Taxation and the Constitutional Crisis, 1962: Clerides-Denktash Letters

11th December 1962

Dear Rauf,

I thought I would take the opportunity to write to you and explain certain ideas which occurred to me in connection with the subject of the unification of taxation on which we had a number of meetings.

You will recall that at our last meeting as a sub-committee we had the task of finding means by which to make legally binding the matter which we had previously discussed. Certain views were expressed by myself regarding the best possible way to make legally binding any agreement we may reach on the subject of the increased subsidy to the Communal Chambers.

The main object of increasing the subsidies to the Communal Chambers is that the Communal Chambers will no longer have to fend for themselves in order to find sufficient funds to pay for the expenses of education and other matters falling within the jurisdiction of the Communal Chambers, but that Government would undertake the financial responsibility of the Communal Chambers. Government is considering to undertake the financial expenditure for the Communal Chambers because it realises that it is difficult for the Communal Chambers to cover the expenses of education if they were to rely only on the subsidy provided under Article 88(2) of the Constitution and thereafter to have to close the gap between the amount of money received by way of subsidy under the said Article and the amount money which each Communal Chamber actually requires. Moreover unless Government undertook the financial expenditure of the Communal Chambers it would mean that each Communal Chamber acting under Article 86(f) and 88(1) would have to impose personal taxes and fees on members of their respective community to cover the difference between the amount of money given by the Government by way of subsidy and the actual requirements of each Communal Chamber. This would mean that there would be taxation both by Government and the Communal Chambers with the result that the citizens of Republic would be taxed twice.

It is further obvious that it would be an undue burden on both communities, if each one separately had to cover by taxation the gap which results from the subsidy provided by the Constitution and the actual requirements of the Chambers.

From what I have said above it is clear that we are interested in three things:

(A) Adequate subsidy provision to cover the agreed expenses of the Communal Chambers.

(B) Legal safeguard to the effect that if Government were to provide adequate subsidy, the Communal Chambers would not either for the purposes of future development or for any other purpose exercise their right to impose taxation and thus the citizen be taxed twice again. It is obvious, of course, that if Government undertakes the entire financial burden of the Communal Chambers, it may have to increase Government taxation and under the circumstances Government would not like to see communal taxation imposed on people who are already heavily taxed by the Government.

(C) The third point on which Government requires legally binding safeguards is that the right of separate majority in connection with taxation legislation would not be improperly exercised and thus leave the Government unable to fulfil its obligation. I have looked carefully into the Constitution and as a lawyer I would like to put certain propositions to you for your consideration:-

(a) Article 88(2) of the Constitution provides that the Government in respect of each financial year will make available ,2m. to be allocated to the Greek and Turkish Communal Chamber in the manner provided by the Constitution. The proviso to that Article gives to the House of Representatives the power of increasing the minimum of ,2m. and authorizes the House of Representatives to make the allocation of such increase of the minimum to the respective Communal Chambers in such a manner as the House of Representatives may decide.

You know that in the past an attempt was made to increase the minimum subsidy provided by the Constitution, but as no agreement between the Greek and the Turkish Members as to the ratio of the allocation between the respective Communal Chambers could be arrived at, the matter went before the Constitutional Court.

My belief is that we would be justified to amend the proviso to Article 88(2), once we reach an agreement on the amount and manner any additional subsidy is to be given to the Communal Chambers, and thus make sure that in future no arguments arise as to how any additional subsidy is to be given to the Communal Chambers.

The Constitution itself provides that certain articles which are not basic can be amended by separate Greek and Turkish majority and I see no reason why the Greeks and the Turks should not exercise a right given to them by the Constitution to amend certain non-basic articles for the purpose of regulating the manner in which Government will come to the financial assistance of the Communal Chambers. I may tell you that from the Greek point of view the proviso to Article 88(2) as it stands now leaves greater freedom of movement to the community which has the majority in the House. My personal view, however, is that this is not a matter which ought to be considered either from a Greek or a Turkish point of view, since what we are interested in is to find a way to take from the Communal Chambers the extreme financial burden under which they are labouring at present.

The advantages for Government of having the proviso amended can be summed up as follows:-

(i) Government will know what provision it has to make for each year for the Communal Chambers and thus will be able to plan expenditure and development having regard to all commitments including the commitment to the Communal Chambers. If it is left for each year for the House of Representatives to decide what increase would be given by way of subsidy to the Communal Chambers, then Government will be unable to plan owing to the fact that it will not know how much the House would vote by way of increase.
(ii) Government will know the annual commitment to the Communal Chambers, which may amount to three or four million pounds, and thus be able to plan its taxation policy for the purpose of raising the necessary funds to cover the expenditure.
(iii) There will be no conflict between Government and Communal Chambers on the subject of increase of taxation since from the increase of any taxation both Communal Chambers will benefit having regard to the fact that the one part of the proposal made is based on the principle that the Government will divert for development purposes of the Communal Chambers a certain percentage to be agreed of the Development Budget.

