Executive Council of the Enga Provincial Government, Reference by the [1990] PNGLR 532 (28 December 1990)

	Home \| Databases \| WorldLII \| Search \| Feedback Papua New Guinea Law Reports

[1990] PNGLR 532 - SCR No 1 of 1990; Reference by the Executive Council of the Enga Provincial Government

SPECIAL CONSTITUTION REFERENCE NO 1 OF 1990 SPECIAL REFERENCE PURSUANT TO SECTION 19 OF THE CONSTITUTION BY THE PROVINCIAL EXECUTIVE COUNCIL OF ENGA, PROVINCIAL GOVERNMENTS

CONSTITUTIONAL LAW - Public finances - Supervision and control - Raising and expenditure of finance by National Government - Authorisation and control by Parliament - Regulation by Act of Parliament - National budget estimates distinguished from provincial government grants - Constitution, ss 187c, 209(1) - Organic Law on Provincial Government (Ch No 1), ss 51, 64, 66, 68 - Public Finance (Management) Act 1986.

CONSTITUTIONAL LAW - Provincial Governments - Public finances - Supervision and control - Provisions of Organic Law providing for unconditional grants - Source of power - Whether power in National Executive Council to revise once approved - Constitution, ss 187c, 209(1) - Organic Law on Provincial Government (Ch No 1), ss 51, 64, 66, 68 - Public Finance (Management) Act 1986.

Section 209(1) of the Constitution of the Independent State of Papua New Guinea provides that:

“Notwithstanding anything in this Constitution, the raising and expenditure of finance by the National Government, including the imposition of taxation and the raising of loans, is subject to authorisation and control by the Parliament, and shall be regulated by an Act of Parliament.”

(a) grants, conditional or unconditional or both, by the National Government to provincial governments, and

(b) the imposition and collection of taxation by provincial governments, and may make other financial provision for provincial governments, to an extent reasonably adequate for the performance of their functions.”

Sections 51, 64 and 66 of the Organic Law on Provincial Government (Ch No 1) stipulate that the National Government shall, in respect of each fiscal year, make unconditional grants to the provincial governments described as Staffing Grants, Minimum Unconditional Grants and Derivation Grants.

Section 68 of the Organic Law on Provincial Government stipulates that the s 64 and s 66 grants shall be paid out of the Consolidated Revenue Fund, and to the necessary extent, appropriated accordingly.

The Public Financial (Management) Act 1986 enacted under s 209(1) of the Constitution, by s 31(3), provides:

“Notwithstanding the issue of a warrant of authority, if in his opinion financial exigencies or the public interest so require, the Minister may limit or suspend any expenditure with or without suspension of the authority.”

(1) Section 187c(4) of the Constitution is a separate head of power, from s 209(1). They sanction different expenditures which are appropriated under separate laws.

(2) The expenditure of finance by the National Government authorised by s 209(1) of the Constitution is the National Budget estimates of expenditure for the general public services of the National Government, which is authorised annually and controlled by Parliament through the Appropriation Act and regulated by the Public Finance (Management) Act 1986.

(3) The unconditional grants to provincial governments under ss 51, 64 and 66 of the Organic Law on Provincial Government, derive their authority from the Organic Law as sanctioned by s 187c(4) of the Constitution; they are “exceptional statutory expenditure” which is pre-appropriated and not subject to regulation under the Public Finance (Management) Act 1986.

(4) It is contrary to the provisions of ss 51, 64 and 66 of the Organic Law on Provincial Government for the National Government, either through the Minister for Finance and Secretary for Finance, under the Public Finance (Management) Act 1986 or the National Executive Council, to reduce grants made under the Organic Law without the authorisation and control of the Parliament.

SCR No 1 of 1979; Premdas v The Independent State of Papua New Guinea [1979] PNGLR 329.

This was a Special Constitutional Reference pursuant to s 19 of the Constitution, on questions going to the power of the National Executive Council to reduce unconditional grants made to the provincial governments. The full text of the questions is set out below.

In this Special Constitutional Reference, pursuant to s 19 of the Constitution, the Provincial Executive Council of Enga raised the following questions for this Court’s opinion:

1. Is it contrary to s 51 of the Organic Law on Provincial Government for the National Government to reduce the Staffing Grant to the Enga Provincial Government by K6a,900 as it purported to do in implementing Decision 64/90 made by the National Executive Council?

2. Is it contrary to the provisions of s 64 of the Organic Law on Provincial Government and Schedule 1 thereto for the National Government to reduce the Minimum Unconditional Grant to the Enga Provincial Government from K3,926,000 to K3,029,700 as it purported to do in implementing Decision 64/90 made by the National Executive Council?

3. Is it contrary to the provisions of s 66 of the Organic Law on Provincial Government and Schedule 2 thereto for the National Government to reduce the Derivation Grants to the Enga provincial Government by K6,900 as it has purported to do in implementing Decision 64/90 made by the National Executive Council?

4. Is it contrary to the provisions of s 209 of the Constitution to revise the budget estimates contained in the 1990 Appropriation Act of the Parliament without the authority of an Act of Parliament?

We granted leave to the provincial executive councils of Chimbu, Western Highlands and Eastern Highlands to intervene. Mr Derkley represented all of them.

The Bougainville Copper Mine has been, since its operations started in 1972, crucial to Papua New Guinea’s economy. In 1989, the mine ceased to operate because of reasons well known to all Papua New Guineans. Consequently, the National Government made decisions to reduce expenditure and hence NEC Decision 64/90 was promulgated.

