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Financial Constitutional Law: a Comparison Between Germany and South Africa

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Financial Constitutional Law: a Comparison Between Germany and South Africa Financial constitutional law: A comparison between Germany and South Africa DIRK BRAND KONRAD-ADENAUER-STIFTUNG • OCCASIONAL PAPERS • JOHANNESBURG • NOVEMBER 2006 © KAS, 2006 All rights reserved While copyright in this publication as a whole is vested in the Konrad-Adenauer- Stiftung, copyright in the text rests with the individual authors, and no paper may be reproduced in whole or part without the express permission, in writing, of both authors and the publisher. It should be noted that any opinions expressed are the responsibility of the individual authors and that the Konrad-Adenauer-Stiftung does not necessarily subscribe to the opinions of contributors. ISBN: 0-9802543-2-9 Published by: Konrad-Adenauer-Stiftung 60 Hume Road Dunkeld 2196 Johannesburg Republic of South Africa PO Box 1383 Houghton 2041 Johannesburg Republic of South Africa Telephone: (+27 +11) 214-2900 Telefax: (+27 +11) 214-2913/4 E-mail: [email protected] www.kas.org.za Editing, DTP and production: Tyrus Text and Design Printing: Stups Printing Acknowledgements The author would like to express his sincere appreciation to the Konrad- Adenauer-Stiftung for the publication of this study as well as to the University of Stellenbosch, which gave permission for the publication. iii The author Dr Dirk Brand* was a constitutional advisor in the Western Cape Provincial Government from the end of 1995 and was, among other things, coordinator of a team of technical advisors responsible for the drafting of the Western Cape Provincial Constitution, 1998. As legal advisor, Brand’s responsibilities included the drafting of legislation, such as the Western Cape Languages Act, 1998, as well as legal opinions on a variety of issues. Brand started the first office for intergovernmental (local as well as international) relations for the Western Cape Provincial Government in 1999 and headed that office until March 2006. During that period he was responsible for the negotiation, drafting and management of international cooperation agreements and the management of the Western Cape’s international relations. Brand also continued to do research on constitutional law and international relations and paid study visits to Germany, Belgium and the United Kingdom. He has written a number of articles and contributed to books on constitutional law in publications in South Africa, Germany and the United States. * LLD (Constitutional Law) (Univ. of Stell); LLM (European Union Law) (Univ. of Free State); B Comm LLB (Univ. of Stell); admitted as Advocate of the High Court of South Africa. iv Foreword IT IS AN ACADEMIC TRADITION IN GERMAN-SPEAKING UNIVERSITIES TO PROVIDE A successful and outstanding paper with an introductory foreword, written either by an expert in the field or by someone who has followed the work from its genesis. Since it is a common view in Europe that no-one can ever really be an expert in this most complicated, ever-changing and highly politically influenced constitutional framework – its central questions being: who gets how much state money, for what purpose under which conditions – I fall into the latter category. Since the beginning of the ‘new’ South Africa the academic and judicial communities in Germany have taken a great interest in developments at the Cape; I remember specifically the interesting and long discussions held with members of the newly created South African Constitutional Court when I was invited as a guest together with Ernst Benda, former president of the Bundesverfassungsgericht. Dr Dirk Brand’s scholarly and well-written research mirrors the phenomenon of globalised constitutionalism. But his research does not stop with discussions of the theoretical cornerstones; rather, he tackles the practical constitutional basis in both the German and South African systems which, although not as popular as, for example, the issues of human rights or equality, is just as important. All values and ideals need a realistic foundation, which is within the framework of the distribution of financial powers and competencies. In this context, Brand’s research shows the complexity of this procedure as well as its importance in the two similar (but at the same time different) constitutional systems – similar, because the burden of the last word lies v vi FINANCIAL CONSTITUTIONAL LAW: A COMPARISON BETWEEN GERMANY AND SOUTH AFRICA with the Constitutional Courts; but different as far as the two federal systems are not alike. There are clearly different priorities – and where there are priorities, the notion of subsidiarity is not far behind. In the end, Brand is clearly able to justify the main objective of his book and his research, namely: to explain and