Division of Revenue Bill: SALGA Input

Meeting report

Councillor Selina Moumakwe, SALGA Deputy Chairperson of the Municipal Finance & Fiscal Policy Working Group, pointed out that SALGA had made inputs into the development of the 2023 Midterm Budget Policy Statement which is a precursor to the main budget. She noted the increase in the funding allocation to local government but insisted that local government is not adequately funded given its many challenges. Local government could only cover 60% of its expenditure from its own raised revenue and that the decrease of R384 billion in conditional grants to local government in 20024/25 is a disadvantage to local government.

Ms Lerato Phasha, SALGA Portfolio Head for Municipal Finance and Revenue Enhancement, acknowledged that there has been a R4.9 billion increase in the local government allocation amounting to R177 billion in funding which represents 9.7% of the total national budget or fiscus. The 60% of the total expenditure that local government covers from its own revenue falls short of the 90% that the White Paper had anticipated. The growing local government expenditure outpaces available revenue. The revenue challenges are worsened by both internal and external factors such as loadshedding, unemployment, poverty, inability to pay or resistance to paying municipal bills by residents.

Ms Phasha explained that these challenges combined with illegal electricity connections and the decrease in conditional grants lead to infrastructural and logistical challenges for municipalities. SALGA appreciates efforts by national government that include the roll out of Smart Meter Grants, these grants must be expanded to all municipalities and have end to end support provided to ensure accessibility and optimal use. On the infrastructure reforms and fiscal framework review, SALGA has some inputs and must be consulted in these processes.

She committed SALGA to increased efforts to assist municipalities to comply so they can benefit from the conditional grants available to them. She shared with the Committee the findings of SALGA’s long-term study that local government is underfunded by about R150 billion but also that municipalities could save about R92 billion by eliminating wasteful spending. SALGA asked the Committee to assist in escalating its findings to national government.

Discussion
Mr Xolisile Qayiso (ANC) announced that the Committee Chairperson, although present, is not feeling well and that Mr Qayiso will be the Acting Chairperson for this meeting.

Mr A Shaik Emam (NFP) said that he understands that local government complains of not getting enough funding from National Treasury but he wants to know what is being done with the money that is given to municipalities. Communities are not getting value for money and he blames this on corruption and cadre deployment by all parties. Forty per cent of money that should be spent on service delivery is lost and ends up shared with specific people who get tenders and share the money with their political connections and political parties.
Mr Shaik Emam said that the Cooperative Governance and Traditional Affairs department (COGTA) and SALGA know about this corruption but have put no meaningful measures in place nor applied pressure to turn that around. There has not been any significant improvement in the lives of the people at local government level in the last 30 years. In KwaZulu Natal there are communities who still do not have running water and there are children who walk eight kilometers to attend school. Local government depends on hand-outs from national government and make no effort to generate economic activity. What is being done to entice business for rural economic development? On its study tour of Germany, Committee members found that local government invests in and partners with private corporations such as BMW and in this way they generate so much revenue that they are able to assist other regions.

KZN has many major businesses and corporations such as Engen, Toyota and others that the local government can partner with to stimulate economic activity and boost their own revenue. While there are no foreigners working with our local governments, he is shocked by the “illicit financial outflows”. The state of local government is so bad that he receives complaints from police commissioners about taverns that are open 24 hours operating under the municipal code licences or permits while the Liquor Board grants licences that require taverns to close at 2am. Institutions like COGTA and SALGA are expected to intervene in these cases and he wanted to know what are they doing.

Ms T Tobias (ANC) asked if the two municipalities in her constituency which she named are beneficiaries of the Eskom debt relief programme. She asked about SALGA pushing for extension of funding while municipalities are facing exclusion from the programme due to non compliance with set conditions. She was concerned about the vacancies for Section 56 managers in local governments in general and specifically in the two municipalities in her constituency. She asked if SALGA provides internal specialized training to managers to capacitate them to provide the necessary services and to be able to effectively use the provided grants.

Mr Sfiso Buthelezi (ANC) acknowledged that SALGA is not satisfied with its current funding and that SALGA says the funding will cover just 60% of local government expenditure far below the targeted 90%, however, he wants to know how SALGA plans to cover the 30% deficit. There are many revenue sources for local government. What is SALGA’s comprehensive economic growth strategy to open other revenue streams for local government? Local government is depending on national government but all businesses happen within local governments. He challenged SALGA to come up with a plan that addresses the stumbling blocks, bottlenecks and red tape that prevent businesses from coming back and investing in local economies.

