FINANCIAL AND FISCAL COMMISSION SUBMISSION on the Draft Money Bills Amendment Procedure and Related Matters Bill, 2008 for the Portfolio Committee of Finance 6th August 2008

Contents Introduction Comments: Budget Committees Budget Preparation Fiscal Rules Budget Office Recommendations

Introduction The Commission: Welcomes the opportunity to comment on this Bill; Welcomes the efforts of Parliament to enact S 77(2) of Constitution and improve its oversight function; Believes the Bill will enhance the transparency and credibility of the budget process; Acknowledges the recognition afforded the advisory role of the Commission in the Bill; Supports the establishment of a Budget Office for purposes of implementing this legislation.

Comments: (1) Budget Committees The respective roles of Portfolio and Select Committees of Finance and of Budgets should be specified. A decision should be reached on whether separate or joint budget committees best serve the requirements and capacity of Parliament;. Functions of the budget committee/s imply a capacity for: macro-economic forecasting fiscal policy assessment intergovernmental fiscal relations performance budgeting and management information systems.

Comments (2) Budget Preparation Consultation between Parliament, the Ministry of Finance and both parties to a budgetary trade-off is essential. Establish mechanisms for achieving consensus on the macro-economic framework and fiscal policy targets early in the four month amendment period. Opportunity window between MTBPS and tabling of the Budget It is appropriate that if Parliament fails to adopt an amended budget within the allocated 4 months, the original budget of the Finance ministry is automatically adopted.

Comments (2) Budget Preparation – cont’d The Bill is silent on Parliament’s ability to amend Adjustments Budgets. Amendments of the current and forthcoming year’s budgets should be exceptional. Consider changes to be effected to the outer years of the medium-term budget. Mediation committees, as outlined in S76 and S78, should be established in the event of hung votes.

Comments (3) Fiscal Rules There is potential for uncertainty that can arise through ad-hoc changes to specific allocation and these require that the system follows a set of fiscal rules. Fiscal rules can be used to manage the risk of unstable budget growth paths which compromise service delivery. This is especially important for small, open economies prone to exogenous shocks.

Comments (3) Fiscal Rules cont’d S230 implies the adoption of the “golden rule of budgeting” that deficit financing be limited to capital expenditure. Balanced budgets can be used to stabilize business cycles but imply budget surpluses as often as budget deficits. Budgets are best evaluated through measures of economy, efficiency and effectiveness. This implies an emphasis on the management information systems of government departments to deliver the required non-financial data.

Budget Office To be effective in amending budgets, the Budget Office will need capacity to: Undertake macroeconomic forecasts Model the implications of different fiscal policy targets Indicate the trade-offs required when re-allocating between departments, programs, spheres of government or across provinces and municipalities. Detailing the functions of the Budget Committee and Budget Office will enable more accurate indications of human resource capacity and hence the financial implications of this Bill. The Budget Office will be dependent on the quality of financial and non-financial data generated by departmental management information systems.

Recommendations The respective roles of Portfolio and Select Committees of Finance and of the Budget should be clarified. The composition of and basis for establishing joint committees should be included in legislation. The Budget Office should be capacitated to undertake macro-economic forecasting, fiscal policy analysis, budget performance analysis, intergovernmental fiscal relations amongst other issues pertaining to public finance. Budget Committees should focus on effecting changes to the outer years of the medium-term budgets. Amendments to current or forthcoming year budgets should be effected only when there are significant macro-economic crises. Provision should be made for the establishment of Mediation Committees when agreement can not be reached over budget amendments. Budget Committees should ideally legislate fiscal rules pertaining to the use of deficit financing, balanced budgets and performance budgeting for efficiency and effectiveness.