In October of 1989, the Department of Finance and Planning informed the Enga Provincial Government that in 1990 it would receive:

The promulgation of NEC Decision 64/90 has resulted in the Grants being reduced as follows:

As a preliminary point, Mr Derkley raised the question of the use of background documents which were used by the Constitutional Planning Committee and the Constituent Assembly when debating what are now provisions of the Constitution in interpreting the Constitution. There are, he submitted, two recorded views of judges to the answer. One is by Wilson J in SCR No 1 of 1979; Premdas v The Independent State of Papua New Guinea [1979] PNGLR 329 at 375 and the other by Kearney J in The State v The Independent Tribunal; Ex parte Moses Sasakila [1976] PNGLR 491 at 506-507 and Barnett J in the SCR No 3 of 1986; Reference by Simbu Provincial Executive [1987] PNGLR 151 at 173-174.

“In interpreting the meaning of the language used in the Constitution it is necessary to read the Constitution, being a constitutional law in itself, as a whole (see Sch 1.5(1) of the Constitution) and to give all provisions thereof and all words, expressions and propositions therein ‘their fair and liberal meaning’ (see Sch 1.5(2) of the Constitution). As there can be no doubt as to the interpretation of the provisions to which reference will be made, (that is, this is not a ‘case of doubt’), I find it unnecessary (indeed I think it inappropriate) to use the preamble to the Constitution and, in particular, the national goals and directive principles ‘as an aid to interpretation’ and, in any event, the preamble, although forming part of the Constitution, ‘must be read subject to any other provision’ of the Constitution (see Sch 1.3(1) of the Constitution). As there appear to me to be rules of law that are ‘applicable and appropriate to the circumstances’ of this country, it is not part of this Court’s duty to have particular regard to the national goals and directive principles and the basic social obligations (see Sch 2.3(1)(a)), although, as I have stated, the preamble forms part of the Constitution. As, on the authorities and having regard to the Constitution itself, there can be no doubt as to the interpretation or application of any of the provisions of the Constitution to which reference will be made, I find it unnecessary (indeed I think it inappropriate) to use the final report of the pre-Independence Constitutional Planning Committee dated 13th August 1974, and presented to the pre-Independence House of Assembly on 16th August 1974, as an ‘aid to interpretation’ (see s 24 of the Constitution).”

Kearney J, in The State v The Independent Tribunal; Ex parte Moses Sasakila, said (at 506-507):

“The Act is a Constitutional Law and thus subject to the general principles of interpretation set out in Constitution, ss 10, 25(3), 63(3) and Basic Social Obligation(a), and 158(2); and to the more specific canons in Constitution, ss 24, 109(4) when read with 12, and Sch 1.5. In my opinion these provisions amount to a direction to the Court that in carrying out its functions under Constitution, s 18(1) the words actually used in the Act do not have to be strictly adhered to but are to be construed with the assistance of the materials referred to in Constitution, s 24, so as best to attain what Parliament intended. When Constitution, ss 109(4) and 168(2) are themselves interpreted with the aid of s 24, this view is fortified: there are several references in Chapter 8 of the Report of the Constitutional Planning Committee which point against the Court taking a ‘narrowly legalistic’ or ‘literal’ approach, and thus sacrificing the ‘spirit for the letter of the Constitution’. The ‘dynamic character’ of the Constitution is emphasised; in interpreting the laws, the judges are urged to use ‘judicial ingenuity’ in appropriate cases, to do justice. One consequence of this approach to interpretation is that the Court should not fail to give a provision the effect it considers the Parliament intended, by applying a literal or ‘plain meaning’ test nor should it attribute to the legislature an intention to produce a capricious or unjust result. The search throughout is for the intention of Parliament, a process which remains, formally at least, one of interpretation and not of legislation, and one in which the best guide remains the provisions of the Act itself.”

“Those questions must be considered in the context of the whole scheme of the provincial government system which was introduced into the original constitution by amendments to s 187 and extended by the enactment of the Organic Law on Provincial Government (Ch No 1) (hereinafter referred to as the Organic Law). To understand that scheme it is of course necessary to look at the Constitution as a whole, including the National Goals and Directive Principles set out in its Preamble, and the various provisions which are intended to guide courts when interpreting constitutional laws. Courts are told in Sch 1.3 to read the Preamble as being subject to the other provisions of the Constitution, to be used only as a guide to interpretation in cases of doubt. On the other hand the National Goals and Directive Principles (which appear in the Preamble) have been apparently elevated to a more important position by s 25 of the Constitution. It provides general directions regarding the implementation of the National Goals and Directive Principles. Section 25 obviously applies to all governmental bodies exercising executive power but it also applies to courts when interpreting and applying constitutional laws and ordinary legislation. Section 25(3) has particular importance for this Court when interpreting constitutional laws:

‘Where any law, or any power conferred by any law (whether the power be of a legislative, judicial, executive, administrative or other kind), can reasonably be understood, applied, exercised or enforced, without failing to give effect to the intention of Parliament or to this Constitution, in such a way as to give effect to the National Goals and Directive Principles or at least not to derogate them, it is to be understood, applied or exercised and shall be enforced in that way.’ ”

In this Reference therefore, before commencing the detailed task of interpreting the various provisions relating to provincial governments this Court must thoroughly familiarise itself with the National Goals and Directive Principles.

‘all words, expressions and propositions in, a Constitutional Law shall be given their fair and liberal meaning. In determining what is the fair and liberal meaning courts must be imbued with the spirit of the Constitution as intended by its framers.’

During a prolonged process of community consultation the Constitutional Planning Committee endeavoured to tap the will and spirit of the people. It then set out detailed recommendations for constitutional drafting in its report. With the intention of giving effect to this will or spirit of the people, it recommended the inclusion of the National Goals and Directive Principles in the Preamble to the Constitution. After much discussion in party briefing sessions and open debate in the Constituent Assembly these provisions were finally enacted in the Constitution. Section 25 and Sch 1.5(2) are both intended to ensure that this spirit, acting through the judicial mind, finds its expression in the way the detailed provisions of constitutional and other laws are interpreted and applied. This approach to the interpretation of the Constitution was well expressed by Kearney J (as he then was) in The State v Independent Tribunal; Ex parte Sasakila [1976] PNGLR 491 at 506-507 and by Prentice Dep CJ (as he then was) in Constitutional Reference No 1 of 1977 [1977] PNGLR 362 at 373-374:

"When interpreting the details of a provision in a constitutional law therefore it is an essential pre-requisite for the judicial mind to be enlightened by the spirit of the Constitution itself. This enlightenment comes from developing a thorough understanding of the National Goals and Directive Principles, by taking an overview which will place the particular provision in the context of the total legislative scheme of which it forms a part and by seeking to understand the intention of the founding fathers as they expressed it on behalf of the people, when enacting the Constitution and subsequent amendments.

