Committee’s role and budget process: training; Legacy Report

Standing Committee on Appropriations

04 July 2019
Chairperson: Mr S Buthelezi (ANC)
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Meeting Summary

Legacy Reports

The Committee’s support staff delivered a threefold presentation to the Committee on its role in the Sixth Parliament, with a focus on its mandate, Committee rules and procedures, and the Fifth Parliament Legacy Report.

The Committee was told it had the capacity and constitutional authority under the Money Bills Amendment Procedures and Related Matters Act to accept, reject or amend budgets. Its main focus in the budget cycle was the adoption of the fiscal framework, the approval of money bills, the Division of Revenue Bill and the Appropriations Bill. The Committee’s mandate also extended to expenditure published by National Treasury, special appropriations and any other related matters set out in the Money Bills Act.

Members expressed concern over the lack of gender representation in the Committee support staff, and the Chairperson urged the Committee to remain aware and sensitive of gender issues moving forward. The Learner Transport Programme and Passenger Rail Agency of South Africa (Prasa) expenditures were key issues for the Committee to revisit and find adequate solutions. Questions were raised about the extent of the Committee’s mandate. The Money Bills Act served as a constitutional tool and framework for the Committee to carry out its duties. Members were reassured that if past performances of Departments or projects had not been satisfactory, the Committee did have powers to redirect allocations.

The Chairperson of the Financial and Fiscal Commission (FFC), Deputy Directors of the Parliamentary Budget Office (PBO) and members of the Parliamentary Legal Services Unit all addressed the Committee regarding their support role in relation to its oversight function. The FFC existed to support public representatives to adequately engage with financial matters and issues that had fiscal implications. There was no structure equivalent to the FFC, and the Constitution stated clearly that Parliament and the Executive must consider its recommendations. The FFC commented that documents it had submitted in the past had at times been ignored, and emphasised that its recommendations must be responded to, and engagements and indications of whether the Committee agreed or disagreed with recommendations should be communicated. Key instances of where the FFC’s recommendations must be considered, as specified by the Constitution, included equitable shares and allocations of revenue; government guarantees; provincial taxes; municipal powers and functions; and provincial and municipal loans.

The Parliamentary Budget Office (PBO) briefed the Committee on its background, role and function. It had been established in line with international best practice, while taking into account the South African environment. It was led by a director accountable to Parliament, and provided independent and objective analysis. Its mandate was outlined in the Money Bills Act, and there were regular outputs and demand-driven research. Where the PBO differed from structures such as the FFC was that the PBO did not make recommendations, but rather provided information and support to committees in accordance with the Money Bills Act.

Members expressed concern over the vacant director post at the PBO, and were told it was the National Assembly’s responsibility to make an appointment. They also engaged heavily with regard to Eskom and the issue of electricity costs in rural provinces and municipalities. The recommendation was that the government should work with the National Energy Regulator to put in place a finance framework that dealt effectively with electricity pricing. It was also agreed that the issue of Regional Electricity Distribution Services (REDS) should be revisited with Eskom, as it was incredibly complicated. Other issues raised for further discussion included supply chain management reforms, special appropriations and conditional grants. 

Meeting report

The Chairperson suggested that output should be the primary concern, and not time. Questions should be concise and direct. The meeting with the Department of Treasury the previous day had been engaging, and a more thorough workshop would be arranged in the near future.

Role of Standing Committee on Appropriations

Mr Musa Zamisa, Committee Researcher, outlined the role of the Committee in terms of its mandate, functions, key processes, stakeholders and partners, and frameworks and instruments. He gave a brief history of the Money Bills Amendment Procedures and Related Matters Act from which the Committee was guided. He explained how Parliament could not amend the Budget in the absence of an Act. Prior to the Act, engagement could take place, but nothing could be changed. The capacity to amend the Budget must be on par with the Executive and National Treasury.

Section 4(3) of the Money Bills Act was what establishes the Standing Committee on Appropriations of the National Assembly (NA), as well as the other three finance-related committees -- the Standing Committee on Finance (NA); the Select Committee on Appropriations of the National Council of Provinces (NCOP); and the Select Committee on Finance (NCOP). The appropriations committees focus on the spending side of the Budget.

In terms of the mandate, the Committee’s powers and functions are to consider and report on:

  • Spending issues.
  • Amendments to the Division of Revenue Bill, the Appropriations Bill, the Supplementary Appropriations Bill and the Adjustment Appropriations Bill.
  • The Medium Term Budget Policy Statement (MTBPS).
  • Consider and report on recommendations of the Financial and Fiscal Commission (FFC).
  • Expenditure published by the National Treasury; and
  • Any other related matters set out in the Money Bills Act, 2009.

