measures involving changes in the structure of the personal income tax brackets and cuts in, or the elimination of, tax deductions. Taking everything into consideration, the Court found the measure to be unconstitutional.
19. All the petitioners alleged that the LOE2013 norms which provided for an exceptional solidarity contribution (CES) that is applicable to all pensions, albeit at varying rates, were unconstitutional.
They argued that the norms breach the constitutional principle of the unitary nature of personal income tax (IRS), inasmuch as, along with both other para-fiscal increases and the rises in IRS, the resulting measure: (a) taxes a specific category of persons defined by criteria linked to their non-working situation or status, rather than in the light of the constitutional criterion of the capacity to pay taxes; (b) negatively, disproportionately and without constitutional justification discriminates against pensioners, compared to active workers, and this constitutes a violation of the principles of equality and proportionality; (c) breaches the principles of the protection of trust and of equality in relation to public costs; and (d) violates the essential core of the asset-related rights to property.
Compared to the 2011 and 2012 budgets, which also contained this measure, the base to which it applied was increased and the universe of persons affected was expanded.
The Court recalled that, even when its payment was required of recipients of retirement complements, the contribution was closely linked to social security purposes. The payment was a conjunctural measure designed to ensure that pensioners help finance the social security system, in an extraordinary context in which the funding requirements would otherwise overload the State Budget or be transferred to future generations.
Inasmuch as pensioners are recipients of the benefits paid out by the welfare system, they directly benefit from that system’s solvency. Notwithstanding its atypical nature, the CES is a contribution to the social security system, and this means that it is not subject to the general principles governing taxation – particularly the principles of the unitary and universal nature of taxes. The contribution possesses various aspects that differentiate it from the strict fiscal concept of a tax, both in terms of its objectives and with regard to its legal structure. It is a consigned revenue intended to fulfil the immediate needs of the contributory social-security subsystem, and can be distinguished from taxes, whose immediate, generic purpose is to secure revenues for the state, which then allocates them generally and indiscriminately to pay for public costs. Nor does it possess an entirely unilateral nature. It is thus an imposition that can be said to form part of the tertium genus of “other financial contributions in favour of public entities”, which the Constitution refers to alongside taxes and fees.
The question of constitutionality raised here thus led on to the alleged violation of the right to property and of the principles of equality, proportionality, and the protection of trust.
The Constitution does not establish the proportion in which the financing of the social security system must be taken from each of its different sources. This is a matter that falls within the legislator’s freedom to shape policies and legislation.
In the concrete case before the Court, the imposition of an obligatory payment with the nature of a social security contribution resulted in large part in an immediate cut in public expenditure by means of a reduction in the percentage of the amounts owed as private or public-sector pensions by the very entities to which the revenue from the contribution is consigned. Another part, levied on recipients of retirement complements and pensions that are subject to special regimes, constitutes a form of financing provided by current recipients of benefits. In an exceptional situation, the latter’s condition of pensioner may even be sufficient material grounds for them to be called on to contribute to the financing of the system – a contribution which is thus not arbitrary.
This action strategy on the part of the legislator is rationally coherent and also falls within the bounds of its freedom to shape policies.
On the question of the analysis of the principles of proportionality and the protection of trust, the Court felt that the measure was both fitting and useful in achieving the desired goal.
As to the application of highly progressive rates from certain amounts upwards, the petitioner who requested the review of this particular norm alleged that it might undermine asset-based rights linked to the right to private property and that the measures involved could possess a confiscatory nature. The Court had already upheld this understanding in Ruling no. 491/02, in which it said that the constitutional right to property does not only encompass proprietas rerum, real minor rights, intellectual property and industrial property, but also other rights that are normally not designated as “property”, such as credit rights and shareholders’ rights – i.e. including equity stakes, represented for example by shares or partnerships. However, even if one were to situate the right to a pension on this level of analysis, one would only be able to talk about there being a violation of the right to property as a result of the reduction in the amount of the benefits if it were possible to say that the scope of the legal social-security relationship includes a strict principle of counter-benefits. This is not the case. What does exist is a principle of overall equivalence that can always be corrected in accordance with the principle of solidarity.
The Court also said that the material scope of the welfare system is not limited to invalidity and old-age pensions, but also encompasses various other possible situations that may lead to a loss of labour income, such as sickness, maternity, paternity and adoption, unemployment, work-related accidents and occupational illnesses, or indeed death; nor is the possibility that social protection may in the future be broadened to respond to the need to provide cover for new social risks excluded.