As was pointed out by Kidu CJ and Pratt J, this of course does not mean the complete abandonment of the normal common law principles of statutory interpretation. Those principles still provide valuable assistance in resolving doubts and ambiguities when a court is engaged in its difficult task of determining the intention of the legislature: In the Matter of Kuberi Epi v Tony Farapo (unreported, Supreme Court judgment No SC 247, 1983) at p 4. But it seems to me that the Constituent Assembly gave a clear direction to courts interpreting constitutional laws. That direction is to reverse the previous conservative approach to statutory interpretation which tends to commence the task by a detailed and literal study of the words used, turning to some ‘deemed’ intention of the legislature only in cases of verbal ambiguity or internal conflict. That direction is to enlighten the judicial mind first and then examine the actual words used from the viewpoint of that enlightened mind. It must be a mind striving to give effect to the National Goals and Directive Principles. If the words are quite clear in their literal meaning when seen from this enlightened viewpoint, and no other interpretation is fairly open, then they must be given that literal meaning. If, however, they can fairly be given an interpretation which is clearly more consistent with the spirit of the founding fathers, then they should be given that enlightened interpretation. In seeking to understand this intention courts are specifically empowered and encouraged to examine the Constitutional Planning Committee Report, the fourth draft of the Constitution and the record of the constitutional debates. (Constitution, s 24).”

We do not consider that there is any conflict between Wilson J on the one hand and Kearney J or Barnett J on the other. What Wilson J said is clear from his judgment and that is that some provisions do not require to be interpreted by referring to the Constitutional Planning Committee Report or any other material put before the Constituent Assembly. For instance, s 187a of the Constitution says “There shall be a system of Provincial Government for Papua New Guinea in accordance with this Part”; s 169(1) of the Constitution says “An office of Chief Justice of Papua New Guinea is hereby established” and s 103(1) says: “A member of the Parliament must not be less than 25 years of age.” There is absolutely no reason to resort to the Constitutional Planning Committee Report, the Debates of the Constituent Assembly and other relevant documents to ascertain what these provisions means — they are clear and require no interpretation.

It is when the need to determine what a certain provision of the Constitution (or an Organic Law) means that what Kearney J and Barnett J said applies.

NEC Decision 64/90 was implemented under s 31(3) of the Public Finance (Management) Act 1986 (the Finance Act). This provision says:

“Notwithstanding the issue of a warrant authority, if in his opinion financial exigencies or the public interest so require, the Minister may limit or suspend any expenditure with or without suspension of the authority.” [Our emphasis]

The Finance Act was enacted by Parliament under s 209(1) of the Constitution, which provides as follows:

“Notwithstanding anything in this Constitution, the raising and expenditure of finance by the National Government, including the imposition of taxation and the raising of loans, is subject to authorisation and control by the Parliament, and shall be regulated by an Act of the Parliament.”

The Reference is brought because the referring authority says that neither the National Executive Council (NEC) nor the Minister for Finance and Planning had authority to reduce the three categories of grants in question once they were determined under the relevant provisions of the Organic law on Provincial Government (Ch No 1) (the Organic Law) — that is, it is unconstitutional for the NEC and/or Minister to reduce these grants which are determined by a constitutional law.

Provincial governments are established by the Organic Law. This Law was enacted pursuant to s 187a to s 187j of the Constitution. Careful reading of these provisions and the Organic Law clearly shows that the provincial government system is not a federal system like the USA, Australia and Canada. However, substantial legislative and executive powers are given to provincial governments by the Organic Law.

In order to determine the questions referred by the Enga Provincial Government we must have resort to the Constitutional Planning Committee Report and other relevant documents. And also we must consider the questions in the context of the whole scheme of the system established under s 187a to s 187j of the Constitution. (See Reference by Simbu Provincial Executive) per Barnett J (at 173-174).

Section 187c(4) of the Constitution sanctions the financial provisions of the Organic Law we are concerned with. It provides as follows:

(a) grants, conditional or unconditional or both, by the National Government to provincial governments, and

(b) the imposition and collection of taxation by provincial governments, and make other financial provision for provincial governments, to an extent reasonably adequate for the performance of their functions.”

We consider that this provision was aimed at providing a certain degree of financial/fiscal autonomy for provincial governments in order for them to carry out their provincial functions and responsibilities. And also it was intended to assure a definite source of finance as major revenue-raising powers remain in the National Government under s 209 of the Constitution. As can be appreciated, a government (or any organisation for that matter) without some assured source or form of finance cannot possibly function.

This view is supported by the Constitutional Planning Committee Report Ch 10 (at 12):

111. Unless they have adequate funds at their disposal, provincial governments will be ineffective. Without final control over certain sources of revenue, they will be powerless.

112. Both the national government and provincial governments should have the financial resources to carry out their respective responsibilities. The allocation of revenue to both levels of government should be appropriate to the distribution of powers and functions. We believe that the Constitution should vest final control over certain revenue-raising powers in provincial governments. Without that control provincial governments may be unable to undertake programmes of their own.

113. An overwhelming majority of the submissions made to us on ‘Central-Regional-Local Government Relations’ expressed support for the view that provincial governments should be able to raise money by collecting taxes and licence fees from the people in their provinces. The Committee is of the same opinion, and has consulted a number of experts as to how it might best be put into effect. We believe that our recommendations on the allocation of revenue between the national government and provincial governments provide a workable framework for the system of provincial government recommended in this Chapter.