The SCoA was unique in that it deals with the most important policy instrument in the hands of government, which is the Budget. Through effective budgeting and implementation, government could eliminate poverty and inequality, which are the key objectives of the National Development Plan (NDP). The Committee had an overarching mandate, cross cutting departments, public entities and government spheres. Its mandate was massive and time constrained, based on time constraints in the Acts. He made reference to the Committee on Appropriations in the United States, which had about 50 members with sub-committees, which emphasised its importance. The SCoA was a legislated Committee with power to affect, reject or amend budgets, and had a coordinating and facilitating role. Portfolio Committees had to lobby the SCoA to introduce budget amendments.

During the Budget cycle and process, SCoA’s main focus is during the legislative and execution stages. It had the scope to participate ex-ante, or before the implementation of the Budget. The Committee conducts oversight and monitoring over the executive during the execution stage and “follows the money”. The Committee is given the privilege of attending a lock up session to view the Budget before the Minister delivers the speech in order to deliver its position toward the Budget. The key focal areas for the SCoA during the legislative phase after the Budget is tabled, is the Division of Revenue Bill, on which it has consult the South African Local Government Association (SALGA) and FFC before it is approved. The SCoA in the NCOP really focuses on the Division of Revenue Bill, whereas this Committee’s main focus was the Appropriation Bill.

Mr Phelelani Dlomo, Content Adviser, said the difference between the two Bills was as stated in the constitution, and was outlined in the presentation for the purpose of clarity for the Members.

Mr Zamisa added that the primary focus of the Committee was at the national level, hence the emphasis on the Appropriations Bill, whereas the SCoA in the NCOP places emphasis on the Division of Revenue Bill.

Mr Dlomo explained that a key difference is that the Division of Revenue Bill can reallocate funds vertically at local, provincial and national levels, whereas the Appropriations Bill can reallocate the budget horizontally, such as across different departments.

Mr Zamisa elaborated on how the powers and process to amend, reject and accept budget was a difficult exercise. Making reference to the United States and Canada, he mentioned how even the US SCoA could not always agree. Uganda, Kenya, Switzerland and Germany were noteworthy examples of appropriations committees to learn from, but the importance of noting the South African context and history should be recognised. He then listed the key legal frameworks, key partners and stakeholders, institutional frameworks and operational instruments, as per the presentation. He emphasised the NDP and the President’s call that it should inform all aspects of the work of government.

Key questions on the budget for Members of the Committee to consider were presented. Alignment with the NDP was mentioned, along with the sustainable development goals (SDGs), growth, job creation, unemployment, poverty and inequality, gender empowerment, rural communities, State of the Nation Address (SONA) priorities and addressing service delivery shortfalls. He emphasised that the budget was not about numbers. but about people.

Credible strategic plans and annual performance plans were a point of concern, as some departments set unachievable goals and then failed to meet their targets. The Committee approves budgets and not performance plans, but Departments could spend 100% of the budget and achieve only 50% of their targets. There must therefore be value for money, and spending outcomes must match the achievement of targets.

He concluded that the Committee was the custodians of the Budget, and it should use the Money Bills Act to guide its work. He reiterated that the Budget was not merely about numbers and statistics, but about people.

Rules of National Assembly Committee System

Mr Darrin Arends, Committee Secretary, presented an outline of the role and function of the Committee, as it was part of the NA. He also highlighted certain parts of the constitution and the general rules of the NA underpinning the general powers of the committees.

The specific sections he highlighted were;

  • Section 42(1) of the constitution, which speaks to the composition of Parliament
  • Section 44 of the Constitution, which vests the national legislative authority in Parliament and (1)(a) confers the specific powers of the Committee to the NA.
  • Section 57 (NA) confers the right of each House to determine its own internal arrangements, proceedings and procedures which is where the Rules Committee comes in. The Rules Committee, in terms of NA Rule 237, determined the Committee as of 11 June 2019 to have six ANC members with one alternate, two DA members, one EFF member with one alternate, one IFP and one UDM member.
  • The Standing Committee on Appropriations, established by Rule 236 in terms of the Money Bills Act
  • NA Rule 154(1), which allows for parties to be represented in the same proportion as that of the Assembly

NA Rule 167 outlines general powers. The key power is the ability to summon any person to appear before it to give evidence. Mr Arends pointed out that the Committee had never “summoned” anybody, but rather chooses to invite and parties accept. Additionally, he mentioned receiving petitions, representations or submissions from interested persons or institutions. For instance, Equal Education petitioned and gave valuable insight related to the scholar transport programme.

The Committee may also conduct public hearings, and reminded Members that the public hearing for the 2019 Appropriation Bill was scheduled for 16 July, and the closing date for submissions was 12 July. He cautioned against insufficient public hearings and the potential for court cases if public hearings were insufficient. The Committee’s focus was on expenditure, but performance was important when evaluating value for money to combat the disjuncture between expenditure and performance.

Ideally, other Committees could express the challenges related to budget allocations so that the SCoA can work on the Appropriations. A large emphasis was placed on the difficulty of time constraints and the problems with scheduling. The Committee had to decide how often to meet – the fifth Parliament’s Committee met on average three times a week, and as an overarching Committee it could meet on any day. Timeframes needed to be taken into account and adhered to as strictly as possible to account for public hearings.

