ATC160311: Report of the Standing Committee on Finance on the Revenue Laws Amendment Bill [B4 - 2016] (National Assembly- section 77), dated 10 March 2016

Finance Standing Committee

Report of the Standing Committee on Finance on the Revenue Laws Amendment Bill [B4 - 2016] (National Assembly- section 77), dated 10 March 2016.

 

 

1. Introduction

 

1. The Revenue Laws Amendment Bill [B4 - 2016] was introduced by the Minister of Finance on 24 February 2016. The Bill is a money Bill as contemplated in section 77 of the Constitution. The purpose of the Bill is to postpone certain provisions in respect of the annuitisation of retirement benefits for provident funds and to correct provisions dealing with the calculation of deductions in respect of contributions to defined benefit retirement funds.

 

 

1. Public involvement

 

1. The Standing Committee on Finance held public hearings on 3 March 2016. Written submissions were received from the following:

 

• Association of Savings and Investment SA (ASISA)
• Bowman Gilfillan
• Congress of South African Trade Unions (COSATU)
• National Union of Mineworkers of South Africa (NUMSA)
• Mr A Crawford
• Cashkows.com
• Business Unity South Africa (BUSA)

 

 

1. Oral submissions were received from the following:

 

• Asisa
• COSATU
• NUMSA

 

2.3 In response to sweeping and inaccurate statements in the media about the failure of Parliament to consult with stakeholders and the public on the processing of the earlier Bill related to annuitisation in October and November 2015, the Committee Chairperson, at the beginning of the public hearings on the current Bill, on 3 March 2016, read out a Statement on behalf of the Committee explaining that the Committee did even more than was required by Parliament’s rules and conventions to ensure public participation. The Statement is attached as Annexure A

 

1. Committees’ observations and deliberations

 

1. The harmonisation of pension funds, retirement annuities and provident funds is necessary to ensure equal and fair treatment in respect of taxation and access to benefits at retirement. The concern raised by the trade unions is on the requirement of members of provident funds to annuitise two-thirds of their retirement benefits. They argue that this process has to take account of the need for workers, for a variety of reasons, to take their provident funds in a lump sum on retirement; the lower life expectancy of low income workers compared to other income strata; that annuitisation could prevent workers from bequeathing to their beneficiaries effectively; and the need to finalise the Social Security Reform Paper before annuitisation is dealt with. It is therefore imperative that a holistic approach is taken in respect of retirement funding reform, including meaningful consultation with all stakeholders.

 

1. The Committee endeavoured to secure a compromise between the concerns from organised labour who maintain that the piecemeal reform process is detrimental to their members and wanted a removal of the clauses referring to annuitisation altogether; and National Treasury’s position that the annuitisation provisions be deferred for 2 years.  The Committee also took into account the needs of the industry for certainty in the reform process, which impacts on investments in systems to comply with the legislation and has various other adverse consequences for them.

 

1. The Committee suggested that a compromise that would include the following aspects:

 

1. The Social Security reform Paper is finalized within 3 months of the promulgation of this Bill.
2. All parties acknowledge the severe over-indebtedness of sections of the population and the pressures on them to use their provident and pension funds savings for immediate needs rather than for their retirement.
3. While recognising the challenges of over-indebtedness, the need for people, including workers, to save for their retirement be accepted by all parties, but the forms of these savings, including some form of annuitisation be negotiated.
4. National Treasury does not use the 2-year deferment as a “stalling period” to simply implement the current provisions in the Bill without effective consultation.
5. National Treasury consults fully with all stakeholders through NEDLAC and outside it on retirement reforms. National Treasury takes into account, among other concerns of trade unions, the lower life expectancy of low income workers compared to other social strata; and that some annuitisation options could prevent workers from bequeathing to their beneficiaries effectively.
6. Parties opposed to the current annuitisation proposals of National Treasury commit to actively participating in the negotiations and acknowledge that should annuitisation be scrapped altogether workers will lose their tax deductions provided in the Bill.
7. While recognising the challenges of over-indebtedness, all parties will communicate with pension fund members that the proposed changes affecting provident fund members do not change their situation, and they do not have to resign from their jobs for fear that they will be adversely affected by these proposals.
8. National Treasury reports quarterly to parliament on progress on these issues.  

 

1. The approach set out in section 3 above provides for a form of “conditional deferment” – the deferment of the annuitisation provisions provided certain conditions are met. The Committee recognised that the issues raised in section 3 above could not all be put into the Bill. There are also complex and time-consuming procedures entailed in amending Section 77 Money Bills. Following engagements with lawyers and officials it was agreed to amend the Bill to require National Treasury to defer the annuitisation provisions to allow for negotiations with interested parties including through NEDLAC and for the Minister to report to parliament on this by 31 August 2017.  