114. Certain major taxes should remain under the control of the national government if our country’s economy is to be efficiently managed and its vital interests are to be properly secured. They comprise both direct and indirect taxes. They are taxes which are most appropriately levied on a nation-wide basis, and taxes which may be collected most effectively by the national government. We recommend that the power to raise the following taxes should be vested by the Constitution in the national government:

· royalties on minerals, timber, fish, oil, natural gas, and private hydro-electric projects.

The power to raise all of these taxes should be exercised only in accordance with law, as we have recommended in Chapter 9 ‘Financial Control’.

115. In addition to the major sources of revenue listed above, the national government should be responsible for the negotiation of foreign aid, foreign loans and medium — as well as long-term domestic loans. Papua New Guinea’s economic relations with the outside world, and government indebtedness at all levels, should, in principle, remain under the ultimate control of the National Parliament.

116. The most important potential sources of government revenue in Papua New Guinea will therefore be under the control of the national government. Provincial governments will have to rely upon the national government for financial assistance if they are to carry out their responsibilities properly. The assistance may take a number of forms:

· the unconditional allocation of shares of revenues raised by specified taxes; and

· the unconditional allocation of shares of a pool of revenues raised by the national government.

The national government may also secure loans on behalf of provincial governments.

117. The Committee believes that grants made by the national government to provincial governments should, in principle, have as few conditions attached to them as necessary. And, the conditions attached to grants should never be unreasonable.

118. The Committee has already emphasized how important it is that provincial governments should have revenue-raising powers of their own. The national government should provide provincial governments with adequate financial assistance for them to perform their lawful functions in a manner consistent with the National Goals and Directive Principles recommended in Chapter 2, but they should not be unduly dependent upon it. We recommend that authority to raise specific forms of taxation and to levy fees for certain kinds of licences should be vested in provincial governments by the Constitution.

119. The Committee has thought very carefully about the revenue-raising powers which might be placed under the final control of provincial governments. We believe that our recommendations provide a framework within which the spirit of self-reliance might be fostered in the provinces without contributing to the preservation or growth of inequalities between them. The implementation of our recommendations should also induce provincial governments to act in a financially responsible manner: under the proposed arrangements, they will make decisions concerning not only the expenditure of national governments funds — both grants and loans — but the use of their own revenue-raising powers.

120. We recommend that the Constitution should give provincial governments the authority to impose and to collect the following taxes:

121. All of these taxes can be readily and cheaply collected by provincial governments. A decision to impose any of them — and a decision to impose a land tax or a tax upon the sale of agricultural produce in particular — would raise issues of considerable political sensitivity. We believe that such issues can best be resolved through close consultation between the body responsible for the imposition of these taxes and the people directly affected. All of these taxes should be levied in such a way that local economic and agricultural conditions can be taken into account. For these reasons, we recommend that final control over these sources of potential revenue should be vested in provincial governments.

122. In recommending that the power to levy particular taxes should be vested in either the national or provincial governments, the Committee does not mean to imply that any or all of these taxes should necessarily be imposed. Our recommendations are intended to provide a framework within which individual governments may exercise their legal powers according to the needs, wishes, and financial resources of their people. In our opinion, it would be inadvisable for a provincial government impose a tax upon land. Land taxes are unacceptable to our people. But, insofar as government at any level should have the power to levy a land tax, we believe that it should be provincial government.

123. In addition to the power to raise revenue through levying the taxes listed above, provincial governments should have the power to issue, and to levy fees for:

124. Provincial governments should have no difficulty in administering these licensing powers. The fees raised should provide a small, but useful, income for provincial governments. The power to issue these licences should enable provincial governments to regulate a number of important activities in their areas. Armed with these licensing powers, provincial governments will be able to see that their people are adequately served by mobile traders, hotels, transport facilities, and theatres, for example, and that local entrepreneurs and joint ventures are provided with opportunities to participate equitably in the economic life and development of the provinces.

125. The Committee also recommends that fines and fees levied in provincial courts (the present ‘District Courts’) should accrue to provincial governments. Court fees and fines should be imposed with due regard to local circumstances. The revenue they yield should be used so as to benefit the province in which each court sits.

126. The Committee has sought to secure the financial position of provincial governments by recommending that the power to raise the taxes and to levy the fees listed above should be vested in provincial governments by the Constitution. But, we are only too well aware of the ways in which the central governments of other countries have used their powers of taxation so as to restrict effective access by lower levels of government to sources of revenue that are legally theirs. We are concerned lest a similar situation be allowed to develop in Papua New Guinea. We therefore recommend that the Constitution should state quite directly that the revenue-raising powers of the national government should not be employed so as to limit the effective use by provincial governments of theirs.

127. Co-operation between governments is also important if their various taxes and fees are to be equitably and efficiently levied. The national government may need help from provincial governments to ensure that its taxes are properly administered at the local level. Provincial governments may need help from the national government, or from one another, in collecting taxes and fees that they have imposed. We recommend that the Constitution should say quite explicitly that the national government and provincial governments should co-operate in the collection of lawfully levied taxes.

135. Provincial governments will not be able to finance all of their activities from the revenue sources which we have recommended should be placed under their control. We have not sought to make them financially self-sufficient. Provincial governments will have to rely upon the national government for financial assistance.

136. The Committee believes that the national government should make grants rather than loans to provincial governments. It should attach as few conditions to its grants as necessary. The national government should not seek to dominate, nor to manipulate, provincial governments. It should make grants to provincial governments to enable them to develop and carry out plans of their own.

