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FINANCE PORTFOLIO COMMITTEE
17 MAY 2006
MEETING WITH CHINESE DELEGATION; FINANCIAL MANAGEMENT OF PARLIAMENT BILL: DELIBERATIONS
Mr N Nene (ANC)
Documents handed out
Draft Financial Management of Parliament Bill
Oversight of funds
The Committee and the Chinese delegation outlined the processes of approving, reviewing and amending the budget as followed in their countries. They also discussed the roles of various Committees in relation to the budget.
The drafting team explained certain changes that had been made to the Financial Management of Parliament Bill. The Committee should go through the entire Bill and identify issues that it wanted to prohibit. All regulations made by the executive authority of Parliament should be published in the government gazette (for issues dealt with sub-clause 4) and in a parliamentary paper. The Committee agreed that there would be no staggered implementation of the Bill unless a clear case for a staggered approach was made.
Mr A Moloto (ANC) chaired the meeting in the absence of the Chairperson. Mr Nene had gone to the funeral of the Late Minister of Public Works, Stella Sicgau. He arrived during the course of the meeting. Ms L Mabe (Chairperson of the Joint Budget Committee) also attended the meeting. A Chinese interpreter facilitated the discussion and this report is based on her interpretation.
Mr Moloto welcomed the Chinese delegation to South Africa and Parliament in particular. He requested Members of the Committee to introduce themselves to the delegation. He proceeded to explain the budgetary process as followed in South Africa. The Constitution of the Republic of South Africa was the supreme law. It provided that all money raised by national government should be deposited into the National Revenue Fund (NRF). There was a certain process that had to be followed when withdrawing the money. The money could only be withdrawn through an Act of Parliament or as a direct charge provided for in the Constitution. The direct charge could be debt service costs (i.e. interest that government paid on its loans).
He said that the Minister of Finance delivered the Budget Speech at the beginning of each year (February). The Budget Speech outlined the key spending plans for the government, tax proposals and current economic developments. There were two important pieces of legislation that the Minister introduced during the Budget Speech: the Appropriation Bill and the Division of Revenue Bill. The Appropriation Bill gave Departments legal authority to spend moneys allocated to them. The Division of Revenue Bill prescribed how the revenue was divided amongst the three spheres of government: national, provincial and local government. He then handed over to the Chairperson of the Joint Budget Committee.
Ms Mabe said that the Joint Budget Committee was fairly new and was established around 2000. It was still evolving, finding its footing and trying to develop legislation that would govern how it would perform its tasks. It was formed by the rules of the Joint Rules Committee of Parliament and composed of members from both the NA and the NCOP. It had co-Chairpersons from both Houses of Parliament. The Constitution provided for the establishment of such a Committee. The Committee was mandated to outline the process of amending money Bills. It took some time to outline the process of amending money Bills and the process had just started. The issue of amending money Bills was very hot and debatable. Parliament was positive that it would soon complete the process and implement the legislation of amending money Bills very soon.
She said that at the moment the Committee looked at monthly and quarterly reports of various departments. It looked at how departments were spending money to check if the spending was in line with the projections of the financial year. It had a close working relationship with the Portfolio and Select Committees on Finance. The three Committees were tasked with dealing with the Appropriation Bill once tabled in Parliament by the Minister of Finance. The Committee had the power to call government departments for a hearing during the submission of the monthly and quarterly expenditure reports. It was hoped that legislation would outline how the three committee and other parliamentary committees should work together. It was also hoped that the legislation would also outline how the Committee should interact with institutions like the Financial and Fiscal Commission. She hoped that the Committee would learn from the Chinese delegation especially in relation to how money Bills were amended in China.
