Draft Money Bills Amendment Procedure Bill [B75-2008]: public hearings

Meeting report

Financial and Fiscal Commission (FFC) submission
Mr Bongani Khumalo, Acting Chairperson: FFC, apologised for the absence of the FFC Chairperson. The FFC welcomed the efforts of Parliament to improve its oversight function. The FFC was of the belief that the Bill would enhance the transparency and credibility of the budget process and reaffirmed their commitment to playing their constitutional role. They also supported the establishment of a Budget Office for the purposes of implementing this legislation.

Mr Conrad Van Gass, Programme Manager: Budget Analysis, FFC, commented on the role of the Budget Committee. He reported that the respective roles of Portfolio and Select Committees of Finance and of Budgets should be clarified. A decision should be reached on whether separate or joint budget committees best serve the requirements and capacity of Parliament. The functions of the proposed budget committees implied a capacity for: macro-economic forecasting, fiscal policy assessment, intergovernmental fiscal relations, performance budgeting and management information systems. Looking at budget preparation, he said that the consultation between Parliament and the Ministry of Finance and other Ministers for a budgetary trade-off was essential and needed to be built in. Mechanisms would have to be established for achieving consensus on the macro-economic framework and fiscal policy targets early in the four-month amendment period. There was a window of opportunity to do this between the Medium Term Budget Policy Statement and the tabling of the Budget. It was the view of the FFC that it was appropriate that if Parliament failed to adopt an amended budget within the allocated four months, the original budget of the Finance Ministry automatically be adopted.

On the matter of fiscal rules, there was potential for uncertainty that could arise from ad-hoc changes. Fiscal rules could be used to manage the risk of unstable budget growth paths which could compromise service delivery. This was especially important for small, open economies prone to exogenous shocks like South Africa. Section 230 of the Constitution implied the adoption of the “golden rule of budgeting” that deficit financing be limited to capital expenditure. Balanced budgets were suggested as a tool in this regard. He added that budgets were best evaluated through measures of economy, efficiency and effectiveness.

Their specific comment on the Budget Office was that, to be effective in amending budgets, it would the need capacity to: undertake macroeconomic forecasts, model the implications of different fiscal policy targets, indicate the trade-offs required when re-allocating between departments, programs, spheres of government or across provinces and municipalities. The financial implications of the Bill could be more accurately determined if these functions were properly detailed. Of particular importance was the fact that the Budget Office would be dependent on the quality of financial and non-financial data generated by departmental management information systems. Generally, their opinion was that the Budget Office would prove essential.

Briefly the FFC's recommendations were: ▪ The respective roles of Portfolio and Select Committees of Finance and of the Budget should be clarified. ▪ The composition of and basis for establishing joint committees should be included in the legislation. ▪ The Budget Office should be capacitated to undertake macro-economic forecasting, fiscal policy analysis, budget performance analysis, intergovernmental fiscal relations amongst other issues pertaining to public finance. ▪ Budget Committees should focus on effecting changes to the outer years of the medium-term budgets. ▪ Amendments to current or forthcoming year budgets should be effected only when there were significant macro-economic crises. ▪ Section 76 and 78 Mediation Committees should be used when agreement could not be reached over budget amendments. ▪ Budget Committees should ideally legislate fiscal rules on the use of deficit financing, balanced budgets and performance budgeting for efficiency and effectiveness.

Federation of Unions of South Africa (FEDUSA) submission
Ms Gretchen Humphries, Deputy-General Secretary: FEDUSA Parliamentary Office, stated that FEDUSA supported the general principle of the legislation, that sought to enhance the oversight and law-making abilities of Parliament in a manner which strengthened democracy as required by Section 77(2) of the Constitution. The ability of Parliament to continually improve on the manner in which it participated in national budget issues and facilitated public interaction was very important. This should remain an area of continual improvement and an important feature of the work of Parliament as a representative of the people.

The implications of the amendments were that Parliament must be able to make fairly substantial changes in the budget, which would have unavoidable implications for macro – economic policy. An effective and functioning budgeting process which was independent of political or other interests of the legislature was very important. Parliament must be able to influence spending priorities, if there was to be meaningful democratic control over the deployment of public resources. The MTBPS provided a good opportunity to engage on the forthcoming budget. The key to the success of the draft legislation would be how it was drafted to contain the most enabling provisions that would make it practically implementable. Key objectives were improvements to service delivery and the overall performance of the state; ensuring that it gave effect to macroeconomic stability, certainty and cohesion; the attainment of socio-economic and development goals and measures to eradicate poverty.

FEDUSA was concerned that if the legislation was accepted blindly, it could send tremors through the investment community. Parliament might be tempted to reject the government's fiscal framework and parliamentary committees might also have differing demands to make on tax or budget items - effectively upsetting the carefully constructed fiscal and monetary policy regime. South Africa had built a respectable financial and economic reputation which it should retain at all costs when initiating the new legislation.

