Financial Management of Parliament Amendment Bill [B-2013]: public hearings

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Finance Standing Committee

22 July 2013
Chairperson: Mr T Mufamadi (ANC)
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Meeting Summary

The Committee held its public hearings on the Financial Management of Parliament Amendment Bill with, from among the stakeholders, only the Financial and Fiscal Commission present. The Auditor-General of South Africa and the Western Cape Provincial Treasury had submitted written comments

The Financial and Fiscal Commission explained that it would provide its written submission by the following day. The document still had to be signed by the Commission's Acting Chairperson, who was travelling.

The Commission fully supported the decision to deal with provincial legislatures in terms of uniform national legislation rather than the assignment of such powers to provincial legislatures. However, the Commission thought that the Bill's provisions for the updating of regulations, the hierarchy of legislation, and intervention were not yet clear and might need to be refined.

The Commission pointed out that it was not clear in the Act who was the custodian assigned powers to review regulations regularly to ensure that regulations were up to date. It was not clear in terms of the regulations who would regulate the balance between minimum reporting standards and the province's own focus. Furthermore, the Commission was mindful of the upcoming review of the Public Finance Management Act (No 1 of 1999). When that review actually happened, there would need to be an authority to review this in the light of other changes and new focus areas.

The Commission pointed out that the provincial legislatures' financial statements were part of consolidated provincial financial statements. What happened if there were conflicts between the regulations of this Act and regulations that might obtain in a province, especially regulations that provincial treasuries might have passed in a particular province? It was not clear how the hierarchy of regulations was dealt with and when there were conflicts, how these conflicts were to be resolved and coordination achieved. This Act had a slightly different definition of unauthorised expenditure from that given in the Public Finance Management Act and there were surely many other slight differences.

The Commission was not sure, under this Draft Bill, what happened when a provincial legislature could not or would not fulfil its responsibility. Who was to act in terms of this Act? Was it the provincial legislature, National Treasury, or Parliament?

DA Members wanted the Commission's views on how to solve these problems and asked about the time frames. Should not the review of the Public Finance Management Act come first? When the legal advisers responded formally they should perhaps include the precedent when it came to triggering Section 100 interventions and whether Section 100 had ever been applicable to legislatures. DA Members proposed inviting the Speaker of the National Assembly, the Chairperson of the National Council of Provinces, and the Secretary to Parliament, and perhaps even the internal and external audit committees, to join the meeting on 30 July when the legal advisers would report back.

A COPE Member noted that this amendment could not change the Constitution.

ANC Members wanted the Commission's sound advice on its three main points - updating of regulations, the hierarchy of legislation, and intervention. There was a question around how the Bill affected traditional leadership. Had the Commission applied its mind to this subject? The Commission seemed to have a problem with the norms and standards. The provincial legislatures were required to adhere to the norms and standards in the Schedule of the Act. What was the Commission's problem? The amendment was merely saying what the provincial legislature would do based on the norms and standards set in the Act. As to the updating of regulations, the Act itself made provision for an oversight mechanism. Members were not satisfied with the Commission's further explanation. If one looked at the oversight mechanism itself, it did have the commonality that the Commission spoke about. It examined the annual report and was an instrument that was applicable generally. For this reason one did not understand the Commission's reservations.

The Senior Parliamentary Legal Adviser said that Section 100 of the Constitution applied to provincial executives not to provincial legislatures. He wanted the Commission to give clarity.

The Commission undertook to elaborate in its written submission that was still to be finalised. There were two broad options. Firstly, Parliament could take it upon itself to update regulations for the sector as a whole. This would entail substantial capacity, resources and effort. The second option would be to limit, for example, Sections 65 and 66, to Parliament's executive authority only, and deal with norms and standards of provincial legislatures separately. Ideally one would complete the review of the Public Finance Management Act first but it could be a long time in the offing.

The Senior Parliamentary Legal Adviser reminded the Committee that it must consult the Minister of Finance if it intended to introduce a Draft Bill to amend the Public Finance Management Act.
 
The Chairperson was concerned at the poor response to Parliament's invitation to participate. This was a matter of concern. Parliament had given stakeholders more than two weeks to respond. He agreed that the Speaker of the National Assembly, the Chairperson of the National Council of Provinces, and the Secretary to Parliament should be formally invited either to make written submissions or present their submissions in person. 

Meeting report

Introduction
The Chairperson welcomed Members, who were entering exciting times. He welcomed also the Financial and Fiscal Commission (FFC), and noted that it had not given a written submission and would instead be giving its comments orally, supplemented by a brief presentation.

