Status report on progress to address concerns around Parliament’s budget allocation

Meeting report

Opening comments:
Chairperson Mabe greeted everyone. She was pleased that the Secretary to Parliament (STP) was present. She noted that the co-Chairperson was struggling to log into the meeting.

Chairperson Mabe outlined the agenda for the meeting, and thereafter it was adopted by the Committee. She said that the matter under discussion today was postponed several times. The Committee may not receive a direct answer at this meeting, but this would form part of the legacy report to assist the incoming seventh Parliament. She then handed over to the STP to present.

Mr Jason O’Hara, Chief Financial Officer of Parliament, took the Committee through the presentation.

Update Briefing
The presentation provided an update on the status of:
-Progress made in discussions between Parliament’s Executive Authority (EA) and the Minister of Finance to address concerns around Parliament’s budget allocation;
-The development of a budget process for Parliament; and
-The PARMED liability

Meeting between EA and Minister of Finance
-Letter sent to Minister of Finance
-Additional budget request - Parliament has not received a response or allocation of the funding yet.
-National Treasury – these funds will be considered during the Mid-Term Budget Policy Statement (MTBPS) tabled in October 2023 which did not occur.
-Concern for Parliament - obligation to implement the recommendations of the Zondo Commission reports and undertakings per approval priorities in the current 2023/24 Annual Performance Plan.
-Parliament requested that this be prioritised.

Impact on constitutional mandate of Parliament
Engagements between STP and DG: National Treasury –
-20 May 2023: to discuss concerns of underfunding affecting Parliament. Additionally, the Secretary to Parliament enquired on progress on the submissions made by the Executive Authority of Parliament to the Minister of Finance in September 2022 & February 2023.
-A letter sent to the Acting DG: National Treasury on 8 June 2023 outlined the discussions held above and drew attention to the following areas of concern.
-Meeting on 20 November 2023: the Secretary and Management of Parliament met with the DG: National Treasury to reiterate Parliament’s case and determine progress.

Impact on operations
-Structural Challenges: Besides the reduced budget, the composition of Vote 2 carries structural challenges, skewing the appearance of available resources. Whereas the overall budget appears to be significant for 2023/24, the amount available for discretionary allocation in the form of Goods and Services amounts to less than 20 percent, and the balance is largely fixed (uncontrollable) in nature
-PARMED: Parliament funds previous Members of Parliament and Provincial Legislatures’ contributions to the PARMED Medical Scheme. Current serving Members are affected as the contributions have increased by almost 200 percent without a corresponding increase in the remuneration for Members.
-Loss of Office Gratuity: Parliament also funds the Members’ loss of office gratuity from the baseline. Since 2009, Parliament has paid R273 million in loss of office gratuities. This gratuity may become financially unsustainable and cause liquidity problems in the coming financial year, due to low levels of retained earnings.
-Political Party Allowances: The parliamentary officials met with National Treasury officials to discuss funding of political party allowances. National Treasury undertook to investigate where political party allowances should be funded from
-Reconstruction and Rehabilitation of Parliament: Funding for this project has been made however, contingencies need to be considered, due to variations in the pricing of materials, labour and fuel.
-Direct Charges: Establishing a 7th Parliament will impact the Member’s remuneration. It might result in overpayment due to the payment of loss of office and exit gratuity paid to Members. There may be delays from NT to refund Parliament, thus impacting cash flows.
-Compensation of Members – Funding Model (incorrect baseline): Shortfalls in the allocation from the National Treasury Compensation of Members resulting in shortfalls occurring on an annual basis.

National Treasury Budget Reduction for 2023/24 amounted to R214 million, resulting in the removal of all the Retained Earnings Reserves accumulated by Parliament from prior years. The total Budget Reductions implemented by National Treasury from the current year 2023/24 to 2026/27 amount to R986 million. National Treasury implemented a budget cut on the FY 2023/24 budget by R214 million. Three areas have been identified to fund the budget cut:
-Retained Earnings,
-Own Revenue,
-Funds surrendered.

The following agreements were reached in the meeting between the Executive Authority of Parliament and the Minister of Finance on 15 February 2024:
-The Budget process for 2024/25 had already been finalised in preparation for the Minister’s Budget Speech on 21 February 2024 and no additional funds could be allocated at this stage
-The Minister committed to writing to Parliament to provide an alternative solution.