Mr Liu thanked Mr Moloto and Ms Mabe for their explanation of the budget process and the roles of the committees. He also thanked Parliament for the invitation and opportunity to visit South Africa and Parliament and hoped the delegation would learn something from the visit. South Africa was a very well developed country even though it was in the developing world. The South Africa economy had achieved a very rapid growth in recent years and there had been a lot of experiences from which the delegation could learn. Although the diplomatic relationship between South Africa and China had not been established for many years the cooperation and friendship had developed very well and smoothly. The two countries had also established strategic partnerships with each other. The cooperation between the two countries revolved around economic, trade and science and technology and national defence areas. The National People’s Congress of China wished it could strengthen cooperation with the Parliament of South Africa. Cooperation between the two Parliaments could further strengthen the cooperation between the two countries.
He said that the National People’s Congress was the highest legislative body in China and had an important role to play in budget approval and review process. In terms of the Constitution, laws and regulations the Peoples’ Congress had the sole right to approve and review the national budget. It was also tasked with the daily supervision, oversight and amendment of the budget. Some rights were also given to the Standing Committee of the Congress and other committees.
The structure of the Chinese Parliament was different from its South Africa counterpart. It was arguably the biggest Parliament in the world and had a relatively large number of members. This could be attributed to the size of the population which was 1, 3 billion. The Congress was composed of 2 988 members and this meant one representative for every 400 000 people. It was difficult to have an assembly of such big number of people. Consequently there was one assembly of the whole parliament once a year. Some of the duties of the Congress included reviewing the Constitution, passing laws and overseeing the work of government. Every year the Prime Minister was expected to report to Parliament. It was during the assembly that adjustments to the Prime Minister and senior leaders of the government were considered. The assembly was also tasked with dealing with important matters of the country such as the approval of the budget, review and approval of the economic and social development plans. Generally speaking the assembly had four responsibilities: legislation, oversight on government, budget and crucial matters of the State.
He said that the assembly of the Congress lasted for two weeks and consequently the Congress had entrusted a Standing Committee to deal with specific issues. The Standing Committee was composed of 175 members elected from the members of the whole Parliament. The Standing Committee convened once every two months with the meeting lasting for ten days. The establishment of the Committee was done in accordance with legislation. Its daily work was to carry out oversight and supervision of the work of government. The Congress had also established nine portfolio committees or commissions in order to ensure that work was done effectively. The size of the committees varied and the average was 20 to 30 per each committee or commission.
In order to further strengthen the work of the committees the Congress had also established three working committees: legislation, budget and working committee on basic laws. He indicated that he was the Chairman of the Budget Affairs Commission of the Standing Committee of the National People’s Congress and most of the members of the delegation were members of the Commission. The main responsibility of the Commission was to conduct very detailed and specific review of the national budget. Every year and once the government had proposed its budget plan the Commission would conduct initial discussions with the government on the budget plan. It could propose possible changes and provide a budget report to Financial and Fiscal Commission of the Congress. The Financial and Fiscal Commission would then call the Minister of Finance for a hearing. The Committee would then present a final budget report to the assembly of the Congress by March of each year. The assembly would review the report and then approve the report for it to become law. The process was different from that of western countries wherein the President had to endorse it before it could become law.
He noted that Mr Moloto had touched on the issue of the amendment of the budget by Parliament. This was also a problem in China and only the Standing Committee of the Congress had the right make amendments to the budget. The preconditions for the possible amendments to the budget were quite loose and had given rise to lots of arguments. For the time being, the Congress was conducting a balanced management of the budget. No amendment to the budget had taken place so far. Another difference with the budget process of other countries was that China approved the expenditure and the possible size of the revenue when approving the budget. This gave rise to problems because the projected revenue could differ from what was or would be realised. The Chinese economy had developed very fast in recent year and the revenue had also increased. Every year the estimated revenue was far less than what had been realised. Every year the increase in the revenue size should be reported to the Standing Committee and any possible use of the money should approved by the Committee. The country was busy discussing ways of amending budget laws of the country and had solicited views from different sectors of the country.
Mr Liu asked what was the relationship between the Portfolio Committee on Finance and the Joint Budget Committee (JBC). What kinds of responsibilities did the Portfolio Committee and the JBC carry out in relation to reviewing and approving the budget? Did the JBC have similar roles like the Chinese Budget Affairs Commission of the Standing Committee on the Congress?
