Ex parte: The Portfolio Committee on Finance of Parliament

In re: The Financial Management of Parliament Bill, 2006

OPINION

Introduction

1. My consultant is Parliament's Portfolio Committee on Finance ("the Portfolio Committee"). The Portfolio Committee is considering submissions in respect of the Financial Management of Parliament Bill, 2006 ("the Bill"). National Treasury has indicated that the Bill may be subject to Constitutional challenge in that it may trespass upon the powers of the National Treasury, and in particular the provisions of Section 216 of the Constitution.

2. My opinion is sought as to whether the Bill does give rise to constitutional concern on the grounds indicated by the National Treasury.

3. The Bill regulates the financial management of Parliament. It is unnecessary to deal with the provisions of the Bill in detail.

4. In essence:

4.1. Section 4 of the B ill establishes a joint committee of Parliament to maintain oversight over the financial management of Parliament.

4.2. An Executive Authority of Parliament is constituted : the Speaker of the National Assembly and the Chairperson of the National Council of Provinces, acting jointly (Section 5). .

4.3. The proposed Act is administered under the control of the Executive Authority (Section 6).

4.4. An Accounting Officer is defined to mean the Secretary to Parliament who undertakes the financial management functions of Parliament (Section 7).

4.5. The Executive Authority must oversee the preparation of Parliament's strategic plan, annual performance plan, budget and adjustment budgets (Section 13).

4.6. In terms of Section 16, the Accounting Officer must prepare a draft budget for Parliament and present it to the Executive Authority. The Executive Authority must then table the budget in Parliament for referral to the Joint Committee. The Executive Authority must in addition, after consultation with the Minister of Finance, determine a process for submitting Parliament's budget and adjustments budget to the National Treasury (Section 17).

4.7. For each financial year, Parliament must appropriate funds and approve the use of such funds (Section 18).

4.8. Chapter 4 provides for the cash management and investment policy of Parliament which is to be undertaken by the Executive Authority.

4.9. Chapter 5 provides that the Accounting Officer shall be responsible for financial management.

4.10. Detailed provisions are set out concerning supply chain management and the responsibilities of the Executive Authority and the Accounting Officer in this regard.

4.11. In Chapter 7, the Executive Authority must appoint an audit committee which shall have a variety of functions including investigating Parliament's financial and risk management and communicating any concerns it deems necessary to the Executive Authority and the Auditor General.

4.12. Chapter 8 provides for reporting and auditing and includes the preparation of financial statements and general reporting responsibilities.

4.13. Chapter 9 provides for the Executive Authority to issue regulations not inconsistent with the proposed Act.

5. It will be apparent that under the Bill, Parliament will constitute officer bearers with wide-ranging powers of oversight and financial management in respect of the financial affairs of Parliament. It is quite plain that the Bill is concerned with transparency and expenditure control and the adoption of recognised accounting practices. Given the wide-ranging budgetary processes and expenditure control that lie at the heart of the Bill and the officers constituted to take charge of these matters, the question arises as to whether the Executive Authority and Accounting Officer enjoy powers and discharge functions that, in effect, usurp the constitutionally designated role of the Treasury in chapter 13 of the Constitution.

6. The Bill certainly takes account of the fact that the National Treasury should have the budget and adjustment budgets submitted to the National Treasury (see Section 17). But it will be plain from the recitation of powers and functions set out above, that the Executive Authority and the Accounting Officer enjoy wide-ranging functions to ensure proper planning and the scrutiny of the financial affairs of Parliament without any Treasury approval.

7. Two questions arise. What is the remit of the Treasury under Chapter 13 that might impact upon the constitutionality of the Bill? Second, does Parliament enjoy autonomy as a separate branch of Government from Treasury control? I shall consider these intra-related questions. However, I should observe that I have had somewhat limited time to consider these questions, and, accordingly, my conclusions should be understood in the light of these time limits.

8. The Constitutionally sanctioned role of the Treasury

Section 215 of the Constitution sets out the objectives of National, Provincial and Municipal budgets, and requires that National Legislation must prescribe a number of matters relevant to these budgets. These strictures as to budgets are applicable to each sphere of Government.

9. Sub-Sections 216( 1) and (2) are of particular importance. They read as follows:

"216. (1) National legislation must establish a national treasury and prescribe measures to ensure both transparency and expenditure control in each sphere of government, by introducing -

(a) generally recognised accounting practice;

(b) uniform expenditure classifications; and

(c) uniform treasury norms and standards.

(2).The national treasury must enforce compliance with the measures established in terms of subsection (1), and may stop the transfer of funds to an organ of state if that organ of state commits a serious or persistent material breach of those measures.

[Sub-s (2) substituted by s. 5(a) of Act No 61 of 2001.]"

