1. A municipality has the right to govern the local government affairs of its community on its own initiative (s 151(3)).
2. This autonomy is however subject to control by national government as provided for in the Constitution. The main general powers of control of national government are:

- the power to regulate the exercise of municipal executive authority (s 155(7)); and

- the power to prescribe by national legislation any matter concerning local government not dealt with in the Constitution (s 164).

3. These powers of control are in turn subject to positive and negative constraints in that national government must support and strengthen the capacity of municipalities to manage their own affairs (s 154(1)) and may not compromise or impede them in the exercise of their powers or the performance of their functions (s 151(4)).

1. The Constitution does not in express terms:

- vest municipalities with the power to determine their own budgets, or

- vest national government with the power to prescribe the substance of municipal budgets.

The Constitution simply proceeds from the premise (for instance in s 215) that municipalities have budgets without expressly vesting the power to determine the content of those budgets in any institution.

2. There can be little doubt, however, that municipalities have the constitutional right to determine their own budgets as an incident of their power to govern their local government affairs on their own initiative in terms of s 151(3). The budgetary function lies at the heart of government. It determines what revenue will be raised and how that revenue will be spent. The starting point is accordingly that municipalities have the power to determine the substance of their own budgets.
3. Section 151(3) makes it clear that this power is subject to national legislation "as provided for in the Constitution". The Constitution does not expressly confer a general power on national government to prescribe the substance of municipal budgets. It must be borne in mind, however, that a budget is merely a short-term plan of revenue to be raised and expenditure to be incurred. The Constitution does include a range of provisions relating to the form of municipal budgets and the substance of some of their components.

1. Section 215 relates to the form of budgets and the procedures by which they are adopted in all three spheres of government. It lays down certain requirements of its own and authorises national government to prescribe others. It is clearly confined to matters of procedure and form as opposed to matters of substance.
2. Section 216 deals with control over government finances in all three spheres of government. We consider its meaning and effect in greater detail below.
3. Section 217 deals with the procurement of goods and services by organs of state in all three spheres of government. Its subject-matter is the way in which expenditure is incurred on goods and services, but it is limited to general principles and does not in any way restrict government institutions in determining the nature and quantity of the goods and services that they procure or the quantum of the expenditure they incur in doing so.
4. Sections 218 and 230A govern the powers of municipalities to raise their own loans and to enable others to do so by guaranteeing their repayment.
5. Section 219 allows national government to control the remuneration paid to public officials.
6. Section 229 governs the fiscal powers of municipalities. It empowers municipalities to levy certain kinds of taxes but expressly provides that this power

- may be regulated by national legislation, and

- may not be exercised in a way that materially and unreasonably prejudices national economic policies, economic activities across municipal boundaries, or the national mobility of goods, services, capital or labour.

- establish a National Treasury and

- prescribe certain measures inter alia by introducing uniform treasury norms and standards.

1. The first meaning is that national legislation must directly control expenditure in each sphere of government by means of the norms and standards that it introduces. This is a most unlikely interpretation because it would give national government complete control over the expenditure of every other level of government. It would cut across the careful division of powers between the three levels of government.
2. The more likely interpretation is that national legislation must, by the norms and standards that it introduces, ensure that each level of government controls its own expenditure.

1. This interpretation is consonant with the division of powers between the three levels of government.
2. It also fits more comfortably with the language of s 216(1). It says, firstly, that national legislation must prescribe measures "to ensure … expenditure control in each sphere of government". It does not say that the measures must control expenditure in each sphere of government. It says merely that the measures must "ensure" that it is done in each level of government. Section 216(1) says, secondly, that the measures prescribed by national legislation must ensure "transparency … in each sphere of government". This clearly means that the measures must be designed to ensure that each sphere of government acts in a transparent manner. The measures are in other words concerned with the manner in which government acts and not with the substance of what it does.
3. This interpretation also finds support in paragraphs (a) and (b) of s 216(1). They provide that the other measures that must be introduced by national legislation to ensure expenditure control in each sphere of government, are "generally recognised accounting practice" and "uniform expenditure classifications". Both of these provisions are concerned with the manner and the form of financial management and administration rather than the substance of expenditure decisions.

