COSATU SUBMISSION on THE DRAFT CONSTITUTION OF THE REPUBLIC OF SOUTH AFRICA SECOND AMENDMENT BILL


1. INTRODUCTION

2. GENERAL COMMENTS ON PROCESS

3. BACKGROUND

4. AMENDMENTS RESTRICTING PARLIAMENTARY POWERS OVER FINANCIAL LEGISLATION, INCLUDING MONEY BILLS

4.1. AMENDMENTS AFFECTING CHAPTER 13 LEGISLATION

4.2. AMENDMENTS TO THE DEFINITION OF MONEY BILLS

4.3 GENERAL COMMENTS ON THE PROPOSED AMENDMENTS TO FINANCE LEGISLATION

5. AMENDMENTS AFFECTING THE FINANCE AND FISCAL COMMISSION (FFC)

1. Introduction

COSATU welcomes the opportunity to address the Portfolio Committee on Justice and Constitutional Development on the Draft Constitution of the Republic of South Africa Second Amendment Bill, 2001 (hereafter "the Bill").

The South African Constitution is a product of extensive political engagement and discussions, in which COSATU played a key role. The Constitution, as the supreme law of the land, is the single most important national legislative commitment to the entrenchment of worker rights, other fundamental human rights and the formalisation of South Africa’s status as a unified and democratic state based on the values of "accountability, responsiveness and openness". Consequently, any amendment to the Constitution affects not only our membership, but also has implications for national interest.

The political significance of the Constitution and the values upon which it is based, require that any proposed amendment be processed and analysed more stringently by Parliament than ordinary legislation. For example, amendments directed merely at "addressing practical difficulties in implementing the Constitution" are untenable if they undermine the values that the Constitution is based on. The validity of such amendments in fact may be open to constitutional challenge through an appropriate court.

This submission focuses primarily on the three proposed amendments, which:

We are unable to support any of these proposed amendments. We reserve specific comment on all other amendments proposed in the Bill at this stage.

The first part of this submission comments on the drafting process of the Bill, with the emphasis being on clarifying the extent of the involvement of key public institutions and stakeholders in this process. The next part of the submission sets out the background and history of the legislative process applicable to finance legislation, and more specifically money bills and the budget process. We then deal with the each of the proposed amendments that we have identified as problematic. The proposed amendments affecting the legislation required by Chapter 13 and the definition of money bills are dealt with under the same section, as they raise similar concerns. The final section considers the amendments proposed to the FFC.

In this submission we propose amendments to ordinary legislation and also make recommendations of a non-legislative nature, which may require practical administrative interventions. We acknowledge that the recommendations may appear to fall outside the scope of this process. However, we believe that an understanding of these should inform the decision whether or not to enact the proposed amendments. For example, it may be argued in certain instances that practical difficulties may be more appropriately addressed by amending ordinary legislation. The substance of such an argument would need to be evaluated in order to decide whether or not to reject a specific proposed amendment.

2. General Comments on Process

We are concerned that other non-legislative and legislative avenues (excluding amendments to the Constitution) may not have been adequately explored by the National Treasury to address the practical difficulties alluded to in the memorandum of the Bill. The very nature and status of the Constitution, as the supreme law of the land, necessitates exhausting all other relevant avenues first before resorting to amending the Constitution.

Further the full extent and the nature of the practical difficulties mentioned in the memorandum are not adequately explained. Nor is it clear how the proposed amendments take forward the objectives of addressing these difficulties. In most cases, the memorandum explains the content of the proposed amendments without clarifying the underlying objectives. This information is crucial to ensuring that civil society and the broader public is able to meaningfully input into this process.

We are also concerned that other key public institutions, including the Finance Portfolio Committee and the Finance and Fiscal Commission (FFC), were not substantially involved in this process, particularly around the proposed amendments dealt with in this submission. The minutes of the Justice Portfolio Committee on 22 August 2001 reflect that this Bill was "dealt with exclusively by the National Treasury". This is despite the fact that this Bill has come through the Department of Justice. We are concerned that the role of the said Finance Committee and the FFC may have been undermined in this process.

The role of the Finance Committee, in particular, is to ensure that Parliament is able to play a meaningful, informed and effective role in relation to the legislative process. One of the key functions of the legislature is to constitute an effective check to ensure appropriate use of executive power, in this case the Finance Ministry. This is in accordance with the doctrine of separation of powers. Undermining the role of the Finance Committees necessarily impacts on Parliament’s capacity to fulfil this function.

