per month.
ii. Increases in social spending
iii. Creating an environment that encourages economic activity
iv. Investment in skills development
v. Tax relief in the form of income tax bringing substantive reductions on individuals tax burden by
Rt3.3 billion. This reduction is primarily going to benefit lower to middle income households. The
threshold has also increased and income tax brackets have been adjusted to provide relief across
all income groups.
This year's budget is premised on the expansionary stance adopted in the last two budgets, it is forecast that there will be real spending growth of 6.8% and 4.5% over 2003/4 and 2004/05 respectively. It is anticipated too that, the extent of the fiscal parameter shall expand and grow steadily over time.
Local government shall observe the contribution of tax breaks by managing their taxes and tariff policies in a manner that supports and compliments national frameworks towards economic development.
Transfers to Local Government are divided through three funding streams:
9.1 Equitable share
9.2 Infrastructure grants/transfers
8.3 Capacity Building and restructuring grants
Equitable Share provides a good indicator on government support to municipalities in delivering basic services to poor households. In 2003, such transfers constitute 170/0 of total government revenue, with the remainder coming from own revenue. This should be put into context to indicate that urban municipalities raise a large portion of their revenue, estimated at 98% in 2002, and there are signals that this trend continues. This extends to the fact that income in smaller and rural/poorer municipalities is derived mainly from transfers.
The variation notes above should be viewed not only in Terms of fiscal capacity and disparities in municipalities. but also as a reflection of limited institutional capacity that emanates from insufficient planning and implementation of IDPs and budget. There has to be some correlation between allocations transfers and output, current municipal budget rollovers and increases in municipal debt, cannot be reconciled with this notion. It is therefore apparent that transfers and allocations are aligned with municipal IDPs and budget process to foster predictability. especially where capital projects are funded from national or provincial budgets.
Estimates of infrastructure backlogs in local government are still a concern, at approximately R52 billion. it calls for greater need to strengthen transfers in line with revised powers and functions, and a departure by Provincial; sphere from practices which may not promote better planning and implementation.
The 2003 budget has built upon these, but there is need for more improvement so that this status is maintained and reinforced in the MTEF to achieve the object of promoting long-term planning and predictability. Sending clear signals to municipalities on future income streams shall enable municipalities to plan ahead on their capital expenditure projects.
National Transfers to Local Government increase at an average rate of 18.4% from R8.8 billion in 2002'03 to R14.6 billion in 2005/6. Against the background that approximately 90 percent of municipalities finance their budgets from own revenue, this figure has a limited yield. Allocations to nodal municipalities to the tune of R2 billion will re-invigorate the Urban renewal programme and Rural development strategy.
Provision of free basic services remains a key priority of Local Government. As an unconditional transfer to municipalities, equitable share is directed at improving basic service delivery such as water, electricity. sanitation and refuse.
It appropriately favours poorer municipalities. It is anticipated that the review of the equitable share shall rationalize data that inform this process. Equitable share distribution among the three municipal categories stands at 20% for category A, 63oi~ for B and 17% for C.
Approximately 38% of the equitable share is distributed to 30 largest municipalities according to the size of their budgets, serving approximately 49% of the poor. We however, need to begin looking at how targeted the equitable share is in reaching the intended group.
The portion of equitable share going to category C municipality has increased to approximately 17o~c in 2003/04, with corresponding decline in category B. This accounts for shifts in powers and functions between category B and C that demanded a review of allocations to absorb the shift.
The equitable share will rise from 45% in 2002/03 to 53% in. 2005/06. This allocation is to be supplemented with a R1 .4 billion allocation for free electricity. R2.7 billion for free basic water, sanitation and refuse. Given this, commitment on FBS does not outline clear allocations on refuse or sanitation.
Capacity building grants are predominantly focused on larger municipalities or to support municipalities experiencing severe financial problems as well as other parameters. Noting the aforementioned institutional limitations, there needs to be a parallel process that addresses institutional capacity to develop plans and implement IDPs and budgets.
The formula for the division of revenue between municipalities is based on the principle of equity and predictability. It is therefore critical that the review of the ES formula is premised on this principle. For instance, the hypothesis that are in the current formula under institutional grant (1) could be tested, for example. is there evidence to support the assumption that a rise in population has been accompanied by a drop in the I grant per capita? Clearly a revisit on formula should not only be limited to data on household poverty variables, but also on the broader aspects. which impact upon the principle advanced in argument for the ES.
Finally, it would be amiss on our part not to express that there has been exclusion on key parameters that SALGA advanced. Firstly, primary health care is not included in the budget to municipalities, in the same token, as we believe that allocations targeted at responding to HIV/Aids could have been expanded further. SALGA wishes to see some commitment with regards to health and other un-funded mandates.
Considerations of financial viability. revenue collection. budget rollout and funding to support the extension of services to under serviced areas should constitute the overall basis for developing formulae. and ensuring that all targeted municipalities do in-fact benefit from transfers. ES should facilitate the shift in resources towards poor municipalities; the next budget cycle shall therefore need to indicate that this shift is not just achieved. but that it is spread across municipalities.
There is further concern with regards to the constitutional definition of basic services: studies should determine whether certain provincial functions need to be assigned to municipalities. e.g. primary health care.
Grants directed towards capital projects should be interfaced with the overall:
system of inter-governmental transfers to municipalities. This would ensure greater discretion in the use of funds to enhance the sustainability of assets, and encourage buy-in and better implementation.
Given the limited institutional capacity in some municipalities to plan and implement IDPs and budgets, there should be a conscious effort to build capacity to achieve better service delivery to our communities. Equally important is the capacity drive that shall impact on the ability to monitor service delivery agreements, and ensuring that service providers carry out their obligations.
Adequate credit control and debt collection systems should be in place as well as affordable service provision.
There is urgent need to develop policy guidelines that deal with matters of indigents. Until there is a framework that guides municipalities on this issue, there shall remain differentiation in allocations, which do not particularly ensure a transparent system in allocation of equitable share. The review of the formulae that informs these allocations should be effected to ensure that the next budget notes the challenges and pressures in this regard.
Job creation measures are not adequately addressed, the allocation to local government infrastructure that is projected to translate to job creation, does not emphasise the critical pathways of tackling unemployment in our economy.
This year's budget; signifies an important phase of transformation in local
Through a legislative framework that government. The find phase is tied together
seeks to rationalize and stabilize fiscal environment in local government. The crucial step now is to enact key legislation. together with reviewing the RSC levies and making sure that the current municipal revenue mix is maintained or improved upon.
In conclusion, the phasing in of the Municipal. Finance Management Bill signals a departure from uncertainty to better regulated financial and performance management systems that would herald a new beginning to the way municipal finances. and Property rating impacts and moves us forward into the next financial year.