Formula for allocation of local government funds to change

● Existing model leaves many metros underfunded, minister admits

The equitable share formula, which is used to allocate funding to SA’s municipalities and provinces, is set to be reviewed, with the government saying the model leaves many metros and regions underfunded.

The equitable share formula enables the national government to distribute money to municipalities and provinces from revenue collected nationally‚ according to 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 (FFC), a constitutional body set up to advise the Treasury on intergovernmental finances, believes municipalities are not getting enough money from the national government to provide the services they are obliged to deliver.

At the same time, the FFC recognises that with negative economic growth and the fiscal constraints this imposes on the government, there are less funds available to tackle the “lack of fiscal space” for the local government sector, which is pivotal for service delivery.

The SA Local Government Association (Salga) has repeatedly called for the formula to be revised, saying it is insufficient to meet the growing service needs of municipalities.

According to the most recent Budget Review, local government gets the smallest share of the division of nationally raised revenue because it has significant own revenue-raising powers.

Local government raises about 70% of its own revenue, but would be able to raise more if municipalities improved revenue collection.

In 2017/2018, almost half of all municipalities collected less than 80% of their billed revenue.

In the 2019 budget, 47.9% of nationally raised funds ( almost R1.60-trillion) was allocated to the national government, 43% to provinces and 9.1% to local government over the medium term. Last week, co-operative governance and traditional affairs (Cogta) minister Nkosazana Dlamini-Zuma conceded the equitable share formula should be revised.

“We have found the formula for equitable share useful insofar as it presents a transparent and predictable budgeting and distribution framework, in which all spheres of governance can participate.

“However, the formula as it stands does not take into account the real needs and developmental challenges confronting the various municipalities,” Dlamini-Zuma said in response to questions from the EFF in parliament.

She said the formula also assumed all municipalities had an equal capacity to generate revenue.

“However, we all know that certain municipalities, particularly those in rural and township areas, are challenged in this regard,” she said.

To address this, finance minister Tito Mboweni had proposed that a special budget lekgotla be held to discuss the design of the local government fiscal framework.

“To prepare for that lekgotla, the department will work with the National Treasury, Salga, Stats SA and the FFC to improve the local government fiscal framework, including the local government equitable share formula,” Dlamini-Zuma said.