Mr Buthelezi stated that jumpstarting local economic activity is one way of addressing unemployment and enhancing municipal revenue. Business would not come back or invest in communities where the infrastructure is decaying and water pipes are bursting. That is one of the reasons businesses such as agriculture left. The practice of re-prioritization and shifting of funds cannot be a permanent feature. Therefore economic growth must be the focus and local government must look into being suppliers to national government.
He asked about local government underspending which leads to funds being returned to Treasury at the end of the financial year He asked about the “water shedding” in some metros such as Tshwane and Johannesburg and stated that loadshedding would be like a picnic compared to “water shedding”. SALGA needs to come up with a comprehensive strategic plan for economic growth in the next administration.

The Acting Chairperson noted that even with the increase in funding the budget is not sufficient and that every year SALGA mentions lack of capacity. Perhaps public policy must change to avoid these recurring themes like lack of capacity. He disagreed that “nothing” has been done by local government in the last 30 years and insisted that much has been done within that sphere of government. Local government is the face of service delivery and therefore municipalities must have sufficient resources.

He mentioned SALGA's statement that current funding would only be able to cover 60% of its total expenditure instead of the 90% initially targeted. He asked about the impact of underspending leading to funds returned to National Treasurer given the budget deficit SALGA referenced. There is the Economic Reconstruction and Recovery Plan at national level. What is SALGA's role in complementing and ensuring the success of that plan?

The Acting Chairperson commended SALGA on its recommendations such as the review of local government fiscal framework. These would be helpful going forward. The economic recovery strategy must be monitored to assess its impact as it may help with employment.

SALGA response
Councilor Moumakwe replied that SALGA recognizes the need for capacity building and the need for assistance in addressing bottlenecks in municipalities to encourage economic activity. SALGA is aware of the water-shedding challenge.

Ms Phasha said SALGA acknowledged the concerns of Members and commits to continue working with them to develop local governance. SALGA would submit a strategic plan to deal with water shedding and that they would align their local economic recovery efforts to the national plan.

To address the capacity challenges, Ms Phasha replied that SALGA had initiated various multi sectoral programmes to empower municipalities so that they perform optimally. These programmes include training local government personnel such as councillors and officials on how to prepare their projects, how to spend their budgets, meeting their obligations on the conditional grants and the professionalisation of the local government sector.

In response to Mr Buthelezi’s challenge, SALGA recognized that the economic growth of South Africa begins at local government. SALGA commits to respond to the Committee with a comprehensive strategic plan to assist rural local governments improve economic activities and improve their revenue enhancing efforts. There are both external and internal factors that contribute to underspending. The “construction mafia” is an example of the external factors that delay expenditure in this sector and leads to underspending resulting in funds returned to Treasury. SALGA is committed to resolving the internal factors and the multi sectoral programme and digital teams are examples of such efforts.

The digital teams assist municipalities and work with the finance departments to avoid fraud, corruption and wasteful spending. They help identify staff doing business with the local government as well as the correct beneficiaries of local government programmes. There are both structural and systematic challenges that face local governments when dealing with the conditions imposed by the Treasury for the debt relief programme. SALGA is committed to advocating for municipalities and that they succeeded when municipalities were given time to comply when threatened with exclusion from the debt relief programme. Ms Phasha notes that although municipalities are committed to meeting their financial obligations under grant conditions, SALGA together with the Treasury and COGTA have recognized that there are systematic challenges that require alternative assessments.

Ms Phasha pointed out that even in cases where municipalities have demonstrated improvement in their credit control, they fail to meet the required 80% Eskom payment rate and therefore are unable to meet their Eskom monthly current account payment. This is because residents cannot pay their electricity bills. However she believed that there is value in SALGA’s assistance of municipalities and committed to continue to work with municipalities and to provide legal advice to municipalities. SALGA undertook to revert to the Committee on the concern that municipalities are giving tavern licences that allow them to open 24 hours.

Ms Tobias asked if SALGA could facilitate so that the Treasury and COGTA meetings include SALGA officials and municipal political heads such as mayors to find solutions to the debt relief programme challenges. She suggested that solutions could include removing some conditions, having alternative assessments methods and extending the deadline so municipalities can comply.

SALGA stated that it faced challenges in assisting municipalities comply with the conditions of their grants. One of the challenges is that National Treasury is not forthcoming with clear performance markers that would allow SALGA to timely intervene and assist the 10 specific municipalities facing exclusion from the programme. It will increase efforts in marketing the Municipal Revenue Management Improvement Programme and acknowledged that there is a need for “handholding” in some areas including assessments, staff training and credit control.

Mr Buthelezi noted that the Committee has for five years worked with SALGA in processing over 30 pieces of legislation. In thanking SALGA, he said that process would not have happened without SALGA’s contribution in the understanding and implications of the bills.

The Acting Chairperson thanked SALGA and released them from the meeting.

The Committee adopted the minutes of 14 and 27 February and 5 March 2024 and the meeting was adjourned