Road Accident Benefit Scheme Bill: Department response to Treasury concerns; with Minister and Deputy Minister

Meeting report

The Chairperson welcomed everyone including the Minister and Deputy Minister. She said most of the people who made submissions during the public hearings complained bitterly about how they are being dealt a raw deal by either the Road Accident Fund (RAF) or the lawyers.  The Committee will continue to hear responses by the Department of Transport (DoT) on the Road Accident benefit Scheme (RABS) Bill responses to the comments made by National Treasury..

Transport Minister, Mr Blade Nzimande, thanked the Chairperson and the Committee. He indicated however that the ministry would be meeting with the Competition Commission at 11 and would have to leave that time. He referred to the letter the Chairperson wrote citing concern that National Treasury and DoT was not communicating the same message. DoT has a prepared report for the Committee that addressed those issues.

Department response to Treasury concerns

Mr Chris Willemse, Senior Manager, RAF, gave an overview of the responses. These responses pertained to the composition and appointment of the board; the term of office; exclusion of liability of owner; driver and employer of driver; and regulations and certain notices by the Minister.

National Treasury suggested, among others, that a consideration be given to reduce 12 board members to six. The new proposal put forward ‘no more than 10 members appointed by the Minister’. Section 9(1) provided for a term of office of board members of three years, and re-appointment for one further three year period. The Department did not agree and maintained a three-year term as an appropriate term of office.

Treasury recommended that the Bill provide for an annual meeting with the Board with the responsible ministers at which the financial position of the scheme and an actuarial report are considered together with the administrator’s strategic plan for the year ahead. This would also serve as the annual meeting at which relevant determinations are made on prescribed caps and deemed income levels.

The Department noted this and proposed new clause 33, where the Minster, the Minister of Health, and the Minister of Social Development ‘shall meet within three months from the end of the financial year to consider the financial position of the administrator and any remedial actions that may be necessary’. The meeting shall consider the adjustment f the tariff and treatment protocols, annual average national income cap, lmp sum funeral benefit, and the limit on the provision of vocational training.

On clause 26, on financing, and considering Treasury’s proposals, the Department proposed new insertions of clauses 26 to 33 on the benefit account, the transition account, and the application of money in the provisional account, the operations account, and actuarial valuations.

In terms of clause 28, Treasury recommended that section 28 be expanded to include indemnity of pedestrians or other persons who might be determined to be responsible for road accidents. It was also important that there should be appropriate limitations on indemnity in respect of cases of deliberately causing an accident, malicious intent or driving under the influence of alcohol and the Department proposed a reformulation of clause 28(4)

Treasury also indicated that the Bill proposed that deemed income be set at average national income but no substantive definition of average national income was provided.

The Department suggested the following amendment to the definition of average national income: “the average annual after-tax income earned in the Republic, for the whole of the employed and unemployed population between the ages of 18 and 59, inclusive, calculated in accordance with the methodology prescribed by the Minister in consultation with the Minister of Finance”.

Discussion

Ms S Xego (ANC) referred to board composition and said the threshold of ‘not more than 10 members was acceptable, but the fact that there are no requirements as to a fixed number of board meetings was concerning. She asked if there could not be a similar threshold for board meetings in a financial year that could assist with board members actually addressing issues rather than treating board membership as financial means.

Mr T Mpanza (ANC) commended the ministry for its responsiveness to the Chairperson’s letter. Since the Department has responded in this way it would also be good for Treasury to get an opportunity to comment so that there is confirmation that it was a joint response. He was satisfied that the constitutionality of the Bill had been addressed.

Mr K Sithole (IFP) asked for clarity on the powers of the board and the annual meeting of the two Ministers.

Mr M Shelembe (NFP) referred to the conduct of board members and wanted to know if it should be ‘shall not’ or ‘may not’. He also referred to board meeting where it said the board ‘shall meet as often as the administrator may require’. He wanted to know what the relationship between the administrator and the chairperson of the board would be and whether the administrator would have the power to determine if the meeting must take place or not.

Mr T Mulaudzi (EFF) asked if the Bill would be going to the National Council of Provinces (NCOP) and based on the changes in the Bill, would there be another round of public participation for the public to comment on these proposed changes.

