Road Accident Benefit Scheme Bill: Department response to National Treasury

Meeting report

Road Accident Benefit Scheme Bill: Department response to National Treasury
Mr Johannes Makgatho, DoT Director: Corporate Legal Services, informed the Committee of the letter received from the Minister of Finance as per the Committee’s instruction. He asked the Treasury delegation to confirm the letter did indeed come from the Minister of Finance.

Ms Ulrike Britton, Chief Director: Urban Development and Infrastructure, National Treasury, confirmed this.

Mr Makgotho referred to Annexure 4 (DoT Responses) in the document bundle presented to the Committee. He started with clause 7 where National Treasury had proposed amendments to the composition and voting rights of the Board. He read out DoT’s new proposal as a response to the proposed amendment from Treasury. See document for detailed responses to all Treasury’s proposals.

Ms Britton confirmed that those were indeed the provisions discussed by the two Ministers, and agreed to. Concessions were made and now the Bill adequately addressed Treasury’s concerns about the Bill.

Discussion
Mr T Mpanza (ANC) said the responses were very helpful, but he wanted to check since there is confirmation that both departments took ownership of the submission. Clause 7 speaks about a new proposal, but clause 59 speaks of DoT’s suggestion not a proposal. He wanted clarity on this. In the same clause, he wanted clarity on the ‘ex officio’ matter. He asked what the normal practice is when it comes to structures like this, particularly on voting powers. It now said that all board members may vote. Is this a deviation from normal practice? There did not seem to be an agreement between the two departments on Clause 9. Therefore, will consensus be reached? In clause 59, the Department suggested a provision but it did not state if consensus was reached between Treasury and DoT.

Mr N Seabi (ANC) said that the numbering of the Bill clauses and the responses were not corresponding. Are they referring to the Bill or the RAF Act?

Mr M Sibande (ANC) thanked the Ministers for their responses. However, what was interesting was the outcome of the meeting which was an in principle agreement and this must be on record. He wanted clarity on the board quorum – this is supposed to be clearly outlined.

On clause 9(1), he had been disturbed that Treasury had said the period was too short, but DoT did not agree with the suggestion. The document is not clear on what was happening. This must be clarified. He was happy with clause 26 as now that it is outlined categorically, this would assist with constitutionality concerns. He asked DoT to further clarify the Operational Account. He would always maintain his stance about the money going out via the lawyers and not reaching the people. Nothing is about the interest earned from those monies.

On the actuarial valuations, he asked about the valuation of R10 000 for funeral benefits as people during the public hearings had expressed concerns about this. On page 15 on administration, he asked for clarification on the liabilities of the administration because it seems as though DoT was trying to address this through the no-fault system.

Adv T Mulaudzi (EFF) said paragraph 3 of the letter signed by the Ministers said that the two departments agreed in principle. He said that this was insufficient because the letter did not state categorically what the departments agreed to regarding the Amendment Bill. DoT shows that it disagreed with Treasury in clause 9. On that point, which one should the Committee take if there is a disagreement? On clause 26, DoT only outlined the input from the Treasury. Therefore, is DoT in agreement with Treasury on clause 26(1)?

He asked Treasury if it was going to fund RABS from the fiscus. If so, how is it going to fund the outstanding amounts under the RAF and sustain the two systems which would run concurrently? He wanted clarity on this. Treasury must state categorically from where the money is going to come. He raised this point because he would not want to force legislation that will never work such as the e-toll which was pushed down people’s throats.

He asked about the amount to assist the claimant to lodge a claim with the Administrator. Where are people supposed to get money to move around to obtain all the relevant documents to validate their claim? Has Treasury set aside some money for that?

He referred to the matter of the unconstitutionality of the Bill. The Administrator adjusting the benefit according to affordability is unconstitutional because it is vague and we do not know when the affordability would exist. The lack of the tariff agreement between DoT and the private healthcare service providers may be unconstitutional in itself because accident victims would be forced to rely on the public healthcare system which is on the brink of collapse. If the private healthcare sector object to the proposed tariffs, which would mean that people would be subjected to public healthcare, why not wait until the NHI has been finalised?