analyse the constitutional framework for the distribution of financial resources and obligations in South Africa and Germany. It is prudent of the Konrad-Adenauer-Stiftung to publish this work, which will surely find interested and perhaps influential readers to carry on Brand’s ideas. Professor Dr Dieter C Umbach Pres. Judge, App. Court for Social Matters (ret.) Karlsruhe, Potsdam 9 November 2006 Table of contents List of tables xii List of abbreviations xiii Executive summary 1 1. INTRODUCTION 5 1.1 General background 5 1.1.1 Selection of country studies 5 1.1.2 Recent constitutional history in Germany and South Africa 10 1.1.3 The federalism question 12 1.1.4 Essential features of the South African and German 15 constitutional systems 1.1.5 Political context 18 1.2 Financial intergovernmental relations: Germany and South Africa 19 1.3 Context and approach 23 1.4 Overview of paper 26 2. GENERAL CONSTITUTIONAL FRAMEWORK 35 2.1 German constitutional system 35 2.1.1 Historical overview 35 2.1.2 Fundamental principles of the German constitutional system 44 2.2 South African constitutional system 49 viii FINANCIAL CONSTITUTIONAL LAW: A COMPARISON BETWEEN GERMANY AND SOUTH AFRICA 2.2.1 Historical overview 49 2.2.2 Fundamental principles of the South African 57 constitutional system 2.3 Cooperative federalism 60 3. ECONOMIC AND FINANCIAL CONSIDERATIONS 73 IN THE DESIGN OF DECENTRALISED SYSTEMS 3.1 Public finance 73 3.2 Expenditure allocation 76 3.2.1 Advantages of decentralised provision of public goods 77 3.2.2 Considerations in favour of national provision of 79 public goods 3.2.3 Theoretical framework for expenditure allocation 81 3.3 Revenue allocation 82 3.4 Revenue sharing and intergovernmental grants 85 3.4.1 Revenue sharing 87 3.4.2 Intergovernmental grants 88 3.5 The South African situation 92 3.6 Conclusion 93 4. CONSTITUTIONAL DIVISION OF OBLIGATIONS AND 99 ALLOCATION OF FINANCIAL RESOURCES 4.1 Introduction 99 4.2 Constitutional division of obligations 100 4.2.1 Germany 100 4.2.2 South Africa 107 4.2.3 Interim conclusions 117 BRAND ix 4.3 Allocation of financial resources 118 4.3.1 Legislative authority to levy taxes 118 4.3.2 Apportionment of revenue 128 4.3.3 Borrowing 130 4.3.4 Interim conclusion 133 4.4 Conclusion 134 5. FINANCIAL EQUALISATION IN GERMANY 5.1 Introduction 145 5.2 Economic situation in post-war Germany 146 5.3 Purpose of financial equalisation 148 5.4 The financial equalisation process 152 5.4.1 Vertical financial equalisation 153 5.4.2 Horizontal financial equalisation 157 5.4.3 Additional grants 165 5.5 Effect of unification on financial equalisation 167 5.6 Financial legislative reform 170 5.7 Conclusion 173 6. FINANCIAL EQUALISATION IN SOUTH AFRICA 183 6.1 Introduction 183 6.2 Purpose of financial equalisation 184 6.3 The financial equalisation process 188 6.3.1 Vertical financial equalisation 191 6.3.2 Horizontal financial equalisation 194 6.3.3 Additional allocations 201 x FINANCIAL CONSTITUTIONAL LAW: A COMPARISON BETWEEN GERMANY AND SOUTH AFRICA 6.4 A comparative analysis 205 6.4.1 Purpose of financial equalisation 206 6.4.2 Constitutional accommodation 207 6.4.3 Role of additional legislation 209 6.4.4 Results of financial equalisation 211 6.5 Conclusion 214 7. Justiciability of financial constitutional arrangements 223 7.1 Introduction 223 7.2 Functions of the constitutional courts in Germany and South Africa 227 7.3 The contribution of the Bundesverfassungsgericht in Germany 232 7.3.1 Financial Equalisation case I (BVerfGE 1, 117 – 20/02/1952) 234 7.3.2 Financial Equalisation case II (BVerfGE 72, 330 – 24/06/1986) 238 7.3.3 Financial Equalisation case III (BVerfGE 86, 148 – 27/05/1992) 241 7.3.4 Financial Equalisation case IV (BVerfGE 101, 158 – 11/11/1999) 245 7.3.5 Comments 250 7.4 The contribution by the South African Constitutional Court 252 7.4.1 Ex Parte President of the Republic of South Africa: In Re Constitutionality of the Liquor Bill 2000 1 SA 732 (CC) 253 7.4.2 Soobramoney v Minister of Health, KwaZulu-Natal 1997 12 BCLR 1696 (CC) 256 7.4.3 Government of the Republic of South Africa v Grootboom 2000 11 BCLR 1169 (CC) 258 BRAND xi 7.4.4 Minister of Health and Others v Treatment Action Campaign and Others (No 2) 2002 5 SA 721 (CC) 261 7.4.5 Uthukela District Municipality and Others v the President of the RSA and Others 2002 11 BCLR 1220 (CC) 264 7.4.6 Comments 266 7.5 Conclusion 269 8. Conclusion 285 8.1 Constitutional accommodation of financial intergovernmental relations 285 8.1.1 Impact of economic, political and other considerations 285 8.1.2 Functioning of system 291 8.2 Current challenges 296 8.2.1 New improved financial legislation in Germany 296 8.2.2 Socio-economic needs of the new Länder 298 8.2.3 Good governance in South Africa 299 8.2.3 Addressing HIV/AIDS in South Africa 301 8.3 Reform initiatives in Germany 303 8.4 Prospects and proposals for reform in
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