Merchant Shipping new legislation: briefing; Financial Management of Parliament Amendment Bill: Parliamentary Legal Adviser briefing

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Finance Standing Committee

08 October 2013
Chairperson: Mr T Mufamadi (ANC)
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Meeting Summary

National Treasury briefed the Committee on the Merchant Shipping (International Public Compensation Fund) Bill [B19-2013], linked to other bills yet to be presented to Parliament, which were intended to deal with the implementation of South Africa’s international obligations under conventions, specifically the International Maritime Organisation Protocol. The Minister of Transport had introduced, and the NA had already considered the International Public Compensation Fund Bill, as well as another bill that was enacting a protocol amending the International Convention on Civil Liability for Oil Pollution Damage.  The Contributions and Administration Bills still had to be formally introduced to Parliament. The Contributions Bill would be a money bill and had to be introduced by the Minister of Finance. The Administration Bill was a section 75 Bill, not a money bill, and picked up on a number of other non-money issues. The bills all essentially were intended to deal with international funding for compensation for oil spill damage caused by oil tankers. The Civil Liability Bill, in line with the Civil Liability Convention, would oblige ship owners to take out insurance to ensure that any claims would be covered, with limited liability for ship owners in certain cases. The Convention had established the International Oil Pollution Compensation Fund (IOPC), which would pick up on any claims or damages that were not covered by the individual insurance or Civil Liability Convention and the Fund Bill was intended to prescribe for that in South Africa. The IOPC Fund collected money from contributions levied on person(s) who, in a particular calendar year, received in excess of a certain tonnage of a particular type of oil. When the bills were published for public comment, only the South African Petroleum Industry Association responded, and many of its suggestions on simplified drafting were incorporated into the Bill. However, the main issue related to how the IOPC Fund contributions operated. In most countries, the IOPC collected directly from persons in their countries. There was provision for another model, which National Treasury in South Africa (and Canada) preferred, where the state would pay contributions up front to the fund, and then would impose a levy on those who were liable to pay, to recover the funding. It was of the view that it was undesirable to encourage international organisations to come into the country to collect funds directly, in view of issues around compliance and enforcement. The levy would be determined and published by the Minister of Finance, and the determining amount was 150 000 metric tons of aggregate oil. The time period and form of returns would be covered by the Tax Administration Act. South African Revenue Services would be required to disclose certain information. Members asked for clarity on the dates, asked about the linkages between these bills, and who “persons” would cover in the bill. They asked for more detail on why South Africa had opted for the model proposed here, and asked for more explanation on why the Contributions Bill would be a money bill. Members also wanted to now what would happen should there be defaults in payment, but National Treasury pointed out that it was unlikely that the state would not be able to track this, or to verify oil being carried.

The Parliamentary Legal Advisers reported back to the Committee on what had been proposed on the draft Financial Management of Parliament Amendment Bill (FMPA), highlighting the comments by National Treasury and Auditor-General of South Africa (the AG). Having heard those comments, the Committee then raised certain points. Both commentators had said that the functions of setting up regulations, debt management and standards for budgeting must remain centralised with Parliament, but the Executive Authority had a role to play in making regulations. The amendments to section 4 were propose as a result of the research document on the composition on the oversight mechanism of Parliament. The Chairperson believed that the word “money”, as used in the draft Bill and principal Act, was not as appropriate as “funds”, but the legal advisers said that this was really a matter of choice. The new mechanism as proposed by section 18 was giving Parliament autonomy to sort out use of its public funds in the envisaged separation of powers perspective. There was quite substantial discussion on the principle behind the amendments on sections 20 and 21. With most state departments, money could not simply be rolled over to the next financial year if unused in the current year, but had to be repaid to the National Revenue Fund, and the question was whether the same situation should pertain to Parliament, or whether it would simply be able to add the money to its funding. Unspent direct charges (such as unspent salaries of members) would have to be returned. The AG, in relation to the amendments of section 34, had said that money allocated to political parties should be accounted for through submission of an audit report on those funds, and any qualifications of audit reports should result in the withholding of money. All amendments were intended to add to the transparency of Parliament’s financial management. The Financial and Fiscal Commission was in favour of keeping power to make regulations centralised with the Executive Authority of Parliament. The Chairperson was particularly worried that the “cannabilisation” of budgets might occur at provincial levels, should unspent funds be regarded as Parliamentary revenue, and cited tensions between the Executive and legislature arising out of the legislature insisting upon its autonomy in budget determination. He cautioned that it could be seen as legitimisation of fiscal dumping and said that it should not be assumed that there was good institutional capacity throughout the country. There were discussions on how the FMPA Bill linked to the Public Finance Management Act (PFMA), and the principles around separation of powers. The issue was also raised of whether, if virements were done, they should be limited to certain percentages, and who should authorise them. The suggestion was made that perhaps at provincial level, the “use it or lose it” principle might apply. The DA asked that some further proposals made by that party would still be considered. In general, the Chairperson summarised that Members seemed to be agreed on the need for a strong oversight authority, the need to bear in mind who allocated funding, and functions and roles to be clarified.