Mr M Sibande (ANC) asked for clarity on the constitutionality issue and on the finances as was raised by both members of the public and Treasury where most of the money went to the lawyers. He referred to the percentage taken by lawyers where in some cased it exceeded 50%. He asked what the process was that unfolds when injured during a hijacking. He referred to illegal people (both black and white) in South Africa and asked that this must be made clear. He also asked for input on the internal processes and approach taken by the Committee on this Bill since “some people wanted to make an issue of that”.

Mr L Ramatlakane (ANC) said it was good that the Department and Treasury found each other. It did slow the process down, because now there are new issues on the table that may necessitate further consultation. The parliamentary legal adviser might have to provide input on that matter. He referred to the new suggestion around self inflicted pain and said RAF went head and answered this without it being tested that indeed a certain percentage of motorists have found to cause accidents in the hope of getting paid. Treasury presented the annual adjustments meeting, but it has not been explained what these adjustments mean, i.e. whether it would be downwards or upwards. He said it sounded that a law was being made that could be amended based on the annual adjustments meeting between the two Ministers. He referred to the matter of foreign nationals where the Department wanted to make it a law for someone to claim within the prescribed three-year period to give time for those foreign national to get the papers in order. The debate centred on the claim that Home Affairs took a long time to provide paperwork for asylum seekers – a claim that was disputed by Home Affairs. It seemed the Department has provided answers and provisions to matters that have not been discussed and tested. He said he was not sure if Treasury should have an opportunity to respond, but the clause-by-clause deliberations of the Committee will give another opportunity to straighten out some details.

Mr C Hunsinger (DA) appreciated the presence of the Minister and also wanted it put on record that the Committee had a positive engagement the previous week on taxi violence with the ministry. He said only seven of the issues mentioned in the Treasury report has been addressed. The matters that Treasury highlighted which the Department did not cover reflected on the only document (True South report) the Committee has ever considered in terms of the financial implications of the RABS. That document should be scrutinised, because Treasury in its report, which the Department did not cover, stated its concern around the modeling of baseline costs of RAF, uncertainty around modeling the costs of RABS itself,  uncertainty in the valuations of income support benefits, uncertainty around administration costs, and most importantly, funding. He acknowledged that there are some suggestions and a suggested new route around funding and elements that are fundamental in the change of direction from RAF to the new suggested benefit scheme. He said he still did not fully get the ‘fault/no fault’ issue. The uncertainty in terms of the modeling of the baseline costs of the RAF, a particular set of expenses was used in the ‘True South’ document that Treasury commented on. In fact, there are six variances of budgetary expenses and out of all those the lowest one was conveniently chosen in the True South report, opposed to R37.8 billion in expenses that was used to establish the necessary 20% differential, but the actual cost was R31 billion and the 20% suddenly disappeared. Treasury commented on this and it cannot be ignored by the Committee and he maintained that the figures and numbers presented to this Committee should be scrutinised. The uncertainty around modeling the costs of RABS related to the income support benefits that, in the True South report, spoke of a 1% representative sample as a reference to justify that cost calculation around income support benefits. There was no mention of evidence or the source of that % representative sample and this Committee cannot just accept the principles of a prime definition of a suggested new bill with huge financial implications without tracking the source of this suggested definition. It was vital to ascertain what data was used and what sample the finding were based on. He suggested, in terms of the income support benefit, that the valuation should be obtained with a firm reference and a definition around the source of what was used to base the assumptions on. On the income support benefit, Mr Hunsinger referred to the calculations in the RABS bill where there was a reference to 75% earning after taxation. He referred to the Compensation for Occupational Injuries and Diseases Act (COIDA) that provided that it should be calculated as an after tax benefit and it cannot be 75%. Lawyers for claimants with a 25% earning on claims were equally as bad for victims as this proposal and the 75% was not justifiable. He agreed with Treasury on the administration costs and the Committee needed to take great care in scrutinising what was presented to Members on the administrative costs of RABS compared to the projected costs. If the compensation fund was considered and the ratio was worked out, the projected administrations costs escalated from R1.9 billion to R4.7 billion. Funding was still a big question. Where will the money come from? This was the underlying concern that was picked up from Treasury’s intervention. Another important issue was the impact of the fuel levy of 193 cents per litre that has not been factored into the new actuarial valuation. The True South report was an outdated valuation.