 

1. It was also stressed that retirement funding reform must also take into account that the design of annuitisation by provident funds must not undermine the current accepted (and recommended) practices in the rest of the retirement industry, particular for pension funds and retirement annuities. In this regard the scope for the practice of taking advantage of the differences in tax and annuitisation benefits by transferring funds between pension funds and retirement annuities to provident funds must be reduced.

 

1.  National Treasury and COSATU have agreed to further constructive engagements. National Treasury further commits to engage with other stakeholders who are not part of Nedlac, including stakeholders in the industry and other interested parties.

 

1. NUMSA rejected any deferment of the annuitisation provisions and argued that the Bill was not in fact a Money Bill. Based on legal advice and conventions in Parliament, the Committee does not accept that the Bill is not a Money Bill, and requests that NUMSA continue to engage with National Treasury on their concerns.

 

1. ASISA, which represents the industry, did not want a deferment of the annuitisation provisions but accepts the Bill as amended. 

 

 

1. Money Bills Amendment Procedure and Related Matters Act

 

1. The Money Bills Amendment Procedure and Related Matters Act, 2009 (Act No. 9 of 2009) provides for the procedure to amend money Bills, including revenue Bills such as the Bill referred to the Committee.

 

1. Furthermore, the Act requires that the committee report submitted to the House must motivate the amendments in terms of sections 8(5) and 11(3) of the Act.

 

1. Section 8(5) of the Act provides that when a committee amends a money Bill, it must:

 

1. ensure that there is an appropriate balance between revenue, expenditure and borrowing;
2. ensure that debt levels and debt interest cost are reasonable;
3. ensure that the cost of recurrent spending is not deferred to future generations;
4. ensure that there is adequate provision for spending on infrastructure development, overall capital spending and maintenance;
5. consider the short, medium and long term implications of the fiscal framework, division of revenue and national budget on the long-term growth potential of the economy and the development of the country;
6. take into account cyclical factors that may impact on the prevailing fiscal position; and
7. take into account all public revenue and expenditure, including extra-budgetary funds, and contingent liabilities.

 

1. Section 11(3) requires that when amending a money Bill dealing with revenue, a committee must:

 

1. ensure that the total amount of revenue raised is consistent with the approved fiscal framework and the division of revenue Bill;
2. take into account the principles of equity, efficiency, certainty and ease of collection;
3. consider the impact of the proposed change on the composition of tax revenue with reference to the balance between direct and indirect taxes;
4. consider regional and international tax trends; and
5. consider the impact on development, investment, employment and economic growth.

 

1. Subsection (5) of section 11 of the Act requires that the Minister of Finance be given “at least 14 days to respond to any proposed amendment.” Subsection 6(b) requires the Committee to include the comments? (can also be “the response”) from the Minister in its report to the National Assembly. 

 

1. Impact of the proposed amendment

 

1. The amendment proposed by the Committee related to a consultation and reporting process that must precede the coming into effect of the provisions of clause 1 of the Bill.

 

1. The committee was sensitized to the difficulties in the consultation process concerning the annuitisation of retirement benefits for provident funds within the National Economic Development Labour Council (NEDLAC) established in terms of the National Economic Development and Labour Council Act, 1994 (Act 35 of 1994). As the National Assembly receives reports from NEDLAC only upon completion of a matter referred to NEDLAC, and after hearing various submissions from stakeholders concerning the nature of the consultations in NEDLAC, the committee considered it necessary to ensure meaningful consultation process by requiring the Minister to consult both in and outside NEDLAC and to report to the National Assembly by a certain fixed date.

 

1. The proposed amendment does not affect the fiscal framework or the principles of revenue collection set out in sections 8(5) and 11(3) of the Money Bills Amendment Procedure and Related Matters Act. Compliance with these provisions is thus not an issue.  

 

1. Comments from the Minister of Finance

 

1. The Chairperson wrote to the Minister of Finance who responded that he agrees to the proposed amendment. No further comments were received from the Minister.