Meeting report

Draft Merchant Shipping (International Oil Pollution Compensation Fund) and Contributions and Administration Bills
Advocate Empie van Schoor, Chief Director: Legislation, National Treasury, indicated that the Contributions and Administration Bills had not been formally introduced to Parliament and were still drafts, but because the Contributions Bill  was a Money bill, it needed to be formally tabled to Parliament by the Finance Minister. She would be dealing with some background consequent to understanding the link between two Merchant Shipping Bills, which did not form part of that day's deliberations, but were being finalised by the Select Committee on Public Services on the same day. She would also take the Committee through the process regarding the two Bills up for deliberation. One key matter underlying both Bills related to how the contributions would be paid to the International Oil Pollution Compensation Fund (IOPCF) and how South African Revenue Services (SARS) would be collecting on a levy to recover those funds from those liable within the country.

Background
Advocate Van Schoor said that the Minister of Transport was promoting the Merchant Shipping (International Public Compensation Fund) Bill [B19-2013] (the Fund Bill). That Bill, together with the Contributions and Administration Bills, aimed to enact into law the International Maritime Organisation protocol of 1992 and essentially provided for international funds for compensation of oil pollution damage. The other Bill dealt with by the Minister of Transport, was the Merchant Shipping Civil Liability Convention Bill [B 20B-2013] (the Civil Liability Bill), and this aimed to enact into law a similar protocol which amended the International Convention on Civil Liability for Oil Pollution Damage. The Fund Bill and the Civil Liability Bill were introduced by the Minister of Transport in September to the National Assembly, had already been passed there, and were currently with the NCOP. Those four Bills were a package that dealt with compensation and liability for oil spill damage by oil tankers. 

The claims essentially were not against the ship owners, but the owners were compelled to take out liability insurance, to ensure that claims would be settled. There was a limited liability for ship owners, where applicable. The Select Committee responsible for transport was dealing with the Civil Liability Bill, which dealt with claims against ship owners for oil pollution. The Fund Convention was establishing the IOPC Fund, to cover for expenditure incurred or compensation for victims who were not compensated for oil pollution damage under the Civil Liability Convention. The IOPC Fund collected money from contributions levied on person(s) who, in a particular calendar year, had received more than specified metric tons of a particular type of oil.

Draft Contributions and Administration Bills
Advocate van Schoor said that these Bills had been approved by Cabinet, but had followed a very long process. In view of the length of time that had elapsed, it was thought that they needed to be published, as the approach had changed from what was initially proposed. The only comments received were from the South African Petroleum Industry Association (SAPIA): A number of comments from SAPIA, which simplified some provisions of the Bill, had been incorporated into the draft Bills.

It was possible for all four Bills to come into effect on the same date if they were adopted by Parliament, signed into law by the President, and he additionally proclaimed on them.

Underlying principles
Advocate Van Schoor said that the underlying principles for both draft Bills was that SARS collected the contributions for the IOPC fund, instead of the IOPC fund collecting directly from persons in South Africa (SA). An obligation was imposed on to the state to pay those contributions to the IOPC fund, and then there would be a levy imposed on person(s) liable to pay, to recover the funds that the state would have paid over to the IOPC fund. The model where the state paid contributions to IOPC fund was provided for in Article 14 of the Convention.

Draft Contributions Bill
Advocate van Schoor said that affected persons were those who, during a ‘tax period’ (a concept which was aligned to the definitions in the Tax Administration Act), had received crude or fuel oil in excess of 150  000 metric tons. The concept used in the Convention(s) and also in the Act was that the term ‘contributing oils’ was used as a collective for both crude and fuel oil; and that would be oil received in ports or terminal installations in SA, carried by sea to such installations.

