By Tania Ajam: Knowledge Director Juan Bester: Programme Manager 5 August 2008

1. Public Hearings on the Draft Money Bills Amendment Procedure and Related Matters Bill, 2008Submission to Portfolio Committee on Finance By Tania Ajam: Knowledge Director Juan Bester: Programme Manager 5 August 2008

2. Background • AFReC’s 2000 recommendations: • introduce a phased approach to budget process with parliamentary oversight at each stage • General and specific recommendations

3. Recommendations (1) • General: • Bill needs distinction between macro-economic forecasts and fiscal policy targets. • Macroeconomic forecasts to be validated by independent agency. • Parliament to adopt fiscal rules framework for considering budgets: • consideration of criteria targeting, efficiency, effectiveness, economy, transparency, zero sum gains and losses, internal consistency, time consistency, and broad stakeholder consultation. • Stronger emphasis on stakeholder consultation. • Parliament to exhaust all reasonable avenues before amending budgets.

4. Recommendations (2) • Specific: • Refine “fiscal framework” definition: rolling 3-year forecasts • Sections 5(1) and 5(2) of the Bill to be rewritten to read “medium term statements.” • Section 7(9) report to include medium term fiscal impact of proposed amendments + outline of reconciliation of proposed amendments relative to initial proposals from NT. • Section 7(9) report to note list of stakeholders to be consulted when considering amendments. • Budget Office adequately resourced + capacitated. • Budget Office’s mandate and performance criteria may need to include explicit focus non-partisanship + objectivity.

5. Establishing fiscal rules (1) • Research shows that fiscal rules necessary to maintain fiscal discipline when economies are vulnerable, not prone to macroeconomic stabilisation. • Fiscal framework with methodologies • Examples: borrowing for capital assets but not for current consumption, referendums for drastic tax hikes, number + size of amendments, ratio of government expenditure to GDP, balanced budgets • International case studies

6. Establishing fiscal rules (2) • Need for amendments to take into account budget trade-offs. • Allocative efficiency: maximise citizen welfare with current resources, not indebting future generations. • Operational efficiency: need for properly planned budgets, minimising cost of marginal output.

7. Establishing fiscal rules (3) • Criteria for fiscal rules framework: • Effectiveness, economy, and transparency • Zero sum gains and losses • Internally consistency • Time consistency

8. Circumspect use of amendments • Appropriation amendments should be seen as a last resort measure. • Rather then changes with current MTEF period. • Compelling rationale necessary, in terms of improved allocative + operational efficiency, fiscal discipline, or fiscal accountability • Risk considerations by Parliament, e.g. potential absorption capacity by organs of state, potential underspending and rollovers could be avoided. • Fiscal rigidities (e.g. personnel wage structures, social grants) leaves little fiscal discretion for changes in short term.

9. Parliamentary Budget Office • Good idea, but imperative that it is: • Dedicated • Properly resourced + capacitated • Non-partisan + independent • Critical success factor: clarity in roles of Executive Authorities and Accounting Officers to relieve tension between the Parliament’s oversight function and its ability to amend budgets.

10. ENDTHANK YOUWebsite: www.afrec.co.zaE-mail (1): tajam@afrec.co.za E-mail (2): jbester@afrec.co.zaTelephone: 021 659 9300/10/19