3. We conclude that the power under s 216(1)(c) may only be exercised in relation to local government in order to ensure that municipalities act in a transparent manner and exercise proper control over their own expenditure.

1. The New Shorter Oxford English Dictionary defines the noun "treasury" as follows:

"The department of state responsible for the collection, management and expenditure of the public revenue of a country."

2. Black’s Law Dictionary (7^th edition) defines "treasury" as including

"a place where public revenues are deposited and kept and from which money is disbursed to defray government expenses."

3. LAWSA "Constitutional Law" Volume 5(3) (first reissue) paragraph 228 states that the National Treasury has a dual function of ‘being a government department and of furnishing internal controls over public expenditure, in other words, "the propriety and regularity of the conduct of accounts within departments" ’. (The internal quotation comes from McEldowney in The Changing Constitution 177.)
4. Our attention has been directed to Managing Public Expenditure: A Reference Book for Transition Countries published by the Organisation for Economic Co-operation and Development in 2001. Our instructions are that this book states as follows:

"The treasury function ... covers some or all of the following activities: cash management, management of government bank accounts, accounting and reporting, financial planning and forecasting of cash flows, management of government debt and guarantees, administration of foreign grants and counterpart funds from international aid, and financial assets management. To carry out these activities, organisational arrangements and the distribution of responsibilities vary considerably, according to countries. In some countries, the treasury department focuses only on cash and debt management functions. ... In other countries, the treasury also performs budget execution controls and/or accounting activities."

5. The Public Finance Management Act 1 of 1999 provides some indication of what the legislature understands to constitute treasury functions. Section 6 provides that the National Treasury must exercise the following powers:

"(1) The National Treasury must—

(a) promote the national government’s fiscal policy framework and the co-ordination of macro-economic policy;

(b) co-ordinate intergovernmental financial and fiscal relations;

(c) manage the budget preparation process;

(d) exercise control over the implementation of the annual national budget, including any adjustments budgets;

(e) facilitate the implementation of the annual Division of Revenue Act;

( f ) monitor the implementation of provincial budgets;

(g) promote and enforce transparency and effective management in respect of revenue, expenditure, assets and liabilities of departments, public entities and constitutional institutions; and

(h) perform the other functions assigned to the National Treasury in terms of this Act.

(2) To the extent necessary to perform the functions mentioned in subsection (1), the National Treasury—

(a) must prescribe uniform treasury norms and standards;

(b) must enforce this Act and any prescribed norms and standards, including any prescribed standards of generally recognised accounting practice and uniform classification systems, in national departments;

(c) must monitor and assess the implementation of this Act, including any prescribed norms and standards, in provincial departments, in public entities and in constitutional institutions;

(d) may assist departments and constitutional institutions in building their capacity for efficient, effective and transparent financial management;

(e) may investigate any system of financial management and internal control in any department, public entity or constitutional institution;

( f ) must intervene by taking appropriate steps, which may include steps in terms of section 100 of the Constitution or the withholding of funds in terms of section 216 (2) of the Constitution, to address a serious or persistent material breach of this Act by a department, public entity or constitutional institution; and

(g) may do anything further that is necessary to fulfil its responsibilities effectively.

(3) …."

6. In our view, a "treasury norm and standard" must be connected to the collection, management or expenditure of public money. We would suggest that, in the context of s 216(1)(c), "treasury norms and standards" are the norms and standards that govern the internal controls that each level of government exercises over its own finances to ensure that expenditure occurs in a transparent manner and is effectively controlled. They are concerned, in other words, with the form and the manner of financial management and administration rather than with the substance of financial decisions.

1. Municipalities have a constitutional right to determine their own budgets.
2. National government does not have a general power to prescribe the substantive content of municipal budgets.
3. National government does however have a variety of powers relating to the form of municipal budgets and the substance of some of their material components.

