More economic discomfort for local government

A reader gives tips on saving water. Picture: Cindy Waxa/African News Agency

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 budget Minister, “will cause economic discomfort.”   Yet, while many debate whether these trade-offs 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 that 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 R85.7 billion and at a municipal level by R13.8 billion? 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 that 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. Firstly, 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. So, 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, 2.0 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 R17.4 billion (mostly owed to Eskom and water boards), but had only R1.7 billion on hand. The total value of outstanding long-term municipal debt has increased to R66.3 billion 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 thousand 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 R3.4 billion 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 R5.6 billion 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 DDG 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 National 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 recognized 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.

In 2018, what local government required from National Treasury was funds to both 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.

Thokozile Madonko and Claudia Lopes are project managers and Keren Ben-Zeev is a programme manager and deputy director at the Heinrich Boell Foundation.