National Treasury came before the Committee to comment on the RABS Bill. The Bill is the largest social security reform since the introduction of social grants; thus, there are concerns about its financial sustainability and viability. The Bill has large financial implications for both the fiscus and society. The Road Accident Fund has had a R2 billion deficit since 1981, so Treasury would like a system design that is sustainable. Treasury thought it should introduce some flexibility which Cabinet never got around to discussing during cabinet meetings - in the hopes that the Committee would consider the input.
National Treasury recommended that clause 26(1) should be omitted because it would be impractical for the fiscus to respond outside the Money Bills Amendment Procedures and Related Matters Act. In addition, if liabilities are greater than accumulated surplus, then immediate adjustments to fuel levy or appropriation would need to be effected. The 'average national income' would be problematic because there is no certainty on the increase of the numbers, and the numbers could vary. Treasury proposed that the average national income should be replaced with an expression which more accurately expresses the intent of the Bill. Thus, the definition in clause 1 should be changed to "deemed pre-accident income", taking relevant criteria into account.
As for affordability, sustainability and equity, the uncertainty in modelling the cost of RABS was worrying because in January 2017 the RABS costing was 60% higher than the July 2015 estimate. Secondly, the Bill allowed for the adjustment of tariffs, income caps and funeral benefits to take into account inflation. However, inflation is not the only relevant economic and financial consideration. Therefore, there was a need to balance the requirements for an equitable and sustainable system with statutory certainty.
In terms of governance, the 12 members for the composition of the board was excessive. Secondly, it was not clear why official representatives of Ministers did not have voting rights; and thus, this should be reconsidered. In order to avoid the risk of the Chief Executive Officer and Directors General outvoting other members, the quorum requirement in clause 13(2)(a) should change to members appointed by the Minister. The three-year term of office is too short given the complexity of issues at hand; thus, it must be extended. Treasury proposed that the Bill should provide for an annual meeting with Ministers of Transport, Finance, Health and Social Development to consider the financial position and actuarial report and the strategic plan. Managing conflict of interest of Board members must be tightened. In conclusion, the fundamental shift that underlies the Bill and the objective for a reasonable, affordable, sustainable and equitable benefit scheme is supported.
When asked about it presence at this stage of processing the Bill, National Treasury explained that the Finance Minister had requested on 19 June Treasury make a submission at the public hearings but the programme was already endorsed. It was also asked if the concerns it presented had been discussed with the Department of Transport; and at what stage was its inputs made available to the Department.
The Committee did not engage Treasury on its presentation because Members felt that it was procedurally incorrect for Treasury to make an input at this stage.
Treasury said it had shared three concerns with the Department of Transport on the Bill, and one of the items was new. The three were: financing of the scheme; average national income; building some flexibility that would make the scheme sustainable. The new item on governance was separating the Administrator from the scheme itself, and also tightening up on conflict of interest governance. This is an extraordinary step, and Treasury would have preferred to resolve these while the Bill was still within the executive. It is such a significant social reform that Treasury felt that it was important to come to the Committee and present its input.
The Department of Transport (DoT) indicated that it was privy to only one of Treasury concerns - on the funding. Members believed that there should have been prior discussion between the two departments; Treasury claimed to have discussed these issues with DoT, but DoT stated otherwise.
The Committee resolved that both departments should consult and their political heads meet. The Committee was aiming to finalise the Bill and present it to the National assembly in the third week of September.
National Treasury on Road Accident Benefit Scheme (RABS)
Ms Ulrike Britton, Chief Director: Urban Development and Infrastructure at National Treasury, commenced by outlining the Cabinet-approved policy deviations from the RAF Commission recommendations which were:
• where the Commission recommended that the common law claim for the balance of loss should remain, the RABS Bill removed this right. The Constitutional Court confirmed in 2009 the validity of this.
• to protect the road users who contribute to the system through the fuel levy from potential large liabilities.
With regards to the financing of RABS, Treasury recommended that clause 26(1) be omitted and that the preamble be adjusted. Clause 26(1) states that should the liabilities of the Scheme exceed accumulated surpluses at the end of each year, the Bill will require an immediate appropriation or adjustment to the fuel levy. This is impractical and unnecessary. Without detracting from the policy objective that RABS should be
fully funded, it is unnecessary that the fund should be forced into operating illegally or that the fiscus
should be forced to respond outside the provisions of the Money Bills Amendment Procedures Act because of a short-term deviation between actuarially determined assets and liabilities. The requirement for an affordable and sustainable Scheme is that the system should be affordable to road users and the fiscus over the long term.
It is recommended that section 26(1) of the Bill be omitted and that the preamble of the Bill be
amended to state: "As there is a need for an effective benefit system, which is
reasonable, equitable, affordable and sustainable in the long term, which optimises resources, and is
managed on a long-term fully funded basis ... "
To provide assurance for long term sustainability, affordability and equity, Chapter 4 of the Bill should include provision for actuarial assessments.