The fact is that, in relation to each situation and category of beneficiary, there is not an absolute pecuniary match between the amounts one pays into the system over a lifetime of contributions and the benefits one obtains from it.
At the same time, the obligation to contribute is not only placed on beneficiaries, but also (in the case of a subordinate occupational activity) on their employers.
In the case of retirement complements, however, which function under a capitalisation regime, the argument is no longer that there are aspects of the legal regime that lead one to consider that the way in which a pension is calculated does not correspond to the application of a principle of counter-benefits that might result from an individual capitalisation of contributions. Instead, the Court recalled that these complements are associated with the social security system, and inasmuch as what is at stake is the imposition of a contribution that is similar to the one paid by active workers, the income from the complements should not be covered by the scope of the protection offered by the right to property either. The applicable domain here is the para-fiscal one.
Finally, the Court emphasised that, even when pensions are subject to the imposition of very high contribution rates, the cut in them is not a cut in the right to a pension, but a conjunctural measure with a transitory nature.
As such, the Court found that the norm which subjected pensions to an extraordinary solidarity contribution was not unconstitutional.
20. On the alleged unconstitutionality of the norm that subjected sickness and unemployment benefits to a contribution, the Court said that the legal regime governing social protection in cases of illness provides for benefit payments whose award is designed to compensate for the loss of remuneration that results from a temporary inability to work due to illness.
The unemployment benefit is intended to compensate for the loss of labour income suffered by someone who has lost their job involuntarily. In general, those who are entitled to this benefit are persons who were parties to a binding labour contract and are now in an involuntary unemployment situation, or have suspended their labour contract because their wages are overdue, and in either case are capable of and willing to work and are registered as job seekers with the job centre that covers their area of residence.
The “contribution” provided for by the new norm can either be seen as a reduction in the amount of the sickness and unemployment benefits, in that it reduces the amount spent on those benefits in the social security budget, or as an actual contribution, to the extent that it obligatorily constitutes a form of revenue for the welfare system that is reflected in income that is destined for the social security budget and whose cost is borne by the active beneficiaries themselves (in the latter respect it displays a certain similarity to the CES).
The Court considered that the characterisation of these “contributions” payable on the sickness and unemployment benefits as expenditure-cutting measures was the more correct of the two, to the extent that, unlike what happens with the CES, the benefits are processed and paid and the desired result in budget terms is achieved exclusively within the public system. The amount of the contribution is deducted from the amount receivable by the beneficiary, in the form of a partial offset of a debit against a credit.
The circumstance that one is dealing with a “contribution” that is subject to a fixed rate, whose amount is small and neither variable nor progressive, does not offer any initial exemption and applies to a benefit derived from possible rather than certain situations (such as the private and public-sector retirement pensions), strengthens the interpretation that one is in the presence of a situation that does not fall within the framework of the universe of taxes, but is instead a reduction in the value of the benefits to which recipients are entitled.
The contribution surcharge imposed in this way, which falls precisely on categories of subject who are in a vulnerable position, does not in its own right pose a problem of constitutional invalidity in terms of the right to social security. However, it does constitute a deviation from the way in which the system normally works, in that it brings in a new form of financing the social security system that calls on the recipients of social benefits themselves. This means that, even from the standpoint that this is a source of revenue for the welfare system, the question of constitutionality before the Court entailed asking whether it is constitutionally legitimate to reduce the amount of money owed in situations of illness or unemployment.
The unemployment benefit possesses the function of replacing wages that a worker has been deprived of. It has a place in the Constitution, and is a fundamental right that pertains to workers, albeit its concrete implementation is dependent on the financial and material resources which the state has at its disposal.
The material assistance provided in cases of non-occupational illness, on the other hand, is not expressly mentioned in the Constitution, but results from the fact that the latter instructs the ordinary legislator to provide for forms of material assistance to workers who, although they are not unemployed, are for some other justifiable reason (e.g. illness) temporarily prevented from working – a constitutional command that does not, however, deprive the legislator of its freedom to shape the details of legislation.
21. On the question of the amendments to the Personal Income Tax Code (CIRS), as reflected in a reduction in the number of tax brackets from eight to five and an increase in both the normal and the average rates applicable to each bracket, the Court said that it could not fail to observe that the reduction placed some very different levels of income in the same brackets.
Now the fact is that the Constitution requires fiscal progressivity. This means that the relationship between the amount of tax paid and the level of the taxpayer’s income must be more than proportional, and this can only be achieved by applying a higher rate of tax to taxpayers with larger incomes. However, the degree of progressivity, the level of taxation, the fiscal burden and the ratios between the different taxes are matters of fiscal policy, which is itself an instrument of governmental policy.
