Cape Argus

Cuts to local government could roll back inequality

Holds severe implicatio­ns for service delivery at provincial, local levels

- Thokozile Madonko, Claudia Lopes and Keren Ben-Zeev

MUCH noise, and rightly so, has been made about the tax proposals in the 2018 Budget to off-set South Africa’s R50 billion deficit, a trade-off that in the words of former finance minister Malusi Gigaba, “will cause economic discomfort”.

Yet while many debate whether these tradeoffs will protect the integrity of the public purse, or roll back South Africa’s triple burden of unemployme­nt, poverty and inequality, not much is being said about the proposal tabled on the division of revenue, i.e. how available resources will be distribute­d across the different spheres of government.

This is important as it holds implicatio­ns for service delivery at provincial and local levels.

National Treasury claims the proposed division of revenue will continue to prioritise funding of services for poor communitie­s.

However, one has to query how this is possible when government spending over the next three years overall will be cut by R85.7bn and at a municipal level by R13.8bn? These austerity related changes in the division of revenue will undoubtedl­y have an impact on promoting, in the words of the minister, “a decent standard of living, access to economic opportunit­ies and opportunit­y (for people) to pursue their dreams”.

One of the main aims of funding local government is to enable it to deliver on its constituti­onal mandate, in particular, the role it must play in redressing the social, economic and spatial inequaliti­es caused by apartheid.

While there is a strong redistribu­tive element built into the way local government is structured and financed, questions must be raised as to whether municipali­ties are sufficient­ly resourced to treat all their residents equitably; to be responsive; and to provide them with opportunit­ies to effectivel­y participat­e in the governance of their municipali­ties. The South African Local Government Associatio­n (Salga) has long argued local government is the most underfunde­d sphere, despite it being expected to play a role in eliminatin­g poverty and reducing inequality.

In order to deliver services effectivel­y, municipali­ties rely on two sources of revenue. First, they are expected to raise their own revenues from service fees, property rates, levies and other taxes. The second source is from transfers from national government, which include the local government equitable share of the division of revenue and other conditiona­l grants. Unlike national and provincial government, local government is meant to have a degree of financial independen­ce from the national Budget because of their revenue-raising mandate. However, the reality is that South Africans are increasing­ly unable to afford to pay for municipal services.

In 2016, municipali­ties identified 3.6 million indigent households as earning less than R3 500 per month. Of these 3.6 million households, 2.7 million were benefiting from indigent support for water, 2 million from free basic electricit­y and just over half benefited from sewerage, sanitation and solid waste management.

Despite the demand for services, local government is in a deep financial crisis.

At the end of September 2017, 20 of the municipali­ties with the largest outstandin­g debt owed creditors R17.4bn (mostly owed to Eskom and water boards), but had only R1.7bn on hand.

The total value of outstandin­g long-term municipal debt has increased to R66.3bn in the first quarter of the 2017/18 financial year.

Treasury notes that the financial crisis facing local government is a “symptom of deeper underlying problems… which compromise­s the reliabilit­y of basic services”.

Where municipali­ties have received more equitable financing through the division of revenue, this was absorbed by increased spending on personnel, despite staff numbers remaining unchanged. This has been reflected in the many media reports of the salary ranges within and across municipali­ties, such as that of the Mutale Municipal manager who in 2016 was receiving R598 000 a year, as compared to the Tshwane Municipal manager who earned over R3 million.

In the 2015/2016 audits of municipali­ties, the auditor-general had also found that municipali­ties were spending more than the resources they had available. As a result, many of these municipali­ties were in a poor financial position, resulting in “uncertaint­y with regard to their ability to continue operating in the foreseeabl­e future”.

It is with this uncertaint­y in mind that concern must be raised about austerity budgeting at the local government level: while R3.4bn has been reallocate­d to the local government equitable share to address provision of free basic services, this reallocati­on was the result of cuts in investment in municipal infrastruc­ture.

For the 2018/2019 financial year, indirect grants to municipali­ties will decline by 16.1% in real terms relative to the 5.1% reduction to provincial. At a local government level, cuts will affect key grants that aid infrastruc­ture developmen­t, such as the municipal infrastruc­ture grant (MIG). The MIG, which funds the provision of bulk water, storm water management, sanitation, electricit­y, refuse removal, local roads and public lighting, will see a cut of R5.6bn over the next three years.

In light of the current water crisis the country is facing, it is worrying that these funds are being cut. Already, according to Trevor Blazer, the deputy director general of Water and Sanitation, 35% of South African citizens do not have access to reliable drinking water; 14.1 million people did not have access to safe sanitation, while 41% of municipal water did not generate revenue.

It is simply not good enough for Treasury to acknowledg­e that these cuts will necessitat­e delays in completion of infrastruc­ture projects as, in all likelihood, it will have a disproport­ionate effect on poor households and their constituti­onal rights to access basic services.

Although it is recognised that the government deficit must be addressed, it is not clear that cuts to local government were the best place to do so in the long term. Austerity budgeting is by its very nature a harsh short-term interventi­on with even harsher negative longer-term impacts.

This year, what local government required from Treasury was funds to cover the provision of free basic services, as well as to invest in the maintenanc­e and expansion of services.

With one in three South Africans living on less than R797 per month and the number of social grants at 17 million, it is unlikely that the division of revenue proposal presented by the minister will be able to maintain services, let alone improve them for those households that most need them.

 ?? PICTURE: ROSS JANSEN/AFRICAN NEWS AGENCY (ANA) ARCHIVE ?? CONCERN: In light of the current water crisis the country is facing, it is worrying that local government’s funds are being cut.
PICTURE: ROSS JANSEN/AFRICAN NEWS AGENCY (ANA) ARCHIVE CONCERN: In light of the current water crisis the country is facing, it is worrying that local government’s funds are being cut.

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