Political Party Funding Bill financial implications: National Treasury & IEC briefing

Meeting report

Opening remarks
The Chairperson welcomed the Members for what he hoped would be a fairly short but pleasant meeting. The Independent Electoral Commission (IEC) and National Treasury would each be given 15 minutes to present and thereafter Members would engage in discussion.

The Committee accepted the agenda.

Presentation by the Independent Electoral Commission (IEC)
Mr Sy Mamabolo, Chief Electoral Officer, IEC, extended apologies on the behalf of the Commissioners who were unable to be present at the meeting. His presentation was intended to cover the envisaged functional areas and the costing as well as the implications and challenges thereof. He began by noting the fact that the public sector was facing severe financial constraints.

The Commission could not use its baseline budget as it was responsible for elections in the following year. In addition, the court decision regarding the need to have addresses on the voters’ roll had been an expensive exercise. The new Multi-Party Democracy Fund (MPDF) required new skills not germane to elections that would have to be acquired. Those skills included investment management and planning, investigations and enforcement, party funding research and policy development, and fundraising. In operational terms, the new mandate meant the creation of a separate entity with shared governance structures of the Electoral Commission.

Mr Mamabolo presented a functional structure which showed the envisaged organisational matrix to identify the key functional areas required in the new unit. The estimated costing showed R 11 million in personnel expenditure and R34 million for administrative expenses and assets, including setup costs.

National Treasury had said that R45 million was unaffordable. National Treasury was looking at raising R20 million. Based on the current timing, it would only be available into the new financial year. It would be through either the MTEF process or an adjustment budget. If the budget was available for part of the year, the budget would have to be aligned to an incremental approach.

Both Treasury and the IEC were of the view that a phased-in approach would be advisable in view of the many unknown factors in the first year of implementation of the new Act. An incremental approach would entail a skeletal staff. It was proposed that the CEO of the political party entity be the first appointment to the structure and two senior managers would be prioritised. Two staff members comprising the current Registered Political Party Funding (RPPF) unit would be moved from the IEC to the unit.

The IEC proposed to prioritise the following aspects of the draft legislation ahead of the elections in 2019:
˗ implementation of represented political party fund
˗ establishment of the Multi-Party Democracy Fund
˗ annual reporting and disclosure by political parties of all resources and amounts of direct funding to the electoral Commission
˗ research and policy development.

The CEO presented the revised costing amounting to R20 million. The enforcement processes would be delayed but essential would be a system for reporting. Some expertise around crafting of regulations would be needed. If the MPDF was to attract donation, there had to be someone talking to corporates.

Presentation by National Treasury
Ms Gillian Wilson, Chief Director: Public Finance, National Treasury, made a short presentation. She was accompanied by the Deputy Director-General for Public Finance, Dr Mampho Modise.

Ms Wilson noted that National Treasury had a meeting with the IEC and there was an agreement regarding the need to fund the Act, given its importance. Treasury, obviously, was not in a position to make promises regarding the proposed budget of R20 million but had agreed to look for the amount and to make proposals in that regard.

Before finalising the structure for the unit, Treasury requested that a process map indicating the governance structure, administration, reporting and communication processes be developed. Treasury required that systems, policies and procedures be developed for administering the fund and that the structure should be aligned to the mapping of those policies, procedures and systems. It also recommended that the structure be evaluated by an HR practitioner in line with Bill before finalisation.

National Treasury was recommending a phased-in approach because there was a need to look at the proper systems and procedures before the full go-ahead. The IEC should follow a shared services model, especially in respect of the audit and IT services. Costing had been agreed at R20 million which would include compensation at R 5.5 million, goods and services at R 14.3 million and capital at R 215 000.

Long term funding of the Act was difficult because National Treasury did not know how much funding would be in the MPDF. Consideration should be given to putting municipal funding into the same fund. The intention was to repeal the Political Party Funding Act of 1997, but the funding in the provinces could not be repealed.

Two mechanisms were possible for providing funding. Firstly, the Adjustment budget was only for significant and unforeseeable events and funds would become available in Dec 2018 or Jan 2019. Secondly, the MTEF priorities were set in the budget funding process which followed a process of meetings. Reprioritisation of funding was an option, in which case funds became available in April 2018 and Treasury would look at funding over a 3-year period as that was more sustainable.

