Fix debt collection first, councils told
Reviewing the equitable share formula, which is used to allocate funding to the country’s municipalities and provinces, will be pointless as long as municipalities continue to struggle to collect debt owed to them, deputy finance minister David Masondo says.
The Covid-19 crisis coupled with the slow economic growth in recent years have led to many of SA’s municipalities struggling to collect revenue, a failure that threatens the provision of crucial services such as refuse removal and the supply of clean, running water.
Households owed municipalities close to R130bn as at the end of June, while national and provincial government spheres owed about R30bn, and businesses R18.1bn. This brings total debt owed to municipalities to nearly R180bn.
Responding to questions by MPs on Tuesday during the first day of the local government week conference, held virtually by the National Council of Provinces, Masondo said the focus should be on improving debt collection and not necessarily on allocating more money to municipalities.
The local government week’s discussions centre on improving service delivery, financial management, and governance of municipalities.
“The fundamental question is why the municipalities are not collecting and, secondly, how can we grow our economy? At the moment the cake is shrinking and we are faced with serious [economic] challenges. For more than 10 years our revenue has been declining but spending rising,” Masondo said.
The amount owed to municipalities is actually higher than the amount the government has transferred to them, he said.
“We transfer ... [almost] R130bn, so if we can work very hard to collect what is owed to the municipalities I think we can improve the financial situation of the municipalities. We can work on the formula but if we do not [collect debt] it will not assist municipalities to be financially sustainable,” Masondo said.
Technical teams from the SA Local Government Association (Salga), the department of cooperative governance & traditional affairs and the Treasury are discussing the review of the funding model.
Salga has repeatedly called for the formula to be revised, saying it is inadequate to meet the growing service needs of municipalities.
The equitable share formula enables the national government to distribute money to municipalities and provinces from revenue collected nationally‚ and to do so in accordance with developmental priorities. The local government equitable share, which is divided among 257 municipalities, is an allowance for basic services, community services and administration.
The Financial and Fiscal Commission, a constitutional body set up to advise the Treasury on intergovernmental finances, believes that municipalities are not getting enough money from the national government to provide the services they are obliged to deliver.
At the same time, the Financial and Fiscal Commission recognises that with negative economic growth and the fiscal constraints this imposes on the government, less funding is available to tackle the “lack of fiscal space” for the local government sector, which is pivotal to service delivery.
Also speaking during the conference, co-operative governance minister Nkosazana Dlamini-Zuma said the poor revenue collection and financial crises faced by many municipalities have caused them to fail to pay creditors on time, with bills settled at an average of 180 days, as opposed to the 30 days demanded by national government policy.
She said municipalities owe more than R53bn to creditors of which about R11.3bn is owed to Eskom and R6.24bn to water boards. This, Dlamini-Zuma said, is compounded by leakages in the system, which have cost the state about R10bn in lost water revenue and R10.2bn in electricity losses.
“These are partially as a result of little or no budgeting for maintenance, which has been at times accompanied by huge underexpenditure in grants directed at building and augmenting infrastructure,” the minister said.