Revenue Laws Amendment Bill [B4-2016]: NUMSA, COSATU, ASISA concerns

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Finance Standing Committee

08 March 2016
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The meeting was held to deal with the recent Revenue Laws Amendment Bill and the two-year delay on compulsory annuitisation of provident funds. The Chairperson noted that this is particularly important to unions and a sensitive matter with regard to savings and taxation. The major disagreements in the meeting were about time frame and how the amendments will be drafted. The meeting followed a previous committee meeting where the proposal to remove this provision from the bill was brought forward by COSATU and other unions. The Committee had however moved towards the idea of a conditional two-year postponement. NUMSA expressed their dismay about the bill through a letter that was read out by the Chairperson as it believed the two year postponement was merely a delay of the inevitable compulsory annuitisation. They said that this was not a tax matter and that it was unconstitutional. Reponses from National Treasury, COSATU and the Association for Savings and Investment South Africa were given and they laid out their recommendations and concerns moving forward. National Treasury assured the Committee that the bill was constitutional. Treasury said that it does not want to make any tax system conditional on a process and thus the proposal is not effective.  National Treasury also believes that all of the issues dealt with can be done so in a parliamentary report as putting it into the law will be problematic and create delays. COSATU expressed concern with the bill going forward as it is currently drafted and said that they are willing to participate in processes, amendments and all discussions. COSATU expressed concern that if conditions were not placed in the bill, and in a report as suggested, it would not be adhered to and parties could not be held accountable. ASISA said that they were committed to finding a solution and agreed with the time frame and the proposed conditional postponement as long as they find a solution and results are made.

Dr M Khoza (ANC) highlighted that the fundamental issue with the bill is that there is an challenge with saving in South Africa. She stressed the need to understand this bill within the bigger picture. Unless South Africans are encouraged to save, there will still be major economic problems down the line. The National Treasury, COSATU and ASISA agreed with this problem of saving and furthermore the huge indebtedness that faces South African citizens across income brackets was hindering economic growth. There was consensus in the meeting for the need to find a middle ground between putting conditions in the Bill or shchedule to the Bill or as a parliamentary report and the Chairperson mandated the two chairs to see if they can agree about what goes into the bill and what goes into the report.

Meeting report

Opening Remarks
The Chairperson said that the Select Committee on Finance was also present at the meeting and that they would be sitting in on the meeting and be present for the deliberations of the bill. He confirmed with Adv Frank Jenkins, Senior Parliamentary Law Advisor, that this was constitutional as it was scheduled only as a Standing Committee meeting and not a joint meeting.

Adv Jenkins said that there was no problem that the committees sit jointly, especially when it comes to legislation that is considered according to the procedure of section 75 of the Constitution. Provisions in the Constitution said that there should be rules to deal with section 75. This is also a money bill. There is not issue that this meeting is turned into a joint sitting.

Mr R Lees (DA) said that the NCOP Select Committee cannot consider this bill in this meeting but they may be present and ask questions. He said that this was the critical issue.

National Union of Metal Workers of South Africa (NUMSA) letter
The Chairperson said that the first point to consider on the Bill was about NUMSA who had written to the Chairperson. They had claimed that they had sent it on 2 March but he said that he had only received it today. He would read it because they have a right to be heard:

NUMSA notes and appreciates the call for comment. However the Bill is an extremely belated response to the widespread resistance from Trade Union workers, to the imposition of compulsory annuitisation of retirement in respective provident funds. Accordingly, they are concerned about:

the bill proceeds postpone the operation of compulsory annuitisation. This does not address the unequivocal call for full repeal of the relevant provisions.

The bill will likely not be passed or receive the president’s signature before the end of March. Nevertheless this is irrelevant since compulsory annuitisation requirements came into operation by law on first March.

The Treasury’s media announcement of compulsory annuitisation more than a week ago can have no legal effect on the operation of the enacted legislation. Compulsory annuitisation is not a tax matter and the relevant provisions are accordingly incorrectly and unconstitutionally processed through a money bill in contravention of Section 77 of the Constitution. Accordingly, it remains a vulnerable constitutional challenge that should therefore be repealed. On this basis the relevant clauses in the section be repealed and not merely postponed. There is a need for the initiation of a meaningful process of consultation at all stakeholders on appropriate time and fund reforms which should necessarily take place within the context of a broader consideration of a comprehensive social security policy framework.

Please note that we have taken legal advice on point three above which supports our view that the relevant compulsory annuitisation provisions are procedurally unconstitutional. Accordingly, we reserve our rights in respect of any legal action that we may choose to take at a later stage This also applies to our right to our respective section 77 applications in respect we may undertake protest action.