Discussion
The Chairperson contextualised what the Committee was doing. He reminded Members that there had been an Ad Hoc Committee that had presented a report at the end of the year and as was practice in Parliament, anything that had not been finalised by the end of the year, had to be re-introduced in the new year. At the point of debating the Bill, the powers-that-be had indicated that the Committee had not taken into account the financial implications to the state of implementing the Bill. On 28 February 2018, the Ad Hoc Committee had been re-established by the National Assembly and the Committee had to take into account the decisions of the previous Committee. So, the Committee was not starting from scratch. The deadline for reporting to the House was 30 March 2018. However, the last day for plenary was 27 March 2018, and the process would have to be done in time for the 3-day rule, which made the deadline 24 March 2018.

His appeal was that the Committee dealt only with the cost implications.

Ms L Matthys (EFF) did not understand why the IEC needed to increase the amount over the years. The point was to get money into the MPDF fund and the idea was that the fund would be self-funding as provided for in the Bill. She was concerned that the IEC was asking for R 20 million for the first year and R 30 million for the second year which suggested to her that the IEC was saying that they would not be getting any money in that fund and so the unit would not be self-supporting. What would the unit have done for the whole year with the R 20 million?

Essentially it was about fundraising. The IEC had been managing the fund, although it had been called something different, but no funds had come in and the IEC had never marketed it. Furthermore, the general public did not know that they could contribute to that fund. That had to be taken into consideration. She needed clarity on why the IEC wanted the increase because it suggested that the IEC would not be making any money for political parties and therefore she did not see the point of investing in the first place.

Mr J Selfe (DA) said that finances were being provided to set up a bureaucracy to manage a non-existent fund. He referred to page five of the National Treasury presentation. As he understood it, the intention was to consolidate the existing amounts of money in a new fund with a different name and, as he had understood the debate that the Committee had had the previous year, there was a trade-off. Political parties had said that they would place themselves under certain restrictions, such as caps on funding and disclosure limits, etc. and the quid pro quo was that the state would have a fund that would make it easier for smaller parties to operate. It appeared that all that they were talking about in the fund was a consolidation of the existing amounts. There was not even a guarantee that the central funds would come into the pot because Parliament could not repeal provincial law.

He could well understand why there was no money for the proposed fund with VAT increases and the tight fiscal environments, but why was Parliament and Treasury going through the whole additional process if there was no money for the fund. Why were they going through the whole process if the consolidation of funds was questionable in law? He really wanted some clarity on the whole matter as he seemed to perhaps have been labouring under a misapprehension the whole time.

Dr P Mulder (FF+) stated that his colleagues had partially covered him to some extent. In terms of Section 3 of the Bill, the amount used to administer the fund could not exceed 5% of the fund. At the moment there was no money in the fund, but he asked if that 5% had been taken into consideration in the budget. It was a different income to that listed in the presentation. The structure looked a bit big, quite huge, in fact, and the positions at Level 15 and 14 seemed very high. Those were very senior positions. Was that really what was needed?

Mr N Singh (IFP) believed that the process was setting up too big a bureaucracy. The political parties wanted to attract money, but they had to see how things went. He understood that they needed to spend money in order to make money, but he felt that the focus should be on the first year and that thereafter there would have to be an assessment of how things were going. The process had added value to the IEC and he understood that the IEC did not want an unfunded mandate, but it might not be a three-year thing. If money came in, the IEC would be using 5% of that money and would not need Treasury’s money. But they needed to make a start and therefore needed start-up capital.

It was not necessary to have a CEO straightaway. The IEC could have a different structure with the existing staff. He understood that the IEC did not want to be caught midstream. Both the Committee and the IEC were testing the waters. To date the IEC had not collected any funding. The Committee was trying something new, but there was no need to pay for three years and the figures really baffled the him. The Committee’s responsibility was to look at the legislation and to pass it. The Committee had just to present the cost. When the legislation reached the President, he would enquire as to whether there were funds available before he signed the Bill and it became an Act.

As a funding person, he had to say that the presentation had seemed to him to contain a wish list. R 5 million for advertising seemed a bit much for a couple of months. Even if the Bill was passed at that stage, it would not be implemented for a number of months. That kind of money would not be necessary. It was a chicken and egg situation. They could not start the process without any money, but a much lower budget would suffice. If very senior people were to be employed, what would the IEC do with those people?

