Malusi Gigaba says Standard & Poor's downgrade of South Africa to junk status is a setback.
South Africa’s public finances may be in their worst state since the first democratic elections in 1994. One source of these woes was the 2008 financial crisis. But its effects have been compounded by bad political decisions which have led to slower economic growth, under-performance of tax revenue collection and higher borrowing.
At the top of the list of bad decisions has been appointments to critical institutions that appear to have been based on patronage with the intention of facilitating corruption. In the public finance space these include the South African Revenue Service, Ministry of Finance, and the board members and managers of key state-owned entities.
The poor management and loss of investor confidence that’s followed played a significant role in South Africa’s recent credit rating downgrades. The downgrades compounded the broader public finance challenges by increasing borrowing costs for national government and state-owned enterprises.
In this environment, there’s increasing appreciation for the general oversight role and powers of Parliament, which has initiated investigations into various state entities.
Parliament has overall oversight of public finances, including the national budget, a role that is becoming increasingly important. Which is why it’s worth paying attention to the processes by which Parliament exercises oversight, and the institutions involved.
The Money Bills Amendment Procedure and Related Matters Act (“Money Bills Act”) of 2009 is a vital piece of the puzzle. Parliament has asked for public comment on a series of proposed amendments. Here’s why they matter.
What’s at stake
The Act guides Parliament’s oversight of taxes and borrowing, how those funds are distributed to different spheres of government (national, provincial and local), and national spending priorities. For example, the Act sets out the processes through which the national budget is approved by Parliament. It created a Parliamentary Budget Office to provide credible, independent and non-partisan advice to members of parliament (MPs). And it instructs provincial parliaments (“legislatures”) on how their oversight processes should work.
Amendments have been mooted almost since Parliament started implementing the Act seven years ago. The latest proposals are primarily the result of suggestions by Parliament’s legal advisers and deliberation among MPs from the finance and appropriations committees.
The main amendments relate to three broad sets of issues:
- how Parliament committees deal with public finance legislation and proposals;
- the institutional structure of the Parliamentary Budget Office; and,
- oversight processes of provincial legislatures.
One of the main concerns with the current Act is the time frames provided for oversight. Public finance issues can be complex and Parliament must facilitate public comment and engagement. But the Act allows little time for this.
Various amendments relax time constraints by adding the phrase, “or as soon as reasonable thereafter”. More time is important. But an open-ended statement like this could simply introduce uncertainty.
The parliamentary budget office
The intention of the original Act was that the office should be independent from Parliament’s administration. But this has never been properly implemented. The proposed amendments make independence even more explicit. They envisage making the Parliamentary Budget Office a “juristic person” and its director the accounting officer, while detailing the director’s financial management responsibilities. This is welcome to the extent that it removes any room for doubt, debate or misrepresentation.
In the current Act, the finance and appropriations committees are responsible for overseeing aspects of the office’s functioning. The amendments propose, instead, an “advisory board” of committee chairpersons and two “house chairpersons”.
In fact, this has been happening. But it’s problematic. The Parliamentary Budget Office should support MPs across the political spectrum. But currently all chairperson positions are held by representatives of the African National Congress (ANC). This is particularly problematic when it comes to the appointment of an acting director: representatives of one political party should not make that decision on their own.
Other amendments concern the Parliamentary Budget Office’s access to information from organs of state. There is general agreement across the world that this is critical, but the original Act didn’t address it explicitly. So these amendments are welcome, even though they could be strengthened.
The current Act sets out norms and standards for provincial legislatures that they “must adhere to”. This could be unconstitutional, because it infringes on provincial legislatures’ right to determine their own processes.
As a result, an amendment rephrases this as, “must take into account”. Corresponding changes are made to the schedule of norms and standards, but the usefulness of the end result is questionable.
Perhaps a simple statement that decisions on provincial finances must be consistent with decisions already taken in the national parliament would be more appropriate.
A number of important issues haven’t been dealt with in the proposed amendments. These include:
- Oversight of taxes: The amendments don’t address incoherence in Parliament’s oversight of taxes. At present, the Minister of Finance announces tax proposals in February and these are treated for the most part as if they come into effect immediately. In fact, Parliament’s finance committees produce a report within 16 days indicating whether they agree or disagree with the proposals. And the actual legislation is only promulgated between July and October. Does it make sense that a major tax proposal could be blocked so late in the fiscal year? The sensible thing, taking into account bureaucratic challenges for the Treasury and Revenue Service, would be for tax legislation to be tabled with the Budget.
- Integrity and independence of the Parliamentary Budget Office: The original Act refers to the technical and management competences required of the office’s director. But a Parliamentary Budget Office should also be led by a person of the highest integrity. It would therefore be appropriate for an amendment to specify that the director should be a “fit and proper person”. A related issue is an amendment that allows the director’s contract to be renewed based on performance. Given that it’s unclear who the director accounts to on a yearly basis, it’s not clear how performance would be assessed. Lastly, nothing in the current Act, or amendments, explains how the Parliamentary Budget Office’s budget is set. Since an inadequate budget can compromise administrative and political independence, some minimum protections should be put in place.
The current Parliamentary Budget Office hasn’t pursued it’s mandate as it should have. At some point in the future the stability of South Africa’s public finances may depend on it doing so.
Seán Mfundza Muller, Senior Lecturer in Economics, University of Johannesburg
This article was originally published on The Conversation. Read the original article.