137. The recurrent expenditures of provincial governments should generally be met, we believe, from funds made available in the form of unconditional grants from the national government. These grants should be allocated according to the following criteria:

· conservation, restoration and improvement of the human and physical environment; and

138. Each provincial government should receive enough money to meet essential expenditures incurred in the performance of its lawful functions. Money for this purpose should be allocated to each province according to need. The needs of each province should be determined by the size of the population, its government services, and the relative costs involved in providing that population with essential services. These costs tend to vary with the geographical size of each province. It costs more per head to provide certain services to people in the Western District, for example, than to people in more densely settled areas. We therefore recommend that money granted to provincial governments on the basis of the needs criterion should be distributed according to the population and area of each province.

139. Provincial governments should receive grants from the national governments, on the same basis as that specified in the preceding paragraph, to be used for minor capital projects. These are projects valued at no more than $50,000 each, which provincial governments should be able to undertake on their own authority.

140. Some parts of our country contribute more to government revenue than other parts. Proper regard should be paid to this fact when grants are made to the provinces. We recommend that money should be granted to provincial governments in accordance with the principle of derivation, that is, money should be returned to the various provinces in the same proportion as they have contributed to the national government’s revenues. The principle should be invoked so as to take particular accounts of the royalties levied on natural resources projects, and of each provinces contribution to revenue raised through the export of agricultural produce.

141. The national government’s policies and activities may affect various parts of our country in different ways. Some provinces may have to bear a disproportionate share of the costs and burdens of national development. We believe that money should be allocated among the provinces to provide compensation for the differential impact of national government policies. Provinces which suffer certain disadvantages in contributing to the overall development of Papua New Guinea should receive compensation.

142. The Committee believes that all of our people should have equal access to government services. They should be able to share equally in the fruits of development. We believe that money should be redistributed among the provinces in order to assist provincial governments to make services as readily available to people in the less developed parts of the country as they are to the rest.”

It is in the light of what the Constitutional Planning Committee Report says and the constitutional provisions relating to provincial governments that the provisions of the Organic Law must be considered.

We now set out the specific provisions of the Constitution and the Organic Law under consideration:

(a) grants, conditional or unconditional or both, by the National Government to provincial governments, and

(b) the imposition and collection of taxation by provincial governments, and may make other financial provision for provincial governments, to an extent reasonably adequate for the performance of their functions.”

“Notwithstanding anything in this Constitution, the raising and expenditure of finance by the National Government, including the imposition of taxation and the raising of loans, is subject to authorization and control by the Parliament, and shall be regulated by an Act of the Parliament.”

(1) In addition to any other grants and assistance provided or that may be provided under Division X.3 or otherwise, the National Government shall, in respect of each fiscal year, grant unconditionally to each provincial government an amount equal to the sum of the salaries and allowances, and the cost of other conditions of employment, of members of the National Public Service occupying in the National Public Service:

(2) If in the case of an office in the National Public Service referred to in Subsection (1) there is a scale or range of salary, allowances or other conditions, the amount to be granted in accordance with that subsection is such amount within the scale or range as the Public Services Commission thinks appropriate.

(3) If at any time there is no office, or no appropriate office, in the National Public Service corresponding to an office in that Service referred to in Subsection (1), the Public Services Commission shall decide what in its opinion is the corresponding office as at that time, and the amount to be granted in accordance with that subsection shall be calculated accordingly.

(4) This section does not limit the right of a provincial government to apply any amount granted under this section is such a manner as it thinks to be in the best interests of the province.”

(1) For each fiscal year, the National Government shall, out of moneys lawfully available for the purpose, make unconditional grants to the provincial governments.

(2) The minimum amount of the unconditional grant to a provincial government in respect of a fiscal year shall be as calculated in accordance with the Schedule 1.”

(1) For each fiscal year the National Government shall, out of moneys lawfully available for the purpose, pay to a provincial government an amount equal to 1.25 per cent of the value derived from the province of goods exported from Papua New Guinea during the preceding fiscal year, less the total amount received by the provincial government under Section 67(2)(a) in respect of that preceding fiscal year.

(2) For the purposes of Subsection (1), the value derived from a province shall be calculated in accordance with Schedule 2.

(b) ship’s or aircraft’s stores for the use of the vessel or aircraft on which they are exported; or

(d) goods comprising or including imported components where the value attributable to those components (exclusive of any increment of value due to processing in Papua New Guinea) exceeds 70 per cent of the export value.”

(a) as the minimum amount of unconditional grant payable in accordance with Section 64(2); or

shall be paid out of the Consolidated Revenue Fund which is, to the necessary extent, appropriated accordingly.

(2) A certificate by the Minister responsible for financial matters as to any amount payable in accordance with Subsection (1)(b) or (c) is, in the absence of proof to the contrary, proof that that amount is so payable.”

Mr Derkley for the provincial governments submitted that the requirement to pay the grants in question for the relevant fiscal is mandatory, and once the amounts of such grants are correctly determined, those amounts cannot be subsequently revised, or any portion not be paid to, or withheld, from a provincial government by the National Government, for any reason. Reliance was placed on the authority of the National Constitution s 187c(4).

It was the provincial governments’ further submission that, s 187c of the Constitution allows the National Government to make, inter alia, unconditional grants and once these grants are appropriated under s 68 of the Organic Law then they cease to be part of the finances of the National Government and subject to the regulatory provisions of the Finance Act. Although the Finance Act is sanctioned by the Constitution, s 209, it remains an Act of Parliament, and in the heirarchy of laws under s 9 of the Constitution, ranks below and is subject to the Organic Law.

The provincial governments also submitted that the National Government does not have power simply, by an executive decision, to reduce, vary or withhold the grants made under ss 51, 64, 66 and 68 of the Organic Law. Though s 209 of the Constitution authorises regulation of expenditure by an Act of Parliament, the Organic Law is not an Act of Parliament but a superior law, and so s 29(2) and s 31(3) of the Act do not apply to its mandatory terms.

Mr Baker for the Principal Legal Adviser argued the case for the negative on behalf of the National Government. He conceded that there is a duty to pay the grants but that the National Government has the power to withhold all or part of the grants. He contended that the power to regulate payment of the grants under ss 51, 64 and 66 of the Organic Law is derived from the Constitution, s 209.