Mr T Godi (ACP) aligned himself to Mr Singh. He thought that the Committee would appreciate the fact that the IEC and National Treasury had made it easy for them by agreeing to provide funding, but the budget should be much less. The budget was a wish list and it was in all likelihood that the expenditure would be much, much less. The structure was not being set up only to do fundraising as there was a new function of enforcement that was separate from the fundraising and would need to be there or whether there was funding in the Multi-Party Democracy Fund or not. It was a completely new function for the IEC.

For Mr Godi, at a principle level, it was sufficient that the IEC and Treasury had met and agreed that there was a need for funding. At the end of the day that was an administrative process that would not need to come to Parliament for approval.

Ms H Khaleghi (EFF) stated that the IEC had appeared before the Portfolio Committee on Home Affairs but, unfortunately, there had not been time to engage with the IEC at that meeting. The IEC had said that the Commission would need R30 million as a start-up cost but now there was a different figure of R20 million.
Furthermore, Members of the Portfolio Committee on Home Affairs had been told that the Bill had been referred back to the Chief Whip’s Forum as the DA had requested a costing exercise. But it had not gone to the Chief Whip’s Forum. She was therefore confused as to why the Bill was with the Ad Hoc Committee. So, the information given in the Portfolio Committee on Home Affairs was different and she did not believe that there should be different understandings in one Parliament. She asked for clarity on the matter.

The Chairperson indicated that he would interrupt the questioning to respond to the Member’s question. He stated that the Ad Hoc Committee had a mandate from the House that had been passed 28 February 2018 which required that the Committee return the Bill for debating on 27 March 2018. The Chief Whip’s Forum could not supersede a mandate by the House. That was why he had given the Committee the context and the mandate was very clear: go back and do X, Y, Z and come back and report. Whoever had made the other statement was completely out of order because a mandate had been adopted by the House. The Minutes of the sitting were in the Members’ files. However, the Member’s questions about the differing amounts of money were very valid and the IEC could respond to those questions.

Mr N Kwankwa (UDM) stated that the discussion in the Chief Whip’s Forum had just been a reminder by Dr Connie Mulder that the Committee had to work on the Bill immediately. There were legislative functions arising out of the Bill that the IEC would have to manage. The IEC would not only be managing the current fund, regardless of an increase or not, but also the MPDF. The state had to provide funds for the IEC to carry out the relevant functions.

Members had to remember that the bigger picture was the problem of state capture, or rather, the capture of political parties. If there was no enforcement, then parties could get funding from elsewhere, despite the restrictions in the Bill. The IEC needed to be empowered to discharge its functions. When did the IEC think the unit would be able to sustain itself? He reminded Committee Members that fundraising was not easy and that one could not have a junior person doing fundraising. A credible leader was required if an organisation was going to fundraise and the funding was necessary as there were a number of functions that would be dependent on it. What was needed was a balancing act.

Mr Singh was correct in saying that the budget was a wish list and that it was a thumb suck to estimate what would be needed. On the other hand, was there enough time to even recruit staff by the end of the year? And it was unlikely there would be time for fundraising in the 2018/19 financial year. For a year or two the taxpayers should pay the cost of running the establishment, but the plan had to show how it was going to sustain itself in the outer years.

Mr R Lees (DA) stated that the figures seemed inordinately high. The point was that there were existing staff members in the IEC who were managing the current fund. That unit with its funding and staff did not seem to have been moved across. The two staff members should have everything that went with their job. What office rental would cost R1 million a year? They would be quite significant offices if they were costing R 1 million a year. Was it part of the existing offices? Was that space in the existing building? He wanted to know those details. The organogram showed 17 people, but the costing showed nine people. What was he misunderstanding? The phase-in approach was a reasonable approach but presumably the Committee would have to do something in the original Bill to make that approach possible. Had someone looked into that aspect of the Bill?

Mr B Bongo (ANC) was of the opinion that the presentation had indicated a feasible approach and the Committee had to take a principled decision. If one looked at the work that the unit had to engage in, it was very broad. He did not want to get involved in operations, even though he agreed that the levels were too high. He thought it should be scaled down, but the principle was correct. The Committee needed to agree on the principle to operationalise and to scale down. Perhaps there were officials in other departments who could be moved over. He appreciated that IEC and Treasury had met and agreed in principle.