Mr Moloto welcomed the Chairperson of the Committee who had been delayed for some reasons.
Ms Mabe replied that the JBC was fairly new. For all the years the Portfolio and Select Committees on Finance had dealt with the Appropriation and Division of Revenue Bills. The JBC had a broad mandate which had to be simplified in order co-ordinate relations with the PC and SC Finance. The situation was completely different from China because the South African Parliament had not gone through the process of making changes to the budget. The Constitution empowered Parliament to amend the budget but there was no law that outlined the process.
The procedure in respect of dealing with the Appropriation Bill was that each Committee would look at the budget of its relevant Department and call the Director General and the Minister to make a presentation on the budget. The Committees would then call for public comments and hearings on the budget proposal. The Portfolio Committee, Select Committee and the JBC would then look at main Appropriation Bill. Departments could implement any recommendations from any Committee should they find it be necessary. Parliament did not have the power to enforce recommendations made by its Committees. Parliament could not enforce any amendment to the budget. Parliament had a good working relationship with government in relation to the budget process. There was another Committee that looked at expenditure by departments. The Committee focused on reports of the Auditor General (AG). The reports of the AG looked at expenditure by different Departments.
Mr Moloto replied that the long-term view was to shift budgetary issue to the JBC because the Portfolio Committee dealt with a lot of issues. The South Africa Reserve Bank reported to the Portfolio Committee on Finance and there were a lot of institutions responsible for financial regulation that also accounted to the Committee. By and large the Committee was responsible for financial regulation, monetary policy and macro economic policies and this involved a lot of work.
Mr Nene apologised for his late arrival. He said that the Constitution did not forbid Parliament to amend money Bills. It provided that in order for Parliament to be able to amend money Bills, there should be legislation that would provide for the procedure for doing so. He was struck by the fact that the process of amending the budget in China had the potential to affect the budget deficit and therefore upset the entire fiscal make up. There was a process aimed at addressing the issue of amending the budget and it was hoped that it would be finalised by the end of the year. Because of the multi-year budgetary process, Parliament had the opportunity to influence the budget and the amendment of money Bills would be used as a last resort.
Mr Y Bhamjee (ANC) said that it was true that systems should be in place for government to function especially in relation to oversight on finances. However, failure to understand the oversight roles of members of Parliament or Congress and failure to hold representatives accountable could weaken the government and the Congress or Parliament. South Africa was a young a democracy entering a sensitive debate on Executive accountability. In order to hold the Executive accountable for budget and other things, it was important for members of Parliament to understand their roles in terms of oversight. Whilst guided by Constitution, Rules of Parliament and the Municipal Finance Management Act, Parliament should take the three and unpack and understand them because Members of Parliament were finding it difficult to understand their roles. The Speaker had sanctioned a Commission to help or guide members to understand oversight. This would be an ongoing debate because there were two institutions that wanted to retain their independence. Members of Parliament should play their very important role and ensure that there was value for money from government expenditure but how to do it was another issue.
A member of the Chinese asked if the Appropriation Bill went through three readings, as was the case in China. He also asked what kind of relationship existed between the Committee and the JBC. What kinds of responsibilities were carried out by the Portfolio Committee and the JBC in reviewing the budget?
Mr Nene replied that the Bill went through two readings. The mandate of the JBC confined it to the expenditure side of the budget but the long term view was that all budgetary matters should be dealt with in that Committee.
Mr Moloto asked the Chairperson to explain the role of the Financial and Fiscal Commission. In what way did it advise Parliament?
Mr Nene replied that the Commission was an independent body established in terms of the Constitution to make recommendations to the National Treasury on the appropriateness of the allocation of funds to different spheres of government. National Treasury was required to respond to the recommendations. The reports of the Commission and the Treasury were tabled before the Portfolio and Select Committees on Finance and the JBC.
A member of the Chinese delegation understood Ms Mabe to have said that the JBC dealt with major appropriation items. He asked for more on explanation on this.
