Money Bills Amendment Procedure & Related Matters Bill: submissions

NCOP Finance

27 January 2009
Chairperson: Mr T Ralane (ANC)
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Meeting Summary

National Treasury’s submission welcomed the Committee’s request that Treasury propose norms and standards for provincial legislation on Money Bills that would be placed in the Schedule to the Bill. This would ensure consistency across the provinces and a common framework. These proposals were outlined as well as some concerns about the very tight timeframes in the Bill.

Some comments from members in the response to the National Treasury’s submission were:
- The recommendation in provincial norms and standards that ceilings must be agreed upon before the consideration of an amendment was queried as there was no similar provision at national level.
- Was the restriction on introducing new spending items applied only at provincial level?
- Norms and standards for provinces created potential for federalism.
- How could one safeguard the norms and standards to ensure that one had unified legislation and avoid disparities across provinces.
- It would be necessary to fine tune how they involved provinces in the MTBPS.
- Budget allocations were often linked to political issues.
- The Bill focused on two money Bills only - the budget and the revenue laws – which did not seem comprehensive.
- Clarity was requested on the diversion of funds in Clause 8(5)(c).

The People's Budget Campaign submission noted their concerns around very tight timeframes in Clause 8(3). The provision that the committee had to submit a report 16 days after the tabling of the MTBPS was inadequate for proper deliberations. The time allowed for public participation was similarly inadequate. The two days provided for the Minister to review the proposed fiscal framework and revenue proposals was inadequate if there were major amendments. The wording in Clause 8(5)(a) was broad and vague and must be more specifically defined as it seemed to have an ideological agenda. They speculated that this was an attempt to insert “appropriate deficit”, adding that the law must be clear. There was an historical aversion to social spending, which affected the broad base of the South African working class. Clause 8(5)(b) should be broadened to cover ‘capital spending’ as this could would protect against irresponsible capital spending. An acceptable alternative to these revisions would be the deletion of Clause 8(5)(a) and (b).

Members asked if their requested change in the wording was intended to make it possible to have a deficit. The PBC were asked if they would prefer the law to describe specific limits in Clause 8(5)(a). One member  stated that lack of good management and administration and poor discipline and work ethic caused many of the problems in the health and education sectors rather than throwing more money at social spending items.

The Chairperson asked the People's Budget Campaign to rewrite a specific proposal on the appropriate balance between spending and debt and the borrowing and servicing of debt. The global economy was currently in recession and this meant considering how to approach issues of borrowing and servicing debt, in a global environment where credit was no longer as readily available. These were matters that would have to be considered so that the discussion on the appropriate balance between spending and debt was informed, especially the effect on spending priorities. The People's Budget Campaign responded that their submission proposing specific deletions and revisions would not change.

Meeting report

 

The Chairperson commented on the fourteen-page policy document the Secretary of Parliament had referred to during the meeting of 27 January on the Financial Management of Parliament Bill. Mr Ralane had requested and received the document but was disappointed with the quality of the document as it needed revision to develop the policy. It did not seem to be the policy religiously articulated in the previous meeting. He felt that they should be careful as to its inclusion in the deliberations on the Bill. He asked members to read the document.

Mr Botha noted that the document was titled Proposed Policy. He inferred from this that this policy was not accepted officially and was in fact, only a draft.

National Treasury
Mr Andrew Donaldson, Deputy Director General: Public Finance, National Treasury, referred to the long process of extensive consultation and drafting on the Money Bills Amendment Procedure and Related Matters Bill and the National Treasury role in assisting the understanding of the specific procedural implications of the Bill. It would in essence change the relationship between Parliament and the National Treasury. The Treasury was ready to help Parliament with its role in the finalisation of the budget and how future plans were adapted over time. The focus on their presentation would be the practical issues and the implementation of the procedure for amendment of money bills. The Chairperson had requested National Treasury to consider the Bill’s possible implications for the provinces.

