Financial Management of Parliament Act review; Proposed fiscal framework: Committee's Report

Meeting report

Introduction
Mr D van Rooyen (ANC), as Acting Chairperson, opened the meeting, on account of the delayed arrival of the Chairperson. He explained that this was not the first time that the Committee had been asked to review an Act. It had recently tabled a report on the Money Bills Amendment Procedure and Related Matters Act (No. 9 of 2009).

Financial Management of Parliament Act review process
Adv Frank Jenkins, Senior Parliamentary Legal Adviser, gave a progress report of what had been done so far under the auspices of the Speakers' Forum on the review of the Financial Management of Parliament Act [No 10 of 2009].

Background
Due to certain technical challenges in the implementation of the Financial Management of Parliament Act, the National Assembly had resolved on 20 September 2012 that the Committee must evaluate the application of the Act, including those provisions relating to provincial legislatures and time frames associated with various reporting mechanisms, to take account of the work of the Speakers' Forum, and report to the National Assembly by 22 November 2012.

Summary of proposed amendments
There were four areas relating to the National Assembly's 20 September 2012 resolution. Firstly there was the problem with the implementation of the oversight mechanism (Section 4 of the Act). The second was the application to the provincial legislatures and framework for their financial management (Constitutional Court judgement). Thirdly, there was the issue of the adjustments budget procedure in respect of Parliament's own funds (Section 17). Fourthly, there were issues around the timing of the tabling of the annual report Sections 59, 60 and 62).

The oversight mechanism (Section 4)
The proposed amendment of Section 4 was to allow the existing governance structures to fulfill the role of the oversight mechanism contemplated by the Act. The amendment was to remove restriction on membership of executive authority (EO) and deputies so that the existing Parliamentary Oversight Authority (POA) could fulfill the functions of the oversight mechanism. The effect would be to allow any Member to be part of oversight mechanism, subject to the Joint Rules. The oversight mechanism must be open to the public as any other committee. (See slide 4).

Adv Jenkins commented that the Act required that Parliament establish an oversight mechanism to maintain oversight over the financial management of Parliament. Various instruments were required to be referred to the oversight mechanism. The adjustments budget should have, in terms of the Act, been so referred.

The executive authority – the Speaker of the National Assembly and the Chairperson of the National Council of Provinces (NCOP) acting jointly – was responsible to the Houses for the financial management of Parliament. That responsibility was then placed on the Accounting Officer, similar to the way in which the Public Finance Management Act (No. 1 of 1999) (PFMA) placed responsibility on the accounting officer of a government department. In the case of Parliament, the accounting officer was the Secretary to Parliament, or a person acting as accounting officer.

Since 2009, however, the oversight mechanism had not been established. The Auditor-General referred to this constantly. The reason was that Parliament had a governance structure – the parliamentary oversight authority (POA, which, in effect, did the work of the oversight mechanism, but the two could not be aligned, for the simple reason that Section 4 of the Act said that the executive authority, or deputy speaker of the National Assembly or the permanent deputy chairperson of the NCOP might not be members of the oversight mechanism. As Members would be aware, the POA was chaired by the Speaker of the National Assembly and Chairperson of the NCOP. So the idea of the amendment was to allow Parliament to decide to use the POA as its oversight mechanism. In terms of the Act, the membership must be determined in terms of the Joint Rules. So there was some work to be done if this amendment was accepted. It would certainly allow Parliament the option to use the POA as its oversight mechanism. The POA was composed of the senior whips of all the parties as well as the presiding officers and their deputies. The Secretary of Parliament served on the POA ex officio. The Speaker of the National Assembly and the Chairperson of the NCOP chaired it jointly.