This Bill contains provisions of a highly technical nature, which require the resolution of complex questions concerning both the public finance management system and the Constitution. This makes it difficult for the public and civil society to engage with this process in a meaningful and informed manner. We also note that there appear to be relatively few submissions on this Bill, especially the provisions affecting the financial regime. We too have reserved specific comments on the bulk of the proposed amendments contained in this Bill.

Further, we are concerned that key stakeholders may not even be aware of the existence of this Bill. Since this Bill proposes amendments to the Constitution, it has been processed through the Department of Justice and this Portfolio Committee. At the same time the Bill contains provisions which impact directly on the public finance management system and provincial and local levels of government. This has not been assisted by the failure of the National Treasury to publicise this Bill or engage relevant stakeholders, although it has been primarily (if not solely responsible) for the drafting of this Bill. Having said this, it would be a disservice to the broader public to enact a Bill of this nature without having ensured meaningful consultation or publicising of its contents.

We recommend that further work be done in this regard on all the proposed amendments (in addition to the ones that we have dealt with in our submission). In addition to the Finance Committees mentioned above, we also recommend that the Portfolio Committee on Provincial and Local Government and the Select Committee on Local Government and Administration be included in this process. Further opportunity should be provided for civil society to comment on this Bill. We suggest that this Bill be held over until this process has been completed.

3. Background

COSATU is concerned that the Bill has the effect of extending the powers of Minister of Finance. Since 1997, COSATU has consistently called for the enactment of legislation empowering Parliament to amend money bills, including the budget. This is required by section 77(2) of the Constitution. An appropriate amendment to the legislative procedure affecting money bills would empower Parliament to play a more effective oversight role in the budget process. At present, Parliament must either reject or pass a money bill. The participation of civil society, the broader public and even other government departments is meaningless within this context. Although a Money Bills Amendment Procedure Bill was tabled in Parliament in 1997, this was rejected owing to the undue restrictions it placed on Parliament to amend money bills.

The absence of an appropriate bill providing for the amendment of money bills has the effect of vesting national legislative power in the executive, of which the Minister of Finance is a part. This has rendered Parliament ineffective in one of its core competencies. This has the effect of eroding the constitutional principle of separation of powers between the judiciary, executive and the legislature.

The oversight role of Parliament cannot be overemphasised in the budget process and must ensure that the process is carried out in an open and democratic manner. This is the minimum it should do to drive social and economic transformation. The budget impacts on the functioning and capacity of all other government departments and in particular their capacity to effectively deliver various allocated services. The budget process should reflect the commitment of the state to its developmental role. This is crucial in addressing historical social and economic inequalities and widespread poverty, which is still very prevalent in South Africa. Despite this the current fiscal policies places far too much emphasis on fiscal and monetary discipline and in so doing subordinates the developmental role that the state is required to fulfil according to the Constitution. The current procedural framework allows these fiscal considerations to be elevated above other considerations. It also prevents government departments, apart from the Department of Finance, from participating effectively in the budget process in Parliament. This in itself undermines the value of "responsiveness" (to the needs of the electorate) by the governance system, which is required by section 1(d) of the Constitution.

4. Amendments Restricting Parliamentary Powers Over Financial Legislation, including Money Bills

This part of the submission deals with sections 1 and 3 of the Bill, which propose amending sections 73 and 77 of the Constitution respectively. Although these affect different parts of the Constitution, both provisions seek to restrict the powers of Parliament. In addition, they provide the Finance Ministry with the exclusive power to introduce specific legislation into Parliament. It also affects the power of the Parliament to amend certain draft legislation by expanding the definition of money bills. This is discussed below.

4.1. Amendments Affecting Chapter 13 Legislation

Chapter 13, in the Constitution, deals with the public finance management system. It provides for the establishment of public finance institutions such as the Finance and Fiscal Commission and the South African Reserve Bank. It also regulates other public finance matters including the national revenue fund, the division and sharing of national revenue, national, provincial and municipal budgets, procurement policy and provincial and local taxes. In order to fulfil the functions associated with the public finance management system, Chapter 13 requires the enactment of various pieces of legislation (hereafter Chapter 13 legislation).