He further submitted that s 209 stipulated that the raising and expenditure of finance by the National Government was subject to authorisation and control by the Parliament and regulated by an Act of Parliament. The authorisation and control by Parliament is effected by the National Budget [s 209(2)] and the regulation was effected by the Finance Act. The regulation included the expenditure of finance by the National Government. This included the expenditure of finance allocated to the provincial governments under ss 51, 64 and 66 of the Organic Law. The Constitution clearly granted power to the Parliament, to, by an Act, regulate National Government expenditure. Section 29(2) and s 31(3) of the Finance Act were such provisions regulating the expenditure. They permitted the withholding of funds in the specified circumstances. The National Government has therefore the power to regulate payment of the grants under ss 51, 64 and 66 of the Organic Law. This power is granted by s 209(2) of the Constitution and to the extent that the Organic Law purports to restrict, exclude, or is inconsistent with the Act, the Constitutional grant of power to the Act should prevail.

The National Government submitted also that the effect of the appropriation under s 68 is to give unrestricted statutory authority to spend. It does not guarantee payment of a particular amount and it does not prevent payment being regulated. It does, however, remove that payment from the whim and scrutiny of Parliament. It was submitted that although there is a mandatory duty to pay, the National Government has statutory authority to withhold payment under s 29 and s 31 of the Finance Act.

The Constitution, s 187c(4), sanctioned the Organic Law to “make provision for and in respect of grants, conditional or unconditional or both, by the National Government to Provincial Governments”. The special grants under ss 51, 64 and 66 of the Organic Law are therefore sanctioned by s 187c(4)(a).

Section 209 of the Constitution, on the other hand, provides for Parliamentary responsibility for public finances. The National Government’s submission was that the words “notwithstanding anything in this Constitution” in s 209 includes s 187c(4), therefore s 209 should prevail and it would follow that the Act envisaged to regulate the National Government expenditure, being the Finance Act, would apply to regulate the “expenditure” by the National Government.

2. Does the term “expenditure” used in s 209 also include the Organic Law grants sanctioned by s 187c(4)?

3. If s 209 does apply to the grants under the Organic Law, does the Act referred to, being the Finance Act, apply to and regulate the expenditure by the National Government?

In order to answer these questions and the issues raised, the nature of the provincial government grants under the Organic Law, and the types of government expenditures being referred to, need to be understood.

We are of the opinion that the “expenditure of finance by the National Government” authorised by s 209(1) is the National Budget estimate of expenditure which is “authorised and controlled” by Parliament through the Appropriation Act, being the “sum for the general public service of the National Government”. These public services include provincial departments which are still part of the National Government services. These public services expenditures of the National Government are then legitimately regulated by the Finance Act, pursuant to the Constitution, s 209(1).

The grants under the Organic Law are not part of the specific appropriation under the Appropriation Act. They are special appropriations by virtue of the superiority of the Organic Law over the Appropriation Act. The minimum unconditional grants pursuant to s 64 and the derivation grant pursuant to s 66 are pre-appropriated by virtue of s 68. It directs in mandatory terms that “any amount payable by the National Government” in accordance with s 64(2) or s 66 “shall be paid out of the Consolidated Revenue Fund which is, to the necessary extent, appropriated accordingly”.

We are of the view that, although the staffing grant under s 51 is not specifically pre-appropriated under s 68, it is nevertheless a pre-appropriated grant pursuant to a superior law and cannot be subject to regulatory provisions of the Finance Act.

In the textbook Legislative Drafting by G C Thornton, under the heading “Government Finance” (2nd ed, 1978), it is stated (at 202-203) that:

“No payment out of that account (ie the consolidated fund) may be made except by the authority of a statute ...

Public expenditure is of two distinct kinds — supply expenditure and statutory expenditure — and the distinction is one of great importance to the draftsman.

Supply expenditure is the term used to describe expenditure which is authorised annually and provided for by appropriation legislation in response to demands presented to the legislature by the government in the form of estimates for the service of the financial year ...

The authority for supply expenditure endures only until the end of the financial year and then lapses, with the result that unspent balances withdrawn from the consolidated fund must be repaid.

Statutory expenditure is authorised once and for all by charging it upon the consolidated fund. When this is done by statute, no further appropriation or authority is necessary, and, in contrast to the temporary nature of authority for supply expenditure, is unrestricted in duration. It endures for ever, subject to the competence of the legislature to revoke it.

Statutory expenditure is exceptional and is only authorised in a limited range of circumstances where the legislature is satisfied that the obligation for which it is required is of such a permanent, exceptional and determinate nature that the immediate and recurring scrutiny of the legislature is not necessary.”

The “expenditure” referred to in s 209(1) is in our view the “supply expenditure” authorised annually and provided for by the Appropriation Act, which is subject to regulation by the Finance Act. It does not refer to the grants authorised and pre-appropriated accordingly under the Organic Law. These grants are not subject to the Finance Act. This Act is authorised to regulate the yearly appropriation for the public services, by the Appropriation Act, and not the pre-appropriated statutory expenditure or grants under the Organic Law.

The grants derive their authority from the Organic Law as sanctioned by the Constitution, s 187c(4), and not the Appropriation Act, which is sanctioned by s 209. The latter expenditure is regulated by the Finance Act, the former is not. The grants become part of a provincial government’s revenue and subject to its own control and regulatory legislation. The expenditures of the grants are still ultimately controlled by the National Parliament because every year the provincial governments are required by s 73 of the Organic Law to present a full statement of their financial positions to the Parliament through the Minister for Provincial Affairs. They are also under the scrutiny of the Auditor-General under s 74 of the Organic Law and the Auditor-General’s report is tabled in the Parliament through the Minister for Provincial Affairs. The only time the Finance Act comes into play in relation to the grants is the physical act of paying out the grants under s 14.