1. In terms of s 215, national government may prescribe various aspects of the form that municipal budgets must take.
2. In terms of s 216, national government must introduce various measures to ensure that municipalities manage their financial affairs in a transparent manner and exercise effective control over their expenditure. This does not include the power to determine the substance of municipal budgets.
3. Section 229(2) gives national government significant control over the powers of municipalities to raise revenue by taxation. These powers materially affect the substance of municipal budgets but are confined to the exercise of municipal taxation powers and do not extend to other aspects of their budgets. They do not include the power to control municipal expenditure.
4. Section 230A gives national government significant control over the power of municipalities to raise loans. It accordingly also impacts on their budgets but it is confined to the loans that they raise.
5. National government has very limited powers to prescribe to municipalities how to spend their money (that is, what to spend their money on and how much to spend on it). While it exercises significant control over the income of municipalities, it has very little control over their expenditure. It only has limited powers of control over certain aspects of expenditure for instance in terms of ss 217 and 219.

"43.1 Clause 5(2)(d) read with clause 16(1)(d) envisages that the National Treasury may determine annually a growth factor which places limits on the increase in a municipality’s budget from the previous year (unless the National Treasury authorises a deviation from such a limit).

43.2 The effect of these provisions is that a municipality may not increase its budget in excess of the prescribed growth factor unless the National Treasury authorises a departure. In other words, clause 5(2)(d) read with clause 16(1)(d) disempowers a municipality from increasing its budget if such an increase would be out of line with the policy of the National Treasury.

43.3 Clause 5(2)(d) is undoubtedly a far-reaching provision. However it is probably not unconstitutional for the following reasons.

43.3.1 It is not clear whether a municipality’s power to establish a budget is legislative or executive in character. (Cf Fedsure Life Assurance Ltd and others v Greater Johannesburg Transitional Metropolitan Council and others 1999 1 SA 374 (CC) para 45, paras 65-72.)

43.3.2 If the power of budget determination is properly to be characterised as executive, then clause 5(2)(d) of the Bill regulates the exercise of executive authority by municipalities within the meaning of s 155(7) of the Constitution. Clause 5(2)(d) does not deprive a municipality of its executive authority in respect of budget determination. Nor does it ‘compromise or impede’ a municipality’s ability to exercise its powers (within the meaning of s 151(4) of the Constitution).

43.3.3 If the power of budget determination is properly to be characterised as legislative, then clause 5(2)(d) nevertheless falls within the scope of s 216(2) of the Constitution. This requires the National Treasury to enforce compliance with uniform treasury norms and standards.

43.4 Our conclusion must be qualified to the following extent. It has been held that s 41(1)(g) of the Constitution ‘is concerned with the way power is exercised, not with whether or not a power exists’ (Premier Western Cape v President of the RSA 1999 3 SA 657 (CC) paras 57). In practice, the National Treasury may exercise its power to determine a growth factor in a manner which encroaches on local government so as to fall foul of s 41(1)(g). For example, the growth factor may be so small that a burgeoning municipality is effectively disempowered from performing its constitutional functions. Whether or not such a constitutional violation occurs will have to determined as and when the National Treasury determines a growth factor."

"uniform norms and standards aimed at ensuring that municipal budgets do not undermine national economic policy objectives, including measures limiting –

(aa) the rate of total revenue growth or the rate of revenue growth from particular sources; and

(bb) the rate of growth of operating expenditure within particular categories of expenditure".

1. The provision that was under consideration in the Demarcation Board opinion provided for the imposition of a growth factor that would place limits on increases in municipal budgets.
2. The provision that was under consideration in our first opinion provides that National Treasury may prescribe "uniform norms and standards aimed at ensuring that municipal budgets do not undermine national economic policy objectives". It envisages that such norms and standards might include (but are not limited to):

