Revenue Laws Amendment Bill [B4-2016]: Clause 1 amended and revised Bill adopted

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Finance Standing Committee

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

The Committee met to discuss the amendments made to the Revenue Laws Amendment Bill [B4 – 2016]. This Bill was introduced by the Minister of Finance on 24 February 2016, as a Money Bill as contemplated in section 77 of the Constitution. The purpose of the Bill is to postpone certain provisions in respect of the annuitisation of retirement benefits for provident funds and to correct provisions dealing with the calculation of deductions in respect of contributions to defined benefit retirement funds. The Chairperson noted that although amendments had been proposed during the hearings, there would be substantially serious implications and complications if changes were to be made to it now, since this was a Money Bill and any changes would require consultation with the Minister of Finance and his advisors. Therefore, for greater clarity, it was proposed to include a revised clause 1 in the Bill. Therefore, on page 6, line 38 the following changes would be made:

“3 (a) The Minister of Finance shall deliberate with interested parties in respect of the manner of implementation of subsection (1) ‘
(b) The deliberations contemplated in paragraph (a) shall include deliberations at the National Economic Development Labour Council (NEDLAC) established in terms of the National Economic Development Labour Council Act 35, 1994
(c) The Minister shall table a report in the National Assembly, not later than 31 August 2017, in respect of the results of the deliberations contemplated in paragraph (a)”.

The Congress of South African Trade Unions confirmed that it was happy with this change, as the revisions to the Bill did provide space for engagement. It was noted that National Treasury was effectively now being required to defer the annuitisation provisions to allow for negotiations with interested parties, including through NEDLAC, and for the Minister to report to Parliament on this issue by 31 August 2017. NUMSA had rejected any deferment of annuitisation provisions, arguing that the Bill was not a Money Bill but the Committee held a different view, having taken advice. It requested that NUMSA should continue to engage with National Treasury. The Association for Savings and Investment South Africa did not want a deferment of the annuitisation provisions, but accepted the Bill as amended.

The Committee then considered its draft report on the Bill, and it was noted that this specifically addressed the media allegations that Parliament had failed to consult with stakeholders and the public on the processing of the earlier Bill in October and November 2015. A statement had been made by the Committee, and the journalist making this allegation would not be attending further meetings of the Finance Standing Committee. Other industries were included. It had been noted that the Social Security Reform Paper would have to be finalised within three months of the promulgation of the Bill. All parties recognised severe over-indebtedness of sections of the population, and the consequent pressures on them to use their provident and pension fund savings for immediate needs, and had recommended that negotiations must continue on the forms that savings take as well as a form of annuitisation. The Legal Adviser addressed the references to preservation and annuitisation. National Treasury will not use the two-year deferment period as a “stalling period” to simply implement the current provisions in the Bill, and a number of factors will be taken into account. It was noted that National Treasury was asked to report on progress on negotiations to the Committee every quarter, including issues raised in section 3. Members adopted the revised Bill and the Report, as amended.

 

Meeting report

Revenue Laws Amendment Bill: Clause 1 amendments
Chairperson’s opening remarks

The Chairperson gave some background, noting that there had been a suggestion that the Committee should approve the Bill and adopt a report that outlined the progress of this matter through previous meetings. He noted that because this was a Money Bill, there would be substantially serious implications and complications if changes were to be made to it now, since any changes would require consultation with the Minister of Finance and his advisors. Therefore, in order to short-circuit this and for greater clarity, it was proposed to include a revised clause 1 in the Bill, which would read as follows:
is in Clause 1 presented to the Committee.

Clause 1
“On page 6, line 38 of the Bill, the following changes shall be made;
3 (a) The Minister of Finance shall deliberate with interested parties in respect of the manner of implementation of subsection (1) ‘
(b) The deliberations contemplated in paragraph (a) shall include deliberations at the National Economic Development Labour Council (NEDLAC) established in terms of the National Economic Development Labour Council Act 35, 1994
(c) The Minister shall table a report in the National Assembly, not later than 31 August 2017, in respect of the results of the deliberations contemplated in paragraph (a)”.

The changes to the Bill will not be seen outside of the draft Committee Report on the Bill (the Report). The Report was sent to Committee members at 22:00 on 09 March 2016. Whilst rushing to meet deadline, the Chairperson acknowledged that he did not give concerted attention to the wording of the Report so that only now had he picked out a problem that the Report was not stating clearly what the intentions of the Committee are. He read out the following draft:

“Draft
The Minister of Finance introduced the Revenue Laws Amendment Bill [B4 – 2016] on 24 February 2016. This is a Money Bill as contemplated in section 77 of the Constitution. The purpose of the Bill is to postpone certain provisions in respect of the annuitisation of retirement benefits for provident funds and to correct provisions dealing with the calculation of deductions in respect of contributions to defined benefit retirement funds.”

He said that the section on public involvement in the Report did not need to change. The Chairperson specifically addressed the media reports that alluded to the failure of Parliament to consult with stakeholders and the public on the processing of the earlier Bill in October and November 2015. In response to this allegation, the Chairperson read out a statement on behalf of the Committee, explaining that the Committee always does more than is required of them by the rules and conventions of Parliament, to ensure public participation. This statement was now attached as Annexure A. The journalist who had made this allegation had been banned from the meetings of the Finance Standing Committee.