Ms D Dlakude (ANC) agreed with Mr Bongo. Given the fact that Treasury and IEC had reached agreement on financial implications and the operational approach, she thought that the Committee had to support it. She also agreed on the phases in which the operationalisation should be approached. It was not the Committee’s place to get involved in operational detail.

The Chairperson agreed with everyone. The task of the Committee had been to discuss the cost implications to the state, which the Members had done. The amount that it would cost was not the issue. The Committee could not state exactly how much it would cost as it was a budget. In its report, the Committee should state that the IEC should not go beyond R 20 million. That, of course, did not mean that the Commission had to go up to R 20 million. If it was necessary to put in a figure, they should say that R20 million was fine. It was necessary to cut the fat. The Committee had to remember that it was just not just about fundraising, as someone had said.

The Committee thought that the IEC was going in the right direction and there would be a cost to the state because it was not an unfunded mandate. The Committee should not look at year two or three at that stage because they did not know how things would pan out. The Committee should say that it had to be reviewable so that someone could review it and make a decision at that point. If there was a five percent management fee, that could be considered.

The Report should say that R20 million was reasonable and that it could reviewed. R10 million for audit fees looks ridiculous but the Committee could not go into that detail. That was his proposal. The Committee could sit until midnight looking for answers but there were none.

Prof N Khubisa (NFP) stated that it was necessary for the Committee to be specific and to confine itself to R 20 million and the rest would be done by the bureaucrats. It was not for the Committee to specify what should happen in each year. The Committee had done its part.

Mr Lees pointed out that the question of employing people was not a short-term thing and if the Committee said that they could try it for a year, and that R 20 million was the limit, there would be implications for the outer years. They could put people on a one-year contract, but the question was whether they would get the right people. To National Treasury, he said that the R20 million figure was, in a sense, a thumb suck so the question was how National Treasury had got to the figure of R20 million. He wanted to know whether Treasury was likely to get the R20 million or was there going to be a problem in that regard.

Ms L Maseko (ANC) agreed with the summary by the Chairperson and, particularly, bringing it down to R10 million, even if it was a thumb suck, might be too little. She suggested that the IEC go away and cut its jacket according to the cloth of R 20 million. That would be cutting the fat and the frills. The Committee had originally thought that it should be something within the space of the IEC, although not bogging the IEC down.

Ms Matthys did not want the IEC to take on staff who would have nothing to do like so many of the government officials and then government would be obligated to pay them. Whoever was appointed had to have a clear mandate and the person had to deliver within the year. There had to be clear outputs. They did not want to spend R10 million on salaries that was wasted money. She got that there was an additional task of administrating transparency on those things that needed to happen, but even middle management staff could do it. She agreed that there should be a year trial. The Committee had to remember that Parliament told National Treasury how much money that they could get.

The Chairperson asked for responses but noted it was a policy matter and a policy decision had to be taken.

Dr Modise. addressed the issue of rising costs. If there had to be a budget attached to the Bill, Treasury had to fund it long-term. Administrative costs and salaries would rise annually. If Treasury changed the concept to make it yearly, there could be a problem if it did not have a budget the following year for people who had been employed for the fund. If Treasury was going to do the start-up costs, it would have to fund the three years unless the Bill made it clear that it was for one year only. However, that would not be strategic but that would require the Bill to say it. National Treasury did not make the decision as it was a process, but National Treasury committed itself to look for the amount and to present it to the relevant structures. Once the Bill became an Act, Treasury would insist that funds be allocated, although it would compete with other funding requirements and be dependent on approval via the processes. National Treasury wanted to make sure that the fund funded itself but that would require significant funding. That was where they saw it going but it was going to be difficult to get the money each year. Administration could be expanded when the fund could sustain itself. Treasury was looking only at a start-up fund.