The Chairperson noted the lack of norms and standards for provinces and said he was pleased with the substantial work done by Treasury to address this issue.

Ms Jeannine Bednar-Giyose, Director (Fiscal and Intergovernmental Relations):National Treasury, briefed the Committee on National Treasury’s specific comments on the Money Bills Amendment Procedure and Related Matter Bill.

She referred to the very tight time frames which would require efficient and effective co-ordination for the envisaged process to run smoothly. This would necessitate more attention on the relationship between Parliament and the National Treasury to ensure clear communication and co-ordination. An equally important relationship the Bill established would be that between the National Treasury and Parliamentary Budget Office in order to avoid duplication of work and facilitate sharing of information to promote an effective budget process. She commented that it was not clear when the Bill would come into operation but officials would to have an advanced understanding of when this would happen and do the requisite long term planning.

She then went through the submission (see document).

 

Practical Considerations
Clauses 5(1)(d) and (e) was referred to and they noted their concern about the timing of the tabling of annual reports. In Clause 6, dealing with the MTBPS, it was not clear if the processes in the two Houses were intended to run concurrently. There was a slight inconsistency between Clauses 6 and 7 as one Clause provided for the MTBPS to be tabled in both Houses. However, in the other clause, the Budget Statement, the Appropriations Bill and the Division of Revenue Bill were tabled only before the National Assembly (NA).

The Chairperson responded that this was not accurate. The MTBPS was presented only in the NA. The tabling of all the mentioned documents happened in a lock-up session attended by the members of both Houses. The members of the NCOP attended unofficially, seated in the gallery.

Ms Zarina Adhikari, Parliamentary Liaison Officer: National Treasury, clarified that Clause 6 provided for the MTBPS to be tabled before Parliament and Clause 7 went on to refer specifically to the NA.

The Chairperson agreed that there was an inconsistency and the need for it to be ironed out.

Ms Bednar-Giyose stated that the legislation did not explain the process to be followed if the Minister of Finance disagreed with the amendments made by the Parliament on the Fiscal Framework and revenue proposals. She also noted concerns about timing in Clause 10.
 
Norms and Standards for Provincial Legislation.
Ms Bednar-Giyose said that the Committee had expressed concern that the Bill did not set out norms and standards for provincial legislation on Money Bills that would likely be drafted as a response to the national legislation on Money Bills. National Treasury had been asked to consider the matter. She said that the proposal to develop norms and standards for provincial legislation was strongly supported by National Treasury, to ensure consistency and a common framework in the processes following Parliament’s amendment of Money Bills. A similar approach could be followed to that of the Financial Management of Parliament Bill, where there was a section in the main body of the Bill which referred to Provincial Norms and Standards. Particular norms and standards would then be further specified in the schedule of the Bill.

She briefed the Committee on their specific recommendations (see document). She also presented an additional document dealing with wording recommendations and adjustments to some definitions: Comments Regarding Specific Provisions of the Money Bills Amendment Procedure And Related Matters Bill

Discussion
Ms Belinda Scott, Chairperson of Portfolio Committee on Finance: Kwazulu-Natal Legislature, referred to the reference in the provincial norms and standards to ceilings. She queried the recommendation that stated specifically that the ceilings must be agreed upon before the consideration of an amendment. This in effect would give the provincial legislatures space to play with only a very small percentage of the equitable share.

Mr Donaldson responded that the recommended provincial norms and standards reproduce the same ideas that this Bill established for the national budget. In the legislation that applied to the national budget, ceilings were built into the Fiscal Framework and Division of Revenue. This had to be agreed before specific amendments could be considered.

Ms Scott asked why a ceiling was suggested for provinces, when there was no similar provision at national parliamentary level. This was an apparent discrepancy in powers.