The Chairperson said that it came from the NUMSA parliamentary officer. He has discussed with the programme committee about a postponement of this bill for adoption in the house because of a variety of reasons. They have asked NUMSA to come into Parliament at 10am to deal with the matter. The Chairperson said that NUMSA can make an oral submission and the goal is to finish the Bill in both Houses (by the end of the first quarter. There may however be complications. He said that the gap between the National Assembly and Congress of South African Trade Unions (COSATU) regarding the bill is being narrowed but there may be other actors who want to take part in hearings. It is also very difficult to work out what you can put in a money bill and what can be put in a report. He has asked for the advice of Adv Jenkins about what can be put in a money bill.

The first issue at hand is that NUMSA want to come for public hearings and they are going to argue along these lines. He said that again, Adv Jenkins will need to reply and Treasury will need to reply when they come tomorrow. The Chairperson said that in the interests of openness and transparency they must keep the public participation model that they have and allow NUMSA to come and discuss their problems. There was consent from the Committee and he asked Adv Jenkins to look at their proposal that the bill was unconstitutional. 

Revenue Laws Amendment Bill [B4-2015] deliberations
The Chairperson summarised what was suggested in the previous week: that the Committee, instead of saying ‘expunge it or remove’ the provision from the Bill as COSATU and other unions are saying, or have a two-year deferment as Treasury has drafted as an alternative, can they not have an amicable compromise that meets the needs of COSATU, the industry, Parliament and government. Thus it is conditional postponement. The Chairperson said it would be conditional in four ways. The first, being that the social security reform paper is finalised. Secondly, that the form of preservation can be negotiated. Thirdly Treasury will not be able to use the two years as a stalling period which is the concern of the unions. Lastly Treasury consults with all stakeholders through the National Economic Development and Labour Council (NEDLAC) and through other means on retirement reform and preservation options including annuitisation. Treasury must also take into account the lower life expectancy of woman workers. He said that it is not clear what of this can go into a Bill and what should go into the Committee Report.

National Treasury comments
Mr Ismail Momoniat, Deputy Director General, National Treasury, said whatever objections there are to annuitisation, one needs to go back to the 2013 tax laws that were not challenged in terms of process. He said that if anyone believes that it unconstitutional they have the right to go to the court. However, Treasury believes that it is constitutional and if need be, they will get further advice. The issues of annuitisation are implicitly linked to tax issues. In the past they have split Bills between tax and admin issues, but they believe that this is not an admin issue and rather it is a condition linked to why one gets a tax deduction when they contribute. Mr Momoniat also said that the tax system works so that the growth on any retirement fund is also not taxed. He said that on the other processing issues, they have indicated that COSATU and other parties would be foolish to bring forward ‘tricameral’ consultations. There does however need to be a proper consultation session and this needs to be put as part of a report and not into the legislation. They do not want to make any tax system conditional on a process and it will create more delay if it is part of the legislation. Treasury believes that all of the issues dealt with can be done so in a report. Putting it into the law will be seen as problematic and create delays.

COSATU comments
Mr Matthew Parks, COSATU Parliamentary Officer, thanked everyone for coming to the table to find a win-win solution for all parties. He said that COSATU would be willing to engage in NEDLAC and bring forward senior officials to engage in effective discussion. Mr Parks said that the issue facing COSATU is how to make the postponement conditional but also to give it power and status. He said that workers want to see results and they would be unhappy if there was something with no power. He said that it is important to remember that COSATU has 18 very different affiliates and they have different views. They are worried about a six month time-frame. He said that the Minister, Mr Pravin Gordhan, mentioned a commitment date around June or July and COSATU would be more comfortable with this. Although two months may be tight, it will give them reassurance that this is happening soon. Moving forward, it is good to have things in parliamentary reports and minutes but the members of COSATU will want to know if this is legally binding or if it could be ignored. Thus they will want to find a middle ground in the form of a bill or a schedule of a bill. Another option could be a memorandum of understanding.

Association for Savings and Investment South Africa (ASISA) comments
Ms Rosemary Lightbody, ASISA senior policy advisor, said that after having seen the proposal, ASISA did go back to their membership and asked them to consider the conditional postponement. Members came up with what they have incorporated in their recommendations. The major arguments are premised on the fact that there are deep concerns that we can commit a year or six months to this and land up in the same position in two years’ time. ASISA members are committed to put aside time and resources to come up with solutions and research. She said that retirement fund reforms, simplification of the system and being able to streamline it in order to find an equitable solution for people who have varied amounts of money is achievable if they work together on it. She said that to work on it for a number of years and then at the last moment to throw it out, can become greatly disillusioning. Thus, it is a matter of how they can achieve certainty and how they can achieve a time frame that everyone is committed to. ASISA is happy to have a two-year postponement, rather than removing it from the table but it needs to be dealt with collectively and effectively. They want a real process and course of action and to avoid last minute loss of commitment and U-turns which make people cynical about the process, which is a big concern. 

Mr R Lees (DA) said that he is confused about where the Committee is going. The ASISA document and recommendations have not been circulated and he is not sure as to how they can go forward on the basis of some agreement. If they consider the Bill as it stands now, they will do that after the public hearing.

