Last year’s local government elections shone the spotlight on the sorry state of many municipalities, where roads are riddled with potholes and the delivery of basic services such as electricity and water are erratic at best and nonexistent at worst.
Municipalities have been allocated R150.6bn in the 2022/2023 financial year. In the medium term, R28.9bn has been added to the local government equitable share, and R1.8bn in direct conditional grants.
This is to support services to the poor and meet "urgent spending pressures", according to the Budget Review.
Of this, R347m will go towards reconstructing and rehabilitating municipal infrastructure damaged by floods and storms in KwaZulu-Natal in 2019 and 2020.
Extra money to expand free basic services to the poor amounts to R4.2bn, and is allocated despite a recognition by the National Treasury that much of this shortfall was created by municipalities’ own deficiencies: poor governance, financial mismanagement and insufficient capacity. According to the Budget Review, the number of municipalities in financial distress has more than doubled in the past six years. Today, 175 of the country’s 257 municipalities are in this category and 123 passed budgets without the means to fund them.
Revenue collected has been increasing over time, implying that factors such as the "high costs of key inputs or poor spending management" are the major reasons for the financial distress. While municipalities should be accountable for these results, national and provincial government, as well as supporting institutions, should help them, says the Budget Review.
Revenue collection from households that can afford to pay for services is still below what it should be, creating an overreliance on transfers from national government. "This reflects insufficient collection measures and a lack of political will to address nonpayment," says the Budget Review.
Finance minister Enoch Godongwana has urged citizens and government departments to pay their bills. At a press conference, he praised the naming-and-shaming methods used in recent weeks by the Tshwane and Joburg metros — both run by opposition coalitions — to punish those who haven’t been paying their electricity bills.
"I don’t care what the ideological orientation of the municipality is if they’re doing the right thing," he said. "I would encourage other municipalities to do the same. Let’s go and collect the money."
While it is good that some municipalities have started flexing their muscles on revenue collection, it is frustrating that they took so long to act, says PwC chief economist Lullu Krugel.
At many smaller municipalities, it is a problem of capacity, she adds. This also extends to executing processes that will help businesses get off the ground, such as the approval of building plans. "This is where the bottleneck is, and the most frustration is here," she says.
There is an intention at national level to grow the economy. President Cyril Ramaphosa, in his state of the nation address this month, said the government wants to reduce the red tape for doing business. "Many of the processes have been simplified but the people who have to execute those processes aren’t always properly empowered or trained," he said.
Relative to the 2021 budget, direct provincial allocations will increase by R74.1bn over the medium term. Most of this is the R53bn added to the provincial equitable share.
Out of this, R24.6bn is to address shortages of teachers and educational materials, R15.6bn is for the funding of Covid responses and to reduce the effect of budget reductions on essential medical goods and services, and R12.7bn is to hire assistants in schools as part of the presidential employment initiative.
Almost R1bn of the additional allocation will go towards ensuring that social welfare budgets grow with inflation.
Gauteng, with a provincial equitable share of R120bn for the 2022/2023 financial year, gets the highest share, but the Budget Review notes that, per capita, allocations have consistently been higher for rural provinces in the past decade. The per capita allocation for a sparsely populated province like the Northern Cape, which receives almost R15bn, is 1.7 times higher than that of Gauteng.
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