Hon Chairperson of the NCOP, hon Minister and Deputy Minister of Finance, hon members and special delegates in the House, delivering his Budget Speech, the hon Minister of Finance made the accurate reflection that every one of the last 100 years has seen our nation overcome obstacles that seemed insurmountable. Some have been beyond our control, for example the result of changes to the environment to which we were compelled to adjust. Some were the result of our failure to act, even when the solutions were known to us. Others were the unintended consequences of our own success.
Indeed, as we write the next chapters of the unfolding South African story, we will continue to be confronted by challenges that, on the face of it, will seem insurmountable, beyond our control or force us to make tactical shifts in approaches as we seek to build on the successes of the past century towards the South Africa envisioned in the Freedom Charter. The 2012 fiscal framework presents further opportunity to accelerate our path towards this prosperous future.
The SA Local Government Association, Salga, is appreciative of the difficult economic situation that the country finds itself in as a result of the global economic climate and the impact on revenue streams of government. In fact, local government revenue is directly affected by the downturn in the economic cycle. We, therefore, welcome the overall sentiment of the 2012 Budget that clearly seeks to protect allocations to local government whilst calling for fiscal restraint, and efficient and effective spending by all spheres of government.
Chairperson, this Budget sets out a tight fiscal framework within which the national revenue is divided among all spheres of government, including local government. We note that in the vertical division of revenue process, local government is allocated R77 billion or 8,8% of the nationally raised revenue in the 2012-13 financial year. This vital source of revenue becomes part of the local government's fiscal framework for the period.
It is common cause that the local government fiscal framework, as defined by the provisions in the Constitution, should ensure viable municipalities that are able to provide basic services and perform the functions allocated to them. It should, therefore, promote improvement of living environments and livelihoods for all constituents by means of providing revenue sources and expand these responsibilities to address these developmental and other needs.
Salga is of the respectful view that the division of revenue for the 2012 Medium-Term Expenditure Framework, MTEF, period does not fully consider some fundamental issues affecting local government at the moment. Firstly, the steep increases in the prices of bulk services such as electricity and water impact on the sustainability of basic service provision by local government, in particular smaller municipalities. If this trend continues, more and more residents will fall outside the affordability net, further compromising the revenue integrity of local government. National allocations to local government should take this into account and increases should be in excess of inflation.
Secondly, the integrity of local government's equitable share calculation is, over a period of time, eroded since the allocations are based on census information that is only updated every 10 years. In practice, this implies that for at least the past four to five years, the equitable share would have not catered for growth in the urban centres as a result of the global trend of an increase in migration to the urban centres.
Lastly, many municipalities continue to carry the burden of unfunded or underfunded mandates for services provided on behalf of the national and provincial governments. In addition, the fiscal impact of national legislation on local government, as well as demarcation processes, is not always fully comprehended. The Administrative Adjudication of Road Traffic Offences Act, Aarto, and the incorporation of the district municipality of Metsweding into the City of Tshwane are cases in point. I would just like to acknowledge that the Minister of Transport has announced the postponement of the implementation of the Aarto Act, which is welcomed by Salga.
The unintended consequences of such an impact come to bear on local government and reflect in its diminishing resource capacity. These matters will require further treatment and urgent resolution. For its part, Salga will continue to raise these issues in the correct fora, having thoroughly applied its mind to appropriate mitigation and all response strategies.
Salga notes a number of changes to the local government conditional grants, such as the creation of the infrastructure skills development grant, which we welcome and support. There are a number of changes made to the baseline allocation of existing conditional grants. They are not adequately explained in the Budget documentation. This matter was quite vigorously debated during the recent public hearings on the 2012-13 Division of Revenue Bill conducted by the Standing Committee on Appropriations.
Salga is of the view that instead of cutting certain grants due to underspending, like the neighbourhood development and partnership grant, there should be greater effort to ensure the implementation of policies and raised awareness of the existence of these grants to different municipalities. Another example in this policy decision is to incorporate the rural household infrastructure grant into the municipal infrastructure grant, MIG. This is going to change the flow of funding from one department to the other, but does not necessarily resolve the underlying problem of the capacity to spend the grant, particularly in the smaller municipalities, once more. Policy decisions are also complicated due to the unavailability of comprehensive reporting by national government on the nonfinancial performance of conditional grants.
We are aware at Salga that, on the part of the National Treasury and the Department for Co-operative Governance and Traditional Affairs, as well as separately by the Finance and Fiscal Commission, the process to review the local government fiscal framework is under way. Salga supports these initiatives, although we advocated in the 2011 Budget Forum for an independent commission to conduct such a review. We do, however, want to see a revised fiscal regime for local government that is, at the very least, based on empirical studies into the actual cost of service delivery for local government to inform decisions about the vertical division of revenue - a revised fiscal regime that considers the differentiated needs of urban and rural municipalities.
Whilst it is important that we engage government on improving the intergovernmental fiscal system, we do acknowledge that municipalities themselves need to exhaust every effort to continue to improve billing and revenue collection, and expand their tax base, as well as explore new revenue sources in order to address service delivery challenges and promote economic growth. As a cautionary note, however, despite these interventions, it does seem apparent that the fiscal gap in the local government revenue collection capacity will remain.
Local government stands poised to be the central point of a developmental state. It must, therefore, be a national imperative to ensure that the sector is strengthened and capacitated to discharge its constitutional and political obligations as we advance towards what the President of the Republic describes as "a new story about South Africa - the story of how, working together, we drove back unemployment and reduced economic inequality and poverty".
One of the outstanding revolutionaries and social scientists of our time, Frantz Fanon, asserts that "each generation must, out of relative obscurity, discover its mission, fulfil it or betray it". It is through our collective effort that we will be able to remove the constraints to improve service delivery in local government and, indeed, rise to our generation's principal mission of reducing unemployment and poverty and addressing the deficits in our human and infrastructure development.
On behalf of the national executive committee of Salga, allow me to place on record our appreciation for the opportunity to address this esteemed House as it applies its mind to the 2012-13 fiscal framework. Thank you. [Applause.]