NA Rule 185 states that any Member of the Assembly who is not a Member of the Committee may still attend and participate, but may not participate in voting. In the event of absence, best practice was that an apology must be sent. An alternate member may vote when the permanent member is not present.

Mr Arends said that after the Bill has been referred, it must be agreed upon by the majority of the Committee, and the report must state the classification of the Bill and clearly indicate whether the Committee recommended approval or the rejection of the Bill.

Committee Legacy Report for 2014-2019

Mr Dlomo presented the Legacy Report to highlight the challenges which occurred in the Fifth Parliament and outline focus areas for the Sixth Parliament. The key objectives of the Fifth Parliament which were similar to the mandate of the Committee included effective implementation of the Money Bills Act; strengthening oversight; improving collaboration between Committees and Houses; facilitating public participation; and capacitating Members and staff of the Committee.

He went through aspects of the Legacy Report not covered by the previous two presentations, and addressed some key objectives. Improving collaboration between committees had been an important objective. A joint oversight on the Bucket Eradication Programme (BEP) with the Portfolio Committee on Water and Sanitation had taken place in 2018, and he stressed the importance of the oversight report produced and the recommendations and findings that needed to be followed up by the new Committee.

He mentioned that the Committee was able to be a part of Section 32 expenditure report hearings. After the Budget has passed, the Committee is meant to monitor its expenditure and implementations from thereon out. Another key objective was strengthening oversight over budget performance through quarterly expenditure reports. Quarterly briefings by the Office of the Chief Procurement Officer were important, as they allow the Committee to identify early what could be an unauthorised expenditure. It gave a sense as to what to expect during the adjustment Budget.

During the quarterly reports, the Committee may invite departments and question their projected expenditure. The Department of Performance Management and Evaluation (DPME) also released an important report that assisted in addressing the weaknesses and anomalies in expenditure. The National Treasury was also requested to start reporting on public entities. He emphasised that the oversight of the Committee was limited to the Appropriations Bill, and its oversight should remain within the parameters of the Money Bills Act.

He listed areas of future work for the Committee, as well as projects to be followed up;

  • The Integrated Financial Management System (IFMS) project had been dealt with, but there were some outstanding actions on the side of Treasury with regard it.
  • The Employment Creation Facilitation Fund, which was a Jobs Fund, had been pursued by the Committee over time, and there had been overspending time and again. The Committee must get a response from Treasury as to how it had implemented the recommendations of the Committee.
  • The Infrastructure Fund.
  • On supply chain reforms, the Procurement Bill needed to be presented to the Committee, as it dealt with spending.
  • Government Guarantees, and the implementation of conditions related to the bailout of state-owned entities (SOEs). The question that arises is, what are the implications of the bailouts on service delivery for the poor?
  • The Committee had engaged with the Presidential Infrastructure Coordinating Council on progress with strategic infrastructure projects as they are funded out of the Budget.
  • Programmes that presented a potential risk to the fiscal framework, as identified by support staff, were water infrastructure projects, the Expanded Public Works Programme (EPWP), school infrastructure development, the Learner Transport Programme, and maintenance of existing infrastructure.

He concluded the section on key issues of future work by stressing the critical nature of follow-up on turnaround strategies, where the Committee has approved bailouts coupled with a turnaround strategy. Entities in question who had received special appropriations were South African Airways, the South African Post Office, SA Express and Eskom. Conditions of bailouts should also be reviewed.

Discussion

Mr A Sarupen (DA) asked whether the National Treasury produced any reports that checked the technical alignment between ABPs and the Budget? He argued that it was neither the job of SCoA Members nor support staff and researchers, but should fall on National Treasury. He would like to see the percentage of targets met and the percentage of budget spent in future reports. He said that having this kind of information available during his time in the Gauteng legislature had assisted in combating fiscal dumping.

Mr D Joseph (DA) asked for clarification on who the different stakeholders were who were dealt with by the SCoA in the Fifth Parliament. He also asked for clarification on the rules of quorum, commenting that where decisions were to be made, then the quorum should be observed. However, was a quorum still required for meetings where presentations were made and no decision making took place?

Ms R Komane (EFF) asked what powers the Committee had to hold departments accountable. She also referred to the oversight visit to the Passenger Rail Agency of SA (Prasa) in 2015, and asked to be brought up to speed on budgets and changes linked to Prasa, and whether they had been implemented or not.

Mr O Mathafa (ANC) enquired about the link between SCoA and the executive. As ScoA and other committees were established by Parliament as part of the legislature, who did it go to when it encountered challenges? Furthermore, did SCoA act as a responsive or proactive committee, since spending happened after the allocations? Could recommendations be made?