On the outstanding amount of about R300 billion due to previous claimants by the Road Accident Fund, does Treasury have that amount and the concurrent budget needed for RABS?

Lastly, what is the scale for determining whether an injury was self-inflicted?

Mr L Ramatlakane (ANC) said that he was struggling to understand the object of the Bill which is removal of fault. Based on the discussion between Treasury and the Department, is it still no fault or is it partial? In the presentation there was something about self-inflicted injuries in order to get money? Secondly, where there were concessions between the departments, it appears that these were about downwards adjustments to benefits. What is the anticipated outcome of the meeting of the two Ministers? What does it mean that the scheme will in the long term be fully funded? He referred to the representatives of the Ministers who now will have full status to vote on board decisions and asked so who makes the decisions in this board really, is it the state or the board?

Mr C Hunsinger (DA) referred to the letter from the Ministers and stated that the Acting Director General had told the Committee at the previous meeting about the signed letter by the two Ministers but the date on the letter is 28 August. He wanted to know if there was another letter. He asked if there is an ongoing conversation on all the Treasury recommendations as only seven recommendations have been absorbed on RABS. There is a bit of confusion about the status of the letter. He asked due to the uncertainty of the modelling of the cost baseline of RABS – the costs; the valuation of the income support benefits; administration costs and generally around funding. These are still outstanding and there is no attempt to answer those questions. There were very specific aspects about costs which are not answered anywhere. There were also very specific concerns about the formulas and the counter-argument to the use of 75% as a benefit standard. The Department needs to explain this. In the True South Actuaries report, very specific and strategic information was left out because that table speaks to funding – future cost implications.

Mr Makgotho clarified that the DoT responses in the document are reflections based on the comments made by Treasury on 14 August. Added to the columns, is an agreement based on the inputs made by Treasury which have been incorporated – a reflection of what was done as both parties. On clause 9, that was the consensus reached between Treasury and DoT. Therefore, it does not necessarily mean that the Department did not consider Treasury’s input on this clause.

Mr Makgotho said that the Treasury inputs included definitions (clause 26, 27 and 28) as well as financing. He read the clauses against the proposals (see document). He explained that there will be a rearrangement of the clause numbering to tally up with the responses which will be done by the State Law Advisor. Mr Sibande’s comments about the in principle agreement between the two departments was noted.

Mr Chris Willemse, Senior Manager: Road Accident Fund, responded about who makes the decisions on the RABS Administrator; saying that it is the board as informed by the majority of the voting members. The number of board members is now down to 10 from 12. It brings in the CFO as per the King IV recommendation and the ex officio members. Everyone who sits on the Board can vote.

Mr Willemse replied that where lump sum payments are made for compensation as is the case with RAF those monies are paid into the attorneys trust accounts and the interest earned accrues to the Law Society or the Attorneys Indemnity Insurance Fund, unless alternative arrangements were made. Under the new dispensation, with incremental payments directly paid into the claimant’s account, there is no benefit for an external party. The interest earned goes to the claimant’s account.

He replied that the current Bill does not state a fixed funeral benefit sum but that the Minister will determine the amount from time to time and cognisance would be taken of the reasonability of the amount.

Mr Willemse explained that, stemming from the Ministers’ meeting, there are decisions that need to be taken. If the scheme is no longer fully funded, the proposed amendment provides for a funding ratio of 90%. If that funding ratio falls below 90%, the Ministers must decide to amend legislation – either to amend downwards the benefits provided under the scheme or increase the funding through other funding streams. If the Ministers amend the regulations, they would have to follow the Promotion of Administrative Justice Act (PAJA) process and if they amend the Act, they would have to come to Parliament with an Amendment Bill. Apart from that, the current Bill does not provide automatic adjustment of benefits, so there are no automatic inflationary adjustments. From time to time, the Ministers would have to adjust these benefits upwards.