There had been discussion on these issues and governance matters had arisen. Section 4 of the Act required that the oversight mechanism must maintain oversight by considering, among other things, instructions issued by the executive authority in terms of Section 37(5). This Section spoke of directives with financial implications. These were usually directives to the accounting officer that he or she must please do something, although funds had not been budgeted or allocated. An example would be security issues around the State of the Nation Address. The accounting officer must then inform the executive authority that this might be unauthorised (not budgeted for) and would need to be approved specifically. The executive authority would then approve it specifically. However, that approval must be sent to the oversight mechanism. The question then arose, that if the oversight mechanism must consider these issues, there might be an issue of governance around who would chair the oversight mechanism, for example, if the POA were to chair the oversight mechanism. These issues could be addressed within this Act itself. Schedule 2 spoke to conflicts of interest and good governance. There was an obligation on the executive authority to implement good governance principles. Also the Joint Rules could establish certain areas, and would apply if a Member of Parliament needed to disclose a conflict of interest. Schedule 4 looked at annual reports submitted in terms of Section 60, and instructions issued by the executive authority in terms of Section 66. Those were instructions concerning the implementation of the Act where there was a lacuna [gap], in which case the executive authority had to fill the gap with an instruction. This was similar to a regulation or Treasury Circular.

This amendment would allow enough flexibility for Parliament to use its present governance structures to implement the Act, rather than have to establish another committee to exercise oversight over Parliament. If one did establish another committee then it would be necessary to reconsider the value of the POA and whether it was necessary to have both a POA and an oversight mechanism.

Application to provincial legislatures
Parliament was required to report to the Constitutional Court by 09 September 2013 on the implementation of the Constitutional Court's order in the matter of the Premier: Limpopo Province versus the Speaker of the Limpopo Provincial Legislature. A provincial legislature was competent to legislate its own financial management only if this had been expressly assigned to it by national legislation – the FMPA, however, was not doing this. The Speakers' Forum had taken a decision to include provincial legislatures in the FMPA. The proposed amendment was to omit ineffective Sections and insert a section to make provisions applicable to provincial legislatures similar to the Powers, Privileges and Immunities of Parliament and Provincial Legislatures Act (No. 4 of 2004). Parliament must report to the Constitutional Court (ConCourt) by 09 September 2013.

Adv Jenkins commented that the Premier of Limpopo was also the speaker of the Limpopo provincial legislature. The Constitutional Court had found that provincial legislatures lacked the competency to prepare their own financial management legislation. The only way in which they could achieve that competency was if Parliament assigned such competency to them, in other words, if Parliament were to amend the Act to give the provincial legislatures the authority to pass their own legislation to provide for their own financial management. The Constitutional Court had ruled that the Act at present did not provide that authority. The Speakers' Forum of South Africa [a voluntary association which operated as a separate legal person distinct from its members and was composed of the Speaker and Deputy Speaker of the National Assembly, the Chairperson and Deputy Chairperson of the National Council of Provinces (NCOP) and the Speakers and Deputy Speakers of all nine Provincial Legislatures] had recommended amending the Act to provide that authority.

There had been discussions in the Legal Advisers' Forum (LAF) which reported to the Secretaries' Association of the Legislatures of South Africa (SALSA). It had been agreed to include a new Section 2 which would read to the effect that 'Speaker' or 'Chairperson' would also mean speaker of a provincial legislature. When talking of 'accounting officer' one would also mean the secretary of a provincial legislature. When speaking of the National Revenue Fund one would be speaking of the provincial revenue fund. This was similar to the way in which the Powers, Privileges and Immunities of Parliament and Provincial Legislatures Act (No. 4 of 2004) was set out.

Parliament must report to the Constitutional Court by 09 September 2013.
There was clearly a concern that certain provinces did have legislation, but such legislation had been declared unconstitutional. However, that declaration of unconstitutionality had been suspended to allow Parliament to put in a new framework in the Act so that provincial legislatures would know how to handle their financial management. This was the main reason for amending the Act.

Adjustments budget procedure in respect of Parliament's own funds (Section 17)
Officials had raised concerns about the need for a procedure to deal with Parliament's own funds in the adjustments budget process. The proposed amendment was to include a procedure which had been included in the original Bill but had been removed due to Section 4's being incompatible with POA. The proposed amendment of Section 4 would open an opportunity to deal with procedure in the POA, as oversight mechanism.