Ms Z Mlenzana (ANC) supported forMr Mathafa’s questions, and asked whether after monitoring, SCoA Members could apply their minds to the issue of appropriation? As Members of Parliament (MPs) who represented the people, was it possible at any time to call a particular entity, such as a department or Minister, to explain a particular issue?

Ms M Dikgale (ANC) asked for clarity, as her understanding was that the Committee had the power to redirect budgets to where they needed to go. She sought further clarity on attendance at Committee proceedings and the role of alternates, and whether or not they were able to take a decision. She also asked what the process of the lock up session was.

Ms E Peters (ANC) questioned whether instances of conflict of interest may arise as a Member of the Committee, and what could be regarded as a conflict of interest. She observed that the support team was male dominant. How was the SCoA located in the process in relation to other departments and internal audit committees? Would it be possible to obtain reports on the functionality of those particular units within departments, and what was SCoA’s interface with these committees? Finally she asked about the role of the Committee on issues of national interest, where the Committee could immediately intervene. She made reference to instances of older people in rural areas who tried to engage with the state, but received little or no response.

Mr S Qayiso (ANC) asked whether issues emanating from the Legacy Report should begin being processed immediately. His main question concerned consultation and engaging with entities and their inputs on various budgets, while avoiding undermining the process.

The Chairperson said that Members would get another opportunity to address support staff, and he would be withholding his questions until later.

Support staff’s response

Mr Zamisa said that the Committee was both proactive and reactive. It was proactive with regard to the appropriation of budgets and reactive when monitoring and engaging with reports such as annual reports. If past performance has not been satisfactory, it did have powers to redirect allocations. The committee could invite internal audit representatives within departments, but they were not always the most forthcoming with information. However, there were reports that detailed the effectiveness of these structures. He concluded by addressing the issue of expenditure reports, stating that there was a gap that existed and that the Committee should engage with Treasury and the Department of Performance Management and Evaluation (DPME) to address this.

Mr Dlomo referred to Treasury producing a report that showed the alignment with Treasury and the budgets, and said that the DPME did do an assessment to determine if APPs were aligned to the budget. This was one of the core functions of the DPME. With regard to the question on the stakeholders involved with the Committee, he referred to the first presentation which outlined the list of stakeholders. He emphasised that there were certain key stakeholders who had be consulted by law, such as the FFC through section 7 of the Money Bills Act, which sets out the mandate of the Committee, and how to go about amending the budget. Amendment of a budget was a process and a buildup of oversight activities. Recommendations could be made to the executive, but amendments could take place only horizontally within the fiscal framework presented by the Minister of Finance, and comply with the conditions. The support staff would send a detailed list of stakeholders.

Regarding the recommendations to Prasa, an oversight report had been developed. If any challenges did arise, the Committee’s point of call was the Speaker as the leader of Parliament, in the same way that executive challenges should be directed to the President as the leader of the Executive. If case studies provided enough and accurate information, Members were able to apply themselves, and the Committee held the responsibility to pass and engage with Bills on appropriation to avoid rubber-stamping.

The Committee was also asked to define external and internal oversight bodies in order to provide effective oversight and accurately address performance. He noted the questionable nature of internal audit bodies, and recommended the Committee discuss the structure and functionality of these bodies.

He addressed the outstanding issues in the Legacy Report, and said it would form part of the interim planning session for the Committee. However, it could not be done now as it was currently the end of the Fifth Parliamentary term, and the planning must align with Parliamentary strategy. The Money Bills Act existed to avoid rubber-stamping. He made reference to the Parliamentary Budget Office, which existed to advise Committees on budget issues. Historically, the budget had been amended only once by SCoA, and commented that it was a contentious issue both politically and economically.

He concluded that the Committee could intervene over issues, as it formed part of the Parliamentary legislative body which represented the people, and where the need arose, intervention was possible. He urged cooperation with other committees.

Mr Arends explained the process of raising an issue. He said information sharing and giving clarity was a first step. The Committee then had to decide which parties needed to come and explain further on a particular issue.

Regarding conflicts of interest, Rule 30 of the National Assembly speaks to the personal and financial private interests, and that before the commencement Members must declare these interests for record purposes.

The rules of the National Assembly deal with quorums, specifically rule 162. One-third of the Committee must be present to conduct any business, but six permanent members must be present to take a decision. Members may bring an alternate or the Chairperson may co-opt.

Further discussion

Mr Joseph asked for further clarity on “any business” versus “all business.”

Mr Arends said that “any business” referred to anything where no decision-making was taking place. This included presentations, information sharing and assistance. Closed meetings or “lock up sessions” were very exceptional circumstances. In such an instance, mobile phones, media and non-governmental organizations (NGOs) are excluded for that session. This happened only when information in the meetings were of a sensitive nature, such as issues that affected the market. He concluded that any Member could attend if they found the content interesting, and alternates could come in when decisions must be taken and could vote, but if both the permanent and alternative members are present, only the permanent member can vote.

Mr Mathafa sought clarity on the authority the National Treasury has over grants and subsidies which are brought over, and asked where the Committee came in with regard to appropriation of those funds.