FEDUSA believed that collective bargaining in the public service was virtually non-existent. For example, the Minister of Finance had announced in October 2006 his MTBPS which outlined the expenditure estimates for the next four years, without any inputs from organized labour. FEDUSA has been articulating the view since 2004 that there should be serious social dialogue taking place at both Parliament and NEDLAC prior to the announcement of the annual Budget or the MTBPS.

Ms Humphries also talked about the importance of engaging the public and civil society groups on national budget issues. The Budget Office should be favourably disposed toward engaging with public and civil society stakeholders. It should meet with lobby and advocacy groups, receive information and public submissions, share budget information that is in the public interest and be accessible to the public.

FEDUSA expressed support for the fiscal framework being adopted ten days after tabling, changes to the division of revenue bill must be consistent with the fiscal framework, tax and appropriation legislation should be dealt with simultaneously, any changes to tax or appropriation bills must be consistent with approved fiscal framework and division of revenue bill. Such a process would provide the parameters for subsequent changes to money bills.

The technical issues in the Bill required conceptual clarification and key concerns in the bill were detailed.
▪ What constitutes “fiscal framework” needed clarification.
▪ Practical constraints such as time should be considered. Processes should allow a public comment period as well as public hearings.
▪ There was no rationale provided for the establishment of the Section 4 parliamentary committees. FEDUSA recommended that the existing Committees within Parliament (Portfolio and Select Committee) be given the capacity and training to be able to deal with the envisaged budgetary processes.
▪ Regarding the information required prior to the introduction of the National Budget in Section 5, FEDUSA agreed with this provided that a consultation process was followed,
▪ Concerning section 6 of the Draft Bill, processes needed to be drawn up to deal with an impasse when Parliament disagreed with the fiscal framework. Clear procedural guidelines were required.  
▪ Public participation was crucial in the form of public submissions and hearings. FEDUSA proposed an expanded role for NEDLAC. The Public Finance and Monetary Policy Chamber (PFMPC) at NEDLAC should be the vehicle for engagement on the budget and should be able to deal with the MTEF. The final MTBPS should be tabled at NEDLAC’s PFMPC. After the presentation of the budget, constituencies could table their inputs to NEDLAC.

In conclusion FEDUSA believed that it was critical to our democracy to introduce legislation that dealt with Parliament’s constitutional mandate to provide for procedure to amend money bills before Parliament.  

Discussion
Ms B Hogan agreed with the sentiments of the FFC on the issue of exceptional amendments. She pointed out that the present Medium Term Budget Policy Statement (MTBPS) provided little information on the outer years. One was merely left with a single figure. She asked how Parliament could effect a change in emphasis from focusing on the current year to influencing the budget of the future years.

Mr Khumalo agreed that the information that came through from the MTBPS was a bit thin and this was probably due to a lack of engagement. The demand for information may be placed on the National Treasury to allow engagement to take place.

Mr David Savage, Commissioner: FFC, responded that the MTBPS should not be read out of context with the previous budget as they had to piece all of those together. When read in conjunction with the programme, one could form a detailed view of spending priorities and related issues. He acknowledged that this might not be an easy task.

Ms Hogan referred to AFReC’s statement that one should not just be looking at the financial figures. One should be concerned with the inputs as opposed to outputs. She asked for their views on that suggestion.

Mr Savage responded that the big policy challenge would be switching from outputs to inputs, and said that there was no robust solution as yet. They would need to drill into the institutional arrangements, rather than examining the macro-allocation. The pertinent question would be: what the set of incentives were that drove a particular allocation. He remarked that Parliament was faced with a tricky challenge of conducting oversight and influencing spending allocations. He stated that the solution was to try to find a mechanism to integrate the process of oversight in a carefully constructed manner. He suggested that timing was important as it had implications for the local government fiscal year and this should be a caution against delay.

Ms Hogan wondered how the NEDLAC process worked and wanted to know when NEDLAC wanted to engage with the MTBPS and what the understanding of their relationship with Parliament would be.

Ms Humphries replied that it was FEDUSA’s view that it was critical that Parliament have final oversight and that the Executive prepare the budget and submit it to Parliament. They had referred to the time before the MTEF (about three months), as the NEDLAC process could be lengthy. It was aimed at consultation and input and would not be seen as final. The result of this process would then be submitted to Parliament for it to start its own process. She reiterated that Parliament would have final oversight. In the NEDLAC process, they would consider transfers to local government. The public submissions and hearings would be very important. NEDLAC would focus on what specific municipalities needed and what the allocation should be. This would require interaction with the South African Local Government Association (SALGA). Provision for the provinces to engage on budget allocations of departments and spending priorities belonged to the drafters of the legislation.

Mr M Swart (DA) wanted to know how NEDLAC would get involved in that.

Ms Humphries responded that this would happen through NEDLAC’s four committees: the Labour Chamber, Development Chamber, Trade and Industry Chamber and the Monetary Policy Chamber. They use these statutory bodies to engage with groups and get input. The idea was that local authorities should call for the hearing and that would make more sense than NEDLAC running the hearing.