Adv Jenkins commented that he had given a briefing to the Secretariat last week on these issues. These were discussion issues, not hard and fast issues that must be amended. However, during the process of trying to submit Parliament’s adjustments budget, the National Treasury had said that there was no adjustment to Parliament’s funds. All that Parliament had to do was to reallocate its unspent funds. However, Parliament wanted to include them in its Consolidated Adjustments Budget so that they came before Parliament as part of the Adjustments Appropriations Bill. The Act was rather silent on how that process worked. He proposed that there was a part in the previous Section 17 that indicated how Parliament must deal with its adjustments budget, including how do deal with unspent funds, and submit the budget to the National Treasury. This clarified the issue a little. This needed to be discussed with National Treasury. It was a provision in the original Financial Management of Parliament Bill, but it had been taken out, simply because at that stage the POA had dealt with those issues and it was accepted that the POA would not have a role in terms of the Act. There was a need to bring those issues back into the Act.

Tabling of annual report
An amendment was proposed to allow the executive authority (the Speaker of the National Assembly and the Chairperson of the National Council of Provinces) the same amount of time to consider the annual report submitted by the accounting officer (AO) (the Secretary of Parliament) before tabling it to Parliament as allowed by the Public Finance Management Act (No. 1 of 1999) (PFMA) to the executive authorities (ministers) of Government departments to consider the annual reports submitted by their accounting officers (directors-general).

At present, in terms of Section 59, the AO must submit the annual report to the EA so that the latter could table it in Parliament within five months of the financial year end.

In terms of Section 60, the EA must table the annual report within five days of receiving it. The PFMA allowed the AO of a department to submit the annual report to the EA within five months of financial year end (S. 40(1)(d)) and the EO to submit it to Parliament within one month of AO's receiving the audit report (S. 65(1)(a)).
 
The proposed amendment to Sections 59, 60 and 62 were to make the FMPA similar to the PFMA.

Adv Jenkins did not see any serious problems with the amendments. When one compared the PFMA with Parliament’s financial management, it seemed that Parliament was punished by one month, as government departments were allowed more time. It was an incongruity and inconsistency.

Conclusion: how the process should be taken forward
The amendment bill would be drafted by the Constitutional and Legal Services Office (CLSO) unless< the Committee decided otherwise. The process would allow officials the opportunity to address the Act's challenges. The process must be public, as any other legislative process in the National Assembly.
Adv Jenkins suggested a workshop, with inputs from the provinces, specifically, also with National Treasury, the Auditor-General, and the Secretary of Parliament, before taking the process to the NCOP. He wanted a completed product for the National Assembly in giving effect to the resolution. This was to be prior to drafting the amendment bill. Usually when a committee drafted a bill, the public participation would happen before the draft bill was introduced, because once the draft bill was introduced, there was no need to refer it back to the same committee. So he recommended public participation, as well as the consultation with the stakeholders, to finalise that draft bill, and then report to the House. It had been a similar process when this Committee had drafted the original Financial Management of Parliament Bill.

Discussion
The Acting Chairperson said that Adv Jenkins' recommendations indicated that the Committee needed more time to understand the review process.

Mr T Harris (DA) supported Adv Jenkins' proposals. It was important to hold public hearings, and to consult the Auditor-General, and Parliament through the Secretary of Parliament. In the light of the Constitutional Court case, it was necessary to confer with the provincial legislatures and with the provincial executives.

Mr Harris said that there must have been a reason for the Act's separation of the oversight mechanism from the POA. He sought Adv Jenkins' opinion on any possible conflicts of interest that might arise if the separation was abandoned.

Mr Harris asked for more information on how the financial management of provincial legislatures was conducted currently. How would the amendment change the day-to-day running of the legislatures?

In the light of the Constitutional Court case, would it be sufficient just to apply the Act to the provincial legislatures? Was there any risk that the Court might say that simply applying the Act to the provincial legislatures did not go far enough?

The Acting Chairperson asked Members to confine themselves to clarity-seeking questions.

Ms Z Dlamini-Dubazana (ANC) asked for a clear definition of the respective functions of the oversight mechanism and the POA.