Ms Dikgale made a request on the key issues of future work, and called for a uniform response to the issue of scholar transport.

The Chairperson requested that after three months, Members should be given a refresher similar to the induction in order to better internalise the information after having had some experience working with the Committee. How was the work of the SCoA accepted by other departments, Ministers and other branches of government? He specifically asked if its work was taken seriously. How could it ensure that the work done was taken seriously?

He had also noted Ms Peters’ comment on the gender makeup of the support staff, and asked whether the new researcher would be female, commenting that the Committee should remain sensitive and aware of gender issues. He observed that the chief executive officers (CEOs) of SOEs, as well as Directors General (DGs) were mostly male, and the Committee should remain aware that if representation was lacking at the higher level, it was probably a similar case throughout the departments. Parliament and the executive were working towards more gender inclusivity, but the Committee must work to ensure it cascades down to the departments and SOEs.

He stressed the importance of the Money Bills Act as the “bible” of the Committee. Other committees should not overwhelm the work of the SCoA, and other committees should not see it as overreaching. A healthy balance must be struck. The Committee should invite not only outliers with negative performance, but also positive performers so that lessons of best practice can be learned and transferred. International benchmarking should be used, but it helped to benchmark with similar emerging economies, and not just against old democracies such as the United States and Germany.

Support staff’s response

Mr Zamisa said that the issue of gender was being taken very seriously, and that there was an incoming new female candidate on the research staff. Scholar transport was still an issue that the Committee needed to address, and he hoped that it could find a resolution.

Mr Dlomo referred to rollovers, explaining that it was an executive process, but that the Committee would address them in budgetary reports. Rollovers were regulated and could not take place where money was not committed, and the project must be nearly complete. Rollovers had in the past taken place casually, but it was something the Committee could look into. Rollovers formed part of the adjustment budget which the Committee did look at. It should hold the executive accountable in this process, as part of its oversight requirements. The Appropriations Act gave the Minister of Finance powers which allow for the approval of the movement of funds for the purpose of service delivery. The Committee’s view on the motivation for the movement of funds was taken into consideration.

FFC, Parliamentary Legal Services and Parliamentary Budget Office on oversight support role

Financial and Fiscal Commission

Prof Daniel Plaatjies, Chairperson: Financial and Fiscal Commission (FFC), gave an overview of the organization, emphasising that it was not a Chapter 9 institution, but rather established under Chapter 13: Finance, Sections 220-222, of the Constitution. It existed to support public representatives to engage adequately on financial matters. Experience over time had shown that in all finance committees, there was a lack of understanding of the role of the FFC. There was no equivalent structure to the FFC and the constitution stated clearly that Parliament and the executive must consider its recommendations. He commented that documents submitted by the FFC had in the past become lost among the large amount of work submitted to Committees. He stressed that FFC recommendations had to be responded to, and engagement and indications of whether committees agreed or disagreed with recommendations should be communicated.

There were certain key instances where the FFC’s recommendation had to be considered, as specified in the Constitution. These were:

  • 214(2) Equitable shares and allocations of revenue;
  • 218(2) Government guarantees;
  • 228(2)(b) Provincial taxes;
  • 229(5) Municipal powers and functions;
  • 230(2) Provincial loans; and
  • 230A(2) Municipal loans.

Since his time at the FFC, Parliament or the executive had never approached the FFC for recommendations on Government guarantees, which he viewed as a legislative requirement. He said that if Members required further technical assistance, the FFC would oblige.

He made reference to equitable shares and allocations of revenue, and gave examples of how services in the Northern Cape, KwaZulu-Natal and parts of the Western Cape which were more rural, had services which were more expensive, which should be a consideration for Members when appropriating budgets.

He reiterated that the FFC had a large amount of constitutional responsibility. It was committed to providing technical assistance that helped Members ensure that socio-economic imperatives were balanced with Constitutional requirements. Other Constitutional laws pertaining to the FFC were mentioned. He said that engagement was critical where FFC made recommendations and asked Members to respond and give their input.

An example was made to highlight the points mentioned previously on the lack of engagement with the FFC. The costed norms approach suggested by the FFC was meant to address the disjuncture between policy requirements and the actual funding of the service. This approach was not implemented adequately, and many pieces of policy legislation appeared under-funded, whereas they were actually not adequately costed.

He concluded by highlighting the main points of the presentation -- the Constitutional responsibility of the FFC relative to the work of Parliament; anything introduced to any committee that has cost and fiscal implications has to be consulted by the FFC; and recommendations must be reflected on and responded to.

Parliamentary Budget Office

Dr Dumisani Jantjies, Deputy Director: Finance, described the background of the Parliamentary Budget Office (PBO) and its role and function relative to Parliament. PBOs had been established by many legislatures after the 2008 global financial crisis to help deal with socio-economic challenges, by assisting with technical analysis. A network of African Parliamentary Budget Offices had been established in 2016 to promote co-operation on the continent, and align with Agenda 2063 of the African Union.