In the present situation, levels of taxable income are still distinguished from one another by a considerable number of brackets (five). This number is sufficient to differentiate between various levels of income, and the brackets are subjected to progressive rates – i.e. the rates gradually increase as the taxable income rises (an effect that is accentuated by the existence of both normal and average rates within each bracket, except the last one).
“Progressivity” is an indeterminate concept that can take many concrete forms and degrees, and the wording of the constitutional imperative does not allow one to infer the specific extent or breadth that would concretely make it possible to fulfil the requisite of progressivity. Having said this, it is safe to say that not all the possible forms and degrees of implementation of the progressivity of the personal income tax fulfil the constitutional requirement. The Constitution demands a progressivity that possesses the intrinsic virtue that it will contribute to a reduction in the inequality of incomes.
In the light of the Constitution it would thus not be possible to validate a minimally progressive system that solely took the form of a combination of the existence of a single proportional rate (flax tax) on the one hand, and a guarantee that an income which only suffices to ensure a minimum level of subsistence will not be taxed, on the other. The existence of a personal income tax that is designed to reduce inequalities implies a higher degree of progressivity than that which exists in a system that limits itself to not taxing minimum incomes, without any concern for redistribution.
The Court said that in the case before it, the changes made by the Budget Law did not lead to a situation of mere proportionality, or even one of a minimal progressivity.
Even though the reduction in the number of brackets was associated with a generalised increase in the corresponding rates of tax, it still left in place a progressive form of taxation, which one cannot call manifestly unsuited to a fair division of incomes.
22. The additional solidarity rate corresponds to a true additional rate, inasmuch as it has increased the rate of tax applicable to the highest personal income tax bracket. The truth is that the change made by LOE2013 means that this increase is now more progressive, as explained above. For this reason the additional solidarity rate did not appear to the Court to be contrary to the Constitution.
23. Reduction in tax deductions
The changes made in LOE2013 took the shape of a cut in the upper limits on tax deductions for expenses regarding healthcare, education and training, alimony and maintenance payments, costs of old-people’s homes, and new buildings and equipment linked to the production of renewable energies, as well as a reduction in the amount of property-related costs that are tax-deductible.
The question the Court was called on to decide was whether the reduction or elimination of the possibility of deducting expenses from personal income tax (IRS) payable is compatible with the principle of the capacity to pay taxes (itself derived from the principle of fiscal equality) and the principle that the fiscal system must take the family into account.
In order to better understand the function of tax deductions, the Court recalled the way in which the amount of IRS payable is calculated: income is divided into different categories; the gross income in each category is first subject to certain automatic reductions, which depend on the origin of the income in question and are called “specific deductions”; this gives the net income in each category; the net incomes in each category are then added together to form the “net overall income”; and certain losses are deducted from this figure to produce the “taxable income”. This taxable income is subjected to a specific rate of tax (and the spousal coefficient, when applicable), and the end product is the amount of tax payable (albeit the minimum level of subsistence is safeguarded by the fact that no tax is paid on incomes below a certain amount). Any tax deductions are then subtracted from this amount to determine the actual amount of tax payable (or refundable, in cases in which too much tax has already been withheld).
This breakdown shows that, unlike the previous deductions from taxable income, which had since been abolished, the current deductions from tax payable have no influence on the determination of the applicable rate of tax, inasmuch as they do nothing to reduce the quantum that is subject to taxation and will decide the applicable tax bracket and rate of tax. These deductions from the amount of tax payable are subtracted from the sum that has already been calculated by the application of the rate applicable to the taxable income.
The change (made in 1999) under which certain expenses are considered deductible from the actual tax payable, instead of allowing them to influence taxable income via the earlier technique of deductions from the latter, was intended to favour taxpayers with lower incomes in relation to those with higher ones. The fact is that the conjugation of a regime that allows deductions (from taxable income) with progressive rates tends to lead to a greater benefit for taxpayers with higher incomes and to be more penalising for those with lower ones. This is because deductions from taxable income help determine which bracket the taxable person falls into (sometimes lowering it) and the corresponding rate of tax, and a lower tax bracket represents a greater benefit for higher-rate taxpayers than for lower-rate ones. Under the current regime, the possible tax deductions particularly include: the so-called “personal deductions”, which are equal to percentages of the amount of the Social Support Index Value (IAS), for each taxable person and each dependant, so-called “civil godchild” (a format that definitively places a child or young person at risk in a family, but without the legal implications of adoption), or ascendant; expenses up to a certain limit on items that particularly include healthcare, education, and housing; certain tax benefits, such as those linked to investments in retirement savings plans (PPRs), premiums on health-only insurance policies; and donations. Neither the total amount of tax deductions, nor the total amount of tax-deductible benefits, can exceed given limits.
