Constitutional Rights and the Reform of Social Entitlements (original) (raw)

1998, Published in: Public Finance Reform during the Transition. The Experience of Hungary. JJ Dethier and L Bokros, editors,.

In March 1995, the Hungarian Constitutional Court, overturned significant portions of the economic stabilization program. This provides a vivid illustration of the tension between economic reform and protection of individual rights, which is nowhere more revealing than in the area of social entitlements. The Constitutional Court, created in 1989, has played—and continues to play—an important role in establishing the rule of law in the new Hungarian democratic environment. By making its own factual findings, independent of the judiciary, and ensuring the conformity of laws with the Constitution, the court represents an important checks and balances mechanism, especially during a period of major social and economic transformations. The issue is how to reconcile fiscal discipline with the protection of these rights. The Court rejected the constitutionality of several measures in the stabilization package of 1995 using the principles of legal certainty as a safeguard for social entitlements, property-like protection for insurance-based entitlements, non-discrimination and need for minimum social standards. The general trend of constitutional courts in modern democratic welfare societies has been to treat welfare recipients in light of their possible reliance on earlier assurances, but to require them, if necessary, to bear some of the costs of change. The Hungarian Court has followed this trend only up to a point. It has been criticized recently for stretching legal principles beyond a reasonable point and for pursuing a political agenda, thus undermining the predictability and stability of legal relations. The authors review the Hungarian Court's rulings and contrast them with the doctrine of other constitutional courts. They argue that issues of protection of social rights can be analyzed, in most cases, in terms of attitudes toward risk and availability of insurance—and that legally operational principles could be deduced from this framework. In some cases, courts are asked to rule on actual or reasonable reliance (expectations of policy continuity or change). In other rulings, the issue is how to compensate for welfare losses resulting from policy changes. In cases where insurance markets are not developed (e.g., for survivorship or disability risks), government policy could improve welfare by providing incentives to develop these markets. Gradual policy changes facilitate changes in expectations and behavior, so unsustainable welfare policies should be changed as gradually as possible, all else being equal. Moreover, in the case of "purchased rights" (social security benefits), this allows the costs of change to be spread among a larger number of people. For pension reform (which involves intergenerational conflicts), policy continuity is preferable for older persons and flexibility for younger participants.