(b) I have already expressed my view on how the matter of the subsidies can be regulated in the Constitution by amending the proviso to Article 88(2). The question of restraining the Communal Chambers from exercising their right to impose personal taxes and fees under Article 87(f) and 88(1) can in my opinion be dealt with in the following manner.

(i) If one examines the Constitution one would find that Article 87(f) gives authority to the Communal Chambers to impose personal taxes and fees on members of their respective communities to cover the needs of the bodies and institutions under the control of the Communal Chambers as provided in Article 88. This Article was a basic Article of the Zurich Agreement and it gave an unrestricted right to the Communal Chambers to impose personal taxes and fees on members of their community. Although there was no restriction in the Zurich Agreement of that right, it was agreed at the time of the drafting of the Constitution that the right of the Communal Chambers to impose personal taxes and fees would be restricted and would only be exercised for the purpose of collecting sufficient money to cover the gap between the amount of ,2 m. given by way of subsidy and the actual requirements of the respective Communal Chambers.
(ii) In my view there is no reason at all why we should touch or amend this Article at all. What needs to be done is that in amending the proviso to Article 88(2) to state that by the increased subsidy, the financial requirements of the Communal Chambers are deemed to have been met and, therefore, the Communal Chambers will abstain from exercising their right of imposing personal taxes and fees under 88(1). This would only be natural and it would be acting under the Constitution, since the Constitution in effect provides that any increase of the subsidy to the Communal Chambers results in a decrease in the amount of taxation which they are entitled to impose for the purpose of meeting their requirements. It follows, therefore, that if we agree that the full requirements of the Communal Chambers are met, then there will be no gap to be covered by the Communal Chambers by exercising their right to impose personal taxes and fees.

(c) The last point on which I would like to elaborate is the question of the right of separate majorities.

It is true that the right of separate majorities is one of the basic Articles of the Constitution. There is nothing, however, which could prevent us, if we agree, to regulate the manner in which that right is to be exercised. My suggestion is that we could devise a procedure whereby when a taxation Bill is at the Committee stage of the House, if either the Greek Members or the Turkish Members believe that there is discrimination then they could state so giving the reasons for their belief. The matter would then be referred to the Constitutional Court for its opinion and if the Constitutional Court gives a written opinion that the Bill contains discriminatory provisions or has a discriminatory effect on one of the two communities, then the Executive to be requested to withdraw the Bill or amend it and the Executive refuses, the Members will use their right of separate majority to defeat the Bill. If, however, the Constitutional Court does not find that there is any discrimination, then neither community would use their right of separate majority to defeat the Bill.

I fully appreciate that whatever agreement we reach we have to take the necessary steps on both sides not to make a political issue of the question of any amendment and I am ready to tell you in advance that I am prepared to take full responsibility and give full guarantees that no Greek Member in the House, whether he be of the Patriotic Front, Independent or of the AKEL will make any statement which will be beyond the scope of the matters we may agree upon.

I have written to you this confidential letter for no other purpose than to give you in a concise form a true picture of what is in my mind and I would like an opportunity for further discussion with you by personal contact for the purpose of hearing any difficulties, doubts etc. which you may have and may wish me to clarify.

Yours Sincerely,

President of the House of Representatives

Dear Glafkos,

Thank you for your letter of 11th December, 1962, the contents of which I have carefully considered. I feel that at this early stage of our Republic your proposals are a little too revolutionary, involving as they do changes in the Constitution. I sincerely believe that all of the objectives aimed at in your letter can be easily achieved without necessitating any drastic measures such as amending the Constitution or enacting ad hoc legislation albeit of a procedural character.

The increase of subsidies to the Communal Chambers is the main problem and the intention to meet the deficiencies of the budgets of the two Chambers is most welcome. This can easily be done under the Constitution by the House voting for an increase. I was glad to read in

your letter that you are in a position (and indeed I have always believed that you and the President were in the position) to control the situation in the House, and I have no doubt that a full and sincere explanation to the Members by you explaining the reasons and necessity for an increase will be well received by them all. This main hurdle can, therefore, be overcome by a mutual effort in the House. Indeed when we first, met no change of the Constitution was contemplated by either side and it may be convenient to quote here the following passages from the minutes of our meeting on the 13th November, 1962:

(a) Both Communal Chambers to submit to the Minister of Finance their present level of expenditure. The Minister of Finance together with the Presidents of the Communal Chambers will then examine and determine the minimum level of expenditure of the respective Communal Chambers.