Mr Donaldson responded that although it was correct that the word “ceiling” did not appear in the Bill, that purpose was served by the Division of Revenue framework and the Fiscal Framework. That was essentially what any budget had to do – set an overall level of spending and allocate that spending to particular functions within the envelope. This was the reason a determination of the ceiling had to precede the consideration of changes in the allocation of resources.

Ms Scott referred to the recommendation that a provincial legislature could not introduce new spending items. She asked if that restriction also applied only at provincial level. What was the reason for the discrimination?

Mr Donaldson responded that this might be a matter of awkward wording. He was of the opinion that the intention was that, as applied to the national budget, an amendment process was not seen as a vehicle through which new proposals could be parachuted into the budget process. He felt that this was an important principle – that they concentrate on changes to existing programmes, not see this as an opportunity to introduce new programmes.

Mr E Sogoni (ANC; Gauteng) queried the precedent set by the norms and standards, providing for provinces to develop their own legislation for amending money bills and noted the potential for federalism. He asked how they could safeguard the norms and standards to ensure that they had unified legislation and avoid disparities across provinces.

The Chairperson replied that the National Treasury was merely responding to the Committee own view on the need for norms and standards for provinces. This was meant precisely to ensure that provinces executed their duties uniformly – so that when they develop their own legislation – they were in line with this Bill.

Mr Donaldson responded that the National Treasury fully agreed with the concerns raised by the Committee. The recommendations presented were draft suggestions and needed further work and the careful consideration of the Committee.

He felt that the essence of the problem was that the consideration of future spending plans, in terms of departmental performance (at the time of the tabling of the MTBPS) provided for an input from the Portfolio Committees that the Appropriations Committee (established by the Bill) needed to take into account. Provinces did not have a MTBPS. They did, however, also have Portfolio Committees that exercise oversight over provincial departments. The essential idea was that provinces should similarly create a link between oversight of provincial departments and consideration of changes to spending plans. If the Committee agreed to that idea, the drafters could look at how it could be elaborated on in norms and standards for provinces.

The Chairperson replied that the MTBPS had far reaching consequences for provinces and Parliament was still grappling with how to take provinces on board, regarding the MTBPS. He felt this was a matter that needed to be aligned in the Bill’s norms and standards for provinces. A broader concern was that the Bill was not aligned to similar legislation, particularly the current review of the Public Finance Management Act (PFMA) and at provincial legislation level.

Mr Donaldson responded that perhaps the Bill should provide for a role for the NCOP at the time of the MTBPS, making recommendations to feed into provincial budget considerations. This was a very compelling idea, as it drew on the oversight role of the NCOP and might be a national extension of the NCOP hearings conduct annually. He thought this a very useful suggestion, even though it was not covered in the norms and standards presented. It might not belong in the norms and standards and be more appropriately positioned in a separate section in the Bill.

The Chairperson replied that this was a matter for consideration in the medium term. They needed to fine tune how they involved provinces in the MTBPS.

Ms Scott stated that she was supportive of a common framework for provinces. They needed to recognise that there was an inherent conflict between Treasury and the Finance Committees on this Bill. She did not agree that the amendment power meant that there was not scope to introduce new expenditure items. This would have to be in line with the principles in sub-Clause 8(5), the Fiscal Framework and that there was a balance. She thought that the Committee had to be clear on what it wanted to achieve with the Bill – whether it wanted to exercise its oversight properly over underperforming departments and be able to change budgets where appropriate. The provisions should allow them to do what the Constitution says and that the Constitution did not restrict this in any way. They should be careful not to restrict themselves.

The Chairperson recalled an instance where the Committee had queried where the equitable share of a particular department was going. They queried where their budget for roads was going. The answer had been that those funds had gone to reviving a train that took 24 hours to travel between two towns. This train did not make economic sense over the building of roads. The provincial legislature should be empowered to deal with such occurrences and force provincial departments to focus on their core business.

Mr Z Kolweni (ANC; North-West) noted that this was a Section 75 bill. He queried the point at which the provinces would have input on this Bill.

