Report of the Ad Hoc Committee on Finance on Budget Vote 8—National Treasury, dated 9 June 2004: The Ad Hoc Committee on Finance reports as follows:

Report of the Ad Hoc Committee on Finance on Budget Vote 8—National Treasury, dated 9 June 2004: The Ad Hoc Committee on Finance reports as follows:

The Committee congratulated the National Treasury (NT) on the professional and thorough nature of the work that it continues to do. The Committee also wishes to engage the NT in a discussion on the nature of its oversight role of specifically budgets, strategic plans and annual report. The Committee wished to raise the following issues in particular:

1. BUDGET REFORM
The Committee expressed concern about a number of remaining challenges in the Budget Reform process. The key area was around the quality and reporting on measurable objectives (MO). The Committee found that these were not of a sufficiently high quality, often not being measurable, or not having timeframes specified. The NT indicated that the MOs were being refined continuously and that legislatures in both national and provincial spheres could play a key role in this process by interrogating the Mos proposed by the relevant departments. The NT also indicated that 2004 would be the first year within which Annual Reports would be required to
report on the MOs proposed in the preceding Strategic Plans (SP) and Budgets. The Committee also remarked that the process for dealing with the Annual Reports in the legislature has not been finalized, apart from the role played by the Standing Committee on Public Accounts (SCOPA). The Committee also emphasized the importance of ensuring that the information presented in the SPs, ENE and Annual Reports be presented in comparable formats.

The NT explained that the following areas would be addressed in the next phase of the Budget Reform process:
_ Improving Measurable Objectives;
_ Accounting reforms and the move to accrual accounting;
_ Improving the quality of outer-year figures in the MTEF. This would include developing longer term budget planning mechanisms for capital projects and extraordinary expenditure such as the Census or the Elections;
_ The development of consolidated accounts to include non-departmental agencies, and
_ The improvement of reporting on revenue collected by departments themselves.

These reforms would be supported by the ‘Master Plan’ for the implementation of the systemic reforms related to the PFMA that was finalized in March 2004. These reforms include the move to BAS from FMS, the introduction of the Standard Chart of Accounts. The implementation of this
Master Plan and the implementation of the PFMA more broadly is further supported by a whole range of accredited courses designed and implemented by the NT in conjunction with IPFA and SAMDI.

2. OVERSIGHT OVER STATE OWNED ENTERPRISES (SOE)
As indicated above the NT and the Committee agreed that reporting on the budgets, expenditure and activities of state-owned enterprises would need to be improved. The information currently provided in the ENE, Annual Reports and Strategic Plans is generally not adequate to enable Parliament to give effective oversight of them. The NT indicated that the improvement in these areas will form part of the budget reforms process over the next few years.

3. ROLE OF LEGISLATURE IN BUDGET OVERSIGHT
The Committee and the NT agreed that the role of Parliament in budget process would need to be addressed as a matter of urgency. This would enable Parliament to perform its oversight role in terms of the budget as whole more effectively and to actively play a role in the budget process itself, in accordance with its constitutional obligations. Part of this process would include greater clarity over how Parliament deals with the documents specified by the PFMA and MFMA. The Committee recommends to Parliament that the report of the Subcommittee on Oversight and Accountability be considered.

4. IMPLEMENTATION OF THE MUNICIPAL FINANCE MANAGEMENT ACT (MFMA)
The NT indicated that the limited capacity of local authorities to implement the MFMAhad been supplemented by the deployment of advisors from all over the world. Advisors had been deployed to 64 local authorities in 2003, but would be deployed to every local authority in the country by the end of the year. One of the conditions of this assistance is that these advisors form part of the top management of the relevant municipalities in order to ensure their participation in key decisions.

Further support is being provided for the implementation of the MFMA through extensive workshops, the phasing of implementation and the grading of municipalities according to their capacity. The NT undertook to brief the committee regularly on progress in the implementation of the MFMA.

5. TAX POLICYAND THE TAXATION OF RETIREMENT FUNDS
The Committee noted with approval that the NT was planning a tax colloquium to review the overall direction of tax policy in South Africa. The NT indicated that the last few years had seen dramatic changes in the tax system such as the introduction of Capital Gains Tax and the move from taxing at residence to taxing at source. Given all these changes the time had come to review the process as a whole and to chart a way forward.