Mr Mamabolo asked that the Committee spend a little time focusing on the Multi-Party Democracy Fund. It was a novel creation and not part of the present dispensation. The Commission needed to do the ground work to get the fund going. The sense of the IEC was that it would require a lot of advertising and marketing to get it off the ground and to make contact with Foundations, etc. He suspected that it would be well-funded in election years. There needed, then, to be a baseline fund for the non-election years as the unit would have to continue to function. The unit should not have more money than it needed, and any excess would be invested with National Treasury. Everyone agreed that there should not be a big structure at the beginning. He referred to the IEC presentation as a start-up. He believed that the Commission needed to start with the head of the unit and two senior managers and then it would depend on the opportunities that arose etc. It might even be decided that it would be best to do it by using external consulting capacity at certain times.

The issue of advertising was crucial, especially in the beginning. He had just run an advertising campaign for the Election Registration Week and therefore he knew that R 5 million was the amount that the market demanded for the kind of advertising they were considering. R 5 million was not a substantial amount of money given the work that had to be done to popularise the fund. Conferences were important as it was necessary for the unit and political parties to workshop the legislative framework in each province as there would be new expectations and new regulations and it was necessary that everybody was at the same level.

The current RPPF had no funding whatsoever and those who worked on it were paid by the IEC, except for a portion of their salaries that was deducted against the RPPF, 40% in one case and 20% in the other case. So, the RPPF did not have its own personnel, equipment etc. and there were no people to move across. The figures that he had given were realistic. It was not a substantial sum in the light of the work. The Conferencing was important because the new unit would need to workshop the concept, the regulations with parties in all provinces so that everyone understood the new dispensation. In the presentation, the IEC had presented a functional matrix because it was about functions, not warm bodies, and each person would be responsible for more than one function.

It was most important that the Bill allowed for a phased-in approach. The legal advisors would have to advise how certain areas that should be immediately implementable, could be implemented and others delayed. The IEC had started on R45 million and National Treasury had said that the IEC should look at what it could reduce. When the IEC had met with the Portfolio Committee on Home Affairs, it had reduced the amount to R30 million. Then the IEC had met with National Treasury and reduced the amount further to R 20 million. As far as the top-heavy issue was concerned, three or four people would be appointed in the first year.

Ms Esther de Wet, CFO, IEC, reminded the Committee the R20 million was for a 9-month period, i.e. it would kick in around June 2018 and then year one and year two would require more funding. The crucial funding point would be the first nine months and then year one. The Act made provision for investments so that might help. There was no point in not advertising. They would also have to workshop business to get business to donate. If they did not create awareness, there was little chance of funds being received.

The Chairperson suggested that it was futile to get to the Rands and cents. The Committee accepted that there would be a cost to the state. The Committee could give an upper limit and then let the IEC and Treasury work on that. It was not a good idea to talk about only one year.

The principle would go in the memorandum to Parliament. He referred to page 17 of the Bill that had been taken to the House. He suggested a change to the memorandum to Parliament and either say that there would be a cost or give a maximum cost. He proposed the wording be adapted to say: Having consulted with the IEC and National Treasury, the financial implications to the state should not exceed R20 million in the first year. The Committee Secretary, Cindy Balie, could make the change and circulate it to Members who could meet on Tuesday to agree.

Mr Selfe referred the Committee to Paragraph 4. He read it out aloud. It dealt with the establishment of a structure, but it did not indicate how much the RPPF was going to be and whether any start-up money was going to be given to the MPDF. Advertising was R5 million. He did not believe that the unit would get more than R 5 million in funding, even after spending that amount on advertising. If it did he would take the CEO of the IEC out to an expensive dinner. There was no appetite for donating to the MPDF if there was no tax break and therefore the financial implications for the state went beyond funding regulations etc. Or was he not making himself clear?

The Chairperson stated that he was not making himself clear to the Chairperson. In idiot’s language, he wanted to say the following: the thing did not exist, and they needed money for start-up costs to set up a unit. The central fund had nothing. There was money in the parliamentary fund, but that money went directly to political parties. The MPDF had nothing at the time. He had not imagined there would be money but hopefully, in a year’s time, there would be money. An investment was needed to get the show on the road. The question was how to make it operational. The Committee was suggesting that the investments be kept as low as possible but definitely not above R 20 million. It was a matter that had to be decided by the Committee. He asked the IEC and Treasury to give the Committee a few minutes but not to leave as there might be some instruction for the IEC and Treasury.