Ms Tania Ajam, FFC Commissioner, explained that the FFC would provide its written submission by the following day.

The Chairperson asked why the delay.

Ms Ajam replied that the document still had to be signed by the FFC's Acting Chairperson, Mr Bongani Khumalo, who was travelling.

The Chairperson observed that the Minister had confirmed that Mr Khumalo was performing his duties in an acting capacity again.

Financial and Fiscal Commission Presentation
Ms Ajam said that the FFC fully supported the decision to deal with provincial legislatures in terms of uniform national legislation rather than the assignment of such powers to provincial legislatures. However, the FFC wished to raise three issues on uniform norms and standards.

Updating of regulations
There were certain areas in the Bill that were not yet clear to the FFC and might need to be refined. The first related to updating of regulations. Strategic and Annual Performance Plan formats changed from year to year, and new issues came to the fore, such as information technology (IT) and cyber crime. So when one considered financial regulations, one found that they tended to be updated fairly frequently as circumstances and accounting standards changed.

It was not clear who was the custodian in the Act assigned powers to review regulations regularly to ensure that regulations were up to date.

In particular there were nine provincial legislatures. When one dealt with a sector, there would obviously be core functions that would be common to all provincial legislatures in their law making, oversight and representative functions, and then there would be other specific provincial priorities. To the FFC it was not clear in terms of the regulations who would regulate the balance between minimum reporting standards and the province's own focus. This point was quite important because provincial legislatures did get audited by the Auditor-Genera of South Africa (AGSA) in terms of the audits of predetermined objectives. Having those standards and having them updated was therefore very important.

Furthermore, FFC had been informed by the National Treasury, as had the Committee, of the upcoming review of the Public Finance Management Act (No. 1 of 1999) (PFMA). So when that review actually happened, there would need to be an authority to review this in the light of other changes and new focus areas.

Hierarchy of legislation
The second set of questions was that provincial legislatures had obviously to comply with obligations in this Act but they were also part of provincial governments. The legislatures' financial statements were part of consolidated provincial financial statements. So it had to be asked what happened if there were conflicts between the regulations of this Act and regulations that might obtain in a province, especially regulations that provincial treasuries may have passed in a particular province. It was not clear how the hierarchy of regulations was dealt with and when there were conflicts, how were these conflicts to be resolved and coordination achieved. To give an example, if one looked at this Act, it had a slightly different definition of unauthorised expenditure from that given in the PFMA. She was sure that there were many other slight differences. It had to be asked what mechanism one put in to ensure that there was constant coordination so that it was clear to provincial legislatures that how they needed to respond to both the national obligations and to provincial obligations.

Intervention
The third and final point that the FFC wished to table was that Section 100 of the Constitution was very clear on the procedures, roles and responsibilities if a provincial legislature failed to fulfil its responsibilities in terms of the PFMA.  Under this Draft Bill it was not clear to the FFC what happened when a provincial legislature could not or would not fulfil its responsibility. Who was to act in terms of this Act? Was it the provincial legislature, National Treasury, or Parliament? That situation under the PFMA was no longer clear and there needed to be an 'analogous mechanism' to deal with those issues.

Discussion
Mr T Harris (DA) agreed that the above were legitimate questions. However, it would be useful to have the FFC's views on how to solve these problems. What was the range of options and which would the FFC suggest as the right approach. This would help Members to solve each of the problems that the FFC had identified.

Mr D van Rooyen (ANC) wanted the FFC's take on each of the points that it had raised. With the FFC's statutory mandate, it was very important for Members to hear the FFC's sound advice on the three main points raised.

Mr D Ross (DA) asked about the time frames. There was a date set for 09 September 2013. Was Parliament still on track in terms of reporting back on that date?

He asked about the review of the PFMA and about legislatures which needed to comply with this Act. Was one putting the cart before the horse? Should not the review of the PFMA come first?

Adv Frank Jenkins, Senior Parliamentary Legal Adviser, said that there was a reference, in the FFC's third point, to Section 100. The PFMA did not have 100 Sections. The reference must be to the Constitution, and Section 100 of the Constitution applied to provincial executives not to provincial legislatures. He wanted the FFC to give clarity. 

Commissioner Ajam undertook to elaborate on possible options in the FFC's written submission that was still to be finalised.

There were two broad options.

Firstly, Parliament could take it upon itself to update regulations for the sector as a whole. This would entail substantial capacity, resources and effort.

