More for ru­ral mu­nic­i­pal­i­ties

Gord­han’s ‘highly re­dis­tribu­tive’ bud­get takes from the rich and gives to poor house­holds in ru­ral as well as ur­ban ar­eas. But, say ex­perts, this puts Gaut­eng and the West­ern Cape at a dis­ad­van­tage

Financial Mail - Investors Monthly - - Budget 2017 - Per­i­cles Ane­tos Ane­[email protected]­me­

Prov­inces and mu­nic­i­pal­i­ties are get­ting a big­ger slice of the pie each year with more than half of the na­tional bud­get head­ing their way.

This year trea­sury al­lo­cated R538.2bn to prov­inces, up from a re­vised es­ti­mate of R500.4bn the year be­fore. A fur­ther R112.5bn went to lo­cal gov­ern­ment, which re­ceived R103.3bn last year.

This means that 43.4% of the bud­get is go­ing to the prov­inces and 9.1% to lo­cal gov­ern­ment.

Fi­nance min­is­ter Pravin Gord­han said this year’s bud­get was “highly re­dis­tribu­tive”.

He said the bud­get re­dis­tributed re­sources from ur­ban eco­nomic ar­eas to fund ser­vices in ru­ral ar­eas.

In the Bud­get Re­view, trea­sury says that while metropoli­tan mu­nic­i­pal­i­ties ac­count for 70% of per­sonal in­come tax rev­enue they re­ceive only 31% of lo­cal gov­ern­ment trans­fers.

Sim­i­larly, the 61 mostly ru­ral lo­cal mu­nic­i­pal­i­ties also re­ceive 31% of the trans­fers to lo­cal gov­ern­ment, but ac­count for only 5% of per­sonal in­come tax rev­enues.

But this puts some prov­inces at a dis­ad­van­tage — par­tic­u­larly Gaut­eng and the West­ern Cape, which deal with more do­mes­tic mi­gra­tion as peo­ple move to the county’s eco­nomic pow­er­houses look­ing for jobs, says Roelof Botha, eco­nomic ad­viser to PwC.

Botha says the eq­ui­table dis­tri­bu­tion puts more pres­sure on Gaut­eng and the West­ern Cape.

The West­ern Cape and Gaut­eng re­ceive far less per capita from the bud­get com­pared to prov­inces such as the Eastern Cape and KwaZulu Na­tal.

Trea­sury says in the Bud­get Re­view that the al­lo­ca­tions to prov­inces are based pri­mar­ily on de­mand for ser­vices.

“The di­vi­sion of rev­enue sys­tem is highly ef­fec­tive at re­dis­tribut­ing re­sources from a largely ur­ban tax base to pro­grammes that ben­e­fit poor house­holds in both ru­ral and ur­ban ar­eas,” it says. “The im­pact of these al­lo­ca­tions de­pends, how­ever, on the choices made by prov­inces and mu­nic­i­pal­i­ties in al­lo­cat­ing and ex­e­cut­ing their own bud­gets.” Of the eq­ui­table share al­lo­cated to the pro­vin­cial govern­ments — an amount of R441.3bn — R93.7bn went to KwaZulu Na­tal, R86bn to Gaut­eng and R61bn to the Eastern Cape. Six pro­vin­cial govern­ments around the coun­try have started to either merge or in­cor­po­rate some en­ti­ties into other pro­vin­cial de­part­ments to re­duce costs. Trea­sury says the planned merger of gam­bling and liquor boards in sev­eral prov­inces into one board is ex­pected to re­sult in an­nual sav­ings of about R3m per merger. Un­der­spend­ing has sta­bilised across na­tional, pro­vin­cial and lo­cal gov­ern­ment, it says. Prov­inces have made progress in im­ple­ment­ing the cost-con­tain­ment mea­sures an­nounced in 2013. Spend­ing on nonessen­tial goods and ser­vices fell in real terms by 6.1% last year and was ex­pected to drop by 4.5% an­nu­ally over the medium term. Trea­sury says mu­nic­i­pal­i­ties are also tak­ing steps to re­duce ex­pen­di­ture on con­sul­tants, travel and sub­sis­tence, credit cards, cater­ing, events, ad­ver­tis­ing and con­fer­ences. The pro­por­tion of pro­vin­cial spend­ing on per­son­nel has also de­clined slightly, from 60.4% in 2015 to 59.8% last year. Trea­sury says the num­ber of peo­ple em­ployed by pro­vin­cial de­part­ments is ex­pected to grow by about 1% as more teach­ers and health­care pro­fes­sion­als are hired. Con­di­tional grants over­seen by na­tional de­part­ments which are used to fund spe­cific pro­grammes make up 18.3% of pro­vin­cial trans­fers. But mu­nic­i­pal­i­ties needed to bal­ance their plans to ex­tend and im­prove ser­vices with avail­able re­sources. “Un­like prov­inces, mu­nic­i­pal­i­ties can raise sub­stan­tial own rev­enues through prop­erty rates and ser­vice charges,” trea­sury says.

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