Development of budget process for Parliament
-Parliament has embarked on its own process intended to calculate the full financial exposure of Parliaments’ operational and mandated functions through a Funding Model & Costing Model Project.
-Due to the specialised nature of the work needed, this Project has undergone an SCM procurement process and is currently under review by the Bid Evaluation Committee.
-The overall project is estimated to be complete within a 3 to 6 month period, depending on the size of the organisation awarded.
-Parliament has established the Funding Model Committee to manage this project effectively. This will ensure strict monitoring and evaluation of all the targets and deadlines set.
The final report will be presented to National Treasury to justify the correct funding required to operate Parliament which has been calculated and endorsed by credible independent experts

Parmed liability
-Parliament is in net liability amounting to R1.1 billion, due to the post-medical provision made, for the former Members of Parliament and Provincial Legislatures.
-During 1999, Parliament approved that the medical aid contribution for former Members of Parliament and Provincial legislatures would be paid by Parliament. There were 1 007 former members who received the subsidy as at end of the financial year. The actual contribution made by Parliament was R78 million (R81 million in the prior year) during the year and is funded from the annual appropriation.
-Parliament consulted National Treasury on numerous occasions to take over the management and payment of post-retirement medical aid (PRMA) benefit for former Members of Parliament and Provincial Legislatures without success. Further engagement with the board of PARMED and National Treasury is required and assessment of possibility for Provincial Legislatures to carry their own Members going forward in the 7th Parliament.
-Parliament’s outlook without the PARMED Liability shows a healthy financial position of a net asset result of R167 million.
-Parliament has raised these concerns with the Minister of Finance and National Treasury in all correspondence and engagements held over the past several years.
-During the most recent engagement between Parliament and the new DG of National Treasury held during November 2023, the DG committed to reviewing and addressing our concerns raised during the 2024/25 financial year.
-In addition to the above commitment made by National Treasury, Parliament has included this matter into the Funding Model & Costing Model Project. The intention is to compare the treatment of this liability to other Parliaments around the world through a benchmarking exercise. Additionally, the Project will be tasked with seeking a legal opinion of being placed in a technically insolvent position without any commitment to address the matter for several years.
-With the commitment of National Treasury and the results of the Funding Model Project, the PARMED liability is expected to be resolved during the 2024/25 financial year.

Recommendations
It is recommended that the JSCFMP:
-Calls upon the Minister of Finance to urgently issue the letter to the EA on an alternative solution to refund the allocation to relieve Parliament of its budget pressures while exploring long-term solutions
-Supports the Accounting Officer’s ongoing efforts to ensure that the DG of National Treasury makes good on the commitment to correct Parliament’s Baseline and allocate sufficient funds to address the areas of underfunding and future strategic initiatives
-Includes in its Legacy Report, the engagement by the JSCFMP of the 7th Parliament on Parliament’s Funding Model to ensure a budget governance system, process and allocations commensurate with Parliament as an Arm of State
-Calls on the Minister of Finance to urgently put measures and processes in place to address the PARMED liability within the 2024/25 financial year.

See attached for full presentation

Discussion:
In opening the floor for questions and comments, Chairperson Mabe asked for the recommendations slide to be flighted so that Members may engage with it.

She said that the R750 000 000 deducted from Parliament’s budget was not a new issue at all – Members already knew about this. The Committee did highlight and condemn this action of interfering with Parliament’s finances. Parliament should not be treated like a government department - it should be funded differently from other departments. She asked if the Minister of Finance was able to engage the Speaker and the Chairperson of the NCOP in the meetings. If yes, what was the agreement in this regard? At some point, it was said there would be a joint meeting with the Standing Committee on Finance for further engage on this but this meeting never materialised. The seventh incoming Parliament should surely engage on this.

Mr N Singh (IFP) agreed that none of these items was new information but things that had been dealt with for several years. But what was new was the recent engagement with the Minister of Finance. He welcomed the update and the positive factors such as the Parmed liability, which would hopefully be sorted out soon.

He was not confident that the Committee would get what they wanted with the current fiscal constraints. He agreed Parliament was a separate arm of state and would therefore require its own budget. Parliament was responsible for having the public’s best interests at heart. The seventh incoming Parliament needed to prioritise what was essential and necessary for the smooth running of Parliament. He was disappointed that the report did not include support for Members of Parliament. Parliament needed to bolster their research capacity so that they may effectively do their work but this was not included in the report.

How much was Parliament able to save during COVID-19? Members were not travelling to put forward travel claims. There should be a lot of savings. To which programme were the savings directed?

Ms O Maotwe (EFF) found it hard to reconcile that the STP’s salary was increased without budget adjustments - where did this budget stem from? The STP then claimed that there was no funding in Parliament, yet it was clearly there. She was upset about this and the STP was not making sense.
In the presentation, it read that 20% went to goods and services, but what exactly were these ‘goods and services’? What would they achieve with the 20% in procuring only goods and services? After which, what amount would remain?

She reminded Members that Parliament was an arm of state. Parliament was a cost centre, not a profit centre. Parliament could not be financially independent because it largely depended on governmental funding. Parliament would have to stand alone if it wanted to be financially independent.

She was proud that Parliament had generated its own revenue of about R25 000 000 - where did the revenue come from? And what could they do to increase it and fund their own programmes? Was Parliament allowed to be a revenue-generating entity? If so, what prevented them from achieving this? Could the law on this be amended?

The country had no money because of a declining economy. The Minister of Finance was trying to make ends meet. It was incorrect to request funds from Parliament to increase salaries. As an arm of state, Parliament should support government in implementing revenue-generating projects so that Parliament could make more money. Government had little to no money but was expected to fund Parliament from the little it had. The EFF did not support any of the recommendations at all.
The Minister had supplied Parliament with a budget so it should work within that budget to serve Members. She did not hear any suggestions on how to make more money to implement projects, besides the R25 000 000 they had already made. The EFF did not support these recommendations.