Ms Mabe replied that the JBC dealt mainly with quarterly and monthly expenditure reports from various government departments. It reviewed the reports and made recommendations to Parliament. The expenditure reports were presented to Treasury which then made a report to Parliament. The JBC would then look at the reports.
Mr Nene said that the delegation should be given the terms of reference of the JBC.
Mr I Davidson (DA) focused on the role of Budget Affairs Commission in terms of the formation of economic policies and monetary policy in particular. What relationship did the Commission have with the Chinese Reserve Bank? There was a perception around the world (South Africa included) that the Chinese currency was under-valued and that the country ran a huge trade surplus with the rest of the world. He asked for an opinion on the future direction of the currency.
Mr Liu replied that the value of the Chinese currency was a very hot topic in the international financial community. The Congress had a Financial and Economic Committee that conducted oversight on fiscal and monetary policies. In relation to finance, the Committee was responsible for the approval of legislation in the financial sector. It also had the power to supervise and oversee the establishment and implementation of any major financial policy. The Committee could call hearings on financial policies when necessary. The Standing Committee of the Congress could call the Finance Department to hearings.
He said that the Chinese economy had developed in a very fast manner and foreign trade had also increased by a large margin. Exports were not dependent on the exchange rate of the country. The high speed of economic growth, the smooth and good adjustments of the industries and the increase in productivity had an impact on exports. China had maintained low manufacturing and production costs. All these factors gave China an advantage in relation to exports.
The second reason for the growth in export was the fast growth in foreign investment. A large part of exports were done by foreign funded enterprises or joint ventures. Most of the international companies went to China to conduct processing trade with imported raw materials. Although there was an increase in export volumes, China earned a little processing fee from the whole process. In terms of foreign trade, the trade surplus was not so big. Last year the total trade volume of the country was $1, 4 trillion and exports accounted for $760 billion whilst imports accounted for $660 billion. The trade surplus was 5% of the Gross Domestic Product (GDP).
Mr Liu said that since 1994 China had conducted some reforms and was working towards a more flexible currency but there were still some controls in relation to the capital account. Before July 2005 the China's exchange rate was de facto perked to the US dollar. Since then there had been some changes that saw the value of the "Renminbi" ("People's Currency") being determined in relation to the package of currencies that included, but not limited to, the US dollar and the Euro. The exchange regime was kind of floating, manageable and based on demand and supply in the market. Since last year the rate had floated up by 3% as a result of demand and supply in the market. The issue of the exchange rate had been in discussion in international fora and in bilateral discussions. Not long ago a report released in the United States of America had indicated that China was not manipulating the exchange rate. The process of reforms was continuing and the final goal was to liberalise the currency and enlarge the reference basket of currencies. The capital markets would be liberalised and the government had made progress in relation to private foreign exchange and the ceiling had been increased to $200 000. This would encourage people to invest abroad and the government had authorised some financial institutions to invest in foreign capital markets. The ultimate goal was to have the "Renminbi" as an international currency.
Dr van Dyk (DA) noted when approving the budget, China approved the expenditure and the revenue at the same time. The whole budget was a compilation of income and expenditure. The appropriations for the different departments were approved according to needs but also taking the revenue into account. It was a once off process. He asked the delegation if they considered the process to be composed of two different parts.
Mr Liu said that the Dr van Dyk had raised an important issue that had been hotly debated in China. It was true that most countries in the world approved on the expenditure side of the budget but the Chinese Congress was required to approve both the revenue and the expenditure. When deciding the expenditure side of the budget, one should know what was available in terms of the revenue. According to budget laws in China it was important to maintain a balance between expenditure and the revenue. Local governments in China were not allowed to run any deficits in their budgets and the central government could have a deficit which had to be limited to a very small amount. When deciding the expenditure, one had to know how much revenue could be earned. As a result the Congress would consult various departments and institutions like customs and the taxation bureau in order to find out how much revenue the country could raise. The different departments would have their estimations and the Congress would also have its own estimation. The budget would be decided upon based on those estimates.