We accept the statement of principle quoted earlier from the textbook Legislative Drafting, that:

“Statutory expenditure is authorised once and for all by charging it upon the consolidated fund. No further appropriation or authority is necessary, and, in contrast to the temporary nature of authority for supply expenditure, the authority for statutory expenditure is unrestricted in duration.”

We endorse and adopt as applicable to these provisions the further principles, which in our view are entirely consistent with the philosophy for the system of provincial government, that:

“Statutory expenditure is exceptional and is only authorised in a limited range of circumstances where the legislature is satisfied that the obligation for which it is required is of such a permanent, exceptional and determinate nature that the immediate and recurring scrutiny of the legislature is not necessary.”

The grants authorised by the Organic Law are in our view such exceptional “statutory expenditure”. They are “statutory expenditure” pre-appropriated and of such a permanent, exceptional and determinate nature that the immediate and recurring scrutiny of the legislature is not necessary.

These principles and interpretation are entirely consistent with the Constitutional Planning Committee Report which we have quoted in length already.

It is our opinion therefore that s 187c(4) is a separate head of power from s 209(1). They sanction different “expenditures” which are appropriated by separate laws. They are therefore not inconsistent.

We hold that it is contrary to the provisions of the Organic Law, ss 51, 64, 66 and 68 for the National Government, either through the Minister for Finance and Secretary for Finance, under the Finance Act or the National Executive Council, to reduce the grants in question made under the Organic Law without the authorisation and control of Parliament.

The annual National Budget comprising the estimates of finance to be raised, and estimates of proposed expenditure, by the National Government is “authorised and controlled by the Parliament” through the Appropriation Act and other enabling legislation annually. The actual raising and expenditure of finance by the National Government is legitimately “regulated” by the Finance Act.

This Act, envisaged by s 209(1), in our view, “regulates” the manner of raising and expenditure of finance by the National Government. It does not “regulate” the manner in which Parliament “authorises and controls” the raising and expenditure of finance by the National Government. Once again the “authorization and control by the Parliament” is effected by the annual Appropriation Act and the other enabling legislation included in the appropriation process.

Because we have concluded that s 209 does not apply to the grants the subject of preceding questions we do not consider it necessary to answer this question.

KAPI DCJ: For the fiscal year 1990 which began to run on 1 January, the Enga Provincial Government would receive the following grants pursuant to the provisions of the Organic Law on Provincial Government (Ch No 1) (the Organic Law). These were calculated as follows:

There is no question that these are the correct amounts calculated under the above-named provisions. However, the National Executive Council by a Decision 64/90 purported to reduce the amounts of these grants as follows:

The Enga Provincial Executive Council prompted by this Decision made this Supreme Court Reference under s 19(3) of the Constitution for the following questions to be determined:

1. Is it contrary to the provisions of s 51 of the Organic Law on Provincial Government for the National Government to reduce the staffing grant to the Enga Provincial Government by K6,900 as it has purported to do in implementing Decision 64/90 made by the National Executive Council?

2. Is it contrary to the provisions of s 64 of the Organic Law on Provincial Government and Sch 1 for the National Government to reduce the minimum unconditional grant to the Enga Provincial Government from K3,926,000 to K3,029,700 as it has purported to do in implementing Decision 64/90 made by the National Executive Council?

3. Is it contrary to the provisions of s 66 of the Organic Law on Provincial Government and Sch 2 for the National Government to reduce the derivation grants to the Enga Provincial Government by K6,900 as it has purported to do in implementing Decision 64/90 made by the National Executive Council?

The provincial executives of Western Highlands, Eastern Highlands, Simbu and Southern Highlands Provincial Governments have intervened to support the arguments put forward by the Enga Provincial Executive Council. Mr H Derkley argued the affirmative case on behalf of the referring authorities, and Mr J Baker argued the negative case on behalf of the Principal Legal Adviser.

The issues raised by questions 1, 2 and 3 are narrow and specific and they relate to the decision taken by the National Executive Council, Decision 64/90.

Assuming that the amounts calculated by way of grants under ss 51, 64 and 66 of the Organic Law are correct, the issue raised by each of the three questions is whether the National Executive Council has power under the law to reduce the amounts as it has purported to do?

An examination of the provisions of the Organic Law fails to reveal any grant of power to the National Executive Council to reduce any of these grants.

Under the Constitution, the National Executive Council only has the task of proposing the proposed estimates of the finance to be raised and the proposed expenditure: s 209 and s 210 of the Constitution.

Under the Public Finance (Management) Act 1986, there is no power given to the National Executive Council to reduce any amount. The only power which is given under the Public Finance (Management) Act is the power given to the Minister for Finance under s 29(2) and s 31(3) to either limit or suspend any expenditure. This, of course, gives no authority to the National Executive Council. I will consider these provisions again under question 4. The answers to the first three questions can be in no doubt and I would answer them as follows:

Question 4 is poorly worded. It is not certain whether the question is directed at review of pre-appropriations under ss 51, 64 and 66 of the Organic Law, or whether it is directed at the appropriations set out under Sch 2 of the Appropriation Act 1989, which deals with the appropriations for the fiscal year 1990. This question also makes no reference to any provisions of the Public Finance (Management) Act 1986.

Section 209(1) of the Constitution provides that “the raising and expenditure of finance by the National Government ... is subject to authorization and control by the Parliament”. The words “raising and expenditure of finance by the National Government” are all-encompassing. They include all expenditure of the National Government such as appropriations under an annual Appropriation Act, as well as expenditure which is charged on the Consolidated Revenue by law. These, in my view, clearly include the grants under ss 51, 64 and 66 of the Organic Law which are clearly expenditure by the National Government. See the estimates for these grants included in the proposed expenditure of the National Government in the 1990 Estimates of Revenue and Expenditure for the year ending 31 December 1990, presented by the Minister for Finance on the occasion of the 1990 Budget. For this expenditure, the National Government has to raise the revenue. The whole of the raising and expenditure of finance “is subject to authorization and control by the Parliament”. To put it simply, the National Government cannot raise or spend any money under any law unless it is authorised by Parliament under s 209(1) of the Constitution. The only exception to this is s 212 of the Constitution.