The Chairperson replied that at no stage would provinces be allowed input on this Section 75 bill. That was why they had to think carefully to ensure that it was done correctly.

Ms A Mchunu (IFP; Kwazulu-Natal) suggested that they use the Intergovernmental Relations Act to mitigate the imposition on provinces.

Mr D Botha (ANC; Limpopo) expressed concern about the norms and standards on provinces. It would require provinces to be really strict. He pointed out that political issues sometimes play a very big role in provinces. He was concerned with how budget allocations were often linked to those issues. The consequence of this was that service delivery suffered as that allocation necessarily had to come out of another expenditure item. They had to look at this very seriously as political pressure could usurp funding at the expense of service delivery priorities.

The Chairperson agreed and commented on Parliament’s efforts to assist the MECs for Finance and provincial legislatures on these matters. The allocation formulas were clear in terms of social services. There would be no opportunity for negotiating mandates and the member would have to make an effort to share the issues with their colleagues in the provinces so that the members of the legislatures could be informed.

Mr Sogoni noted that Parliament often did not think of the legislative implications for provinces. The Committee had picked up that there was a need for provincial norms and standards and they might have to find a way for provinces to comment on the Bill, as it had implications for provinces.

Ms Mchunu stated that there were certain instances which could not be avoided such as natural disasters – floods, wildfires and the like – which would require more funds than initially anticipated.

The Chairperson replied that the Disaster Relief Fund was in place to respond to unforeseen instances. One could also use contingency reserves and special adjustments appropriation.

Ms Bednar-Giyose continued presenting an additional explanatory document. Much of the document concerned typographical and wording recommendations. They had also proposed some adjustments to the definitions.

The Chairperson noted that the National Treasury’s submission was substantial and members would need time to study it for a later engagement on the Bill. For this reason, no decisions would be made on the proposals and recommendations submitted by the National Treasury at the meeting.

Mr Botha asked how they would deal with the Bill in terms of the norms and standards. He asked if they would be part of the Bill.

The Chairperson responded that the norms and standards would be part of the Bill. He had discussed the matter with the acting Chairperson of the Portfolio Committee on Finance and the norms and standards would be an amendment from the Select Committee on Finance. He also asked that members allow their colleagues in the provinces to give them notes to refine the norms and standards, as there would not be negotiating mandates to inform those amendments.

The Chairperson expressed concern that the Bill focused on only two money Bills: the budget and the revenue laws. It did not seem very comprehensive.

Mr Donaldson replied that this was a very important point as there were various types of money bills. This Bill recognised that Parliament might want to consider change to the overall fiscal envelope such as the deficit level and the Fiscal Framework. Changes to the Fiscal Framework would have implications for the Division of Revenue Bill. Those changes then needed to be considered for their impact on fiscal policy, projections of debt and the overall performance of the economy. That would clearly be distinct from the consideration of the spending plans of departments. Some money bills related to fiscal activities, levies and extra-budgetary accounts. Some money bills dealt with items that were not part of the National Revenue Fund (NRF) and also needed a process. There was recognition in the Bill for the need to deal with other kinds of money bills.
He pointed out that the National Treasury had, in several cases recommended a revision of the wording. This was, by and large, an effort to prevent opportunistic incorporation of special interests into budget allocation. The members were aware of how damaging this could be. An appropriate balance had to be kept between the need to consider a wide range of amendments and need to keep the budget process coherent. The National Treasury would elaborate on the points presented thus far and would be was happy to assist with the further refining of the Bill.

Ms Mchunu referred to Clause 8(5)(c) and sought clarity on the shifting or diversion of funds after the appropriation of funds. She asked if it was clarified that this could be done through diversion.