The second option would be to limit, for example, Sections 65 and 66, to Parliament's executive authority only, and deal with norms and standards of provincial legislatures separately.

Making that decision would clarify at least points one and two.

In an ideal world, one would complete the review of the PFMA first. However, one had been hearing about the review of the PFMA for six or seven years. She wondered if Members had more information than she had on when this review might materialise. It could be a long time in the offing.

She confirmed that she had referred to Section 100 of the Constitution. This spoke about when there was an executive obligation that was not fulfilled. The provincial legislatures fell under the PFMA and when they failed to fulfil an executive obligation it would be National Treasury as custodian and provincial treasuries that needed to ensure that provincial legislatures conformed.

Once those norms and standards were taken out of the PFMA, and put into this Act, the question was, it was not clear to the FFC what happened in this situation when a provincial legislature 'serially' and materially failed to fulfil the obligations of this Act in terms of financial management.

Adv Jenkins pointed out that this Amendment Bill could not amend the Constitution. Moreover, Section 100 of the Constitution did not pertain to provincial legislatures. He would deal with this in more detail in the responses.

Commissioner Ajam said that the current practice was that if a provincial legislature was to fail to observe the PFMA, provincial treasuries and National Treasury would step in. Clearly that would not be the case under the new legislation. Therefore, under the amended Act, who would step in? She asked if her question made sense.

The Chairperson asked the secretariat to put this on record.

Mr N Koornhof (COPE) understood that Government still stepped in terms of Section 100 of the Constitution. This amendment could not change the Constitution.

Mr Harris said that there was perhaps a distinction between the provincial administration as referred to in Section 100 of the Constitution and the provincial legislature. He did not know if Section 100 had ever been invoked to have an intervention into a legislature. However, perhaps the intention of the Constitution was not to govern legislatures but just the administration, with the legislatures being seen as separate.

Commissioner Ajam said that it was important to clarify whether the existing procedure still obtained given this new legislation or whether there was any change consequent to passing the legislation.

Mr Harris said that when the legal advisers responded formally they should perhaps include the precedent when it came to triggering Section 100 interventions and whether it had ever been applicable to legislatures.
He sensed that the FFC considered that legislatures were included in administrations, whereas the Senior Parliamentary Legal Adviser's view was that Section 100 did not apply to legislatures because legislatures were not included in administrations. He did not know if this had ever been tested or if it was a simple matter of interpretation of the Constitution.

Mr Van Rooyen said that there was a question around how the Bill affected traditional leadership. He was not sure if the FFC had applied its mind to this subject.

Commissioner Ajam was not in a position to answer. The FFC had not fully applied its mind to the question of traditional leadership. She would confer with her colleagues and see if the FFC could add something to its written submission.

Ms Z Dlamini-Dubazana (ANC) observed that the FFC seemed to have a problem with the norms and standards. The provincial legislatures were required to adhere to the norms and standards in the Schedule of the Act. What was the FFC’s problem? The amendment was merely saying what the provincial legislature would do based on the norms and standards set in the Act.

As to the updating of regulations, the Act itself made provision for an oversight mechanism. Was the FFC suggesting something over and above what was stated in that provision for an oversight mechanism? Did the FFC have a problem with who was going to regulate?

Commissioner Ajam replied that the FFC had no objection to the provincial legislatures’ compliance with norms and standards. The FFC actually thought it was a good thing. However, it was concerned that these norms and standards needed to be updated regularly. The norms and standards also needed to be coordinated with the PFMA regularly. The FFC wanted to clarify who would be the agent who would be updating those norms and coordinating them on a regular basis. It was a question of clarity rather than the FFC's having a problem with provincial legislatures adhering to norms per se.

As to the issue of whether the oversight mechanism solved the problem of programme performance information, she pointed out that the oversight mechanisms examined individual institutions and exercised oversight. However, for the provincial legislatures there needed to be certain commonalities and minimum reporting standards. So it had to be asked who determined those minimum standards across all the provincial legislatures. This excluded looking at how an individual legislature responded, but rather looked at the matter from the perspective of the legislative sector. She asked if her response made sense.

Ms Dlamini-Dubazana replied that it did not. If one looked at the oversight per se, it did have the commonality that Commissioner Ajam spoke about. It examined the annual report and was an instrument that was applicable generally. For this reason she did not understand the FFC's reservations.