Section 1 of the Bill proposes amendments to section 73(2) of the Constitution. The current formulation provides Cabinet members, Deputy Ministers, or members or committees of the Assembly with the power to introduce bills into the National Assembly. The exception to this applies to money bills, which only the Minister of Finance may introduce into Parliament.

The proposed amendment requires that all Chapter 13 legislation also fall under the exclusive competence of the Minister of Finance. The Minister of Finance already has the power to introduce draft Chapter 13 legislation in terms of the Constitution. The effect of the amendment therefore is to exclude the competence of all other role-players in Parliament to introduce Chapter 13 legislation. In addition, the Minister of Finance will in effect have the power, as a member of the executive, to block the introduction of necessary Chapter 13 legislation by Parliament. This is an unnecessary and potentially unconstitutional restriction of the powers of Parliament. The Finance Ministry’s refusal, to re-table an appropriate Money Bills Amendment Procedure Bill since 1997, illustrates the danger of restricting legislative powers to a Cabinet member.

The memorandum states that the motivation for this provision is to allow the National Treasury an opportunity to assess the impact of draft legislation on macro-economic policy and the financial administration of the state before it is introduced. Nothing in the current legislative framework prevents the National Treasury from assessing the impact of draft legislation after introduction into Parliament. In fact we would argue that the legislative function of Parliament would also include assessing the impact on macro-economic policy and the state’s financial administration, which it does currently in relation to the costing of all Bills. The difference being that the current framework allows for this process to be undertaken in an open, transparent, democratic and accountable manner, which allows weighing up of other considerations.

In addition, section 55(1)(b) provides the National Assembly with broad powers to initiate and prepare legislation, with money bills listed as the only exception. The wording of this provision clearly does not support the exclusion of the National Assembly’s competence to introduce any other legislation, that fall outside the definition of money bills.

The content of sections 55(1) and 68(1) is intended to give effect to the principle of separation of powers, as discussed earlier. More importantly, it enables the legislature to introduce draft legislation, for example in cases where the relevant cabinet Minister has failed to do so. In contrast, the proposed amendment will ensure an undue vesting of legislative power in a member of the executive, which was clearly not intended in terms of the wording of the Constitution.

We are also concerned that this provision will affect a broad range of legislation envisaged in Chapter 13. These cover diverse areas of the public finance management system, as discussed above. This will mean that Parliament’s role to initiate and prepare bills in all of these areas will be completely excluded. In the light of the experience gained from the budget process, this means that the government’s developmental role will be severely hampered. Effectively, neither new draft legislation nor amendments to current legislation may be proposed unless this emanates from the Ministry of Finance.

Furthermore, it is unclear how this provision takes forward the objective of addressing the practical difficulties in implementing the Constitution. On the contrary, we argue that the enactment of these provisions may actually frustrate the implementation of the Constitution. Chapter 13 expressly lists various other objectives, which must be considered in addition to the concerns around macroeconomic policy and the state’s financial administration. Some of these objectives include addressing economic disparities, developmental needs and the protection and advancement of historically disadvantaged groups within our country. The location of this process within Parliament allows for the inclusion and participation of other key stakeholders and public institutions (including government departments and civil society). This creates the opportunity for all objectives identified within Chapter 13 to be considered in a representative and transparent manner.

In addition, it is unclear why the restriction of Parliamentary powers should be weighted so heavily towards finance legislation. Other departments may also be able to argue the practical necessity of restricting the power of the legislature in preparing and initiating Bills. This cannot in itself serve as a justification for the negation of constitutional values and the abdication of the obligation owed by Parliament to the electorate in this regard.

4.2. Amendments to the Definition of Money Bills

Section 77(1) of the Constitution currently defines a money bill as a bill that appropriates money, imposes taxes, levies or duties. Section 73(2) expressly restricts the power to introduce money bills to the Minister of Finance. Section 3 of the Bill proposes the amendment of the definition of money bills by including amongst others, draft legislation dealing with surcharges and direct charges against the National Revenue Fund.

We oppose any widening of the definition of money bills, since this has the effect of widening the range of the legislation falling under the Finance Ministry’s exclusive competence to prepare and introduce into Parliament. Combined with the absence of a meaningful Money Bills Amendment Procedure Bill, it will also exclude the power of Parliament to amend these other Bills, which are currently not classified as money bills. By refusing to pass the proposed amendment, Parliament will retain the power to amend any draft legislation that this Bill seeks to incorporate into the definition of money bills.

