Two Parliamentary advisory staff briefed the Committee on the Money Bills Amendment Procedure and Related Matters Act (the Act). They explained the background to the Act, and noted that there was an Oversight and Accountability Report accessible from the Parliamentary website, setting out how Parliament could engage with the budget. The recently-passed Act set out a proper process to support the oversight function of the portfolio committees, including rules and procedures for proper public participation, and had given extended powers to committees to amend budgets in cases of over-or underspending, and increased opportunities for participation of civil society. The presenters set out that committees, after assessing national departments, would prepare a Budgetary Review and Recommendations Report (BRRR) reporting on service delivery, effectiveness and efficient use of funding and forward allocations. It was stressed that the support teams to committees would need to access a number of other reports in order to produce a good BRRR. The implications of the Medium Term Budget Policy Statement (MTBPS) and fiscal framework were explained. Although the portfolio committees had no direct role in producing this, the finance and appropriations committees would incorporate recommendations from various committees in their submissions to the Minister. The sequencing of the procedures was set out, and the presenters described the strict fiscal principles that must be followed. The Act did not state clearly how the interactions between these various committees must happen, and it was noted that Parliament would still have to develop rules. The Parliamentary Budget Office must also still be set up to provide independent, objective and professional advice and analysis to Parliament on matters related to the budget and other money Bills.
The second presentation focused on what the Act required of the portfolio committees, which related to production of the BRRR and recommendations to the committees on finance and appropriations. This Committee would need to start preparing the BRRR once the budget vote had been completed, and must finalise the BRRR between 11 and 22 October. The BRRR must include a report about performance on service delivery, and how effectively, economically and efficiently the available resources had been used. The various tools to be used in preparation of this BRRR were summarised. At the end of October the Minister of Finance would present the Medium Term Budget Policy Statement, and the finance and appropriations committees, using the information supplied in the BRRRs, must report back on that within 30 days. The recommendations that the portfolio committees could include in their reports were summarised. The time limits for adoption of the Fiscal Framework were set out, as also the sequencing of the Division of Revenue Bill and Appropriations Bill. Sound reasons must be presented for any proposed amendments to the budget, which highlighted the importance of having high-quality BRRRs. A template was proposed for use by portfolio committees and would be workshopped once passed by the House.
Members asked for clarity on the position where departments failed to spend and had to return money to National Treasury, noted that spending did not automatically result in delivery, and asked if departments were able to shift money between projects or use it for reasons other than originally indicated, as well as whether money could be shifted between departments. The provisions of the Public Finance Management Act were outlined. Members also enquired how public participation in the budget should happen, whether there was room for flexibility in the time frames, and the link between the Act and the new Ministries of Planning and Monitoring. They further examined what checks and balances were in place to ensure that South Africa did not end up in an adverse deficit situation, influences on the deficit, and whether South Africa was regarded as a developing state.
Money Bills Amendment Procedure and Related Matters Act: Parliamentary Legal Section briefings
Adv Frank Jenkins, Parliamentary Legal Advisor, asked the Committee on what aspects of his presentation the Committee wished him to concentrate.
The Chairperson noted that the Committee wished to receive a background and outline of the Money Bills Amendment Procedure and Related Matters Act (the Act), a description of its implications it had and what Members needed to do to influence the Department of Labour’s Budget.
Mr A Louw (DA) added that he wished to get more clarity on how the Act would affect the Committee’s work.
Ms A Rantsolase (ANC) needed more information on the challenges and the timeframes related to the Act.
Adv Frank Jenkins began by explaining the background to the Act. The Constitution set out detailed procedures on how to pass legislation. The Constitution also authorised this Committee to exercise oversight over the Department of Labour (DOL or the Department) and its related entities, but it did not state how the oversight must be done. The Oversight and Accountability Report, adopted around 18 months ago by Parliament, could be accessed from the Parliament website. This report had various focus areas, including Budgetary Processes. He emphasised that Section 77(3) of the Constitution stated that an Act of Parliament must provide for a procedure to amend money bills before Parliament. This process was first started in 2001, and the Act was enacted finally on 16 April 2009. It prescribed how Parliament could engage with the budget.
Adv Jenkins noted that the Act was an extension of the oversight function of the Committee. It set out a structured process, including rules and procedures for proper public participation. Some felt that the Act gave the Committee “teeth”, in that the Committee was able to advise a department that the budget would be amended if the department continued to overspend or underspend on that budget. Civil society organisations could also now feel more confident in participating in the budgetary processes because the Act set out dedicated avenues for their participation.