It is recommended that Section 28 should be expanded to include indemnity of pedestrians or other
persons who might be determined to be responsible for road accidents. It is also important that there
should be appropriate limitations of indemnity in respect of cases of deliberately causing an accident,
malicious intent or driving under the influence of alcohol.
There is no substantive definition of "average annual national income". Treasury indicated that there were both statistical and literal problems with the meaning of national income and average income. It questioned whether income would be based on formal sector earnings, or formal and informal sector earnings or gross disposable income for households. It also questioned 'average income' whether it would constitute employed persons, or economically active, or the population as a whole. Basically, these numbers would vary which would be fundamentally problematic as well as due to statistical uncertainty. Treasury proposed that this be replaced with an expression that accurately expresses the intent of the Bill, and change the definition in clause 1 to “deemed pre-accident income” taking relevant criteria into account.
RABS will have material implications for wider public finances. The uncertainty in modelling the cost of RABS prevails; in January 2017 the costing was 60% higher than the July 2015 estimate. The Bill allows for the adjustment of tariffs, income caps and funeral benefits to take inflation into account, but inflation is not the only relevant economic and financial consideration. Therefore, there is a need to balance the requirements for an equitable and sustainable system with statutory certainty. To manage and review benefits, the following additions to section 26 are proposed:
"The Minister of Transport must at least every 24 months submit to Parliament an actuarial
valuation of the Scheme.
If the valuation indicates that the Scheme is not in a sound financial position, the Minister
( a) take all the appropriate steps provided for in this Act;
(b) in consultation with the Minister of Finance, undertake a review of the benefits or an
adjustment of revenue sources or both, taking into account the requirements of the
Constitution, the impact on the public and the fiscal position of government; and
(c) if the review recommends an adjustment of any benefit or the implementation of a
scheme or arrangement aimed at restoring the Scheme to a sound financial position or
both, undertake the requisite legal process."
The size of the Board at maximum 12 members is excessive. Consideration should be given to reducing
12 to 6 members. Secondly, it was clear why official representatives of Ministers did not have voting rights; and thus, this should be reconsidered. In order to avoid the risk of Chief Executive Officer and Directors General outvoting other members, the quorum requirement in clause 13(2)(a) should change to members appointed by the Minister. The three-year term of office is too short given the complexity of issues at hand; a four-year term might be more appropriate. Treasury proposed that the Bill should provide for an annual meeting with Ministers of Transport, Finance, Health and Social Development to consider the financial position and actuarial report and the strategic plan. The conflict of interest clause for Board Members required strengthening and wording was suggested.
In conclusion, the fundamental shift that underlies the Bill and the objective for a reasonable, affordable, sustainable and equitable benefit scheme is supported.
Mr L Ramatlakane (ANC) asked why National Treasury was presenting to the Committee at this stage. There are systems in government that include consultation with various stakeholders, and Treasury plays a strategic role in these types of processes beforehand so its presence in the Committee is very unusual especially at this point. He asked whether this was a norm or an extraordinary occasion, because he was seriously concerned about this intervention at this stage when Treasury usually plays a central role in proceedings.
Ms Britton responded that the Bill is the largest social security reform since the introduction of social grants; thus, there are concerns about its financial sustainability and viability. Treasury has been a part of the processes but you win some, you lose some. Hence, Treasury was present today. Secondly, the Bill has large financial implications for both the fiscus and the society as a whole. Therefore, this was an opportunity to share some insight on the implications of the financial aspect. The Road Accident Fund has had a R2 billion deficit since 1981, so Treasury would like to help to design a system that will be sustainable and not put the country in the position it is now at the RAF. Treasury thought it should introduce some flexibility which Cabinet never got around to discussing during cabinet meetings - in the hopes that the Committee would consider the input.
Mr Ramatlakane welcomed the response but remained adamant and asked whether Treasury missed the public comments space to make its presentation. Clearly that was the appropriate space to raise these issues. Also have these issues been discussed with the Department of Transport (DoT)?
The Chairperson said she was hoping that the Committee would deal with the Treasury submission since during the public hearings Treasury was not able to be accommodated.
Mr M Sibande (ANC) lamented about the road accident victims because time after time money was not being paid to the victims by the lawyers, and he hoped that these sentiments would be reflected in the presentations. The victims have highlighted these concerns themselves. Is Treasury not concerned about that?
Mr T Mpanza (ANC) also had an issue with the process; it would have been better if Treasury had engaged the Department at a technical level. The two departments should have had a discussion to reach common ground and resolve any disagreements prior to coming before the Committee.