He said that different trends had emerged in recent years due to the rapid growth in the economy. A lot of needs had come up especially in the agricultural sector and also in relation to the imbalance between the different regions of the country. The central government was obliged to further increase expenditure in certain sectors. This was one reason why each year the revenue could not wholly fund government's expenditure. This was a cause for concern and had led to some deficit for the central government. In recent years the Congress did not go into too much details of the budget when approving it but would carry out micro controls and reviews wherein major of factors of the budgets would be reviewed. This included the revenue, expenditure and the deficit. In the past years China had been trying bring down the fiscal deficit to 1, 5% of the GDP.
Mr Nene thanked the Chinese delegation for having engaged with the Committee on a very important subject. He hoped that the co-operation between the Parliament of the Republic of South Africa and the Chinese People's Congress would be continued.
Mr Liu appreciated the invitation to Parliament and the opportunity to learn from South Africa experiences. He hoped that the co-operation between the two institutions and the bilateral relations between the two countries would be further strengthened. He encouraged the Committee to visit China and promised to give the Committee an official invitation should they wish to visit the country.
Mr Moloto thanked the delegation for the invitation.
Deliberations of the Financial Management of Parliament Bill
Mr Nene took over as the Chairperson. He thanked Mr Moloto and Ms Mabe for facilitating the meeting with the Chinese delegation. Due to time constraints, he invited the drafting team (Mr P Benjamin, Mr C Barberton and Prof. C Murray) to indicate major changes that they had made to the Bill since the last Committee meeting.
Mr Barberton referred the Committee to the outline of chapters and arrangement of sections. Changes had been made to the following definitions: "approved budget, unauthorised expenditure and overspending". The amendment to the definitions of unauthorised expenditure and overspending had impacted upon clauses that dealt with budgeting and oversight of expenditure. Clause 16 was not significantly different from what it was initially. Clause 1692)(e) accommodated new provisions regarding payments/allowances to Members. The drafting team had been requested to re-insert the provisions that dealt with expenditures before the annual budget was passed. This had been done.
Clauses 20 and 21 were new relative to the gazetted draft Bill. Clause 20 dealt with unauthorised expenditure whilst clause 21 focused on unauthorised expenditure of donor funds. Clause 22(2) was significantly different from the gazetted draft especially in relation to the treatment of unspent funds. There would no longer be rollovers of unspent funds. Clause 34 dealt with support for Members of Parliament and political parties. The changes reflected in sub-clause (2) were made at the Committee's request. Clause 37 was a re-write of clauses that were in the gazetted Bill. Sub-clause (4) was a new inclusion since the last Committee meeting.
Mr Barberton said that amendments were also made to clause 69 which dealt with offences under the Bill. The Committee had not yet discussed offences in any kind of detail. The question was which kind of conduct should carry criminal sanctions. The list that was published in the government gazette had been altered and the drafters had added a number of items. The drafters were not sure if clauses 51, 55, 56, 57 and 59 should be included in the clause. The reason was that there were comparable criminal sanctions in the Public Finance Management Act for issues dealt with in these clauses. The question was whether it was necessary to have them in this Bill. Were they practicable? He did not know of an accounting officer who had been prosecuted for any of the issues dealt with in the provisions. The Committee should go through the entire Bill and identify issues that it wanted to prohibit.
Mr Benjamin referred the Committee to clause 65 that dealt with regulations. He said that the vehicle for subordinate legislation had not been worked out. Clause 65(1) specified a range of issues in relation to which Regulations could be issued. Sub-clause (3) was introduced following the discussions with National Treasury. Clause 65(4) addressed the issue of public comments on regulations. It was clear that the public might have an interest in certain Regulations but not all of them. It would be necessary to identify those that had some public interest. The drafting team was of the view that there should be public comment on any matter dealt with in clause 34 and chapter six of the Bill. All regulations should be published in the government gazette (for issues dealt with sub-clause 4) and in a parliamentary paper.
Mr Barberton took the Committee through the Committee of conducting oversight on funds. (See document attached).