Dr D George asked what major changes could affect the macroeconomic circumstances and if there was not the possibility of knee-jerk reactions, as regards fiscal rules.

Mr Van Gass replied that the FFC had discussed possibilities if per capita growth was declining in South Africa. One possible way of dealing with it would be using a balanced budget to stabilise the economy. He referred to the current combination of the sub-prime crisis in the USA and rising food and energy prices, and said he was not sure they had given enough thought to when it would be appropriate or not to take such action.

Mr Savage replied that fiscal rules were not uncommon in other countries. They would have to specifically consider the condition under which one could opt out of the rules – a test for the rules and these would have broad implications.

Dr George wanted to know what FEDUSA’s objectives were of their engagement. Would it relate to the fiscal framework or the budget allocations.

Mr Moloto asked the FFC if they view the reference to fiscal framework as adequate. More specifically, he enquired as to the possibility that Parliament should have broad guidelines as to fiscal responsibility.

Mr Khumalo responded that the role of the FFC remained the same. It was a structure that focused on intergovernmental fiscal issues. They were established to provide information that fed into the overall mandate. He saw these structures as contributing to the discussion that Parliament is engaging in and also for the Budget Office. On the matter of who designs the fiscal rules, he replied that this must be negotiated and agreed to. It was not strictly for the National Treasury or Parliament to determine the rules; both parties should agree.

Mr Van Gass commented that it made sense to beef up the budget committee to enable easier co-ordination. His suggestions for the future included a focus on output.

Mr Singh queried FEDUSA’s engagements with provinces and civil society. He asked to what extent provisions could be made in the Committee for provinces and suggested that this should perhaps happen in the provinces. He did not know if FEDUSA has given thought to time frames. He further wondered if the Bill was not already a step up if civil society could submit at public hearings.

Ms Humphries responded that at provincial level, she did not believe that NEDLAC should be involved there. That was where MECs should be involved in processes with local government, provinces and consultation with civil society.

Mr D Gumede (ANC) pointed to FEDUSA proposal that listening to the people and inputs should be made at NEDLAC.

Ms Humphries responded that they had been noticing trends in their engagement there. NEDLAC itself would have to be called to answer these questions to further deliberate on the detail of that. What was very important was the time limit. The Money Bill Amendment Procedure was not a quick fix and it was very important that they engage with this to prevent damage to the fiscal and macro-economic policy.

Mr Gumede wondered how time lags of approximately 18 months could be dealt with. He noted that departments did not have any absorption capacity to implement these types of proposals. He asked how appreciation of time lags and competencies could be developed.

Mr Gumede turned his attention to the FFC. Regarding the proposed fiscal rules, he referred to the “golden rule” that deficit financing be limited to capital expenditure. He asked if they did not have to limit risk to a certain percentage of the deficit, the rationale being that capital expenditure produces gains for the payment of debt.

Mr Khumalo responded that the issue was broader than capital expenditure generating returns. The question was: under what circumstances would one go for financing the deficit because you would actually tax people.

Mr Van Gass replied that there was a set limit of 3% of GDP assigned to the budget deficit. There was also the issue of avoiding white elephants, regarding infrastructure. He commented that certain capital expenditure should be subsidised.

Ms J Fubbs (ANC) directed her first query to FEDUSA. She wondered how NEDLAC saw their role after the amendments. She also wanted their opinion on the possibility of NEDLAC becoming a super-organisation, the implications of this for other civil society groups and how they would go about balancing that.

Ms Humphries replied that one would have to have had the NEDLAC process for inputs to the draft that would then be submitted to Parliament. If there were groups that did not fall under the NEDLAC constituency, they would be subject to the normal public hearings process. Those kinds of things would need further deliberation.

Ms Fubbs made the observation that if one were to limit the amendments purely to the first year, it would affect the outer year and provision should surely be made for that. She referred to the FFC proposal that amendments should be effected only when there were significant macroeconomic crises. She noted that this limited Parliament somewhat. She queried the FFC's views on capital expenditure. She stated that she was not in favour of a budget deficit. There were many ways of manipulating this capital expenditure figure in relation to a budget deficit and the Committee needed clearer understanding, as it was easy to overturn that kind of ruling.

Mr Van Gass responded that that recommendation should be redrafted and should refer to macroeconomic policy where Parliament could set the ratio of current to capital expenditure and suggested maintenance should be added.

Ms L Mabe (ANC) pointed to the indication in the submissions that collective bargaining in the public service was virtually non-existent. She was under the impression that this happened at the Bargaining Council. She referred to FEDUSA's submission and asked if they saw this as an opportunity to influence the salaries and conditions of service prior to the budget being tabled in Parliament.

Ms Humphries responded that what had been happening was that a budgetary allocation was given and with that budgetary allocation salary increases were negotiated. This was not done at NEDLAC level. It was done by the Public Service Co-ordinating Bargaining Council. The Council should have an opportunity to influence the budget rather than merely implementing an allocation. Negotiations on that level should take place but FEDUSA could not comment on their behalf.
 

Financial and Fiscal Commission (FFC) submission