The Chairperson indicated that Finance Minister Nhlanhla Nene had indicated that Treasury would come before the Committee to highlight its concerns about the Bill, and that would be part of the consultation process. Minister Nene sent a letter to the Chairperson on 19 June 2018 requesting the Committee to have Treasury come make its submission, but unfortunately the Committee programme was already adopted at that time. This request came from the Minister of Finance just before the Public Hearings commenced. Treasury was meant to come and highlight the deficiencies it saw in the Bill, but as things evolved Treasury’s comments were not part of the inputs that were welcomed. So this would constitute part of the consultation process. Treasury had wanted to come but unfortunately the public hearings programme was already endorsed; hence, it was only put on last. The Committee might be setting a precedent with this because it is indeed unusual because this was supposed to take place during the hearings procedure.
Mr C Hunsinger (DA) said he was also confused because Treasury is not a member of the public and right now the Committee was in the process of gathering information from public stakeholders. If what was presented today had been presented to the Department, perhaps the Committee would have gone to the public with a much more improved Bill. He asked if these concerns had been presented to the Department, and at what stage it was made available to the Department.
Ms Britton replied that there was a continual engagement with the Department from the time the Draft Bill was published by DoT for public consultation in 2013/14 all the way until it was tabled in Cabinet. Treasury had shared three concerns with the Department of Transport on the Bill, and one of the items was new. The first was around the financing of the scheme. Secondly, it was on the average national income which is arbitrary definition and it can mean different things. Thirdly, it was about building some flexibility that would make the scheme sustainable. The only thing that was new was the issue of governance specifically separating the Administrator from the scheme itself, and some of the drafting issues around conflict of interest in relation to governance. The fundamental issue around creating a sustainable, equitable and affordable system was always on the table.
This is an extraordinary thing, and Treasury would have preferred to resolve these issues while the Bill was still within the executive. It is such a significant social reform that Treasury felt that it was important to come to the Committee and present its input.
Mr Johannes Makgotho, DoT Chief Director: Road Regulation, said that the only information that was made available to the Department of Transport was around funding, but everything else that was said is new information in the eyes of the Department.
The Chairperson said if that was the case, what was the Department’s approach in dealing with the Bill prior to it reaching Parliament?
Mr Makgotho said that when the process started, the Department consulted with Treasury and that is included in the Bill. The Draft Bill was approved by Cabinet and DoT went ahead with public hearings. The full Cabinet including the Minister of Finance approved the introduction of this Bill into Parliament.
Mr Ramatlakane said that the fact that consultation was requested in June did not make it legitimate. He expressed his concern about Minister Nene approving that Treasury come before the Committee to make this presentation at this stage, unless both Ministers of Transport and Finance agreed to this. In engaging this presentation, he asked if this would require a further public canvassing on the new issues that have now been raised by Treasury. He suggested that perhaps the Committee needed to obtain legal advice on this matter.
Mr Mpanza said that this was quite a dangerous precedent; the two Departments seem to clash on this matter which may translate to the two Ministers as well. He suggested that both Department and the Ministers go back to the drawing board, and come back to the Committee in unison. He supported the suggestion of obtaining legal advice on the matter. He asked if engaging further on what has been presented by Treasury would serve any purpose.
Mr Hunsinger said that in light of what had come up, what was the status level of this intervention and with the two Ministers? Treasury says there was continued discussion yet DoT says something else – it disagrees with that. Although he was keen on engaging National Treasury on the issues raised, it was important to deduce the next step to take.
The Chairperson asked for a short recess to consult on the matter.
After the break, the Chairperson indicated that looking into the legalities of the process, there must be certainty that politically there is consensus. She suggested that both Treasury and DoT representatives contact their political heads to ascertain whether there was a prevailing challenge or not with this process. However, this did not mean the Committee cannot continue engaging. As soon as feedback was received from the political heads, a way forward would be established.
Mr Hunsinger proposed that there be a meeting later in the week. He could not be present on Thursday because his party has a caucus.
Mr Ramatlakane rebutted that it is Committee week and there are no caucus meetings during Committee week.
Ms Noluthando Mpikashe, Parliamentary Legal Advisor, said from a legal perspective that there were no legal implications that could add any value as there was no issue with the Constitution or contravention of any law.
Mr Ramatlakane said there are elements in the presentation that are not necessarily included in the previous feedback from Treasury.
Ms Britton said she had spoken to the Chief of Staff in the Minister’s Office and he asked about the Committee timelines to ensure that any engagement between the two Ministers may happen within the timelines. Unfortunately it would not be before the end of this week because the Minister of Finance has a Budget Council on Thursday and Friday. The Chief of Staff has committed to the Minister of Finance meeting with the Minister of Transport within the determined timelines, as well as perhaps a discussion between the two Ministers and the Chairperson.
The Chairperson suggested that next week on 21 August the Committee propose a way forward on the matter. The Committee does not have any more time; it has to finalise the Committee report on the hearings in the coming two weeks so as to be able to start working towards presenting the Bill to the National Assembly in the third week of September. In the coming two weeks, the Committee will be dealing with the outcomes of the public hearings. Hopefully, if there is coordination, the Committee would then inform Treasury on the way forward about its input.
The meeting was adjourned.
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