She said that the Minister of Finance would determine the payable levy on person(s) and their associated person(s), should the aggregate oil received in SA exceed 150  000 metric tons, by notice in the Gazette. She wanted to highlight two points. Firstly, the contributions would be calculated and invoiced by the Director of the IOPC fund for that particular tax period, in terms of the formulation in the Fund Convention, similar to that around the 150 000 metric tons. Secondly, the Minister must determine the date on which the levy was due and payable. The payment of contributions invoiced by the Director of the Fund would be made to the IOPC Fund several months into the year following the liability.

Draft Administration Bill
Advocate Van Schoor said the Draft Administration  Bill contained provisions that could not be included in a money Bill, and that was why it had been brought as a section 75 Bill.

The time period and form of that return to submit the payable levy return to SARS would be determined by the provisions of the Tax Administrations Act. Details were thus not included in the Administration Bill. Instead, the payment dates were provided for in the Contributions Bill. There was also a requirement to keep certain records in terms of the Administration Bill.

Advocate Van Schoor said that SARS would also be required to disclose certain information that the state was required to submit to the IOPC Fund, in terms of the Fund Convention and Regulations. The Ministers of Finance and Transport and SARS had to give priority to the Director of the IOPC Fund over the Ministers mentioned, in submitting the required information in terms of the Fund Convention. Information that was required would include the names and addresses of persons liable to pay the levy, and also details of the particular oil received in the previous tax period; the dates of which were stipulated in the Fund Convention.

Discussion
The Chairperson reminded members that the briefing was informal, in part because of the number of pieces of legislation that had to be produced. Due process would be followed in future for more formal processes.

Ms J Tshabalala (ANC) asked for clarity on whether the envisaged date for the tabling of the Contributions Bill was the 24 October 2013, or 2014.

Ms Tshabalala asked about the relationship between oil spills, tankers and the Road Accident Fund (RAF)

Ms Tshabalala wanted to know how the Fund Bill and Civil Liability Bill were linked.

Mr T Harris (DA) asked whether the structure where SARS collected from the relevant parties, and then submitted the contributions to the IOPC Fund, followed the international approach, and asked why this had been chosen instead of allowing the IOPC Fund collect directly from those liable to pay? He also asked if he was correct in assuming that, until the Bills were passed, the state might be out of pocket if there had been significant damage from an oil spill, and the state was not able to claim back from the parties responsible for that.

Ms Z Dlamini-Dubazana (ANC) said that although the briefing was informal, she wanted to know what the purpose of those amendments was. Initially, according to the presentation, SARS would foot the cost and also would be doing the administration, but the contributions would then be channelled to the IOPC Fund. At that time, she wanted to know what the actual role of SARS and the IOPC Fund would be.

Ms Dlamini-Dubazana asked for more explanation on the notion that the Contributions Bill was a Money Bill.

Ms Dlamini-Dubazana asked who were the persons and associated persons being referred to in the presentation as there was no mention of firms.

Advocate Van Schoor responded that intended date of the tabling of the Money Bill was still in 2013, because the Transport Bills were already in advanced stages, as mentioned before. There was no direct link between oil spills and the RAF, but the underlying principles were similar, in that persons could claim monies from those liable to pay, even though in that case the fund was an international fund, and a number of contracting states were involved because they moved oil by sea from one country to another.

She explained the relationship between the Civil Liability and the Fund Bill, by noting that the Civil Liability Bill provided that the ship owner's insurer was liable to pay compensation for an oil spill. However, there were some limitations in terms of that Bill, in that not all the damages would be paid. The International Convention on the Establishment of an International Fund for Compensation of Oil Pollution Damage,1971(“the Fund Convention”) then came into play, and the terms of this Convention was now to be incorporated into the Fund Bill, which provided that if a claimant was not compensated fully( or not compensated at all), in terms of the Civil Liability Bill, s/he would then be able to claim compensation from the IOPC Fund. SARS was not going to collect and pay over monies into the IOPC Fund, but the monies were paid directly by the state from the National Revenue Fund (NRF). To  make up the liability, SARS then collected the levy from the relevant person(s) in SA and then returned to the NRF.

Advocate Van Schoor said that the only other country using the same approach as NT in South Africa was Canada. In most other countries where persons were liable to pay, those persons paid directly to the IOPC Fund. NT and SARS, however, were of the view that  international organizations should not be encouraged to come into the country and collect funds from South African citizens, because this raised issues around compliance and enforcement.