Prof. Murray said that the code of conduct was attached to Schedule 2.
Dr van Dyk (DA) said that clause 68 dealt with misconduct by officials whereas clause 69 dealt with misconduct by the accounting officer. Clause 69(2)(a) and (b) simply repeated what was contained in clause 68. He proposed that the two paragraphs should be deleted as they were contained in clause 68. Clause 69(2)(c) should be added to clause 68. Clause 70 should refer to a person convicted of an offence in terms of clauses 68 and 69. The PFMA referred to procedures for recovering wasteful and fruitless expenditure and the Bill made no mention of this.
Mr Benjamin said that the recovery of wasteful and fruitless expenditure was dealt with under unauthorised expenditure (clauses 20(5) and 21(2)). Clause 69 created penalties for the accounting officer in sub-clause (1) and for other officials in sub-clause (2). The accounting officer and any other official could be penalised in terms of clause 70.
Prof. Murray was concerned about clause 73. She felt that the Committee should take time to consider the commencement date of the Bill. The clause provided that the legislation would come into effect on a date determined by the President by proclamation in the government gazette and that different dates could be set for different provisions on the Bill. She thought that the Committee should consider whether the implementation of the legislation should be left in the hands of the President or whether Parliament should take it into its own hands and fix a date. Another issue was whether there was a need to stagger the implementation of the legislation. One could include the dates in which certain provisions would come into effect in the legislation. Treasury had indicated that five-year plans might be difficult to achieve instantly. This was an appropriate legislation for Parliament to determine the implementation date.
Mr Moloto agreed with a phased-in implementation approach. The Chairperson said that the Committee would then have to identify the clauses that should come into effect immediately and those that would have to be postponed.
Mr Y Bhamjee (ANC) was not convinced by the argument that it would take time to develop a five-year plan. It was important to make everybody comply with the legislation as soon as possible. He reminded the Committee that there was the doctrine of powers in South Africa. The President would endorse the constitutionality of the Bill but it was the Speaker who should decide the commencement date.
The Chairperson concluded that Mr Bhamjee was against a phased-in approach. The Bill was Parliament's own legislation. It would become law once it had been assented to by the President. He wondered if its implementation or effective date should be left to the President.
Adv. Jenkins said that it would be appropriate for the executive authority to bring the legislation into operation. The question was whether it should be the executive authority or Parliament as a whole.
Mr Moloto said that it might take some time for Parliament's systems to adjust should the Bill introduce some new approaches.
Mr Bhamjee said that there should be timeframes should the Committee adopt a staggered approach. He still had to be convinced about provisions that would require a staggered approach.
Mr I Davidson (DA) said that the Committee should identify the provisions that might give rise to problems and interrogate the nature of the problems. The Committee should proceed to investigate if there was a need for a staggered approach. It might become clear that a staggered approach was not necessary. He agreed, in principle, that there could be delays in the whole process should the Committee adopt a staggered approach.
The Chairperson said that the drafting team should deal with the matter in consultation with the National Treasury.
Mr Davidson suggested that the Committee should move from the premise that there should not be a staggered approach unless a case for such an approach was proved. The Committee agreed with the suggestion.
Prof. Murray said that the Constitution anticipated legislation to come into effect in two ways: when published or on a date determined in the Act. She was of the view that the solution could be that the legislation would come into operation once signed by the President and published.
The Committee agreed with Prof. Murray.
Ms Mabe felt that there should be a provision for a staggered approach. It might turn out at a later stage that there was a need for a staggered approach for some provisions. Treasury should be allowed to identify such provisions.
Mr Barberton said that a staggered approach was not required simply due to capacity challenges. Sometimes the approach could be required due to the budget cycle. Some provisions might not be applicable for the current financial year and would therefore have to be implemented in the next financial year. The Strategic Plan was applicable from the year after national elections and this meant that clause 14 might have to come into effect after the next national elections. In the interim one might require Parliament to produce a Strategic Plan that covered the remaining years of this term.
The meeting was adjourned.
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