In the past, the Finance Ministry has been instrumental in obstructing the development and enactment of transformatory polices and legislation. For example, the Department of Health’s 1997 White Paper for the Transformation of the Health System proposed the introduction of a National Health Insurance. However, this has been delayed largely due to objections form the Department of Finance.

The development of national skills legislation also faced similar obstacles from the Department of Finance. The 1998 Skills Levy Bill, which was classified as a money bill, was almost derailed by the Minister of Finance, who strongly opposed the levy in principle. Eventually the bill was tabled with the stipulation that the initial levy would be set at 0,5% of the pay roll in the year 2000 and would subsequently increase to 1%. This completely disregarded an earlier NEDLAC agreement to set the initial levy at 1% of the payroll, with the possibility of introducing future increases. However, it was not possible to challenge this, as Parliament could not amend the Bill without the agreement of the Minister of Finance.

Similarly over the past 6 months, the Finance Ministry has delayed the finalisation of urgent legislative reform on unemployment insurance, by failing to table the required money bill. This another example of elevating fiscal considerations over the objectives of social and economic transformation.

Money bills constitute a key part of the legislative process through which social and economic transformation must be driven. In order to give effect to this, procedures in Parliament must allow for adequate debate in developing legislation, which should not be defined by the policies of a single department. While the integrity of fiscal policy must of course be a consideration, this must not subordinate other policy considerations, which are relevant to social and economic transformation.

The definition of a money bill should not be widened at least until Parliament is in a position to allow democratic participation in the development of all legislation, including money bills. Enacting the required amendments to the money bills legislative procedure should facilitate this. The development of an appropriate definition of money bills should also involve the input of key stakeholders into the process.

Sections 55(1) and 68(1) of the Constitution set out the legislative powers of the National Assembly and the National Council of Provinces (NCOP) respectively. In terms of these provisions, Parliament is provided with broad powers to consider, pass, amend (or propose amendments in the case of the NCOP), or reject ANY legislation before the Assembly. The wording does not suggest any exception. This in line with the constitutional requirement of section 77(2) that legislation be passed in order to set out a procedure allowing Parliamentary to amend money bills.

Further, we call on the Justice Portfolio together with the Finance Portfolio to initiate the tabling of an adequate money bills amendment procedure bill as a matter of urgency, in line with article 21(1) of Schedule 6 of the Constitution.

4.3 General Comments on the Proposed Amendments to Finance Legislation

It is important to assess the impact of the above amendments on the functions of the Portfolio and Select Committees on Finance, which amongst others include the preparation and assessment of draft legislation. The support that they provide in this and other ways facilitates the oversight role required of Parliament. However, it is questionable whether meaningful contribution by the Finance Committee is in fact possible within the context of the amendments proposed in this Bill.

In addition, both current and proposed restrictions on Parliamentary legislative powers will serve as a disincentive to the Finance Ministry to ensure that money bills and other finance legislation are more responsive to the developmental functions of the various government departments.

The memorandum of the Bill emphasises the need to address the range of practical difficulties associated with implementing the Constitution. The Finance Minister currently has the power to initiate Chapter 13 legislation as well as the draft legislation that the Bill proposes to incorporate into the definition of money bills. Therefore, a decision to reject the proposed amendments is unlikely to result in any practical difficulties in implementing the Constitution. This is unless the National Treasury considers normal democratic processes of representation and participation within the legislature as required by the Constitution a practical difficulty.

Underpinning the urgency to ensure adequate representation and participation in legislative process, is the need to ensure the realisation of socio-economic rights. Despite their enactment under Chapter 2 of the Constitution, deeply entrenched patterns of social and economic disparities continue to define relations between black and white people in South Africa, which is one of the most unequal countries in the world. This is reflected by various factors including rising poverty, unemployment, and disparate access to basic social services, highlighting the critical need for the enforcement of socio-economic rights. The role of the various departments and levels of government in addressing this necessitates the freeing up of resources to prioritise social spending. However, this is constrained by the current budgetary framework and macroeconomic policy adopted by the treasury, which instead prioritises fiscal restraint over social spending.

5. Amendments Affecting the Finance and Fiscal Commission (FFC)

The FFC was established in terms of section 220, as an independent and impartial structure subject only to the Constitution and the law. Its primary function is to act as an advisory body, informing policy at all levels of government including Parliament, provincial and local legislatures. Its developmental role as envisaged by the Constitution, is reflected in the various objectives listed under section 214(2). This is balanced with the need to influence policy in order to ensure fiscal efficiency

Section 221 provides for the appointment and tenure of FFC members. The current formulation requires the appointment of 22 members to the FFC. In addition, it also sets out various procedures for appointment and ensures representation and participation of provincial and local levels of government.