10 The following points should be made concerning Section 216( 1). While national legislation is required to establish the Treasury and prescribe the measures it must take to ensure transparency and expenditure control, these measures apply to "each sphere of Government", and include introducing generally recognised accounting practices. There seems little doubt that Section 216(1) considers the National Treasury to be the appropriate organ of State to ensure transparency and expenditure control in each sphere of Government. Parliament maintains control over how Treasury shall carry out its constitutional mandate, but it is National Treasury that is given the mandate to ensure transparency and expenditure control by enforcing compliance in terms of Section 216(2).

11 Nor can it be doubted that Parliament is part of a sphere of Government. This is a structural feature of the Constitution and appears in a number of places in the Constitution. Section 40( 1) of the Constitution describes the Government of the Republic. The Government is constituted as national, provincial and local spheres of Government which are distinctive, interdependent and intra-related. The legislative authority of the Republic is set out in Section 43 of the Constitution.

Section 43(a) states that the legislative authority of the national sphere of Government is vested in Parliament as set out in Section 44. This constitutional logic is then applied to the other spheres of Government. Thus, Section 104(1) states that the legislative authority of a province is vested in its provincial legislature. The Executive Authority of a province is vested in the Premier of that province (Section 125(1)). And in respect of the local sphere of the Government, this consists of municipalities, and the executive and legislative authority of a Municipality is vested in its Municipal Council (Sections 151(1) and (2)).

12 It seems clear then that the reference in Section 216( 1) to "each sphere of Government", includes Parliament as the legislative authority of the national sphere of Government.

13 Once this is so, it is a constitutional requirement that the National Treasury should be permitted to discharge its constitutional mandate in respect of Parliament. National Treasury does so by acting within the remit of national legislation. But the important point is that Section 216(2) requires that the National Treasury must enforce compliance with the measures established in terms of the national legislation envisaged in Section 216(1).

14 Therefore, while Parliament is required to prescribe the measures that National Treasury must enforce, it is the National Treasury that is the agency designated to enforce the required measures in terms of Section 216. Parliament is thus subject to the measures that National Treasury is constitutionally mandated to enforce.

15 The Public Finance Management Act 1 of 1999 provides in Section 3(1)(d) that the Act applies to Parliament, subject to the proviso that any controlling and supervisory functions of the National Treasury are performed by the Speaker of the National Assembly and the Chairperson of the National Council of Provinces, acting jointly. There is accordingly some recognition in the Public Finance Management Act that the supervisory functions of the Treasury are given to office bearers of Parliament itself. It is not clear how this statutory provision comports with the requirements of Section 216(2) of the Constitution that the National

Treasury must enforce compliance with the measures established in terms of Section 216.

The powers of Parliament

16 While Section 216 on its face gives to the National Treasury a power to enforce measures concerning expenditure control in respect of Parliament, there is, of course, a significant constitutional concern that arises. Parliament should be sovereign in its own sphere of government. The National Treasury is part of the Executive. If the Executive were to act in matters concerning the internal financial operations of Parliament, then a concern arises as to the separation of the powers.

Hence the basic philosophy of the Bill which is that Parliament should itself appoint officers who will carry out the financial supervisory functions of Parliament.

17 The powers in Section 216(1) and (2) must also be seen in light of Section 57 of the Constitution. Section 57 empowers the National Assembly to determine and control its internal arrangements. And these arrangements are separate from the power of the National Assembly to determine and control its proceedings and procedures. The National Assembly is also empowered to make rules and orders concerning its business with due regard, inter alia, to accountability and transparency. Similar provisions apply in respect of the National Council of Provinces (see Section 70(1)). Section 55(2) of the Constitution also provides that it is the National Assembly that must provide mechanisms to maintain oversight of the exercise of national executive authority. These provisions tend to negate the role of the Treasury to assume supervisory jurisdiction over Parliament itself.

18 The question that then arises is how the provisions of Section 216 of the Constitution are to be read with the constitutional principle that Parliament enjoys supremacy over its own internal business. On the face of things, it is Treasury that is given a constitutional mandate to ensure compliance with measures that ensure transparency and expenditure control in each sphere of Government. Yet the position of Parliament, as reflected in the provisions set out in paragraph 17 above, indicate that Parliament enjoys autonomy over its internal arrangements.