Adv Jenkins noted that, in practice, the procedure hinged on the Constitutional obligation of Parliament to maintain oversight of the work of national departments. The annual assessment of national departments by Portfolio Committees provided the starting point. The assessment, which was contained in the Budgetary Review and Recommendations Report (the BRRR) reported on a department’s service delivery performance given the available resources, on the effectiveness and efficiency of a department’s use and forward allocation of available resources, and may also include recommendations on the future use of resources. All the elements of the BRRR were detailed in Section 5(1) of the Act. Adv Jenkins noted that various reports would need to be consulted, and it was crucial that the support team for the Committee access these in good time, since there was a very tight timeframe, in order to support the Committee in production of the BRRR as the foundation for the next budget.
The next step involved the Medium Term Budget Policy Statement (MTBPS). Normally, National Treasury undertook a medium term expenditure review. Section 6 of the Act required that the Minister of Finance must submit the MTBPS to Parliament, and set out the required content. The MTBPS updated the medium term expenditure projections, and presented Parliament with an opportunity to prepare for the next budget.
Section 6 of the Act referred to the “fiscal framework”. This, in simple terms, meant the overall picture of the government’s finances, giving a clear indication of what was received and what was paid out. It therefore covered all revenue collected, including monies borrowed, and the service fees connected to those loans. The fiscal position was usually expressed as a percentage of the Gross Domestic Product (GDP). He noted that the term “surplus” referred to government getting in more than it spent, whereas “deficit” was the opposite. The fiscal policy of government would detail how it wished to deal with either a surplus or a deficit position. For instance, the government may decide that it could allow a deficit of up to 10% of GDP, or decide that the country could not afford a deficit, and must increase its revenue by increasing taxes and also spending less. Government’s fiscal policy helped to set spending priorities for the next three years.
The Portfolio Committee would have no direct role to play with respect to the production of the MTBPS, as this was the role of the Parliamentary finance and appropriations committees, who must make submissions within 30 days of the date of the tabling of the MTBPS. These committees would then incorporate any recommendations from the various portfolio committees in their submissions to the Minister.
Adv Jenkins said it was important to note the sequencing of the procedures. The Act prescribed that the first step was the introduction of the fiscal framework, and its adoption by Parliament. Secondly, the Division of Revenue Bill would be considered, followed by the Appropriation Bill. Any amendments to any of these Bills must be consistent with the adopted fiscal framework. Lastly, amendments to the Appropriation Bill may only be considered after both Houses had passed the Division of Revenue Bill, and amendments to this Bill must also be consistent with the adopted fiscal framework and the Division of Revenue Bill. Each stage determined the next stage.
Besides the sequencing there were also strict fiscal principles to be followed. The principles referred to in the Act stipulated that Parliament and its committees must ensure an appropriate balance between revenue, expenditure and borrowing and determine reasonable debt levels and debt interest cost. The cost of recurrent spending could not be deferred to future generations. There must be adequate provision for spending on infrastructure development, overall capital spending and maintenance. These were set out in more detail in Sections 8(5) and 11(3) of the Act.
Adv Jenkins reiterated that the Portfolio Committee should channel any recommendations through the appointed finance and appropriations committees in Parliament. The Act, however, did not state clearly how the interactions between these various committees must happen. Rules would still have to be developed by Parliament in this regard. It was important for this Committee to note that it could propose conditional appropriations, or propose that an amount must be appropriated for a specific and exclusive purpose mentioned under a main division within a vote. Section 10 of the Act outlined the way this would work.
The Act also provided procedures for Revenue Bills, like the Skills Development Levy and similar matters. The Committee would not be involved in this process. The finance committee would look at these Bills.
Section 15 of the Act allowed for the establishment of a Parliamentary Budget Office. This Office must provide “independent, objective and professional advice and analysis to Parliament on matters related to the budget and other money Bills”. Details were set out in Section 15.
Money Bills Amendment Procedure and Related Matters Act: Committee Processes
Mr Mkhethwa Mkhize, Committee Section, Parliament, said that his presentation would focus on what the Act required of the Committee. It must, firstly produce the Budgetary Review and Recommendations Report (BRRR) and, secondly, must advise the committees on finance and appropriations if it wished to influence the amount of funds allocated to the Department of Labour.
Mr Mkhize spelt out the five key deliverables emanating from the Act. These were, in order: the BRRR, the MTBPS, the Fiscal Framework (FF), the Division of Revenue Bill (DORB) and the Appropriation Bill. This Committee and all other portfolio committees in the National Assembly were directly involved in the first two of these five deliverables. He indicated where the BRRR and MTBPS fitted in to the budget cycle.