The proposed amendments, contained in section 12 of the Bill, reduce the number of members to eight and also amend the procedures applicable to appointment. In addition, it proposes amending the qualification criteria for members. The current formulation states that members must have "appropriate expertise". The proposed amendment changes this to "expertise relevant to the functions of the FFC".

The memorandum and minutes of the meeting of this committee reflect that the amendments are directed at addressing the "unruly" system of the FFC. One of the concerns is that many provinces fail to nominate representatives. The effectiveness of the FFC has also been brought into question.

We are concerned that other avenues (including non-legislative mechanisms and amendments to ordinary legislation) have not been fully explored by the Finance Ministry, which may contribute to the greater efficacy of the FFC. As mentioned earlier, these should be the first routes explored before resorting to amendment of the Constitution. In addition, amendments to ordinary legislation relating to the functioning of the FFC may then follow the more appropriate route through the Finance Portfolio Committee, which should investigate alternative mechanisms facilitating greater participation of FFC members and the efficacy of the FFC as a whole.

It would be more appropriate to propose amendments to the Finance and Fiscal Commission Act, regarding qualifications for expertise by proposing criteria. The Finance and Fiscal Commission Act of 1997 in fact does not set out any criteria for qualification, but instead mirrors the provisions contained in the Constitution. The criteria may be informed by considering the various functions of the FFC as well as the objectives listed under 214(2). Thus there would be no need to resort to amending the Constitution.

Other mechanisms of ensuring greater efficacy of the FFC may for example include administrative interventions and legal amendments to the Finance and Fiscal Commission Act regulating the meeting of commission members.

Furthermore, as we understand it the FFC is the first of its kind internationally. Not having had the benefit of comparative international experience as with other constitutional institutions, some of the problems should have been expected. More investigation needs to focus on how it can be made more effective within the current legislative framework before resorting to the extremes of amending the Constitution.

Further, we in fact agree that careful thought needs to be given to the criteria for qualification to be appointed to the FFC, provided that this is dealt with in amendment to the Finance and Fiscal Commission Act and not the Constitution. In addition the criteria should be defined with regard to the role of the FFC, taking into account the socio-economic context of the country and its developmental role as identified by section 214(2). We are concerned that the wording of the proposed amendment is an attempt to restrict the conditions for qualification, which will place undue emphasis on its role in influencing fiscal and monetary policy. In other words, insufficient attention may be given to the need to reflect its developmental role in its membership.

The emphasis in section 214(2) on the role of the FFC with regard to provincial and local government points to the need to ensure adequate representation of provincial and local government in the FFC. In addition, we argue that the membership should also include representation of civil society. The proposed reduction of the number of the members of the FFC brings into question whether it will be possible to ensure adequate representation of provincial and local government and civil society, whilst at the same time taking into account the need to ensure geographic representation.

Clarity is required regarding the seriousness with which FFC recommendations are being treated. A significant proportion of its work may constitute making recommendations into the budget. As already discussed, the budget excludes any meaningful participation in the process with the exception of the Finance Ministry. The failure to meaningfully take into account FFC recommendations may underpin the lack of commitment of the members. In terms of section 222, the FFC is required to report both to Parliament and the provincial legislatures. However, Parliament, already constrained by the current restrictive budget framework, may in many instances be unable to act in accordance with FFC recommendations. This reporting mechanism will be further undermined if the proposed amendment affecting Chapter 13 is passed. This will mean that Parliament will be prevented from preparing and initiating Chapter 13 legislation based on FFC recommendations.

In principle, COSATU supports a more efficient and effective FFC. The establishment of the FFC was to facilitate the developmental role of the state. In addition, there is a need for an independent statutory institution to serve as a check against the executive power of the Finance Minister. This is highlighted by the difficulties experienced in participating in the budget process.

In view of the above we argue against the passing of the proposed amendments affecting the FFC in this Bill. In addition, we argue that it would be more appropriate for the National Treasury to explore non-legislative avenues in order to address the problems of inefficacy identified. It is also possible to effect amendments to the Finance and Fiscal Commission Act.