There was a common international understanding that PBOs existed to provide independent assistance and support to legislatures on financial and fiscal issues. In the South African case, the Money Bills Amendment Procedure and Related Matters Act established the PBO as a juristic person within the entity. Some of the core functions of the PBO that would help with the implementation of the Money Bills Act included research and analysis.

The PBO was a small but experienced team of specialists, and the Director post was currently vacant. There were four committees that the PBO supported -- the two Standing Committees on Appropriations and Finance in the National Assembly, and the two Select Committees on Appropriations and Finance in the National Council of Provinces, as per the Money Bills Act. The Money Bills Act did allow provision for the PBO to provide support to other committees, subject to availability. The PBO made suggestions to committees on issues it feels are important, but committees may make requests for support on particular issues as well.

He outlined the workflow of the PBO, where requests are sent through the Chairperson of the respective Committees, but added that the PBO did engage with individual Members. He then briefly went through some of the outputs of the PBO, such as;

  • Pre-Budget and medium term budget policy statement (MTBPS) analysis and briefing.
  • Adjustment budget analysis.
  • Quarterly economic and fiscal briefs.

The PBO did substantial work on alignment of the National Development Plan to budgets, and outcomes were aligned to the targets set. It more broadly offered research assistance to Members, who could request support on particular issues.

He then outlined work done with the SCoA. It had in the past been requested to do and SOE financial analysis on Eskom for the Committee. This had included an analysis on electricity and energy technology costs and considerations. The PBO had conducted an analysis on fee-free higher education. Discussions and input with regard to proposed amendments to adjustment appropriations was also a feature of its work.

Analysis was not the only function, as one of its core functions was also engagement with stakeholders such as PBOs in Africa and Canada, the FFC, the DPME and other domestic stakeholders. Bills pertaining to the budget had strict timelines, but allowed for meaningful engagement where there were clear objectives, and provided Parliament the opportunity to amend bills.

He said that the PBO had been established in line with international best practice, while taking into account the South African environment. It was led by a director accountable to Parliament, and provided independent and objective analysis. Its mandate of the PBO was outlined in the Money Bills Act, and there were regular outputs and demand-driven research. Where the PBO differed with structures such as the FFC was that the PBO did not make recommendations, but rather provided information and support to committees. 

Discussion

Ms Peters referred to the example made by Prof Plaatjies on the cost of service delivery in rural provinces, and asked what the role of the FFC was in ensuring that municipalities could not impose heavy surcharges which made it impossible for communities or citizens to afford services such as electricity. She elaborated on the challenges access to electricity could have in relation to health, education, housing and other social indicators. How did the FFC curb the municipalities from doing as they wished with electricity revenue? She also asked about conditional grants and how entities had to absorb costs when the national government takes a decision to phase out conditional grants -- how could the FFC intervene? Could the FFC help determine which sphere of government was best suited to render a particular service?

Ms Dikgale commented that the issue of municipalities not paying off levies and taxes must be taken care of, as people in urban areas were in trouble in terms of homelessness, and this had to be addressed and taken into consideration. She asked why the PBO Director vacancy had not been filled. Who was directing the PBO without a head?

Mr Mlenzana asked if the FFC considered the rural of provinces and municipalities when making recommendations on allocations of revenue. In the Members’ understanding, the final word came from FFC -- did the FFC have the opportunity of visiting these areas? He observed how people moved from rural areas to more populated urban areas, which could reflect that the population in rural areas had dropped while people moved looking for jobs. He said the PBO was an advisory structure where concrete advice was given and is concrete, and asked if the Committee had to use the advice and if this advice could be quoted. As Members, they had to have a source of information.

Mr Mathafa commented that it was common knowledge that the government of South Africa had good policies, but the problem was in the implementation. How would the FFC advise the Committee, when it conducted oversight, to see that policies were implemented? He commented on Prof Plaatjies assertion that sometimes there was no movement on the part of government with regard to the acceleration of accreditation of municipalities, and asked for other instances of this problem. He asked for clarification on the issue of municipal loans as it pertained to section 238(2) of the Constitution. He mentioned an example of a special appropriation of R5 billion for South African Airways (SAA), which cites the Money Bills Act, and asked at what stage was a recommendation required by the FFC.

Ms Komane asked whether the FFC made recommendations to municipalities. She made special mention of the Eskom issue with regard to high service charges for poorer citizens when purchasing electricity. If there was a recommendation made by the FFC, what was the follow-up? She expressed disappointment at the Director’s post being vacant, and asked how far the process was to fill it.

Mr Joseph asked who the FFC reported to, and who the last one was that should look at the reports and recommendations? Which FFC recommendations were being ignored, and at what level of government was it happening? Who was looking at the reports? He asked about the process of the FFC and what the timeframe of the recommendation that comes to the Committee was, and if they should come to the Committee earlier. He also expressed concern over the leadership of the PBO and the vacant post.