Mr Mkhize said that essentially this Committee must inform Parliament about the performance of the Department of Labour, by way of its BRRR, by the second week of October. There were critical questions to be asked by this Committee when compiling its report.
He noted that the qualitative question was how the Department had performed on service delivery. This would involve a cross-examination of the Department’s Strategic Plan, which set out what the Department had promised to do with the money allocated. The quantitative question was how effectively, economically and efficiently it had used the available resources, both monetary and non-monetary.
The Committee must use various tools when compiling the BRRR, which would include the State of the Nation Address, annual reports, strategic plans, quarterly report, reports of the Standing Committee on Public Accounts, where applicable, reports from the Auditor-General and the Committee’s oversight reports. Many of these were in the public domain, but some may need to be requested by the Committee’s support team from the entity producing the reports. He noted that the Committee should start to compile the BRRR as soon as the Budget Vote had been completed in March. The BRRR must be finalised, by the various portfolio committees, between 11 and 22 October. When the National Assembly had adopted the BRRR it must be referred to the Minister of Finance and the relevant Cabinet Minister.
Ms Mkhize noted that the MTBPS was presented by the Minister of Finance by the end of October. In this Statement the Minister announced the fiscal framework, as well as the money that would be available for departments, in the following February budget. Parliamentary committees on finance and appropriations must report on the MTBPS, within 30 days, and he reiterated that they should consider the BRRRs of the various portfolio committees and invite additional input from them if necessary.
After the MTBPS processes, the new financial year would begin with the announcement of the Fiscal Framework (FF). Parliament must pass the FF within 16 days, and after it was adopted it must be referred to the committees on appropriations, who in turn, must pass it within 35 days. Once the DORB had been passed it was referred to the committees on appropriations. The Appropriations Bill must be passed within four months after the start of the financial year.
After the MTBPS, the portfolio committees would, as stated before, need to submit recommendations to the finance and appropriation committees. These recommendations could seek to amend a department’s budgetary allocation, but must be based on sound reasoning. A portfolio committee could also add conditions to its recommendations. It was, however, important to remember that it would be the finance and appropriation committees who finalised the Appropriation Bill.
The committees on appropriations would have to offer sound reasons for any proposed amendments to the budget. Their reasons must include references to the strategic priorities, implications of moving money to and from divisions, the impact on service delivery, and other factors. This highlighted the importance of having a high-quality BRRR from the portfolio committees, and it was vital that any evidence included by a portfolio committee in the BRRR must be based on sound evidence. For this reason the Committee Section of Parliament had developed a template that would assist portfolio committees in compiling the BRRR. Once that proposed template had been passed by the House it would be workshopped with the portfolio committees.
Ms Rantsolase needed further clarity on the expenditure of departments. She was concerned that many departments still returned monies to National Treasury, and the effect of the non-spending on service delivery. However, she also noted that spending did not automatically mean that there was good service delivery.
Adv Jenkins responded that it was the portfolio committees’ role to monitor this, and that committees should find creative ways of ensuring that delivery did happen. He used the example of the N2 Gateway project, noting that departmental executives were required to be on site, to explain discrepancies between the statements in their reports and the perceived delivery on the ground. A committee could also invite comments from the public to verify certain claimed deliverables. Committees would have to prioritise their work in this regard because time would not always allow for such activities.
Mr Mkhize emphasised that it was important to see if there was delivery, but that looking at the quality of that project was perhaps more important, to assess whether government received value for money.
Ms Rantsolase asked if a department could change its budget and use money for reasons other than those originally indicated. She also needed to know what the possibilities were for moving unused money from one department to another department who might be able to show a greater need for funding.
Adv Jenkins said that the Minister of Finance could move money around, but only in the case of emergencies, which would have to be justified. The Minister would then adjust the budget to reflect this during the Medium Term Review. It would not happen simply because of under or over spending by one department.
Mr Mkhize added that the Public Finance Management Act (PFMA) provided guidelines and conditions for moving of monies within a department. He added that government priorities would require all departments to strive to save more and to spend less.
Ms Rantsolase asked how public participation in the budget should happen.
Adv Jenkins said that ideally the appropriate time for the public to participate in the budget would be before the final budget was published. Currently, this was not possible, because the budget remained a secret until the budget day, but that the public could currently become involved at the time of the MTBPS. He suggested that Parliament should review the entire process of public participation in the work of Parliament, in order to address the dictates of the Constitution.