She confirmed that there would be no recourse to request funds from IOPC Fund should an oil spill occur before the passing of the Bills.

Advocate Van Schoor noted that maybe NT should have elaborated more on the two other Bills to which the Contributions and Administration Bills were linked. She explained that SA had already acceded to two international Protocol Agreements to amend existing conventions. The first was the Civil Liability Convention and the other was the Fund Convention. The Bills now being promoted by the Minister of Finance were providing for the enactment of those two Conventions into South African law, which was one of the requirements of the conventions. There was not an option to choose only the convention providing for the IOPC Fund, but it was a package that stipulated the accession to both the Civil Liability and the Fund Conventions.

She explained again that because the Civil Liability Fund was imposing a liability on the ship owner to take out compulsory insurance, any claimant’s first claim should be against the ship owner, who would in turn lodge an insurance claim. If the claimant was not fully compensated through that, then a second claim would lie to the IOPC Fund.

Adv van School explained that the Money Bill imposed a levy, as a form of a tax, so the Contributions Bill had to follow the processes of a Money Bill through Parliament. In addition, it stipulated that the state would pay money directly into the IOPC Fund, in place of the persons liable to pay, and then in order to recover that money  it imposed a levy on the persons liable. The Administration Bill simply dealt with the administration of the Contributions Bill.

She agreed that SARS indeed was to foot the costs for the administration of the Bill, but NT had anticipated this. SARS was already planning for that in the administration of the Contributions levy and how to implement it.

She further noted that the word “person”  included both a natural and juristic person and associated persons would a similar meaning.


Mr Harris asked how many countries were signatories to the Conventions. If hundreds of countries were signatories, and every single one had decided that the funds were better collected directly from liable persons in their countries, why then had South Africa decided that it preferred the Canadian approach, rather than following the majority.

Adv Van Schoor replied that the NT had not followed the path taken by the majority of the other convention signatories, because there were other conventions that were on their way with similar approaches. After discussions between SARS and NT, there had been a consensus that it was more appropriate that SARS collect a levy, and the state paid over a contribution to the IOPC Fund: The Convention itself specifically provided that the state should do the contributions in Article 15, so that approach was not outside of the provisions of the convention. It would be possible for NT to elaborate further on this.

Mr D Ross (DA) wanted to know what would happen in the case of a default in payment. If there were defaults in the levy, the insurance premiums or the direct payments from the National Revenue Fund to the IOPC Fund, that would surely have negative impact on the country. He thought that the state was taking a high risk in assuming the liability through Treasury.

Ms Dlamini-Dubazana said that reclaiming monies from those liable persons after paying over damage claims into the IOPC Fund seemed to be uncertain, and agreed that this was too dependent on the payment of levies paid by those liable to pay. She wondered how NT would monitor this. SARS was already struggling to collect tax from South African citizens.

Ms Dlamini-Dubazana would have like to see a response from other petroleum industry organisations apart from SAPIA.

Ms Dlamini-Dubazana had a real concern over the cost to SARS of the administration of the Fund Bill, and it seemed that SARS then would have to be given a separate budget to administer the IOPC Fund.

Adv Van Schoor said that there was a limitation to the Civil Liability Bill as well as what the state would pay as a compensation contribution to the IOPC Fund. Those limitations depended on the contributions made by those liable to pay and against which a levy would be charged in SA, by SARS: There was no larger risk to the state in respect of the contributions to be made to the Fund. There was always a risk in collecting money from citizens, but this was relatively more diminished in the petroleum industry, as there were only a few oil importers into the country. In addition, all oil came through customs, so SARS would know about the imports, unless the oil was illegally imported. Given the size limits, it would be impossible to avoid paying the levy.

Ms P Adams (ANC) wanted to know what SAPIA's comment was on the draft Contributions and Administration Bills.

Adv Van Schoor  said that SAPIA commented that it would prefer to pay directly into the IOPC Fund. It had also said that if the Funding Bill proceeded, it would suggest simplifying the calculation of the levy and the determination of it, which the NT incorporated into the Bill. The underlying principle that NT did not want international organisations coming into the country to enforce compliance was still the position, and NT proceeded with the Bill on that basis.

The Chairperson said that NT would have to note the questions and concerns raised by the Committee, especially the issues of comments from stakeholders over the draft Money Bill (Contributions Bill) and Administration Bill. He asked what those Bills were trying to strengthen in terms of the Shipping Industry. The fact that there were fewer comments from stakeholders was in the nature of the industry. He accepted that it was likely that there would be state dominance, because there would be players who would not necessary be resident companies within SA.