The Chairperson said that the Committee has put forward a proposal and all parties (Treasury, COSATU, ASISA) have now responded. The issue is not disagreement with what is proposed but rather what goes where and how it is tabled.

Dr M Khoza (ANC) wanted a reaction from COSATU and ASISA on whether they have considered that matter is not only linked to taxation but that it is also the linked to the low average propensity to save in South Africa. She is concerned that if this is not integrated into discussion, the goal posts will be pushed back and the matter will be dealt with at the wrong time. She is not sure whether there is sufficient appreciation that the nature of the economic problems are linked to low savings and a low propensity to save. Thus we rely on foreign market entities. She stressed the need to understand this within the bigger picture. As long as South Africans are not encouraged to save, there will still be problems. She said that particularly in the African community, there is large debt and the reason people want the provident funds to be available is to address short term financial pressure at the expense of long term economic difficulty. They need to change the current environment in which they find themselves.

The Chairperson asked for a further response from ASISA and COSATU.

Ms Lightbody said that she wanted to assure the Committee that ASISA are acutely aware of the challenges facing South Africans who wish to save. They have worked with COSATU on a scheme for vulnerable workers. They have also considered plans that could involve co-contributions from employers in some of products they have developed. They are fully aware, particularly of the vulnerable members of society, that need to save and feel that they cannot afford to within formal vehicles. They are also aware of informal savings and ASISA has conducted surveys on savings and the different vehicles in the economy.

Mr Parks said that COSATU shares the Member’s concern but he stated that it was not a case of either or. They are aware that only 6% of the country can afford to retire when they hit retirement age. However, this is not only about taxation but also savings. He said that workers have a great deal of anger related to savings and their debt and workers see this as their private savings. They would not want to be told by anyone what to do with their private money. He suggested a ‘carrot method’ or a smart incentive method while showing people how to save effectively. Unfortunately, South Africa has a lack of a social security net and they are happy for now with the conditional postponement.

Mr Momoniat said that Dr Khoza had really put her finger on the issue at hand. The issue is how to get people to save. Whether poor or rich, there is a natural tendency not to save. This issue is not only specific to workers and most people make the wrong choices at different points. The new bill is aimed at everyone. He appeals for there to be leadership in this period to deal with expectations and how to save. It is a tax bill due to the incentive. Transparency is important but they cannot give people too much information. The retirement system is very fragile and they should not introduce any more risk to the process. Treasury is committed to the process and they hope that there is a constructive approach to move forward.

The Chairperson said they agree, except for the DA, that there needs to be conditional postponement. How much of this should go into a bill and how much into a report is a point for disagreement. He said that COSATU is asking for all recommendations to be put into the Bill. He asked for clarity from Adv Jenkins about whether the substance is in the bill or a schedule, it will have the same legal meaning.

Adv Jenkins confirmed that being in the schedule to a bill does not make its impact lighter, as COSATU seems to think.

The Chairperson also said that a parliamentary report does not seem to have the same legal meaning as what is contained in a bill but adjudication authorities have at times looked at parliamentary reports. Thus, although it does not have the same legally binding effect as a bill, it provides the basis for oversight by the parliamentary committee to hold the executive to account. While it is not as strong as a bill, it does not have the same weight.

Mr Jenkins said that this is correct. There is great value in a parliamentary report and it is something concrete. He suggested that if they do go with a report, it is necessary to set out clear obligations and time-frames so that the it is concrete. Treasury can also be brought to account by a bill schedule. It is an enforceable document. The key will rely on how the information is relayed to all interested parties.

The Chairperson said that if COSATU and other unions are not prepared to accept a report, there perhaps a memorandum of undertaking signed between the executive and the unions can be effected. Parliament can then check up on this but Parliament cannot be a signatory to this.

Adv Jenkins said that if it is an issue of the consultation process, and this is formulated in a Memorandum of Understanding (MOU), then this is a binding obligation for all parties and government has an obligation to do something. In his view, if government decided not to abide by this and proceed with the present legislation, this will be challengeable in court. Ultimately this is a binding obligation and government must fulfill its obligations.

The Chairperson said that they are ultimately trying to strike a medium path. He suggested to mandate the two committee chairs to see if they can agree about what goes into the bill and what goes into a report. He warned against changing the bill due to the problem of time and the delay with passing the bill but he agreed that there needs to be something in the bill to appease COSATU. He asked that all parties spend more time settling matters before a bill is brought to Parliament. They need to look at what can be put in the bill (that will not require a 14 day delay) and what can be put in the report. If there is no agreement, they will move towards drafting an MOU. He asked the Committee members for opinion and a mandate.

Ms T Motara (ANC) agreed and she said the easier they can find finality on the situation, the better.

Mr Lees said that whatever process takes place outside the Committee is great and they cannot object to it but the outcome is key.

The meeting was adjourned.


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