Mr Louw asked what checks and balances were in place to ensure that South Africa did not end up in an adverse deficit situation, such as had happened in Greece.
Mr I Ollis (DA) said the entire exercise seemed rather academic to him. He failed to see how all the work involved could be completed within the prescribed timeframes.
Mr Ollis also felt that the idea of departments competing for money after the medium term framework was impossible, and, unless he misunderstood the purpose of the Act, they were doomed to fail.
Mr E Nyekembe (ANC) invited the presenters to comment on the link between the Act and the establishment of the two new ministries of Planning and Monitoring. He also felt that these new instruments were created to prevent the current spate of service delivery protests.
Mr Mkhize confirmed that the reports from these two ministries would form part of the research the portfolio committees would have to do as they compiled their BRRR.
Adv Jenkins stated that the fiscal position on paper should not be used as the key factor in evaluating a country’s deficit. He mentioned that position of Japan and the USA looked much worse than that of Greece, but because those states had vibrant economies they were able to service those debts. The situation would have to be assessed on the ground, and each country’s risks should be viewed independently. He added that it was the task of portfolio committees and the public at large to ensure that proper oversight was exercised over government to ensure that adverse deficit positions were not reached. The Act was created precisely so that a more planned process for service delivery was in place. This would serve to pre-empt public protests and other forms of activism. Planning and important decisions around budgets could not be dealt with ad hoc, but must be guided by proper processes, as provided for in the Act.
Mr Mkhize added that the size of the deficit was influenced by several factors. Government would have serious and critical needs to fund certain projects. At times, such projects could not wait, which would force government to borrow. The macro economic policy of the country also reviewed the risks attached to debt and the issues around the deficit, the prospects for collecting revenue, and the risks in loss of revenue. He noted that all this meant that measures were in place to manage the deficit effectively.
Mr Mkhize stated that the government was aware of the onerous nature of the deliverables under this Act. For this reason, the Act foresaw the establishment of the Parliamentary Budget Office (PBO), which, together with the research units, would have to be capacitated to fulfil all the tasks involved with this Act.
Ms F Khumalo (ANC) wanted to check if the Act allowed any flexibility and how it would apply in the event of any delays at any stage of the process.
Mr Mkhize said that the Act was not flexible on the deliverables, and these were not able to be changed. He said that certain steps were required within the financial cycle.
Ms Rantsolase asked for further clarity on a department’s ability to shift unused monies around, and whether the Act allows for shifting of funds between departments over the three year term.
Mr Mkhize stated that the PFMA did not give the Minister of Finance the right to move monies from one department to another. It merely provided for any unused funds be returned by the department concerned to the National Treasury, following which they would be re-appropriated. During the budget vote, departments were expected to tender for the use of any monies that were returned to Treasury. Parliament believed in a corrective strategy rather than a punitive one. Removing funds from an underperforming department may further affect service delivery.
The Chairperson needed more clarity on the timeframes given to the committees of finance and appropriations to respond to the recommendations made by the portfolio committees.
Mr Mkhize confirmed that these committees only had 16 days to respond to the Fiscal Framework, which meant that the portfolio committees would need to make their submissions to the finance committee within tis 16-day period. The appropriations committee had four months to finalise their report. That would give the portfolio committees an idea of when to submit their recommendations. The Act did not state explicitly when the portfolio committees must submit their recommendations on the Appropriation Bill, but Parliament must develop rules to advise portfolio committees on the timeframes, in order to provide clear guidelines for the various committees to work together to meet the timeframes and procedural requirements of the Act.
Adv Jenkins said that the question about the delays in the process was a difficult one. He reiterated that the timeframes set out in the Act were purposely not flexible, in order to ensure that Parliament could get through the work of preparing the budget. However, within reason, there was some scope for departure. For instance, should delays be caused by issues that did not substantively alter the process, then there should be no problem. For example, if the Act stipulated that public participation must take place, then such participation could not be excluded from the process. Should delays be caused whilst the process continued to follow all the steps according to the Act, there would be no legal problem.
Ms Rantsolase asked clarity on where the country fitted into the global economy. She was not sure if the country was viewed as a developing state or not.
Adv Jenkins said that South Africa, and five other states, was still regarded a developing state but that it did not fall under the list of least-developed states. Therefore it could not seek the same assistance for debt relief as could some other African states or lesser developed countries.
Mr Mkhize confirmed that South Africa had formed alliances with the other developing states in order to advance the economies of such states.
The meeting was adjourned.
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