Mr M De Feitas (DA) said the Committee needed to research and apply its mind in terms of this Bill and he also referred to the need for public participation because of the new aspects. In addition he wanted to know how it would be determined when an injury was intentionally caused.

Mr Mulaudzi asked how will manage to fund or afford RABS and RAF. He referred to rehabilitation centres and asked if it will be available or accessible in rural areas. He also wanted clarification on the court ruling on the determination of tariffs.

Ms Xego appealed to the Department to invest more in awareness programs so that the public become educated on their rights when they become involved in accident.

The Chairperson said the Department has indicated a variety of accounts which was actually a proposal by National Treasury and she asked what the rationale was of having an administrator and a scheme separated in terms of the proposed accounts. She addressed the Minister and said while the Committee was pleased that DoT and Treasury has ‘found each other, the input by Treasury will be treated like any other input received during the public hearings.

The Minister said the Department officials will remain and will provide technical clarity to Members’ questions. He said the Department was also pleased with its engagement with Treasury because the projection of the differences DoT and Treasury was being exploited by those who really had no interest in this matter.

The Deputy Minister referred to the awareness programme, “RAF on the Road” which has been used to educate and make people aware of their rights and the institution.

The ministry was excused.

Mr Hlabisa said the discussions with Treasury will be strengthened with the issues raised today, the direction was very clear and all involved will be working closely as different departments, but as one government.

Mr Willemse, on the board meetings responded that Ms Xego’s proposal might not be practical, because meetings are usually quarterly, but sometimes additional meetings are required. The business of the entity might also require more frequent meetings. This will not have a cost implication, because an annual stipend was determined for board members and remuneration was not informed by the number of meetings.

From the Department’s perspective, he said that the Committee went out and consulted on the Bill and input was received for the Committee to take into account. It was not practical to re-consult every time there was an adjustment to the Bill.

On constitutionality in clause 26, Mr Willemse said Treasury wanted to express the challenge it would have in processing the required legislation to bring the scheme back to a fully funded position in the event that the financials showed it was not fully funded. That would put them in a difficult position and the scheme would function on an unconstitutional or unfunded basis, because the Act required it to be fully funded. That would not occur in terms of the proposal. The funding ratio would trigger a requirement for the Ministers to meet and address how they will bring the financials back to where the funding ratio sat on 90% or above.

In terms of attorney fees, he said in recent years there have been a number of litigated matters in the Constitutional Court that clarified that there was an upper cap of 25% on fees. Attorneys have now taken the view that it did not apply to them and they could up their fees to whatever they wanted and they could recover, in terms of their interpretation, more than the statutory cap.

An important concern from Treasury’s perspective that was incorporated into the proposal was that providing an average annual national income where the level of the benefit was so high; it may incentivise persons injuring themselves to access the benefit. It was therefore part of the discussions and agreement between the departments to address moral habit, because it also spoke to the financial viability of the scheme.

On what happened when there was a hijacking, Mr Willemse said the hijacker’s plan would be limited to emergency medical expenses if he was found guilty of a crime. The person being hijacked was unaffected by the limitations.  

On illegal immigrants, he said that the Constitutional Court has already considered the matter of illegal persons in the country and social benefits. It was rational for the government to limit its liability and not provide benefits to everyone who was in the country regardless of their status. The court also found it was reasonable to exclude certain categories, and that could include illegal persons in the country not receiving social benefits. The clause as it was drafted now was a legitimate government purpose to make a scheme affordable, because the State has the means to approve someone’s residency and if it did not want that person here, conditions could be added or the application could not be approved. It did not have that power in respect of someone illegally in the country and consequently the person illegally in the country should not benefit from the scheme other than access to emergency medical care. The current version of the Bill stated that at the time of the accident a person needed to be legally in the country. An attempt was made to find common ground in relation to those persons who find themselves in the country whilst in the process of obtaining papers with the three-year period.

