The additional allocation made to municipalities in the supplementary budget was not enough for them to cope with the challenges faced by the Covid-19 pandemic, the SA Local Government Association (Salga) said in parliament on Thursday.

Municipalities have suffered a drastic decline in revenue during the lockdown. With more people losing  their jobs or having their salaries drastically cut, their ability to pay their municipal bills has declined.

“The municipalities have reported aggregate revenue losses of up to 60% (about 30% in metros) and an inability to manage positive cash flows as the economy takes a dive,” Salga chief officer for finance, fiscal policy and economic growth Khomotso Letsatsi said in a presentation to parliament’s two appropriation committees on the Division of Revenue Amendment Bill.

Local government is at the coalface of service delivery and the fight to curb the Covid-19 pandemic, which has seen economic activity grinding almost to a halt and thousands die.

“The sphere faces limited tax revenues, unemployment continues to rise, [there are] an increasing number of indigents and rising debt levels due to Covid-19.”

The association’s criticism of the supplementary budget tabled last month by finance minister Tito Mboweni follows that made by a group of economists during a presentation to parliament’s two finance committees. They attacked the projected budget cuts of R230bn over two years and said Treasury had not provided enough for expenditure to deal with the disturbing levels of poverty and unemployment.

Treasury director-general Dondo Mogajane responded to the criticism saying it was critical for SA to curb mounting debt and avoid a sovereign debt crisis.

Letsatsi said the insufficient allocation to local government came on the back of long-standing underfunding of the sector.

In terms of the bill, national departments gain R32.6bn (4.3%); provinces have a net loss of R4bn (-0.6%), while local government gets a net increase of R7.4bn — an R11bn increase in the equitable share and a R3.6bn reduction in conditional grants.

The R11bn is intended for Covid-19 spending, and a further R9bn will be reprioritised from allocated conditional grants to fund the provision of water and sanitation as well as public transport sanitisation.

Letsatsi noted that a total of R12.6bn in spending on conditional grants had been suspended.

“Municipalities are expected to adjust their budgets downward as a result of the Covid-19 pandemic due to the decline in anticipated revenue collection,” Letsatsi noted, adding that the number of technically insolvent municipalities was likely to increase.

Letsatsi criticised the assumption made in the equitable share formula that municipalities would have sufficient revenue-raising powers to fund the bulk of their expenditure and finance 90% of recurrent expenditure out of their own revenue.

According to the 2018/2019 report of auditor-general Kimi Makwetu, the total deficit on local government amounted to R6.29bn.

About 83% of municipal consumer debts of R181bn was not realistically collectable. The amount owed to creditors amounted to R49bn, with Eskom claiming outstanding debt of R36bn.

“The negative effect on revenue collection occurred in the fourth quarter of the municipal 2019/2020 financial year, with most expenditure up to June 30 having been committed already,” Letsatsi said.

Salga has long called for a review of the equitable share formula to address the underfunding of local government.

“The upcoming October 2020 adjustment budget must consider the effect of the real reduction in municipal revenues and the effect this may have on the local government sector in response to Covid-19 challenges and service delivery,” Letsatsi said.

The Financial and Fiscal Commission (FFC) highlighted challenges facing local government, including underspending on capital budgets, lack of institutional capacity, declining own revenue collection, lack of accountability, and poor financial management and governance.



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