The Committee expressed specific concern that the longstanding commitment to table legislation on the taxation of retirement funds has still not seen the light. The Committee feels strongly that the delay in the review on the taxation on retirement funds is harmful to all affected parties, and notes that once again the deadline for this matter to be finalised has been delayed. This is unacceptable and the committee expects that this matter will receive immediate attention given the seriousness of the issues under consideration.

The NT acknowledged that it had underestimated the complexity of this task, especially with regards to the number of interested parties that would need to be consulted. It made a fresh commitment to table such legislation before the end of the calendar year.

6. FINANCIAL REGULATION
The committee noted with approval that the process of reviewing the regulatory system has moved forward significantly through the signing of a Memorandum of Understanding (MoU) between the NT and the South African Reserve Bank (SARB). The following specialist committees were amongst others established in terms of this MoU:
_ Macro-economic Policy Co-ordination and Inflation Targeting
_ Financial Markets
_ Banking and Regulatory and Oversight
_ Reserve Management and Cash Management

7. PUBLIC PRIVATE PARTNERSHIP (PPP) ISSUES
The NT indicated that the 50 PPP projects that it currently had registered had the potential to create employment and reduce input costs in the economy.

The NT indicated that it had established a number of PPP training courses in partnership with the National Business Initiative (NBI) and that over 1000 people had completed this course. It had just piloted a very popular course for PPP transaction advisors, an area where limited skills exist in South Africa.

The PPP Unit has also released a draft Code of BEE good practice for PPPs last year after extensive consultation with the Department of Trade and Industry. The Code is largely based on the provisions of the Broad Based BEE Act.

8. SUPPLY CHAIN MANAGEMENT (SCM) REFORMS
The NT indicated that reforms of the procurement process and the supply chain more broadly were continuing in terms of both financial management and policy framework reforms (as indicated in the 2003 Committee report). The latter comprises issues related to preferential procurement and BEE more broadly. Similar reforms would ultimately be introduced in local
authorities in terms of the provisions of the MFMA.

9. NEPAD PEER REVIEW CONTRIBUTION
The National Treasury made a contribution to the design of the NEPAD Peer Review mechanism that focused on issues of good economic governance. These recommendations were largely based on norms set for OECD countries and included recommendations on:
_ Fiscal Policy
_ Corporate Governance
_ Accounting and Auditing
_ Financial Regulation

More broadly the NT agreed that the establishment of a single currencies in Africa is at least 50 years off. A forum of African central bank governors indicated that the African Union should first pursue regional convergence before continental convergence can be contemplated.

The NT also indicated that it did not fund itself or any other department for specific NEPAD related activities, but has rather taken the approach of integrating it into its existing activities.

10. GOVERNMENT EMPLOYEES PENSION FUND (GEPF) BOARD OF TRUSTEES
The Committee expressed concern that a new Board of Trustees for the GEPF had still not been appointed and that the Finance Minister was still interim trustee. It also acknowledged that this process was not within the sole control of the NT and that other actors involved in this process may be party to the delay.

11. COMMITTEE LOOKING AT ADMINISTERED PRICES
The Finance Committee commended the NT on the establishment of a committee to look at the impact on the inflation rate of administered prices as set by a range of government entities. This committee consists of a number of other agencies and departments and is due to report back to
Cabinet in June.

12. PERSONNEL & HUMAN RESOURCE ISSUES
The Committee expressed concern at the high vacancy rates in the NT, as well as some of the other entities reporting to the Finance Minister such as Statistics South Africa and SARS. The NT indicated that its capacity was not affected by these vacancies and that it applied very high standards in recruitment. Short-term capacity constraints were being addressed by appointing specialists on short-term contracts for specific projects. Over the longer term the NT hopes to address this issue through its extensive learnership programme. The Committee also expressed concern over the fact that the NT had budgeted for its full personnel contingent while it has high vacancy levels. The NT undertook to provide the Committee with a detailed report on its Human Resource Policy as well as further detail on its budget for personnel expenditure.