Mr Sarupen asked both the PBO and FFC if past reports and recommendations were available and where they could be accessed. Did the FFC give different recommendations to the Committee and to the Finance Minister, for example? How accessible was the FFC to Members. Did the current legislation hinder the work of both the FFC and PBO, and if so should the Committee be pursuing amendments to make the offices more effective?

Mr Qayiso referred to an issue arising from previous work by the PBO on the Regional Electricity Distribution (RED) programme, emanating from an issue on electricity. He asked for clarification on this submission, to understand what sort of intervention the PBO had made.

The Chairperson said he would keep his questions for the second round. He observed that Prof Plaatjies had been very vocal in the past on Eskom’s municipal debt, and asked if he could share it with the Members.

PBO’s response

Dr Jantjies said the work of the PBO was empirically driven and evidence-based, and could be quoted and referenced. On the issue of the vacant Director, the PBO had an advisory board of which the Chairperson, Mr Buthelezi, was a part. As Deputy Directors, the vacancy was beyond their control and the post had been vacant since September 2018. It was in fact a Parliamentary matter as to who was appointed as Director.

In accordance with the Act, the PBO was accountable to Parliament. An annual performance plan was set out and provisions were made for research. At the end of the year, an annual report was presented to Parliament as part of Parliament’s annual report.

He said the amendment to the Money Bills Act had been useful to the PBO, as it provided more clarity and access to information. He added that previous work was readily available and shared with the Committee.

Ms Nelia Orlandi, Deputy Director: Public Policy, PBO commented that the vacancy was more a political process, and the Director was appointed by the National Assembly. The PBO had to exercise patience and were awaiting the election of new chairpersons and Members. She commented on how the three Deputy Directors had taken the responsibility to still produce outputs, despite absence of a Director. Additionally, the PBO did not report to the Secretary of Parliament as it was meant to be independent. It reported directly to the Speaker, but still received funding from Parliament’s Budget.

Dr Seeraj Mohamed, Deputy Director: Economics, PBO, said that both the Eskom reports were produced as the result of a request from the previous Appropriations Committee. The first report related to the choices of energy, whereas the second related to Eskom’s finances, involving background information and changes in Eskom’s operations to provide context to understanding the utility’s financial situation. He said that all previous work was available to Members via Parliamentary websites, and was also on the PBO’s web page, which was publicly available. The Parliamentary Monitoring Group (PMG) also often published its reports.

Ms Peters interjected, asking whether her question regarding rates and electricity distribution services would be addressed. She said that in 2010/2011 there had been a decision taken to end the process because of resistance from municipalities. Municipalities had realised that it would take away their ability to add the surcharges, as it was an easy “cash cow” for them.

Dr Jantjies clarified that it had been a question addressed to the FFC, so he would hand over to the FFC as the PBO had completed its response to Members.

FFC’s response

Prof Plaatjies said he chaired a special advisory committee to the Cabinet’s ministerial task team on Eskom and municipal debt, and the main point was that municipalities bought electricity from Eskom and sold it at a lower cost to the end user. The reason for this was that especially in rural municipalities, the citizens could not afford the service, and the cost was offset. There was a struggle, with massive pockets of poverty and huge amounts of inequality. In the metros, there was greater purchasing power and access to employment. The country was still suffering from the old apartheid spatial planning and economic and social problems as a result. Municipalities could not always afford the electricity. They had what was called a “notified maximum demand,” and when that limit was close to being reached, there was management of supply. Some municipalities did this effectively, but some did not have the qualified engineers and financial experts, and sign debt repayment agreements with Eskom that run up massive amounts of debt. Some metros were coping by buying, selling or generating their own electricity, such as Cape Town and Johannesburg, which offset costs. The FFC did not deal directly with this matter, as there were bodies such as the National Energy Regulator who managed this. What the FFC did look at was whether the revenue collected by municipalities was able to offset the Constitutional and legal mandates.

Ms Peters asked if the FFC was not able to enter this space in relation to the billing

Prof Plaatjies agreed that the electricity tariffs were used as leverage by municipalities, and commented that it was their only one.

On the phasing in and out of grants, he said that the problem was not the conditional grant, but the process leading to the introduction of the grant so that the system was equipped to deal it, and often conditional grant money disappeared. One of the arguments in favour of conditional grants was its ability to deal with exogenous issues and address spillovers.

With regard to the homeless issue, it was a national question, and there was a licensing issue.

He said that the FFC did take into consideration rural provinces, and had made a submission on rural development in South Africa to Parliament and the provinces. He agreed with Mr Mathafa that the issue was not about policy, but about implementation, and referred to an old saying -- “if you cannot budget, you cannot govern”. He said that policies had to be costed and priced, and that was one of the major implementation issues.