The Chairperson proposed that the Committee accept the presentation, but possibly would have to determine whether the Committee should wait for the formal referral of the Bill by the House to the Committee, before soliciting public input. Because of time frames, the Committee should ideally allow that the Committee Secretary to solicit public comment before the official tabling of the Bill, if only so that the Committee could get an idea of how the public viewed the Bill, and to determine how it would then interact with the Bill as a Committee.

The Chairperson reminded the Committee and Advocate Jenkins that there needed to be a decision on what the way forward was, after Advocate Jenkins’ presentation. He also wanted to deal with the challenging point in his previous presentation and Committee discussion, on the oversight mechanism and the role of the executive.

Draft Financial Management of Parliament Amendment Bill: Parliamentary Legal Adviser briefing
Advocate Frank Jenkins, Senior Parliamentary Legal Adviser, said that the legal advisers had highlighted public submissions, as amended by the NT, and Auditor General of South Africa (AGSA) for inclusion in the Bill. He highlighted that square brackets denoted matters for deletion, and but there were also strike-throughs.

He outlined what the proposed Amendments were, as suggested by NT and AGSA for Act 10 of 2009 as follows:

Amendment of Section 1
Advocate Jenkins said that the Amendment brought by NT concerning the new definition of ‘approved budget’ proposed that a singular amount be appropriated to Parliament, and then Parliament, through internal processes, would then appropriate those funds into specific divisions of the main vote. These divisions would no longer happen in an Appropriation Bill, but would happen through a Parliamentary mechanism.

Substitution of section 2
Advocate Jenkins felt that one of the objects of the Bill was to provide financial management, and not performance management.

Substitution of section 3
Advocate Jenkins said that NT and the AG had said that the functions of setting up regulations, debt management and standards for budgeting must remain centralised with Parliament. There was a role to play for the Executive Authority though, and that was when it was given the power to make regulations.

Amendment of section 4
Advocate Jenkins said that amendment had come about as result of the Composition of Oversight Mechanism of Parliament research document.

Amendment of section 16
The Chairperson wanted clarity on the appropriateness of the wording, and use of 'funds' or 'money'.

Advocate Jenkins replied that NT had chosen 'money' ,as that was the wording in the Financial Management Act.

The Chairperson again interjected that the word ’money’ did not sit well with him when referring to public funds. He would have preferred to see, as was promoting the use of ‘funds’.

Adv Jenkins responded that use of either word was an issue of personal choice

Amendment of section 18
Advocate Jenkins said that section would now be an internal mechanism. Being a new mechanism, the effect of it was to give Parliament autonomy to sort out the use of its public funds in the envisaged separation of powers perspective.

Amendment of sections 20 and 21
Advocate Jenkins said that NT was clear that those unused funds from Parliament, rolled over from a previous financial year, and that did not have to be returned to the NRF, would then become Parliament's own revenue. Those funds needed to be appropriated through Parliament, and would have to be spent and audited according to that particular budget. If it happened that unauthorised expenditure occurred, and that exceeded that particular budget, NT would not cover those functions in the following year; and Parliament would then have to find that money somehow from another source

Amendment of section 23
Advocate Jenkins said that NT had suggested that the legal advisers change the heading of the provision  to ‘Retention of unspent funds and return of unspent funds from direct charges’. Advocate Jenkins said he still thought that the Bill was still dealing with the ‘treatment of unspent funds’; and so the Parliamentary legal advisers were suggesting that the Bill remain with the current wording of the heading . 

He added that where there were unspent direct charges, such as unspent salaries of members, those funds had to be returned to the NRF.

Amendment of section 34
Advocate Jenkins said that essentially the submission of the AG was that money allocated to political parties had to be accounted for through the submission of an audit report on those funds, and if there was a qualification on that report then the secretary of Parliament should withhold money meant for that purpose. He explained that if, for example, there was an audit query on stationery, until that audit query had been resolved, money would be withheld. The AG said that it should be called an 'audit opinion' instead of an 'audit report'.

Amendment of section 48 and 56
Advocate Jenkins said that mainly had to do with the functions of the Audit Committee. 

Amendment of section 58, 59 and 60
Advocate Jenkins said all those amendments would add to the transparency of Parliament's financial management.