Ms Dlamini-Dubazana thought that it was a matter of urgency to complete the amendment.

Ms Dlamini-Dubazana asked if the speakers of the provincial legislatures would attend the public hearings.

Ms J Tshabalala (ANC) asked what would have to be done to ensure compliance with the September 2013 deadline. She supported the idea of a workshop before the public hearings.

Mr D Ross (DA) asked if the POA would be more inclusive, and who would be represented. Would it be negated by the oversight mechanism, or was the latter merely the administrative wing of the POA?

Response
Adv Jenkins explained the situation before the Financial Management of Parliament Act. There had been the Exchequer Act (No. 66 of 1975), which had been largely repealed by the Public Finance Management Act (No. 1 of 1999) (PFMA). There was also the Powers and Privileges of Parliament Act (No. 91 of 1963), which also had certain financial issues. The need for the Financial Management of Parliament Act was that it was realised that Parliament itself did not have any kind of detail on how it needed to regulate its finances after the coming of democracy in 1994. There had been a long discussion with the National Treasury on whether the PFMA applied as a whole to Parliament. The answer was that it did not. There were only certain Sections which applied to it, such as submitting monthly statements and annual budgets for consolidation. In the meantime, the provincial legislatures had nothing in the way of guidelines, and had therefore sought to apply the spirit of the PFMA and report to their provincial treasuries. In law this was wrong. Therefore Parliament passed the FMPA, and gave guidelines to provincial legislatures on how to make their own financial management legislation.

According to an earlier legal opinion, provincial legislatures were competent to make their own financial management legislation, while Parliament was not competent to prescribe to provincial legislatures. Various provinces therefore passed their own legislation. The North West was the first. The Western Cape was waiting for the outcome of the Limpopo Constitutional Court case.

A more recent legal opinion differed from the earlier opinion. Parliament went to the Constitutional Court and said that provinces did not in fact have the power to pass their own financial management legislation. The Court eventually agreed with the speaker of the Limpopo provincial legislature that provincial legislatures did not have the power to make legislation to govern their financial arrangements. They could, however, make policy, but it must be based on national, not provincial legislation. Parliament had told the Constitutional Court that if the Court declared the passing of financial management legislation by provincial legislatures unconstitutional, there would be a huge gap, because the PFMA did not provide enough structure and framework for provincial legislatures to do their own financial management. Therefore the Court said that there would be a suspension of 18 months, by which time Parliament must report back to the Court. This was the crux of the Court judgement. It applied only to the legislatures. There was no implication for service delivery as such. However, if a provincial legislature, through financial constraints, was not able to exercise proper oversight, then there would be an indirect affect on service delivery.

Whether application of the Act to provincial legislatures would be sufficient was a question that would have to be discussed with provincial legislatures. The amendment bill would be Section 76 legislation. He suggested addressing an invitation to provincial legislatures. Each legislature would have to have an internal audit unit, which would be expensive. This would have to be discussed. There would also have to be an audit committee. Perhaps two or more provinces could share an audit committee.

If one moved from an oversight mechanism to a POA, the latter needed to change. It would need to be contained in the Joint Rules. Secondly the POA would be fulfilling one of the four fundamental functions of Parliament – legislation, oversight, international agreements, and public participation. Therefore the POA must be an open and transparent mechanism. At present the POA conducted closed meetings. Its membership would need to be contained in the Joint Rules. There were some overlaps of functions, and some differences, that needed to be resolved. All these issues needed to be discussed properly in a workshop. There had been some disjuncture between the establishment of the POA and the drafting of the FMPA.

The Acting Chairperson said that on 20 November the progress report on how the Committee would approach to amendment process would be ready for the Committee to consider before adoption and tabling to the House. It was important for Parliament to have its own effective oversight mechanism to encourage those which it oversaw to perfect their work. He welcomed Mr T Mufamadi (ANC), Chairperson.  

Proposed fiscal framework: Committee's Report - consideration
The Chairperson said that the Committee Secretary had sent copies of the Committee's draft report on the proposed fiscal framework to Members by email the previous night. He gave Members ten minutes to read the report with a focus on the recommendations rather than the grammar, which could be dealt with by others.