Section 209(2) of the Constitution breaks down the areas which “are subject to the authorization and control of the Parliament”. The Parliament is responsible for approving and authorising the National Budget which comprises:

1. The estimates of finance proposed to be raised and the expenditure proposed by the National Government.

As to the estimates, the National Parliament may approve or reduce the amount or incidence of, or change the purpose of any proposed taxation, loan or expenditure but may increase the proposed expenditure in respect of services for the Parliament or the judiciary: s 210 of the Constitution. As I indicated before, this includes all expenditure such as grants under ss 51, 64 and 66 of the Organic Law. They all come under the authority and control of the Parliament. Even the mandatory terms of ss 51, 64 and 66 of the Organic Law which are sanctioned under s 187c(4) of the Constitution are made subject to the authority and control of the Parliament under s 109(1) of the Constitution. The terms of s 64 and s 66 would support this conclusion. The grants under these two provisions are made “out of moneys lawfully available for the purpose”. This refers to the amount approved by the Parliament in the estimates for expenditure in the National Budget.

Appropriations referred to under s 209(2)(b) of the Constitution are a separate matter from the estimates approved by the Parliament. This provision requires three separate appropriations. These appropriations simply authorise the various departments, instrumentalities or arms of the Government to spend the amount set out in the appropriation. The amount appropriated is within the proposed finance to be raised and the proposed expenditure approved in the estimates by the Parliament. These appropriations are not in issue in this Reference.

The pre-appropriations such as grants under ss 51, 64 and 66 of the Organic Law are not the subject of appropriations under s 209(2)(b). They do not need this authority because the authority is already given by another law. In this case, it is given by the Organic Law on Provincial Government. Section 187c(4) of the Constitution, s 64 and s 66 of the Organic Law taken together, and s 51 of the Organic Law, create an obligation on the part of the National Government to provide for the provincial governments. The effect of this is that the National Government must provide for this expenditure in its estimates under s 209(2)(a) of the Constitution and submit it for approval by the Parliament under s 209(1) of the Constitution. When the estimate is approved by the Parliament, ss 51, 64 and 66 of the Organic Law give the authority to spend that money: see s 14(1)(c) of the Public Finance (Management) Act 1986. I do not share the view that s 187c(4) of the Constitution, and ss 51, 64 and 66 of the Organic Law in themselves, give any authority to the National Government to spend and raise revenue without the approval of Parliament under s 209(1) of the Constitution. This is clearly inconsistent with the supremacy of the Parliament set out in no uncertain terms under s 209(1) of the Constitution. The issue in this case is whether the grants calculated under ss 51, 64 and 66 of the Organic Law, which were approved by the Parliament in the National Budget, can be reduced without the authority of Parliament?

This issue has been referred within a given set of circumstances. Since the National Budget was passed in late 1989, there has been a result of the closure of the Bougainville Copper Mine. The finance proposed to be raised in the National Budget is affected by this closure. It should be pointed out that there could be a complete failure in raising the finance proposed to be raised. I have no doubt that the Parliament would have the power to reduce the grants in such circumstances. This control comes within the words “the raising and expenditure of Finances by the National Government ... is subject to ... control by the Parliament” under s 209(1) of the Constitution. As I have pointed out already, all other provisions of the Constitution are subject to s 209(1) of the Constitution.

The exercise of the power of control by the Parliament “shall be regulated by an Act of the Parliament”. This Act is the Public Finance (Management) Act 1986 (as amended). In many respects the Act regulates the manner in which the Parliament authorises the National Budget. See Pt IV National Budget of the Public Finance (Management) Act. Part V of the Act deals with budgetary control. Under s 29(2) and s 31(3) of the Act, the discretion is given to the Minister for Finance to limit the amount of monies to be expended or to suspend any expenditure of finance. In my view, s 29(2) and s 31(3) are inconsistent with s 209(1) of the Constitution, in that the Act has taken away the power of control by the Parliament and had given it to the Minister for Finance. These provisions do not come within the terms of s 209(1) of the Constitution. Section 29(2) and s 31(3) would be valid if s 209(1) of the Constitution read, “is subject to authorization and control by an Act of the Parliament”. That is different from the words, “is subject to authorization and control by the Parliament”. What an Act of Parliament shall regulate is the manner in which the raising and expenditure of finance may be authorised and controlled by the Parliament. As to the authorisation of raising and expenditure of finance, the Public Finance (Management) Act deal with the manner in which the National Budget may be compiled and submitted to the Parliament for authorisation. However, as to the question of control, s 29 and s 31 have departed from the control by the Parliament, and this is therefore inconsistent with s 209(1) of the Constitution and of no effect.

In a crisis such as the one assumed in this Reference, the estimates of finance to be raised and estimates of proposed expenditure in the 1990 National Budget would be affected. This, of course, would affect the monies appropriated under s 209(2)(b) of the Constitution and the pre-appropriations under a law. It may be argued that the crisis could be resolved by a supplementary Budget and Appropriations under s 209(2)(c) of the Constitution. In such a supplementary budget, the Parliament may exercise its powers to reduce the grants under s 210(2) of the Constitution. I make this observation to strengthen the view that Parliament has the ultimate control.

I have reached the conclusion that estimates of expenditure approved by the Parliament in the 1990 National Budget may not be revised without the authority of the Parliament. In particular, calculations under ss 51, 64 and 66 of the Organic Law which were approved by the Parliament in the National Budget cannot be revised without the approval of the Parliament.

PacLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback
URL: http://www.paclii.org/pg/cases/PNGLR/1990/532.html

Papua New Guinea Law Reports

Executive Council of the Enga Provincial Government, Reference by the [1990] PNGLR 532 (28 December 1990)

Papua New Guinea Law Reports - 1990