Mr Donaldson responded that the PFMA provided for some movement of funds between sub-divisions of a programme or vote. Accounting officers did have some discretion to shift funds. There were also specific rules that allow for a shift of up to 8% of money from one programme to another and there were provisions in the PFMA that allowed a department to approach Treasury for additional diversion of funds. There was a difficult balance between ensuring that the budget was implemented by the department during the year and adhered to what Parliament intended but also allowed for the flexibility and discretion to adapt to in-year changes.

People’s Budget Campaign (PBC) submission
Mr Keith Vermeulen introduced the People’s Budget Campaign and briefly appraised members of the composition and aims of the PBC. He noted that the PBC had continually attempted to create new opportunities for popular participation in the budget process. He applauded the progress made on the Bill.

Mr Mfanafuthi Tsela briefed the Committee on the PBC's concerns on the timeframes envisaged by the Bill. He pointed out that Clause 8(3) required committees to submit a report on the fiscal framework and revenue proposals 16 days after the tabling of the national budget. This timeframe was inadequate for proper deliberations on both the fiscal framework and revenue proposals. Public participation would not be possible as at least three weeks notice was needed for public hearings. The three months stipulated for tabling the budget after MTBPS was inadequate. The two days provided for the Minister to review the proposed fiscal framework and revenue proposals was inadequate if there were major amendments.

Mr Sydney Kgara, People's Budget Campaign, said that any legislation and in particular this bill had to be clear, unambiguous and its clauses must be necessary - rather than some frivolous attempts to insert unnecessary ideological agenda. Prescriptions in legislation must be defined - so that they could be meaningfully understood. If not, they were unnecessary in legislation and should not be in the Bill. He looked at Clause 8(5) on adopting the fiscal framework and revenue proposals.

Clause 8(5)(a) stated "ensure that there was an appropriate balance between revenue, expenditure and borrowing". The PBC was curious as to what was meant by this as there was always a balance (difference) between revenue collected and budgeted and spending. Such a difference was called “deficit”, if the budget was not balanced or there was no surplus. They speculated that this was an attempt to insert “appropriate deficit”, adding that the law must be clear.

Clause 8(5)(b) aimed to ensure that the costs of recurrent spending was not deferred to future generations. The PBC agreed to this if the idea was to protect future generations from inheriting unnecessary liabilities or debt burdens but questioned the rationale of limiting the clause to recurrent spending to the exclusion of capital spending. PBC queried the definition of recurrent spending. They argued that capital spending was almost invariably linked to recurrent spending in items such as health, education and infrastructure. They mentioned the Pebble-bed Modular Reactor (PMR) project as being a vanity mega-project causing unnecessary and on-going burden on tax-payers. This was a relic of a Neo-liberal mindset that believed that social spending items were not an investment and the reason that South Africa had fallen behind in education, skills development, health, social development and in fostering sustainable economic growth.

The PBC recommended that the notions in Clause 8(5)(a) must be defined and Clause 8(5)(b) should be broadened to cover “irresponsible capital spending” or an alternative to these revisions would be the deletion of these sub-clauses.

Discussion
The Chairperson recapped that the PBC was of the opinion that the Bill was ideological. He felt that the PBC submission fell into the same category and in fact was much more ideological.

Mr Sogoni felt that the submission had improved since their last meeting with the PBC and it was no longer as wide in scope. He referred to the concern about Clause 8 (5) and recalled the previous discussion on the subject of “an appropriate balance”. The Committee’s understanding of that concept was that there had been proposals for government to budget for a deficit. He asked if their requested change in wording was intended to make it possible to have a deficit.

Mr Kgara responded that they thought this an unnecessary clause. This clause did not need to be in the legislation. He referred to the very specific regulation used in the European Union. They made use of specific thresholds and restrictions on the percentage growth of the budget deficit. The ambiguous wording put a particular way of thinking into legislation.

Mr Sogoni referred to the comments on not deferring debt burden to future generations. He asked if his interpretation - that they agreed with the principle of not deferring debt to future generations - was correct. If so, he asked how one might strike the necessary balance between spending and debt. He also asked the PBC to suggest better wording.