Mr Harris noted firstly that the draft report's title referred to the MTBPS rather than the proposed fiscal framework. This must be corrected.

Mr Harris was concerned that unless the Committee itself made grammatical changes, they might not be made, and the report might reflect badly on the Committee when it was made public.

The Chairperson accepted Mr Harris' concern. It would not take long to go through the report page by page.

Mr Harris requested that more care be taken with the drafting. He corrected errors in the last paragraph on the first page.

Mr Ross was not sure what was meant by 'fiscal review'. Energy pricing policy was a competence of the Department of Energy. He fully agreed on the need to interact with the Department.

Mr Harris proposed deleting 'fiscal review' and replacing these words with 'concern'. It was the costs that were cause for concern.

Mr Ross read that the Manufacturing Circle had said that Eskom had increased electricity costs by more than 171% between 2000 and 2010. He asked in which category this was done. Other emerging countries had decreased electricity costs. Unless this was factually correct, he would hesitate to include it. Residential tariffs had increased by 168% over three years. According to the Circle's graph, some municipalities had increased tariffs by over 700%. He would rather say that Eskom had increased electricity costs significantly between 2000 and 2010.

The Committee agreed.

Mr Harris proposed corrections to page 2. The Financial and Fiscal Commission (FFC)'s reported reference to GDP should be changed to 'GDP growth'.

Mr Harris did not think it correct to talk about the 'weakening' of employment in the USA. It would be better to say 'worsening of prospects for'.

Ms Tshabalala preferred to say that prospects of employment in the USA had 'notably weakened'.

The Committee agreed on page 2 and on page 3.

The Chairperson noted that references on page 4 to expenditure came from the MTBPS.

The Committee agreed to pages 4 and 5.

Mr Harris thought it necessary to describe, in the conclusion of the report, what the shift in the composition of spending was. He would add the words 'from consumption to investment'.

Mr Harris pointed out the incorrect use of the singular verb 'needs' after a plural subject. 'Needs' should be changed to 'need'.

The Committee agreed to page 6.

Mr Van Rooyen wanted to check the usage of 'stabilisation frames' in reference to foreign direct investment (FDI) flows (Recommendation 5.2). Was it a good projection? Was the target stabilisation itself, or a turnaround of some kind?

The Chairperson observed that one could not stabilise a decline. He suggested the word 'contain' instead of 'stabilise'.

Mr Van Rooyen agreed that 'contain' was more appropriate, as it suggested the meaning of managing the decline.

The Chairperson agreed that the word 'contain' was fine, as it suggested the prospect of an eventual turnaround.

Mr Ross referred to the Committee's observations (paragraph 4.7). 'The Government would incur increased debt of R1.7 trillion by 2015/16. He preferred to use the preposition 'to' rather than 'of'. He referred to Government's financing and debt (paragraph 2.4), where it said that the total Government net loan debt stood at R1.1 trillion in 2012/13 and was expected to peak at R1.7 trillion.

Mr Van Rooyen suggested mentioning the previous figure (from paragraph 2.4) for purposes of clarity.

Mr Ross agreed with Mr Van Rooyen and suggested including the whole sentence to prevent misunderstanding.

Ms Dlamini-Dubazana referred to paragraph 5.3. 'The National Treasury should develop and provide the Committee with a contingency plan in an event that the micro-economic variables do not result as expected in the fiscal framework.' What was the Committee's target? What was its measure?

Mr Harris suggested 'micro-economic projections' instead of 'micro-economic variables'.

The Chairperson said that what was interesting about the MTBPS was that the National Treasury had admitted, for the first time, 'if conditions deteriorate'. There had never been such a premise in a budget or MTBPS before. This admission went further to say that the situation in Europe, in particular, was very precarious.