He referred to the questions on the financials and the True South report and responded that the Treasury input was not new, but it provided clarity in respect of governance provision and clarity on how the average annual national income was defined. The figures presented by Treasury were presented in a manner that if the definition was not properly understood, the number arrived at would not be what was presented. With the tightened definition there was no wriggle room.

A Department official said Treasury pointed out that the definition of the average annual national income was too broad and showed the different numbers you could arrive at if it was differently interpreted. On the 75%, he said this paid even for disability benefit. If a person was given 100%, there would be no incentive to get back to work as soon as possible. The starter benefit arrived at a much lower income level and the minimum wage showed R42 000 per annum, while the average in the costing projection was at R52 000 per annum. The uncertainty in the modeling was there, because it was a new product based on assumptions. These numbers were based on the number of accidents every year and the numbers of claims received from those accidents. Those claims are categorised into serious, minor and finality claims and the statistics are used to apply to the benefits of both RABS and RAF to determine the annual costs of accidents. Some years would have more serious claims where more money would go towards rehabilitation benefits, hospital costs and loss of income. Similarly, more minor accidents due to e.g. improved roads would mean less expenditure on loss of income. Because there will never be 100% certainty, National Treasury’s proposal focused on the management of that uncertainty in clause 26 that there should be a mechanism in place to look at the benefits and comparing it to the funding to assess the scheme.

Mr Willemse said not every town will have a rehab centre, but the benefit provided for transport remuneration for a rehabilitation centre. On the Constitutional Court judgment, he said the court, on the non-emergency medical tariff in terms of RAF claims, he said until the Ministers’ meeting take place to determine the tariff, there will be no tariff in relation to non-emergency medical treatment. This was tabled as a Draft Amendment Bill and presented to this Committee. There was now no obligation on the Minister to deal with the tariff since there was a proposal to displace the current dispensation.

Mr Hunsinger said his questions can be determined, because the True South report was an attempt to mislead the Committee. The numbers used in the report in reference to the expense range were carefully selected to project the lowest expense column of the RAF so as to justify, through assumptions, but based on selectively chosen facts, to suggest a 20% savings. He maintained that this was not true and in terms of the design which has financial implications, additional actuarial projections and calculations must be done. This Committee cannot accept the True South report and new reports needed to be provided on funding.

Mr Ramatlakane referred to this question on the adjustment meeting and said, assuming that, when an accident happened and monthly payments on the claim has been determined, he asked whether that meeting  could lead to a decision that reduced benefits. If this was the case, how would a claimant get to understand such a downward adjustment? He asked what necessitated such a provision. On illegal foreign nationals, he asked why there was a three-year provision since the law allowed for a person to, once legal, to claim. On the issue of actuarial reports, he said he did not agree, because the nature of the matter will result in different viewpoints.

Mr Sibande said the issue where money was paid via lawyers should be addressed. He asked for more information on the conflict of interest concern (clause 16) raised in a previous meeting and it tied in with the constitutionality issue.

Mr Mulaudzi said he disappointed in the Department’s ‘vague responses’. He referred to his question on affordability and funding that was not addressed. He said the tariff issue was a Constitutional Court order and he asked how RABS could be implemented without tariffs. He wanted a yes or no answer on whether RABS implementation will increase the petrol levy. He questioned why assumptions and projections were based on road accidents and wanted more certain and researched information projections should be based on. He wanted clarity on how the transport benefit will be provided for in the Bill and he emphasised that the Bill should be clear and unambiguous.