The Chairperson then drew attention to the section of the Report under the title “Committee’s observations and deliberations”. Only minor wording changes were needed. The most important change had to do with the inclusion of industries concerned, so that it was not confined only to investments and systems, but other variables and responsibilities. The Committee had suggested that this was something that needed to be incorporated into a new clause of the Bill, and it was essentially a political matter. A compromise would include that the Social Security reform paper would be finalised within three months of the promulgation of this Bill.

All parties acknowledged the severe over-indebtedness of sections of the population, and the consequent pressures on them to use their provident and pension fund savings for immediate needs, rather than keeping it back for their retirement. While recognising the challenges of over-indebtedness, all parties had wanted to stress that all people, including workers, should save for their retirement, but the forms of these savings, and some form of annuitisation, should be negotiated.

Ms T Tobias (ANC) wanted the Chairperson to address the word “preservation”.

The Chairperson responded that in the previous draft this wording was included, but in the new draft it had not been adopted because it had a technical meaning.

Advocate Frank Jenkins, Senior Legal Advisor, Parliament, explained that “preservation” refers to a context before a person retires, and that the monies would be “preserved”, meaning they should not be touched. Annuitisation referred to investing their monies for whatever period the person requires. He added that National Treasury does not use the two-year deferment period as a “stalling period” to simply implement the current provisions in the Bill without effective consultation. National Treasury consults fully with all stakeholders through NEDLAC - and outside it, including NUMSA (National Union of Mineworkers of South Africa) and other unions and organisations - on retirement reforms. National Treasury takes into account, amongst others, the concerns of trade unions, the lower life expectancy of low income workers compared to other social strata, and the fact that some annuitisation options could prevent workers from bequeathing effectively to their beneficiaries.

Parties opposed to the current annuitisation proposals of National Treasury were being asked to commit to actively participating in the negotiations and acknowledge the workers will to lose their tax deductions provided in the Bill. While recognising the challenges of over-indebtedness, all parties will communicate with pension fund members that the proposed changes affecting provident fund members do not change their situation, and they do not have to resign from their jobs for fear that they will be adversely affected by these proposals.

The Chairperson asked Mr Matthew Parks, Parliamentary Officer, Congress of South African Trade Unions (COSATU), if his organisation was happy with the changes thus far.

Mr Parks responded that the section had been covered very well and the revisions to the Bill do provide space for engagement.

The Committee recognized that the issues raised in the section above could not all be put in the Bill and that there are also complex and time-consuming procedures entailed in amending Section 77 Money Bills. Upon engagement with lawyers and officials, it was agreed to amend the Bill to require National Treasury to defer the annuitisation provisions to allow for negotiations with interested parties, including through NEDLAC, and for the Minister to report to Parliament on this issue by 31 August 2017.

The Chairperson pointed out that NUMSA rejected any deferment of the annuitisation provisions and argued that the Bill was not in fact a Money Bill. Based on legal advice and conventions in Parliament, the Committee does not accept that the Bill is not a Money Bill, and requests that NUMSA continue to engage with National Treasury on the NUMSA concerns.

The Association for Savings and Investment South Africa (ASISA), which represents the industry, did not want a deferment of the annuitisation provisions, but accepted the Bill as amended.

Mr Ismael Momoniat, Deputy Director General, National Treasury, interrupted to notify the Chairperson of an error in the draft when spelling the acronym ‘ASISA’. He also drew attention to paragraph 3.5 of the draft, towards the end of the paragraph that read: “In this regard the scope for the practice of taking advantage of the differences in tax and annuitisation benefits between pension funds, retirement annuities and provident funds, by transferring funds between these, must be reduced”. He suggested that this sentence should rather read; “In this regard the scope for the practice of taking advantage of the differences in tax and annuitisation benefits must be reduced from pension funds and retirement annuities to provident funds”.

The Chairperson agreed with this change and reiterated that he had not had a chance, whilst working to meet the deadline, to make changes to the wording of the Report prior to attending the meeting.

The Chairperson noted that no changes would be made to the Money Bills Amendment Procedure and Related Matters Act. This proposed amendment does not affect the fiscal framework or the principles of revenue collection set out in sections 8(5) and 11(3) of the Money Bills Amendment Procedure and Related Matters Act, and therefore compliance with these provisions is not an issue.

The following changes were made on three points for the Committee’s recommendations; with the new draft now reflecting that:
- The Social Security Reform Paper be tabled at NEDLAC, established in terms of the National Economic Development and Labour Council Act (Act 35 of 1994), for consideration within three months of the promulgation of the Bill
- National Treasury must engage with parties outside of NEDLAC, including stakeholders in the industry and other interested parties
- National Treasury must report on progress on negotiations to the Committee every quarter. This must include the issues raised in section 3.3. The Committee will as necessary invite interested parties to National Treasury briefings on these progress reports, and will use this as a framework of oversight for section 3.3.

The Chairperson asked, but noted that nobody on the Committee, wished to comment further. He confirmed that Members appeared to have reached consensus that clause 1, as amended (with changes on page 6, line 38) should be implemented.

Members indicated their consent to adopt the Bill, as amended.

Members then resolved to adopt the Report, as amended.

The Chairperson thanked Adv Jenkins and Members for their input.

The meeting was adjourned.

 

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