The Chairperson asked if the Committee should, in fact, make this recommendation that 'The National Treasury should develop and provide the Committee with a contingency plan in an event that the micro-economic projections do not result as expected in the fiscal framework.' In the MTBPS itself, the Minister himself already made such an admission. He felt that the Committee should be briefed from time to time on the challenges that might impact on the MTBPS. The Committee must keep a very close watch on the developments, as part of its oversight role, but it could do that only when National Treasury was held accountable from time to time. National Treasury should brief the Committee, perhaps on a quarterly basis, on the world economic environment.

Mr Harris suggested amending the recommendations so as to include a reference to the Committee in each.

The Minister had used the phrase 'a commitment to managing overall employment in the public sector' (recommendation, 5.5). He suggested changing the recommendation to ' National Treasury should report to the Committee on Government's approach to managing overall employment and moderating expenditure on compensation of employees.' The Minister must account to the Committee on his commitment.

Ms Dlamini-Dubazana said that recommendation, paragraph 5.5, dealt specifically with the monitoring of over-spending on compensation.

Mr Harris said that the Minister had not even used the words over-spending, and so had made no commitment in that regard. What he spoke about was managing overall employment. He had notes from the Minister's speech, and that was one of the questions that he had asked. He quoted the Minister, and believed that the Minister should be held to his words. Over-spending on compensation was difficult to define.

The Chairperson discouraged Members from reacting to each other. Instead each Member should concentrate on his or her own recommendations.

The Chairperson thought that over-spending was not the correct word to use in paragraph 5.5. He explained at length. The issue was to stabilise the wage bill.

Mr Harris did not have this in his notes. He referred to page 26 of the MTBPS. He suggested cutting and pasting from the MTBPS into the Committee's recommendations.

The Chairperson wanted to decouple issues. If there was a growth in expenditure, there should be a separate recommendation.

The Chairperson wanted to make the recommendations stronger. There should be deadlines.

Ms Tshabalala thought that the National Treasury should give the Committee more detail on plans for investment in infrastructure so as to indicate how South Africa should generate a higher level of economic activity.

The Chairperson agreed with Ms Tshabalala but said that the Committee's recommendation must be confined to what was already 'here'. He referred to page 4 of the MTBPS.

Mr Harris thought that Ms Tshabalala's suggestion was good. However, the way to approach it was to ask about the actual spending on infrastructure by the state-owned entities (SOEs).

The Chairperson said that an infrastructure plan should give details of specific areas. It should include, but not be confined to SOEs.

Ms Tshabalala agreed.

The Chairperson said that the heart of the matter was how to hold National Treasury accountable to the Committee on the things that it had pronounced in these discussions. The annual plans were a separate issue. Members should send their recommendations in detail to the Committee Secretary.

Mr Harris wanted the Committee to ask National Treasury to provide projections for macro-economic figures, including debt, beyond the three-years of the Medium Term Expenditure Framework (MTEF). He understood that National Treasury was working on a longer term projection.

Mr Ross thought that it was not an unreasonable request. The build programme was a long term plan.

Mr Van Rooyen appreciated the suggestion but feared that the Committee's request would 'over-stretch' the limited capacity of the National Treasury. It was a subject for further debate.

Ms Tshabalala thought that her suggestion would lead to the National Treasury's providing the projections that Mr Harris wanted.

Mr Harris insisted that if National Treasury had done calculations on debt beyond the period of the MTEF, then the Committee should see the figures. It was a simple request.

The Chairperson referred to paragraph 5.3. He wanted to decouple the issue. National Treasury should not just develop projections for itself but must report them to the Committee periodically. As the Committee interacted with National Treasury on a regular basis, it would be able to examine such issues, rather than make a specific request that National Treasury must make projections of debt beyond the MTEF and consolidate that for the Committee.

Members, including Mr Harris, agreed that the Chairperson's suggestion made sense, but, beyond that, Mr Harris disagreed.

The Chairperson was happy that it at least made sense. Members could not spend all day discussing the report as they had to prepare for debates in the National Assembly.

The Chairperson wondered what Members could do to help the Committee Secretary. Perhaps the Committee Section could do more to assist. It was important to ensure a consistently high standard of quality in the Committee's reports. It was one of the biggest problems that this Committee had always been under-resourced.

The Report was adopted with amendments.

The meeting was adjourned.