He also said that comments from the Financial and Fiscal Commission (FFC) were also in favour of keeping the power to make regulations centralised with the Executive Authority of Parliament.

Discussion
The Chairperson noted that it seemed that there had been a lot of work put into the content of the amendments n. He was concerned, however, about the issue of unspent funds becoming Parliamentary revenue, since they would be returned to the NRF. There was a possibility that 'cannibalisation' of budgets would occur at provincial legislatures as a result of that provision. He had past experience of the inherent tension between the Executive and the legislature, as the legislature had always emphasised its autonomy, by which it implied that ordinary practices of budget determination by the Executive were not applicable to it. Considering the implications of such declarations, it was found that legislatures had large amounts of unspent funds. He was worried that the amendment now meant that there was a legitimisation of fiscal dumping.

The Chairperson also warned that the assumption should not be that there was institutional capacity throughout the country.

The Chairperson noted that speakers at provincial level would want autonomy in determining their own programmes. It was one matter as long as the appropriated funds would be used to strengthen processes and democracy, and when committees would be able to be capacitated to determine programmes of legislature. However, if there were court judgments that could possibly have other unintended consequences down the line.

The Chairperson noted that the NCOP had wanted to know why Parliament could not align the Financial Management of Parliament Amendment (FMPA) Bill with the Public Finance Management Act (PFMA).

Advocate Jenkins said that the unspent funds that came from the PFMA was not a new thing, even though it was a challenge, and that was probably why there had been reservations from the Western Cape Treasury and NT, that Parliament should keep the power to make regulations centralised so that there was a uniform system. There had always been a choice as to whether unspent funds had to return to the NRF. Additionally, the ability of a legislature to approve unauthorised expenditure still remained, as envisaged, in the PFMA. He agreed that it was possible that eventually, there could be 'cannibalisation' of the budget eventually, since that unauthorised expenditure would be regularised to fit within that budget. But because legislatures were multi-party structures, which were open to the media, as well as being subjected to the AG's audit, with the audit report being published, there were  checks and balances built into the FMPA. This put the legislatures in a different position to the state departments.

He said that the legal advisers were in agreement that NT should take note of such issues, but in any case when it came to new appropriations, NT needed to note the money which had not been spent the previous year at provincial level, because it was the normal practice. In those instances, the separation of powers being dealt with was specific, in line with a judgment from the Limpopo court judgement which said that South Africa’s separation of power was not yet to the extent that provincial legislatures could determine their own financial management structures, unless that power was delegated to them from National.

Advocate Jenkins said that the issue of aligning a Bill with an Act related to the Money Bills only where the NCOP differed from the National Assembly. There, the NCOP had said the PFMA should be aligned to the Division of Revenue Bill.

Advocate Jenkins said that the idea behind the FMPA at the time it was created was that Parliament needed to be in control of its own regulatory framework when it came to financial management. However, that still had to be aligned to financial management regulation elsewhere in the state, through the spheres. It was necessary for Parliament to be able to say that it controlled its finances, so that it could do effective oversight over the National Executive. It would be ironic if it was suggested that Parliament could not hold the National Executive accountable, because of not having enough funding to do so. If Parliament was then accused of not doing proper oversight, National Executive at least would be cleared, if it would have given Parliament what it needed to effectively do oversight.

The Chairperson said that virements in a vote related to limited percentages of the programme; he was not certain whether that was included in FMPA. The issue of unspent funds without a limit as part of the FMPA would put the state into serious challenges at both provincial and Parliament level. If   unspent funds could be authorised by the same Executive structure at both levels, the AG would have no say, as Parliament would have authorised that irregular expenditure. If Parliament could generate revenue for itself, so that the AG could not find anything wrong, he asked if there was a percentage stipulating what it would be acceptable to take as roll-overs of unspent funds.

Advocate Jenkins replied that in section 22 of the FMPA, there was a similar limit as that in the PFMA: Specifically, regarding sections 20-25 of the FMPA; there related to the ability to make policy, to issue regulations concerning the application of section 22, the virements. Those regulations would remain with Parliament.

The Chairperson reiterated that if there was a limit that specified a budget of ‘X’ amount of money, and then, at the end of the financial year there was 20% remaining of unspent funds, and then this were to be regularised, the AG could not monitor that amount in view of the FMPA and its provision that unspent funds could be authorised, thus there would be no irregularity.