Commissioner Ajam gave a practical example. If one considered public participation, one would see that all the provincial legislatures practised public participation. However, somewhere in the annual report and in the strategic plan, there would have to be a measure of what constituted public participation. Ideally, one would want comparable measures across all the nine legislatures. This meant that the definition of public participation must be broadly similar. It had to be asked what constituted public participation. Would radio and television [coverage] be considered, 'or would it just be in person?' In order to obtain a sector benchmark view there would need to be a few indicators that were actually comparable across all legislatures. She was not certain if Members understood that oversight mechanisms were going to be doing that across legislative sector coordination, because, from reading the Act, her impression was that each oversight mechanism was in each provincial legislature, and Parliament would focus on each individual institution rather than on standards for the sector as a whole. She suggested that this practical example might help to give Members clarity. 

The Chairperson thought that for purposes of this submission, the Committee had to a certain extent interacted with it. However, he wanted to point out that this meeting was supposed to be a public hearing. However, there was very little public interest in the role of Parliament in financial management, as demonstrated by the poor response to Parliament's invitation to participate. This was a matter of concern.

Similarly, the following day was supposed to be a public hearing on the Banks Amendment Bill [B43-2012] and the Rates and Monetary Amounts and Amendment of Revenue Laws Bill [B12-2013]. Yet the Committee had received no submissions at all on the Banks Amendment Bill. Only two had been received on the Rates and Monetary Amounts and Amendment of Revenue Laws Bill. Yet even those who had made submissions were not intending to attend and participate in the hearings in person. He had therefore agreed to the request of National Treasury to bring forward its informal briefing on the Draft Taxation Laws Amendment Bill (TLAB) [B -2013] and the Draft Tax Administration Laws Amendment Bill (TALAB) [B -2013], but first wanted Members to confirm their agreement.

Members indicated their agreement by their silence.

In terms of the first submission that the FFC had just made, he wanted to remind Members that the Committee would meet again on 30 July to receive a report-back briefing on submissions by the Committee's legal team. Then on 31 July the Committee would meet to consider and adopt its report.

Thus, for Members there was still space for further engagement, but there would be no further public hearings on this subject.

Mr Harris said that the Bill set out to do two sets of things. The one was to govern the financial management of the provincial legislatures. He thought that the Committee had enough to work on, in terms of submissions, in respect to that side of the Bill. The second aim, however, regulated Parliament's own financial management. Here he thought that there were very few interested parties among members of the public that would have comments on how Parliament managed its own internal affairs. He proposed inviting the Speaker of the National Assembly, the Chairperson of the National Council of Provinces (NCOP), and the Secretary to Parliament, and perhaps even the internal and external audit committees, to join the meeting on 30 July. What was needed was input from the people who currently ran the financial management of Parliament. Without that input, one was really operating in a vacuum, as there had been no comments whatsoever on that aspect of the Bill.

Ms Dlamini-Dubazana did not have a problem with this proposal, but wondered if the Committee had enough time to give the Speaker of the National Assembly, the Chairperson of the NCOP, the Secretary to Parliament, and the internal and external audit committees sufficient notice. The Committee did not know the schedule of the Speaker and the Chairperson of the NCOP. She suggested a formal invitation, and then the Committee could see the response and, on that basis, take the matter further.

The Chairperson thought that the principle was in place. It was just the logistics that had to be resolved. He said that those officials could either make written submissions, or present their submissions in person. He would take the matter forward with the Committee's secretariat.

Members agreed.

Mr Harris asked on which Bills the National Treasury wished to brief the Committee the following day.

The Chairperson replied that the agenda was National Treasury and South African Revenue Service (SARS) informal briefing on the Draft Taxation Laws Amendment Bill (TLAB) [B -2013] and the Draft Tax Administration Laws Amendment Bill (TALAB) [B -2013]. 

Mr Harris asked if the Committee was satisfied that the normal process of advertising the public hearings was done adequately enough and in sufficient time.

Mr Allan Wicomb, Committee Secretary, replied that the advertisement for the public hearings had been submitted to national newspapers on 05 July 2013. This gave stakeholders more than two weeks. It was Parliament's norm to give stakeholders at least two weeks in which to comment. The Committee had adhered to this norm.

Adv Jenkins reminded Mr Wicomb that the Committee must consult the Minister of Finance if it intended to introduce a Draft Bill to amend the PFMA. There was also provision that if that Draft Bill dealt with withholding money from a national or provincial revenue fund it was necessary to obtain the Minister's consent. He had drafted a letter and had sent it to the Committee, but he was not sure how the Committee wanted to deal with it. From his side, in terms of procedural issues, it was necessary to send this letter before introducing a Draft Bill and reporting to the National Assembly.

The Chairperson noted this, and adjourned the meeting.  

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