The substantive grounds for the current set of deductions from the amount of tax payable varies from one to another, depending on the type of cost that the legislator has chosen to be deductible. There is no one, uniform criterion; instead the legislator has accepted some very diverse situations, whose only common element is the fact that they are expenses incurred by the taxable person.
The most relevant aspect in the present case was the fact that the choice of certain costs linked to healthcare, education, old-people’s homes, and housing as tax deductible was designed to reflect the loss of capacity to pay taxes associated with having to pay those expenses. In other words, these are personal deductions linked to a reduction in the capacity to pay tax, which are used to determine the taxpayer’s subjective net income. They must thus be seen as personal deductions or reductions in a specific sense, which causes them to effectively be personalised.
While it is true that the Constitution does not expressly refer to a principle of the capacity to pay taxes, as the Court has being saying over the years both doctrine and jurisprudence have constructed a consistent position on this concept. It represents a certain conception of the fiscal system, under which each taxpayer must pay in accordance with his/her capacity; it thus contrasts with a conception based on the principle of the benefit, which would cause each person to pay in proportion to the benefits they receive from the state.
Founding its position on the absence of any express provision in the Constitution, in the past the Constitutional Court began by saying that the principle of the capacity to pay taxes does not have any very clear and safe consequences that might lead to a finding of the unconstitutionality of this or that specific solution adopted by the fiscal legislator. However, in subsequent jurisprudence the Court became more affirmative. On the constitutional admissibility of norms that establish presumptions in fiscal matters, it came to adopt the understanding that the capacity to pay taxes is a qualified expression of the principle of equality, seen in the material sense, in the tax field.
It is thus appropriate to restate the view that the principle of the capacity to pay taxes is implicitly enshrined in the Constitution as a fiscal corollary of the principles of fiscal equality and justice, and that it results in a command to the ordinary legislator to configure the fiscal system in the light of each person’s capacities to pay taxes.
Taxation must thus necessarily be targeted in such a way as to select tax-relevant facts that reveal the taxpayer’s greater or lesser capacity to pay; and of the various different taxes, it is income tax that is the best at reflecting each taxpayer’s economic strength. However, the Court noted that although the principle of the capacity to pay taxes is a principle that guides the definition of the fiscal-law order, it does so in an indeterminate way.
The relevant point here is that the requirement to take capacity into account is linked to the necessity that personal income tax bear each household’s needs and income in mind.
The specific constitutional requirement that households’ needs and incomes must be taken into account must be seen as a command to the ordinary legislator, which the latter is obliged to respect when it structures the personal income tax. However, here too it is up to the legislator to define the concrete implications of this constitutional command in the various aspects of the IRS regime, on condition that this does not undermine the command’s essential content. In concrete terms, where objective and subjective IRS deductions are concerned, the legislator must enjoy considerable room for manoeuvre in its decisions – as has already been recognised in the Court’s jurisprudence. As the Court has highlighted in the past, matters such as limits on deductions, above all for relatively high incomes, cannot in principle be seen as typically warranting a stability of a kind that would make them immune to changes, or as grounds for a protectable trust that they will be maintained as part of the applicable regime.
The brackets of taxable income for the purpose of limits on deductions from tax payable are the same as those that are defined for the purpose of determining the applicable rate of tax. This means that the redefinition of the limits on deductions results to some extent from the need to adapt to the new bracket structure, which was reduced from eight to five levels by the new amendment to the precept in question.
The reduction in the limit on deductions was greatest in the current 4th bracket, in that the limit was more than halved, albeit the upper section of the bracket is now able to benefit from deductions that were previously not available to it.
Generally speaking, these changes constitute a reduction in the discounts each taxable person is authorised to deduct from his/her IRS, despite the fact that the upper limit on taxable income above which no deductions can be made from the amount of tax payable was actually raised.
From the point of view of a possible conflict with the Constitution, the greatest difficulty with the new regime lies in the substantial cut in the limit on deductions in situations where taxable income ranges between €40,000 and €80,000, and in the total elimination of the possibility of deduction in cases in which income is above the latter figure.