Mr Kgara replied that they agreed that future generations should not suffer because of current spending costs, in principle. It was important to note that future generations would also derive benefit from current spending on improvements in infrastructure, healthcare, education et al, offsetting the costs somewhat. Nonetheless, they felt that the provisions were unnecessary as they were broad and vague. The PBC preferred to have ‘current spending’ expanded to include ‘capital spending’. This was the reason they suggested that the provisions might be ideological as there was an historical aversion to social spending, which affected the broad base of the South African working class.

Mr Donaldson responded that the PBC seemed to insinuate that this was an attempt to assert a specific interpretation of ‘appropriate balance’. More specifically, this seemed to imply that the Bill envisaged a certain limit on the deficit. He countered by pointing out that the clause specifically did not specify a limit, rather it advocated an appropriate balance between revenue (tax burden on the economy), spending (what government injected into the economy) and borrowing. It was unarguable that those three things should be considered together in reaching an appropriate budget balance but the Bill specified no limit. Contrary to the PBC view that there was hidden ideological intent, it specifically avoided an ideological commitment by setting no particular limit. As to the question of whether it was unnecessary, he responded that it was clearly necessary that the law prescribe that those three things should be considered jointly. He asked if the PBC would like the law to describe specific limits or leave the legislation as it stood.

Ms Robinson (DA; Western Cape) responded to the suggestion that there was a belief that social spending items were not investment. She stated that education, skills development, health and social development were absolutely vital to any country and this was recognised. Lack of management, lack of discipline and work ethic and lack of good administration caused many of the problems in the health and education sectors. These were things that could be changed. Everyone agreed that these were vital for development of the future generations.

The Chairperson ruled that the PBC should write clear proposals for discussion to be received by the Committee in the following three days. The rationale and exact clause references should be clearly stated for further discussion. The clauses that were problematic should be similarly isolated.

Adv Jenkins (Parliamentary Law Advisor) commented on the intention of Clauses 8(5)(a) and 8 (5)(c), read with 8 (5)(b). He said that the Portfolio Committee had considered the option of adopting ceilings or specific ranges of percentages in the deficit in the manner of the European Union (EU). They had finally decided not to adopt this approach and leave the wording at "appropriate" in the context of addressing the specific needs of a specific financial year. It was their view that South Africa was a developing country and, as such, had different needs than the EU and needed a different set of regulations. There was no preference expressed in terms of favouritism of a surplus, deficit or balanced budget. That question was intentionally left open to be determined by Parliament on a financial year by financial year basis.

He said that specific to Clause 8(5)(c), the idea of cost (recurrent spending) had to be read in conjunction with Clause 8(5)(b) which spoke of interest costs. The question asked here was: did one want borrowing to service recurrent costs and the costs of that borrowing visited upon future generations? The Portfolio Committee had decided not to do that. Further, they had resolved not to put that limitation on capital expenditure as it held some value for future generations. This required the qualification that some capital expenditure will not be seen as an asset, depending on the side of the economic spectrum from which they were viewed.

The Chairperson replied that the line was clear. The global economy was currently in recession and this meant considering how to approach issues of borrowing and servicing debt, in a global environment where credit was no longer as readily available as before. These were matters they would all have to deal with so that the discussion on ‘appropriate balance’ was informed by all factors, especially the effect on spending priorities. The matter of credibility of budgets was also raised across the board, regarding the alignment of budgets to priorities. He reiterated the need for clear recommendations from the PBC and stressed the need for as narrow an interpretation as possible and simplicity in the revised submission.

Mr Kgara responded that the PBC proposals would not change. The proposals made called for specific deletions as stated in the submission.

The Chairperson responded that this was fine and the Committee would use the current submission in their discussions, in consideration of the proposed deletions.

The meeting was adjourned.

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