19 Ultimately, one must give a reading to the Constitution that takes account of all its provisions, and in particular ensures that the principles of co-operative Government and intergovernmental relations specified for in section 41 of the Constitution are given effect to. Section 41 (1)( c) of the Constitution requires that all spheres of Government and all organs of State within each sphere must provide effective, transparent, accountable and coherent Government for the Republic as a whole. The requirement of coherence is paramount. And to the extent necessary requires a reading of the powers of Treasury in Section 216 to reflect the special importance that Parliament has in carrying out its legislative functions. As indicated above, Parliament's function is both to legislate and maintain oversight over the exercise of national executive authority and organs of state including the Treasury. That power, captured in Section 55(2)(b)(i) and (ii) necessary entails that the exercise of national executive authority, including the implementation of legislation, is a matter over which Parliament enjoys supervisory powers. This would include the exercise of powers by Treasury in Section 216. This gives rise to a conundrum. Parliament has supervisory powers over the Treasury and its implementation of national legislation, yet Treasury has the Constitutional power to enforce compliance with statutory measures. It seems difficult to understand the Constitution on the basis that Treasury supervises Parliament's internal budgets and expenditure, but Parliament may call Treasury to account when Treasury discharges its powers.

Conclusion

21 The matter is difficult, but I am inclined to the view that the better reading of the Constitution is that Parliament is constitutionally required to retain control over its own internal arrangements, including financial ones. And consequently that Treasury's constitutional mandate does not extend to supervising the internal financial affairs of Parliament. Accordingly, I do not consider the Bill to offend against Section 216 of the Constitution.

David Unterhalter SC

Chambers

9 June 2008

Ex parte: The Portfolio Committee on Finance of Parliament

In re: The Financial Management of Parliament Bill, 2006

ADDENDUM TO OPINION

Introduction

1. My consultant is Parliament's Portfolio Committee on Finance ("the Portfolio Committee").

2. On 9 June 2008 I gave an opinion to the Portfolio Committee on a number of matters contained in my instructions. My attention has been drawn to the letter of the Chairperson of the Portfolio Committee dated 5 June 2008. In this letter, my opinion is also sought as to whether the Bill falls within the legislative authority of Parliament insofar as the Bill provides for the financial management of provincial legislatures.

3. In schedule 1 of the Bill, norms and standards for provincial legislatures are set out. That schedule requires that legislation enacted by a provincial legislature to regulate its financial management must promote accountable, transparent and sound financial management and to this end must meet a number of requirements.

4. Section 44(1) of the Constitution confers on the National Assembly the power to pass legislation with regard to any matter, save those listed in the functional areas set out in Schedule 5 of the Constitution, and then subject to Parliament's powers of intervention as set out in Section 44(2). Schedule 5 to the Constitution provides for the functional areas of exclusive provincial legislative competence. None of the matters listed in Part A of Schedule 5 concern the norms and standards relevant to the regulation of the financial management of the provincial legislatures.

5. Section 44(1) of the Constitution accordingly permits Parliament to legislate on the matters set out in Schedule 1 of the Bill.

6. The legislative authority of the provinces is set out in section 104 of the Constitution. Section 104( 1 )(b) sets out the types of legislation that a provincial legislature may pass. Such legislation includes matters within the functional areas listed in Schedules 4 and 5 of the Constitution, as also any matter for which a provision of the Constitution envisages the enactment of provincial legislation.

7. Among the matters that a provincial legislature enjoys competence over are its own internal arrangements, proceedings and procedures. Thus, in Section 116(1) of the Constitution it is stated that a provincial legislature may determine and control its internal arrangements, proceedings and procedures. A provincial legislature may also make rules and orders concerning its business, with due regard to representative and participatory democracy, accountability and transparency and public involvement. It is provisions of this kind that led me to conclude that the National Assembly and the National Council of Provinces enjoyed autonomy over their internal arrangements and the question is whether the provisions of Section 116(1) have a similar consequence for the autonomy of the provincial legislatures.

8. In my view, there is no conflict between the legislative authority of the provinces to govern their own internal arrangements and the legislative competence of Parliament. While the provincial legislatures have competence to pass legislation concerning their internal financial arrangements pursuant to Section 104(1 )(b )(iv) read with Section 116( 1) of the Constitution, this competence does not detract from the plenary legislative competence that the Constitution accords to Parliament in Section 44(1)(a)(ii). The National Assembly enjoys plenary legislative competence, save in respect of the functional areas listed in Schedule 5, and even there Parliament may intervene under the conditions specified in Section 44(2) of the Constitution.

9. Thus, while the provincial legislatures are competent to pass legislation governing their own internal arrangements, that legislative competence does not detract from the over-arching plenary power enjoyed by Parliament and vesting by virtue of Section 44(1). In other words, in my view, the specific legislative power of the provinces in respect of their internal financial arrangements does not constitute an exception to the plenary power enjoyed by the National Assembly in Section 44.

10. Consequently, in my view, the provisions of Schedule 1 fall within the legislative competence of Parliament.

David Unterhalter SC

Chambers

17 June 2008