Mr Willemse replied that in the long term RABS should reduce the continuous increases of the petrol levy currently experienced.  He said nobody at the meeting can speak for National Treasury, but the intent with RABS was to make the scheme affordable. How Treasury will manage the funding was for the Minister of Finance to respond to. RAF was the administrative scheme and RABS was the administrator that paid benefits. The number of accidents was not within the control of the administrator, but it must be taken into account, because there will be years with higher and lower accident rates. The RAF tariffs pertained to the current dispensation and in terms of costing, the RABS assumptions were based on medical scheme rate tariffs, which meant it was at a higher rate then what was currently paid. The scheme did provide for various funding streams, both in respect of the fuel levy and appropriations by Parliament. The Bill provided that a beneficiary was paid directly, in increments or structured manner when a beneficiary elected not to use an attorney. If an attorney is used, that money will be paid into the attorney’s trust account, later transferred to the business account and then paid to the beneficiary after deductions. The beneficiary can either claim directly and be paid directly or elect to use an intermediary. It would be more beneficial to a beneficiary to claim directly in terms of the net amount received. Treasury had indicated that the current provision in the Bill for conflicts to be reported was not strong enough and because this entity was subject to the Public Finance Management Act (PFMA). Sections 49 and 50 of the PFMA dealt with conflicts and how a member of a board should report and recuse from voting. The proposal was to craft reference in this Bill to the PFMA that in any event superceded what would be in the RABS Bill on board and governance matters. The current Bill stated that a beneficiary was entitled to certain benefits, but not entitled to automatic inflationary increases. In addition, there are a number of caps provided for in the Bill which from time to time might be adjusted by the Minister in consultation with either the Minister of Finance or Health in terms of the medical tariffs. These caps and tariffs impacted the reliability of the scheme. If left alone in real terms, the benefit decreased over time. If the existing levers in the Bill are not adequate to deal with an increase in liability, that meeting will discuss legislative measures with increasing funding streams, decreasing benefits, or both. Alternatively, if there was a surplus in the account, adjustments would happen as envisaged in the Bill, e.g. if a beneficiary received R100 per month, the Minister will adjust to R102, R105, etc. If the funding ratio dropped below 90% and the normal levers in Bill are inadequate, e.g. not adjusting upwards, the Ministers would have to approach Parliament to get the scheme on a fully funded basis. Currently the Bill stated provided that if at the time of the accident a person did not have legal status, that person had no remedy and no opportunity to fix their resident status and the exclusion applied. The proposal gave the person the opportunity to deal with the administration to justify being in the country. If that person did not succeed within that period, he/she would not meet the requirement to qualify for the benefit. Currently the RAF appointed caregivers who could potentially look after a person who was unable to drive and this caregiver could help a person to reach a rehabilitation centre. The Bill provided for the costs related to caregivers and that included transport and sometimes accommodations costs. The costing in terms of the medical benefits will ensure that that person was indemnified in terms of expenditure on transport.

Mr Ramatlakane said Mr Willemse’s explanation on the adjustment meeting is not clear in the current Bill. He was still not sure why the provision on the three-year period for foreign nationals must be included in the Bill and he felt the provision was influenced by what was raised during the public hearings. He said he was not comforted on the explanation on the adjustment meeting, because he was not convinced that it could work and was at the interest of the people. It should be clarified so that the Bill cannot be challenged.

Mr Sibande said laws must prioritise South Africans.

The Chairperson thanked the Department.

Mr Hlabisa said these engagements enriched the work of the Department and the input by the Committee will be taken into account. The Department will engage with Treasury to address those issues not addressed. He thanked the Chairperson and the Committee for the opportunity.

Mr Ramatlakane asked the Department to also provide clarity on the fault/no fault issue.

Consideration of the Draft Committee Programme

The Committee Secretary, Ms Valerie Carelse, took the Committee through the available slots to meet on the RABS Bill.

Mr Ramatlakane said the Committee should first determine if there will be a public consultation process before the programme could be finalised.

Ms Alma Nel, Content Advisor, said it was not really her place to answer since the State Law Adviser has already left for another meeting, but if the Committee accepted the new proposals, the Committee might have to start the public consultation process. There was a way to run the publication that will allow the Committee to finalise the Bill, but it was unlikely to be finalised in the September session of the House. The Committee can adopt the programme subject to change.

Mr Ramatlakane said it was unavoidable to ignore what Treasury has presented and whether the public consultation process would be

The Chairperson said it would not be right to put Treasury’s proposals in the Bill without getting input from the public.  The Committee could put the programme on hold and get the legal advice next Thursday afternoon at 16h30 on the way forward and the programme.

The Committee agreed.

The Chairperson thanked everyone and the meeting was adjourned.