Advocate Jenkins replied that the legal advisers accepted that indeed the PFMA did not address such a situation. Only if legislatures exceeded their budgets or spent those funds on things that were not aligned to their budgets, was the expenditure viewed as unauthorised. When the funds were unspent they remained just that. Here, NT generally addressed that by decreasing the following financial years'  appropriation, as it would be evident that money could not be effectively used.

The Chairperson then said that as the Committee was concluding the deliberation on the FMPA it needed to apply its mind to the unspent funds provision, as there would be unintended consequences resulting from that  if the legislature had the power to authorise its own irregular expenditure. If there was always 10% remaining as unspent every year, that would point at performance issues.

Ms Dlamini-Dubazana reiterated the Chairperson's concerns. She noted that the Committee had said that budgets ought to be aligned to programmes and functions; but here was Parliament having unspent funds from its annual budget. The question was how the AG would be aware of that if there was no indicator for that function. She wondered if perhaps NT was going to come up with a tool on regulations, to monitor how unspent funds were rolled over from a previous allocation from National and Provincial legislatures? NT needed to come again and elaborate to the Committee more on the unspent funds provision, particularly because there were both national and provincial legislatures. 

Mr Ross said he was not sure whether the new stance taken by NT on the appropriation of unspent funds was strong enough.  Secondly he questioned if it would not be wiser to adopt the “use or lose” principle at provincial level, in trying to balance the two principles. He proposed that the Chairperson's proposal of limits to be set, as to what percentage could be accepted as unspent funds in one budget allocation, be accepted, to align that with the PFMA.

Mr Harris said that the DA supported all the amendments by NT, but was concerned that there were a further seven amendment proposals that the DA had submitted to the legal advisers, which did not appear on the draft. He hoped that they would be incorporated for a future briefing, to see how they could possibly change the tone of the FMPA. The research document that was given to the Committee was biased, in that it did not acknowledge that the oversight mechanism envisaged in the FMPA only had four responsibilities, which were to consider directives stemming from sections 37(5); to consider annual reports; to consider instructions given by the Executive Authority in terms of the Act; and any other functions consistent with the Act. That was a relatively limited oversight role relative to the oversight roles discussed in that research document, where other countries' oversight mechanisms had more power.

Mr Harris said the DA would support giving the oversight mechanism more power through the amendments that were being discussed, but felt it was unfair to compare South Africa with those four countries referred to in the research document. The inference from that research was that the Executive Authority was part of the oversight mechanism, and therefore that was the appropriate thing to do in South Africa. He would argue that, because of the power of those oversight mechanisms, it was a different case in SA. The research document did not consider countries such as France or Finland, where the Executive Authority was not part of the oversight mechanism. Given the role that the FMPA had sketched out for SA's oversight mechanism, he advocated for the first amendment, which was to leave section 4 of the Act alone. The research the Committee had been given was not a valid argument to amend section 4.

Ms Tshabalala proposed that the DA’s amendments and concerns be addressed in the following meeting, but said the Committee needed Advocate Jenkins to incorporate and comment on those proposed amendments so that they could be deliberated in a future meeting.

Advocate Jenkins replied that the PFMA had the provision that unspent funds from legislatures, Parliament and Constitutional institutions did not have to be returned. It was section 22 of the PFMA that said that all money that was unspent should be returned to the provincial revenue fund, except money from provincial legislatures, provincial public entities and provincial government that was received from donor departments. On how the NT controlled that, Advocate Jenkins said that in the audited financial statements these amounts had to be reported on, and that would thus appear in the Annual Report, and specific areas where funds were not spent had to be indicated. The AG would have a report on that. In addition, within legislatures and Parliament that role had support from the fact that there was a multi-party democracy and open access to the media, which then could publish those details, and that was a further check and balance over that unspent funds provision.  Certainly NT, on its own, was not sufficient to monitor the issue of the unspent funds. There were discussions that   legislatures had requested ‘X’ amount of funds, but had not spent Z amount, would, in the following year, be given only the amount of X minus Z

He accepted that the argument from the legislatures or Parliament would be that the funds had been allocated already, and might be unspent because there were outstanding receipts, or the project was a multi-year project. It was necessary to be quite upfront on these discussions.  They also  had to recognise the priority needs of the country, as money lying somewhere in a bank account, unused, could have been used elsewhere in the country to assist with growth and development and job creation. Indeed,  there were concerns, but the solution was that put by NT and the country had to watch its fiscal position properly. That issue was broader and as such could not be dealt with by the FMPA only. The AG did report on that issue to the Standing Committee on Public Accounts (SCOPA) and the AG would probably come back to the Committee and say the reasons they had found for unspent funds were: vacancies no filled and invoices not paid and list all the reasons for unspent funds.