Chairperson Mabe acknowledged that the EFF did not support the recommendations. She reminded Members that budgets were unceremoniously cut, despite commitments made to ongoing projects.
She thought it fair that the recommendation was to refund Parliament as a way to relieve Parliament office budget pressures. When National Treasury decided to withdraw, Parliament was not alerted, and this negatively impacted the programmes.

Ms N Mahlo (ANC) implored that the Committee consider the programmes which commenced late due to the budget cuts. She implored that they request more funds from National Treasury. Government could not generate income the way a business could. She shared that she had visited other countries, but none of them spoke of revenue-generating projects. Parliament should rather request funds from National Treasury, as they already had programmes due to commence in July 2024. They needed to request funding. She supported the recommendations.

Chairperson Mabe noted that other committees were not able to conduct oversight visits due to the budget cuts - there was no money at all. Oversight visits were necessary because they ensured that there were reports on service delivery. It was difficult to decide which committee to prioritise over the other. National Treasury should not tamper with Parliament’s budget, and they should rather provide more funding. The funds which were once lost should be recovered by National Treasury. She handed over for responses.

STP responses

Mr Xolile George, Secretary to Parliament, responded by saying he would focus on the recommendations. He asked Members to reflect on the structural and governance nature of budgeting. This would help understand how the state was constituted. The state had three arms: the Executive, the Judiciary and the Legislature. A budget committee was formed for the Executive, and they considered all their departments and various entities. Budgeting was a political process, and there was a direct understanding of how the budget was formed for the Executive. The judiciary and legislature were not part of such a discussion. Once signed off on, the two arms of the state then received estimate letters. They were looking at a platform for engagement between the judiciary and the legislative arms of state. This was a vital part of the political process. There were no specific provisions on the budget committee for Parliament, yet Parliament had its own financial management.

There were money amendment bills. He then read out the recommendation (c) on the screen. Parliament should consider establishing a multi-centre budget committee so that the Executive and legislature could intervene prior to figures being tabled for approval. They could be married in this regard.

The work on the funding model received political guidance to take into account all the balances. Parliament was an apex of government. This was what they recommended. When the Minister of Finance tabled the budget, the various bills were tabled in Parliament and submitted to various committees for processing. Sections 7 and 8 of the Money Bills Amendment Act were very clear on the role of Parliament once these were tabled. There was an inherent power within Parliament to consider adjustment of the budget. Could Parliament not then consider their own budget adjustments?

It was proposed that a budget committee be established to guide the funding development model, and prior to funds being tabled, Parliament should consider issuing reports to the Executive from the budget committee, so that every year it was acknowledged what was required of Parliament.

He said that they did not forget the part of resourcing the research capability of support to Members. They highlighted the amount of R429 (million?), but they required an additional R167 m to fill critical positions, including research capabilities. Parliament needed to increase its research capability and research oversight. They would ask for more resources in this regard. They had not forgotten about this.

All arms of state had little to no revenue-generating capability. But this did not hinder them from generating revenue. Various State-Owned Enterprises (SOEs) and departments had this capacity. Parliament was not prohibited from doing this. On 11 December 2021, Parliament established a parliamentary institute for capacity-building of Members. If they were to assign capacity building exclusively to one entity for the purposes of training Members, they were permitted to generate revenue as long as it was part of the budget execution of Parliament and without straying from the core mandate of Parliament. He raised concerns about revenue-generating and turning Parliament into a commercial institute.

Regarding the saved R25 m, Parliament's work declined over the last three years due to the global pandemic. Thus, they could raise revenue in the form of savings on their own execution. And through said savings, they were able to earn interest. The funding which they saw was acquired through retained savings, which were now evaporating over the years. They had no claim to earn any revenue going forward because the deducted funds needed to be recovered first. This was a stop gap measure as a structural resolution for the budget of Parliament. They were not earning money elsewhere. They were looking into other income-generating avenues, such as using intellectual capital.

The issue of Parmed liability was an ongoing issue at Parliament; which was now placed at R1.2m of solvency. This was very concerning. In the past, whenever there was an increase in funding for Members, an amount of money would have been allocated but if the amount was exceeded, Parliament would have to pay with the hope that at the end of the year, the National Revenue Fund would refund Parliament. A financial sensitivity model was urgently required to pay all gratuities. This was a huge risk for the institution – it was using a bandage instead of sewing the wound. It was recommended that the Parmed issue be fundamentally resolved. They requested the Minister of Finance to augment what Parliament had, so that what was once taken away be reinstated to the institution. Parliament received an in-principle positive response, but they waited for a letter from the Minister of Finance.

He raised the concern of reducing Parliament to an ‘asking institution’ rather than what it was; which was an overarching arm of state responsible for oversight.
 
Closing comment
Chairperson Mahlangu thanked everyone for their time and participation and the STP for the presentation. The Committee would meet again next week. She was grateful for the information received.

The meeting was adjourned.