(b) An amount equal to the minimum level of expenditure determined as above to be made available each year to the Communal Chamber concerned. This amount shall be deemed to be the amount necessary to meet the annual requirement of the respective Communal Chamber and shall not be re-examined every year.

(c) Each year the Government shall make available a further sum of money for the promotion of the activities of the Communal Chambers, to be determined as follows :

(i) A fixed percentage of the Public Revenue appropriated to the Development Budget of the Republic to be agreed upon. For the purpose of calculating the Public Revenue appropriated to the Development Budget of the Republic no money resulting from foreign aid including loans will be taken into consideration.

(ii) The apportionment of this further sum will be made between the two Communal Chambers in a ratio agreed and fixed in advance and shall not vary from year to year.

(d) The Communal Chambers to agree not to exercise their right of imposing any taxation for which they have authority under the Constitution.

(e) The right of separate majorities in voting legislation imposing taxes and duties to be exercised as herein below provided.

It is my belief that by signing a mutual agreed protocol between the leaders of the two Communities on the one hand and the Presidents of the Communal Chambers and the President and the Vice-President of the House of Representatives on the other hand, we can ensure implementation of your original proposals. In this way we shall be able to provide specifically in the protocol what will be the proportion of yearly increase and at what proportion this increase will be apportioned between the two Communities.

The next problem is to prevent the Communal Chambers from imposing taxation on their own once the Government undertakes the entire financial burden of the Communal Chambers. This can be achieved (a) by a declaration of policy (the wording of which can be agreed upon between ourselves) in the two Chambers to the effect that the Communal Chambers will abstain from imposing any taxation as long as the Government fulfils its above-referred undertaking; or (b) by legislation to be passed by the two Chambers to this effect. The fear that the Chambers may, despite such undertaking, by legislation proceed to impose additional taxation cannot be real as no individual (Greek or Turk) can be imagined to bow to such an action and concede to be taxed twice once the Central Government has agreed to meet all expenses. Politically it will be impossible for the Chambers to proceed to taxation under these circumstances and from a legal point of view any taxation law so passed by the Chambers may well be declared to be null and void in view of the fact that there is no deficiency for the meeting of which such taxation would be called for. Further, if any of the Communal Chambers went back on its aforesaid declared policy or legislation by being completely blind to the realities of shortage of hard cash. Government could stop the increased subsidy either immediately (if the increase is made subject to the undertakings) or at the next budgetary year.

The third point on which Government requires legally binding safeguards is the question of separate majority vote in connection with taxation legislation. Government wants, quite rightly, to be assured that this power will not be improperly used. Your suggestions as to how we should go about it are premature and in my view not necessary. I have no doubt in my mind that the executive authority, both on the Greek and Turkish side, by using its influence and good will on the members of the House by keeping them fully informed of what is going on and why certain taxation legislation is necessary and by letting the Turkish side know the reasons necessitating such legislation, is in a position to see that this power of the House is not used in the negative.

The public opinion here as well as in Greece and Turkey is also a strong factor which will keep this power in good harness. I think that the past can give all of us a good lesson on this point and I sincerely believe that once we start running the Government machine on the basis of mutual trust and understanding (and the few meetings we have had have given all of us very high hopes that this can be easily achieved) this power will never be used in the negative. In fact my opinion is that all these powers were given in order that parties may invite each other to a round table conference and discuss the problem anew, and not for any side to consider the matter closed and leave the other side to use its power under the Constitution for reasons best known to itself at that initial stage. If such problems are discussed at the highest level they can certainly be solved provided there is mutual goodwill. This is the crux of the whole matter. It may be argued that individual members may wish to resort to this power every now and then, but I can assure you that unless a matter of high policy is involved affecting the very existence of the Turkish Community, Turkish Members of the House will not use their power of separate majority in the negative.

Let us, therefore, avoid touching the Constitution in any manner whatever. Let us see whether by a courageous gesture of goodwill on all sides we cannot be the men of our words and thus solve these immediate matters in the way enumerated above. I believe that we can achieve the objectives aimed at without making any changes in our Constitution and the fact that we shall be able to solve our problems within the present frame of our Constitution will give all of us and the people as a whole real good hope for the future. This will be a test of our sincerity and goodwill, of our intention to co-operate as good citizens of this young Republic and of our ability to keep our words as men of honour both on the Government side as well as on the Communal Chamber side. Let us try this (which does not necessitate any changes in the Constitution) and see how it will work; if it does not we can look where it has failed and then remedy the fault. I am afraid that if we start with changes now and even then we come to a standstill then we will have nowhere else to go. Let us keep any drastic solution to the very last, until goodwill, sincerity and mutual trust is fully established - and it can be established, as I said above, by giving ourselves the chance to prove our words by deeds.

Hoping to hear from you and looking forward to meeting you again,

Yours sincerely,