Regarding special appropriations, the FFC recognised that the Constitution was the supreme law of South , and what was captured in it was that Parliament should ask if the FFC had been consulted either via Parliament or directly. The FFC reported to Parliament, as specified in the Constitution, including Finance Ministers and other committees. The FFCs recommendations should be considered by the Committee as well as the other Finance Committees, but it was also specific to sectors. The timeframes were strict according to law, and recommendations would be considered in the budget cycle. All reports were available and with the Chairperson’s permission, would be made available and distributed for Members, along with previous recommendations. Neither the law nor anybody hindered the performance of the FFC. The key was how receptive Parliament was to the recommendations.

Ms Phumelele Ngema, Legal Advisor, Parliamentary Legal Unit, made a point of interpretation for clarity on the issue of 214 and 220 in the Constitution on the mandate of the functions of the FFC. The main concern was that 214(2) said there had to be consultation with the FFC, and 220 establishes the FFC and the functions of the Commission. The first issue was interpretation of “must consult” or “must be consulted.” The second was “the consideration of whatever it is that comes before whoever it comes to”. She said that in terms of 214, the Constitution was speaking to the enactment to how things were done. She called for clarity regarding at what stage the consultation in terms of the legislative process must be conducted, and by whom. She also asked in future to define “recommendation” against the Constitution and other legislation. She added that the Committee was doing extremely technical work which required specific expertise, and the Parliamentary Legal Services Unit ensured that the support staff was adequately equipped to provide support to the Committee.  

Mr Mlenzana said that the question raised was precisely his concern as well. He asked about “advice” versus “recommendation and clarification.”

Prof Plaaittjies responded that the Committee must be consulted before the introduction of financial laws. Before a function was shifted from province to national, the FFC must be consulted. The FFC was being consulted, but the consultation was not being carried through. During the consultation, the FFC expresses its view on a particular issue, which can be agreed upon or not. He then asked the Committee to at least respond to the recommendation to avoid a “garbage in, garbage out” scenario, so it could strengthen the system.

The Chairperson concluded that Legal Services should revisit the matter.

Addressing the presenters with his questions the Chairperson asked how the PBO classified itself. According to the Money Bills Act, it must provide independent advice and analysis. How did it define its independence? He also asked if there was anything in the 2019 budget proposals that were an unfunded mandate. He asked the FFC if it was seeing the same type of response in terms of a lack of feedback, and if so, what was the problem? He also asked for clarification on the issue around the REDs. What was the difference between the Committee’s own researchers and the work of the BPO? Finally, for clarity, was there an obligation to respond to the FFC’s recommendations?

PBO’s response

Dr Jantjies spoke about the structure of the legislature and its capacity. The PBO had been established not to create an alternative budget, but to support the legislature in understanding and amending the budget, as provided in the Money Bills Act. Regarding the question on independence, he said that there were three characteristics of an independent entity, and the PBO’s mandate fitted the criteria: first there was a clear mandate from the Act, which was different from other entities; second, it had to have its own budget; and third, it must appoint its own staff. This allowed it to deliver and provide inputs as an enhancement to Parliamentary structures and working together.

Ms Orlandi said the PBO had not done much work on unfunded mandates, because if a new policy came to Parliament, it had to come with costing and first be shown to Cabinet, and there was an answer from Treasury. Sometimes Departments came to Parliament and indicated that they are not funded for specific outputs in the NDP, but the programme structures required the Department to produce these outputs. She argued that if those outputs did not have funding, then the Departments should realign their priorities in accordance with the NDP.

FFC’s response

Mr Chen Tseng, Research Specialist, FFC, said the responses received from different stakeholders varied. From a government perspective of inequality, there was an inequality among systems in government. When the FFC visited provinces, the varied degree of responses were based on the differing degrees of inequality within government. He stressed that this new concept of inequality was unique to South Africa’s history. He said that the study of tariffs and electricity was something that required further research.

Prof Plaaitjies said the 2010 recommendation was that the government should work with the National Energy Regulator to put in place a finance framework that dealt effectively with electricity pricing. He commented that the issue of REDS should be revisited, and was incredibly complicated.

Ms Peters agreed that the issue of Eskom must be discussed alongside the issue of REDS, and could not be separated.

Prof Plaaitjies identified points on unfunded mandates, where the discussion had arisen:

  • Shift of function between spheres and inside spheres, as fiscal practice is finance to follow function.
  • Policies are not costed and budgeted for.
  • Goods and services relative to what is in the province’s purse. There is still an artificial balkanisation of goods and services standing in the way.
  • Public statements on policies which have fiscal consequences.
  • Budgets are about priorities, and departments do not shift priorities to suit the priorities of the President or the Executive.

On the obligation to respond, he said that the constitution said recommendations had to be considered, and it was possible to be asked to show proof. He commented that he was hopeful for the future, and in six months he could assess whether the recommendations had been considered or not.

The Chairperson said that after the presentations, the Committee was better equipped to engage with the Appropriations Bill, and looked forward to that meeting.

The meeting was adjourned.

 

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