He asked Committee Members to give their input but to begin with a proposal.

Mr Lees proposed a way forward. The Committee could not say R 20 million in the first year and then the IEC could do as it wanted in future years. The Committee had to protect itself against the outer years. He suggested a review process to deal with outer years. He suggested that a Committee, and he was not sure which Committee, would review the unit and the process at three monthly intervals and undertake a full review at the end of the year.

Mr Singh agreed that Mr Lees’ proposal made sense: R20 million in the first year and then inflation increases subject to reviews. The reviews were important as an assessment could be made of the situation. What he wanted is the legal point of view. The memorandum was an explanation of the Bill and was not a legal thing. What was the import of the memorandum as the House would not vote on the memo but on the Bill.

Ms Maseko noted that the proposal by National Treasury had brought it to R20 million with a staff complement of four as a starter. However, with a staff of 4, a quarterly review might not reveal anything. She suggested six-monthly reviews in the first year.

Ms Dlakude stated that she was covered by the recommendation for the 6-monthly review.

Dr Mulder stated that he had never seen a memorandum with specific amounts. He did not have a problem with the current wording in the memorandum but what he did suggest was that the Committee include the specific details, including the amount of R 20 million in a report to the House. The Committee could explain that it had had discussions with Treasury and the IEC on the matter and present the details.

Ms Mathys trusted people to make the right decisions on the memorandum but she wanted a review every three month as the shorter the intervals, the more likely the possibility of getting results.

The Chairperson attempted to summarise by saying that the Committee wanted the memorandum to remain as it was but that the Committee had to write a report to Parliament and that would refer to the review and explain what the review was about. As to who had to do the review, that should go to the House and the House should instruct Home Affairs or even another Committee. Nothing was to be changed in the Bill or the memorandum. He suggested that the report be very brief and state: “After consultation with National Treasury and IEC, the Committee thinks that the IEC should not go beyond R 20 million and that there should be a quarterly review.”

Mr Mambolo reminded the Committee that the IEC had raised a point in the presentation. It was to be an incremental introduction and thus could not cover everything immediately. It was important that the report reflected that understanding. For instance, enforcement had to be suspended in the first year. It was necessary to be upfront that there might be costs going forward.

The Chairperson stated that they would say in the report that the IEC was not expected to implement all aspects of the Bill when the President signed it, purely for the reason that it was not an unfunded mandate. That was the principle. If there was money, the unit would have to do with it. So, the unit within the IEC would have to do whatever it could with the current funding. Clearly there would be no investigations in the first few months as there would not be anything to investigate at that time. Almost pragmatically, it would be a phased-in exercise, but the Committee would put it in the report that it would be implemented in phases, dependent on funding and reviewed quarterly by Home Affairs.

The Chairperson stated that the Committee Secretary would compile the report with the Committee staff. The report would be distributed to Members by the end of business on Monday and then the Committee could spend five minutes, or even two minutes, meeting at lunchtime on Tuesday 20 March 2018 to agree. The legal advisor would check the requirements to ensure that everything was in order. The Committee would meet for two minutes at 13:00 on Tuesday.

Dr Mulder was concerned about the deadlines, but the Chairperson indicated that it would be completed in the coming week which was within the timeframes.

Mr Singh asked the legal advisor to indicate what had happened in court the previous day in respect of the My Vote Counts case.

Mr Michael Prince, Parliamentary Legal Advisor, stated that the case heard in the Constitutional Court the previous day had related to the aspects that were unconstitutional in the Promotion of Access to Information Act (PAIA). The judgement had been reserved the previous day.

Mr Singh noted that it did not impact on the process being undertaken by the Committee.

Ms Mathys sought clarity on the correct version of the Bill, as a couple of different versions had been sent to her, different from the one that the IEC had handed out.

The Chairperson stated that the only correct version was the Committee copy of the Bill. He asked that nobody except that Committee distribute a copy of the Bill.

Conclusion
The Chairperson stated that the Ad Hoc Committee would meet on Tuesday, 20 March 2018 at 13:00 to adopt the report to the House and that the Bill would then be ATC’d that day and would be presented in the House on 27 March 2018. The Ad Hoc Committee would then fold. A separate report to the IEC would provide details that would explain matters more fully to the IEC.

The meeting was adjourned