Advocate Jenkins said that if there was fiscal dumping, that would empower the oversight mechanism, as much as it empowered SCOPA, to ask the proper questions to the accounting officer. But there as well, the Executive Authority was not to account, but to be aware of the performance and non-performance of the accounting officer. That was why section 4 as it currently worded, provided for the Ministers to sit in on SCOPA. The suggestion behind amending section 4 related to when the Executive Authority could not be in that oversight mechanism.

He said as an example, the FMPA allowed the Executive Authority to give a financial instruction to the accounting officer. If that was likely to be unauthorised in terms of the budget, the accounting officer was required to notify the Executive Authority. The Executive Authority would then, in writing, say if the officer should proceed, as it was aware that that expenditure would be unauthorised. That notice would then need to be tabled to the oversight mechanism, as well as the AG, so that there was awareness of that deviation from the allocated budget. In such situations, where the oversight mechanism was considering that financial instruction, it would be inappropriate or unconstitutional for the Executive Authority to chair such a meeting, as there would be a clear conflict of interest: But when considering budgeting and planning the Executive Authority had a constructive role to play, hence the amendments to section 4 of the FMPA.   

Advocate Jenkins noted that the unspent funds issue was simply an audit issue, especially when it came to retention of unspent funds, because then it was necessary for a request to go in for a budget at an increased amount that took inflation from one year to the next into account, whilst still having money in the bank: That would require that a political resolution be taken in Parliament, to see how much remained in the fiscus without borrowing more than could be repaid in the long term.

He asserted that, broadly, capping of funds did result in fiscal dumping unintentionally, as departments tended to spend a lot just to get to the cap in the last quarter, although of course this would be acceptable if projects were due to be finalised then, or if it related to invoices that had been lying unattended to earlier in the financial year. In Canada, it had been a big issue before the 2008 economic meltdown, as elections were fought over what happened with that country’s surplus.

Advocate Jenkins noted that the inclusion in the memorandum of the DA’s proposed amendments could be dealt with, with comments from the legal advisors, as long as there was an instruction to do so.

Advocate Jenkins noted that many of the issues dealt with in the research document pertained to monitoring. It must be remembered that the oversight mechanism were not there to monitor the performance of accounting officer, as that was the function of the Executive Authority. The oversight mechanism related to a different stage.

Advocate Jenkins said that the legal advisors agreed with Mr Harris that the research document was not perfectly suited for the purposes of the FMPA, but the reasoning behind why the previous Secretary requested it was to check what happened in other jurisdictions particularly in relation to the Executive Authority or the Speaker sitting on the oversight Committee. It did not take into account the different functions of a lot of those bodies. The additional functions that the oversight mechanism should deal with pertained to planning and budgeting, specifically as provisioned in the FMPA, therefore it was not only concerned with oversight.

The Chairperson noted at that stage that there seemed to be a consensus that there was a need for a very strong oversight mechanism. The key question was: Who allocated public funds? Somewhere he sensed that there was an assumption that NT did that. It was Parliament that appropriated funds, and that was why the Minister came with a budget ‘proposal’. Through committees, Parliament would approve of or amend the proposals. After budgets were appropriated, it was still Parliament that presided over the oversight mechanisms of different budget votes. NT simply managed and monitored those oversight mechanisms. Overall, it was Parliament that played a major role on the oversight mechanism. If the FMPA was passed, the Committee would apply the PFMA to various state departments not just NT.

Parliament told line departments that essentially unspent funds should be returned, and therefore the point was that Parliament should not at some point insulate itself from, or say that the same rules did not apply to itself, as to line departments. That was exactly what was going to happen if Parliament said that NT should deal with unspent funds in the Executive. Parliament, as a legislator appropriating funds to various departments, had to be seen to do the right thing; therefore that mechanism would be made up of those matters mentioned.

The Chairperson said that at the next meeting the Committee should not fall into the trap of not dealing with those amendments, as provinces also needed to interact with the programme of the FMPA. He said that the key question was what could be tailor-made for South Africa as an oversight mechanism. The legal advisers would be asked to consider the proposals from the DA.

The meeting was adjourned.
 

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