Objectively, this represents a failure to consider the capacity to pay taxes and the criterion of taxation in accordance with the needs of each household, which necessarily has the consequence of increasing the tax payable by recipients of higher incomes, thereby contributing to a reduction in the degree of personalisation of the tax.
However, the Court emphasised that the limitations on deductions from the amount of tax payable that were before it for review were imposed against the background of a generalised increase in the fiscal burden, in which a greater participatory effort was being demanded of every category of taxpayer above a minimum level of taxable income.
Given this conditioning situation, the Court was of the opinion that it was possible to consider that the adoption of legislative solutions that are more demanding in relation to people who earn higher incomes, where their deduction of expenses linked to the fulfilment of basic needs like healthcare, education and housing are concerned, still lies within the criteria imposed by the fiscal Constitution.
24. On the alleged unconstitutionality of the creation of an IRS surtax, the Court noted that the latter is associated with this particular tax to the extent that the surtax applies to income that is calculated using IRS rules, but that it possesses a number of elements that are not in harmony with the general rules governing the IRS tax – particularly because its rate is fixed and it has its own withholding regime.
Additional fiscal revenue was already obtained in 2011 by creating an extraordinary surtax on income subject to IRS, but the authors of LOE2013 opted for a different legislative technique: the IRS surtax was no longer established by adding it to the IRS Code, but was instituted in the form of its own norm in the Budget Law, and with no reference to its duration in time.
However, there can be no doubt about the non-permanent nature of this surtax, because it possesses an immediate financial applicability, inasmuch as it is directly intended to increase the revenues included in the budget for the year to which it refers. It is thus not possible to argue that this norm regulates matters outside the specific and most restricted function of the Budget.
The Court considered that the concentration of all personal income into a single basis for the imposition of taxation is an essential dimension of the constitutional principle of the unitary nature of income tax. It therefore felt that the latter is not fundamentally affected by the surtax regime, notwithstanding the latter’s specificities in relation to the IRS tax. The dissonant elements represent no more than a transitory accommodation of the personal income tax system to important public interests, and this lies within the legislator’s margin for shaping legislation – a margin that remains within the limits permitted by the Constitution as long as it does not compromise the constitutionally protected values of equality and fiscal justice, which the way in which personal income is taxed is responsible for helping to achieve.
Turning to whether the surtax fulfils the requisite that income tax must be progressive, the surtax was set at a fixed rate of 3.5%. However, the Court was of the opinion that the exemption from the surtax up to a limit equal to the annual amount of the guaranteed monthly minimum wage (RMMG), and the subtraction of the latter amount from the taxable income for the purpose of calculating the amount of surtax payable, did give the latter a minimum degree of progressivity in that its amount rises not only in accordance with the value of the income that is taxed, but also as a result of the increase in the difference between the taxable income and the guaranteed minimum wage.
What is more, if one considers the surtax and the IRS together, and their aggregate effect on the asset-based sphere of the taxpayers affected by them, the system as a whole could be said to maintain a sufficient degree of progressivity.
25. The final question of constitutionality was the more favourable tax treatment of capital income (interest, dividends), which was made subject to a single, “liberatory” withholding rate of 28%, compared to the increased taxation of income from salaries and pensions, on which the applicable rates may exceed 50%.
The supposedly unconstitutional element here was the alleged incompatibility of this option with both the principle of equality in the distribution of public costs and the principle of fiscal justice. The Court held that, even though in empirical and generic terms it was possible to conclude that the fixed 28% rate is benevolent in comparison to the general IRS rates (which range from 14.5% to 48%), a rigorous analysis precluded any comparative fiscal judgement of two very different realities that would make it possible to measure the different rates in terms of fiscal equality and justice.
It should be noted that the proportional IRS rates of between 14.5% and 48% apply to taxable incomes divided into different brackets, whereas the fixed 28% rate applies to all relevant income (capital and capital gains), regardless of the amount. The Court took the view that if one were to simply lower the maximum proportional 48% rate (which necessarily applies to the highest taxable income bracket) and increase the fixed proportional (liberatory or autonomous) 28% rate (which indiscriminately covers all levels of income), one would not necessarily achieve a better solution in terms of greater fiscal justice and equality.
Supplementary information: Only the decisions not to declare the unconstitutionality of the norms on the cut in remunerations paid out of public funds, and on overtime payments to public-sector workers, were unanimous. The others were handed down by majority votes that varied between 11-2 and 8-5.
Cross-references: Rulings nos. 358/92 (11-11-1992), 396/11 (21-09-2011), 353/12 (05-07-2012).