Mr Makgotho replied that the letter before the Members was legitimate and what was agreed upon has been read on record to the Members. There is no other letter except the one before the Committee.

Ms Britton said that the last time Treasury was present, it indicated the four principles that needed to be considered in the Bill which included the Bill being fully funding, governance matters that needed to be cleared up given the uncertainties about the costing and some flexibility perhaps needed to be built into the legislation and about the deemed pre-accident income. Based on the DoT response on those four areas, Treasury has satisfied itself that these were adequately responded to by DoT.

On funding and costing, the Bill provides that the current RAF levy, R1.93 cents would now go into RABS. From an accounting view, that RAF liability becomes real liability which would be subject to budgeting process and how it would financed and paid for. The plus R200 billion liability is expected to be runned down over a period of time, and there are various financing options that would need to be considered in a sustainable way. There is no intention to add to the existing levy to pay for the new dispensation. The levy will move from the existing system into the new one. One of the provisions that have changed in clause 26 that made provisions for the three separate accounts creates flexibility in the system to give some borrowing power to the Minister and the Administrator. Therefore, Treasury is satisfied around the funding options on the old and new liabilities.

The proposal separates the operations of the Administrator, and the Administrator must account for all operational expenses separately from the benefits. By doing that in the annual statements that would be tabled in Parliament, two annual statements would be tabled which purports accountability on both aspects.

Ms Britton said where one has officials representing ministers or directors general on various boards, they usually have voting rights, so this is not something new or not being currently practiced. It is important who should make the decisions and how does one ensure that the CEO and CFO do not outvote the other board members. The quorum rules can be defined in a way that deals with that. The lawyers are satisfied that the way it is done right now one will never be in a situation where the officials outvote the other board members.

She confirmed the term of the board, and said that normal boards meet four times a year and they get paid for those times but this was not the case here. The important issue is how the board would be remunerated; the undertaking from the Department of Transport was that the board would be remunerated at a flat rate. This means that the more the board meets, the more value is derived from it. Hence, Treasury was fine about leaving the term at three years.

The matter of no-fault fundamentally changes behaviour and it would change road use behaviour. The question is ‘how do you then deal with the moral hazard?’ This is one of the sections in the Bill she was nervous about – whether it compromises the policy objective, and if it does so, we must accept that it will be dealt with. The lawyers say that it does not compromise the policy objective from a behavioural point of view.

On it being fully funded in the long term, this is a policy objective. However, the way the Bill was previously drafted meant that the fiscus would have to respond immediately. By inserting the 90% benchmark, we will always go back to the objective. If we deviate from the 90% benchmark, then that means we need to take steps to go back to the policy objective or the 90% benchmark.

She said the Committee still needs to talk about the buoyancy of the fuel levy, and how to tax electric cars so that we do not need to come back and have to make changes to the legislation.

Mr Chris Hlabisa, DoT Acting Director General, replied that the team did not engage with the Ministers and the Committee and backdate the letters. The Department was happy with the responses from the Treasury, and there is consensus between the two departments.

Mr Ramatlakane said that he did not get an explicit answer about whether there is no-fault or partial fault. He acknowledged the Treasury response about the behavioural changes which could result from a no-fault system. The policy that the Bill is based on is no-fault, and you have met but you are saying it is not quite no-fault but a behavioural management issue. He was of the view that DoT did not make the policy but had to implement it. If DoT is struggling to implement the policy, it must go back to the policy maker and indicate so. Mr Mulaudzi had asked a relevant question about how DoT would determine whether some behavioural actions would be deliberate or not. He was not satisfied with the answer. DoT is expecting the Committee to give this law a green light based on what is presented without the detail of how it is going to be measured.

He was not challenging the modus operandi of the Board, but out of the ten members, how many will be state officials? We need to make a determination whether it is a board or an extension of the Administrator. A board majority will be six but that six could make a decision based on the directive of representatives.