 

1. Recommendations

 

1. The Committee therefore recommends that:

 

a)     The  Social Security Reforms Paper be tabled at the National Economic Development Labour Council (NEDLAC) established in terms of the National Economic Development and Labour Council Act, 1994 (Act 35 of 1994) for consideration within 3 months of the promulgation of the Bill.

b)    Issues for deliberations in NEDLAC  include:

·         The appropriate package of government social security measures; and

·         Retirement fund reforms.

c)     National Treasury must engage with parties outside NEDLAC including stakeholders in the industry and other interested parties.

d)    National Treasury must report on progress on negotiations to the committee every quarter.  This must include the issues raised in section 3.3 above. The Committee will use section 3.3 above as a framework to evaluate progress. The Committee will, as necessary, invite interested parties to National Treasury briefings on these progress reports.

e)     The Minister of Finance must submit written reports every six months to Parliament regarding the progress on the consultations at NEDLAC. The Minister must submit the first report to Parliament before 15 December 2016; and, provide a second report by 15 June 2017.

f)     All participants in the process at NEDLAC commit to actively participate in the deliberations.

g)    Should annuitisation be scrapped altogether the tax deductions for provident fund members should cease.

h)     Notwithstanding the consultations taking place at NEDLAC, the Minister provides all parties the opportunity to make representations on the issues being deliberated at NEDLAC.

 

The Standing Committee on Finance, having considered and examined the Revenue Laws Amendment Bill [B4 - 2016] (National Assembly- section 77), referred to it, and classified by the JTM as a section 77 Bill, reports the Bill with amendments [B4A – 2016].

 

 

Report to be considered.

 

 

 

 

 

 

 

 

 

Annexure A

 

STATEMENT ON PUBLIC CONSULTATION IN THE OCTOBER AND NOVEMBER 2015 PROCESSING OF THE ANNUITISATION PROVISIONS IN BILL

 

 

The majority in the Committee welcome the decision by government to seek consensus on the annuitisation aspects of retirement reform and request parliament to consider some amendments to the Bill we passed in November regarding this.

 

We have to, however, respond to sweeping comments made about the parliamentary, as against the government, processing of the Bill, and we refer in particular to the Report we tabled to Parliament on the Bill on 25 November 2015.

 

Among the more relevant aspects of the Report include the following:

 

“The SCOF (Standing Committee on Finance) requested stakeholders and the public to comment on the latest amendments. Written submissions were received and a public hearing was held on 10 November 2015.

 

The majority of stakeholders supported the amendments.  The Chairperson of the Committee also facilitated further engagements outside the formal sittings of SCOF with stakeholders who did not agree with the amendments and National Treasury.

 

Besides SCOF’s engagement with stakeholders and the public, National Treasury reported to the Committee that they also engaged with stakeholders before and after the Bill was introduced to Parliament. In the case of the retirement reform amendments, these consultations, according to National Treasury, have been taking place since 2012, including through NEDLAC, even though finally there was no agreement in NEDLAC on the tax harmonization and annuitisation amendments. SCOF is unable to tell about the quality and depth of these negotiations, but that there have been negotiations is clear to the Committee.   

 

The Committee did everything possible, under difficult circumstances, to try to get consensus on these amendments, and it deeply regrets that it was not able to. Treasury has provided evidence that those aspects of these amendments that the Congress of South African Trade Unions disagrees with requiring annuitisation will begin to come into effect after five years or more for most workers, and the Committee has amended the Bill to require the Minister to review them through consulting further with stakeholders and reporting back to Parliament by 30 June 2018. The amendment to clause 3 of the Bill provides that: “ The Minister shall, after consulting relevant stakeholders, review the impact and implementation of paragraphs (k), (l), (o), (p), (q), (r), (t), (u), (v), (w), (x) ,(y) ,(z) and (zC) of clause 3(1). The Minister shall table a report on the review in the National Assembly not later than 30 June 2018.”

 

Given the levels of indebtedness, the Committee is excruciatingly aware of how strongly workers feel about access to their provident funds and have urged Treasury to embark on a massive campaign to engage with workers and their representatives on these proposals…..

 

SCOF (the Committee) believes that the Comprehensive Social Security Reform Paper, which has been on the agenda for more than ten years, needs to be finalized as soon as possible and urges government to ensure the paper is published as soon as possible.  National Treasury has made it clear that the retirement reform amendments referred to in section 2 above are consistent with the pending Paper.” (Emphasis added)

 

The Committee did in fact have public hearings, did in fact get a report from National Treasury on the NEDLAC process, did in fact say that we cannot judge the quality of the NEDLAC discussions, and did in fact over a further two weeks foster negotiations with parties opposed to annuitisation.

 

Perhaps the Committee could have done more to ensure public consultation last November, but, unfortunately, not much more.

 

However, we will now do everything we can to foster consensus on the amendments before our Committee.