1. We have indicated above that s 216(1)(c) of the Constitution relates to matters of internal control and does not allow national government to prescribe the substance of municipal budgets or municipal expenditure.
2. Clause 20(b)(iv) of the Bill empowers the National Treasury to prescribe norms and standards impacting on the content of municipal budgets in order to ensure that "municipal budgets do not undermine national economic policy objectives". In other words, clause 20(b)(iv) authorises the National Treasury to prescribe norms and standards that seek to bring municipal budgets into line with national economic policy as a matter of substance. In our view, these would not amount to "treasury norms and standards" within the meaning of s 216(1)(c).
3. An example may help to illustrate the point. Assume that national government has a policy to the effect that goal X ranks more highly than goal Y in the allocation of public funds. In terms of clause 20(b)(iv) of the Bill, the National Treasury may prescribe a norm to ensure that municipal budgets do not undermine national economic policy objectives by prioritising Y over X. In our view, this would not constitute a "treasury norm or standard" within the meaning of s 216(1)(c).
4. In any event, clause 20(b)(v) of the Bill exhausts the power to prescribe uniform norms and standards in terms of s 216(1)(c) of the Constitution. It provides that the National Treasury may prescribe "uniform norms and standards aimed at promoting transparency and expenditure control". Insofar as the rest of clause 20(b) confers additional powers of prescription on the National Treasury, it exceeds s 216(1)(c) of the Constitution.

1. The power vested in national government in terms of s 229(2)(b) is limited to regulating the exercise by municipalities of their taxing powers.
2. Section 229(2)(b) probably authorises national government to cap the rate of growth in municipal revenue raised by the exercise of a municipality’s taxing power. However s 229(2)(b) does not extend to regulating the exercise of municipal power to raise revenue in other ways. Nor does it extend to regulating the levels of municipal expenditure.

"Section 20(b)(iv) or any other power conferred by national or provincial legislation on a national or provincial organ of state to determine the upper limit of municipal tariffs, rates, taxes, levies or revenue does not, despite that section or such other legislation, apply to a municipality to the extent that it would impair a municipality’s ability to meet its contractual obligations in terms of a contract that has been approved by the municipality in accordance with section 31 or 43(3)."

1. Clause 40(2) provides that the capping powers do not apply if:

1. The first of these requirements does not give rise to difficulties since it is a straightforward matter to determine whether a contract has been approved in terms of clauses 31 or 43(3). There is however a second requirement: the capping power must also impair a municipality’s ability to meet its contractual obligations. In our view, it would be extremely difficult to determine in any particular circumstances whether a capping power will or will not "impair a municipality’s obligations to meet its contractual obligations". The difficulties are exacerbated by the fact that clause 40(2) does not envisage that this question must be answered at the moment when the contract is concluded; on the contrary, it appears that the question must be answered throughout the duration of the contract’s existence. In the result, it is possible that a contract may be subject to a capping power at one moment in time and removed from the reach of a capping power at another.

1. The first option is to amend the Bill so as provide that the capping powers do not apply when a municipality has concluded a contract in terms of clause 31 or clause 43(3).
2. Clause 40(2) already provides that the capping powers do not apply to a municipality that has concluded a contract in terms of clause 31 or clause 43(3). However clause 40(2) imposes an additional requirement: the capping power must also impair a municipality’s ability to meet its contractual obligations. It is this additional requirement that will be deleted if the first option is accepted.
3. The first option will be workable in practice. It would mean that, whenever a municipality has followed the procedure in clause 31 or clause 43(3), the resultant contract is not subject to a capping power. In effect, a municipality would be given the ability to immunise itself from the capping powers as long as it follows the procedure in clause 31 or clause 43(3).

1. The second option involves amending the Bill so as to provide that, if a capping power has not been exercised before a municipality concludes a contract, any subsequent exercise of the capping power may not impair the contract.
2. If this option were to be adopted, it would remain necessary to determine whether a capping power will "impair the contract". This would give rise to the same difficulties as are referred to above in the context of clause 40(2) in its present form. In our view, this option may well be unworkable in practice.

‘Clause 84(1) of the Bill provides that a municipality’s supply-chain management must "comply with a prescribed framework setting uniform treasury norms and standards". This appears to be an attempt to invoke s 216(1)(c) of the Constitution. In our view, the attempt is probably unsuccessful. It is difficult to see what procurement policies have to do with "treasury norms and standards". It is even more difficult to see why policies regulating the disposal of capital assets (see clause 14(5) and clause 82(1)(b)) should be regarded as "treasury norms and standards".’