Mr Ramatlakane asked again if this is a fault or no-fault system so that the Committee can move forward with the policy direction on the basis of DoT advice. He was struggling to make sense of this argument – that somebody would deliberately cause an accident so that they can benefit. Why are we moving away from the fault system, if the fault system is working? In other words, you will still have a number of lawyers that are going to be attached to this to explain who was wrong or right.

Mr Willemse replied that even the Satchwell Report confirms that there is nothing that is absolutely no-fault in the world. In the RABS system, you will not be required to prove fault when you claim. What is proposed is that if the Administrator in adjudicating the claim establishes that you wrote a letter to your family that you would drive off a cliff in order for your dependents to benefit, this provision would be triggered that your dependents would not be entitled to a benefit. The onus would be on the Administrator to establish if in certain cases there is enough evidence to show that the accident was caused intentionally. For the rest of the claimants, this would not be the case. As for the nature of the scheme, the Preamble outlines that this is a no-fault system.

The Acting Director General said that the migration is from the current fault system to no-fault system. We do not want the current system. What is written here in the Preamble is to enrich the Bill to ensure that the objective of the Bill is realized.

The Committee flagged the point raised by Mr Ramatlakane for further deliberation.

Mr Sibande asked for clarity on the investigation powers – about who will be doing the job. He was against loopholes. This needs to be clear, because Members do not want to see this job being done by consultants.

Mr Sibande asked what the departments had discussed about the fuel levy.

Mr Willemse responded about investigations powers that the Bill provides in section 44 for access to information provision. So the Administrator could request and obtain records about motor vehicle accidents. In addition, section 45 gives the Administrator powers to subpoena persons and documents to assist the Administrator to assess a claim.

Ms Britton said that the conversation was around the level of the current levy versus the cost of the system. There is a longer term issue around the levy; there are conversations about the possible reduction of the levy. The levy itself is not a buoyant revenue stream in the long term due to technological changes with cars becoming more efficient which would consequently result in low revenue. So we need to find alternatives where road users can pay for this and in the medium term the levy is adequate but in the long term, the policy would have to be discussed in bringing in those other elements.

Mr Seabi said that the Minister should not interfere in the appointment of the executive staff and referenced the SABC court ruling.

Mr Makgotho responded that the provision will be amended accordingly.

Mr Mpanza advised that the Department should avoid ambiguity. He did not understand why an ex officio board member would be given the status to vote but things must be clear. On the remuneration of the board members, although a flat rate will be imposed, there must be a cap.

Mr Makgotho said that the ambiguity was noted. The Department will consult with the State Law Advisor abou the Board.

Mr Hunsinger said that looking at the operational side of RABS, one will need the cooperation of four departments for RABS to work, and there are huge cost implications for the Department of Health. He asked if the Department of Health is aware of what is coming its way.

Ms Britton replied that there are major reforms coming within the health sector but we need to ensure that RABS aligns with what is coming in that sector, particularly with the NHI.

Mr Makgotho replied that the answer to the question is in the affirmative.

The Chairperson said that the exercise undertaken was necessary for concurrence with National Treasury. He requested the Acting DG work through the responses to the public consultations that have been done. 

The Acting DG replied that Mr Makgotho would take the Committee through the document that consisted of the DoT responses since the inception of the public consultation.

DoT response to public consultation
Mr Makgotho said the document captures the responses of DoT. He took Members through the document and read the comments for each clause and the responses word for word (see document).

Discussion
Mr Ramatlakane said that it has been a useful briefing that reminded Members how far they have come from day one. It puts Members in a position where they are aware of what has unfolded. At the previous meeting with Treasury and DoT, perhaps the engagement had come across quite robustly but it was never the intention to come across to the extent that it seemed the friendship had been compromised. It was not personal, and he rendered an apology if it may have come across that way.

The Chairperson said that when referring to a ten-year experience, it appeared as though some people were being shut out and it should not be that way because the youth needs to be factored into this whole system.

The Committee would continue on 31 August, perhaps with a clause by clause exercise.

The meeting was adjourned.