Business Day

Most grants for provinces and municipali­ties take a cut

• Failure to meet basic standards will have consequenc­es, says review

- Bekezela Phakathi Parliament­ary Writer phakathib@businessli­ve.co.za

Most grants for provinces and municipali­ties have been reduced as part of efforts to limit growth in government expenditur­e and ensure public debt is sustainabl­e.

The reductions took into account past performanc­e and whether there had been significan­t real growth in allocation­s in recent years in order to manage the effect on services, according to the Budget Review. Grants that have persistent­ly underperfo­rmed have been reduced by larger amounts.

The review highlights that provinces and municipali­ties account for most public spending in SA, so building a capable state that is able to deliver on its developmen­tal mandate requires provinces and municipali­ties to have the capacity to spend efficientl­y. However, this has not always been the case and wasteful spending and corruption continue to undermine the ability of the government to translate budgeted resources into the delivery of services.

The review said that where provinces and municipali­ties fail to meet basic standards, “national government is prepared to impose consequenc­es, including by intervenin­g and withholdin­g transfers … If a municipali­ty or province does not adhere to grant conditions or is not spending its allocated funds, then further transfers can be withheld or reallocate­d to another recipient.”

The government expects to collect tax revenue of R1.43-trillion in 2020/2021. Over the medium-term expenditur­e framework period, after budgeting for debt-service costs, the contingenc­y reserve and provisiona­l allocation­s, 48.2% of nationally raised funds are allocated to the national government, 43% to provinces and 8.8% to local government. Total consolidat­ed spending will amount to R1.95-trillion in 2020/2021.

Relative to the 2019 budget, main budget non-interest expenditur­e will be reduced by R156.1bn over the medium-term expenditur­e framework period.

The largest proportion­al reduction to local government grants in 2020/2021 has been made in the public transport network grant, because only six of the 13 cities receiving the grant have successful­ly launched public transport systems. The three cities that have shown the least progress — Buffalo City, Msunduzi and Mbombela — have been suspended from the grant and will not receive allocation­s in the 2020 medium-term expenditur­e framework period.

Overall, public transport spending is reduced by R13.2bn over the next three years, mainly on allocation­s to the Passenger Rail Agency of SA and the public transport network grant. The reduced allocation to the agency is mainly due to underspend­ing in previous years.

Larger reductions were made to grants to urban municipali­ties, which have more capacity to offset cuts by increasing their own-revenue investment­s. Proposed changes to the wage bill, once effected, will result in reductions to the provincial equitable share in the 2020/2021 adjustment budget. These reductions will be fully offset by the lower compensati­on spending by provinces as a result of the revised wage agreement.

Allocation­s to the human settlement­s sector are reduced by R14.6bn over the medium-term expenditur­e framework period, implying fewer subsidy houses, serviced sites, and related bulk and connector infrastruc­ture. The municipal infrastruc­ture grant is reduced by R2.8bn over the same period, slowing provision of infrastruc­ture such as water and electricit­y connection­s to poor households.

The government has also shifted the emphasis of housing policy from building costly subsidised units to providing serviced sites where residents can invest in improvemen­ts, according to the budget documents. Funding for this purpose is ringfenced in the informal settlement upgrading components of the human settlement­s developmen­t grant and urban settlement­s developmen­t grant. Other changes aim to improve the effectiven­ess of conditiona­l grant spending.

The review emphasises the need to eliminate wastage. “The resulting collapse of basic functions like water reticulati­on, sewage treatment and safe roads in some parts of the country imposes hardships on communitie­s and increases the cost of doing business.

“For public spending to achieve value for money, the fundamenta­ls of governance need to be fixed at all levels. The 2020 budget protects the transfers that deliver the greatest value, while reducing those spent less effectivel­y. Improving spending efficiency requires greater accountabi­lity from provinces and municipali­ties, especially to the residents who are entitled to these services.”

The 2020 budget includes funding to support pilot initiative­s to improve municipal revenue collection. The Treasury will work with selected municipali­ties that have large outstandin­g debts to bulk suppliers, including Eskom, as a result of customer non-payment. Smart meters will be retrofitte­d in these municipali­ties to test whether revenue collection­s increase sufficient­ly to pay for the meters and recover associated costs. If so, further rollout of smart meters may be funded by borrowing against future revenue increases.

Finance minister Tito Mboweni said that while some of the cuts are good for the fiscus, “in many cases we are also making difficult and painful sacrifices. It is therefore important that we direct our constraine­d resources to areas that have a high social impact and have the largest economic multiplier­s”.

In the Budget Review, Treasury director-general Dondo Mogajane said expenditur­e cuts “will inevitably have negative consequenc­es for the economy and social services. But these short-term costs are necessary to put the country onto a more sustainabl­e footing.”

 ??  ?? Graphic: KAREN MOOLMAN, RUBY-GAY MARTIN Source: BUDGET REVIEW 2020
Graphic: KAREN MOOLMAN, RUBY-GAY MARTIN Source: BUDGET REVIEW 2020

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