Debate on the KZN Municipal Finance 4th Quarter Review 2009-2010
 Close-out Report
By Roman Liptak MPL


Kwazulu-Natal Legislature Pietermaritzburg: 30 November 2010  

Honourable Speaker



The MEC’s report has outlined some encouraging improvements in municipalities’ capital spending, debt recovery and submission of financial data. However, the quality of this information and the municipalities’ failure to clear the debt and to spend their budgets in their entirety means that service delivery continues to be severely compromised.


Under-spending on capital budgets results in little progress at municipal level in terms of urban renewal and rural development. The concentration of expenditure on wage bills means that municipalities largely act as a source of employment for local, usually politically-connected, individuals. And the provision of free basic municipal services, to which the ANC committed itself in its 2000 local government election manifesto, adds additional burden on municipal budgets.


The financing of municipalities is an ongoing challenge. The rates bases of municipalities appear to be static, if not shrinking in proportion to their growing populations. Since its implementation, the new Municipal Property Rates Act has done little to raise additional revenue. In some rural municipalities, the cost of implementation of the MPRA has far exceeded any proceeds from this legislation. Municipalities cannot survive on the collection of traffic fines or on conditional grants, which are allocated to them for purposes very different from financing the wage bills and overheads. 


Although Provincial Treasury has made significant strides in assisting municipalities with debt collection through a dedicated Debt Recovery Task Team, debt levels remain unacceptably high. Despite these efforts, it appears that municipal debt is growing at a faster rate than it is being paid off. At the end of the 2009/2010 financial year, 73% of all municipal debt was older than 90 days.


This suggests that municipalities stand almost no chance of recovering their debt. It seems that more old debt will have to be written off, either in total or by way of a partial amnesty, along the lines of eThekwini Metro’s amnesty on the payment of outstanding traffic fines, or it will remain a permanent fixture on the municipal books.


Although national and provincial government debt owed to municipalities amounts to less than what is owed by households and businesses, the symbolism of it cannot and should not be underestimated. If government isn’t paying its dues, it can’t reasonably expect the taxpayer to do so. In addition to paying off the arrears, the provincial government must see to it that current bills are paid on time.


In June this year, the Financial and Fiscal Commission proposed that dedicated courts be set up to deal with municipal debt until it is reduced to acceptable levels. Since the MEC’s report makes no mention of this, I would like to know if she is aware of it and if this proposal would assist Treasury’s Debt Recovery Task Team.


Recognising that many municipalities are showing signs of chronic fiscal stress due to a reduction in transfers as much as due to their inability or unwillingness to collect money from residents, the FFC also recommended that standard early warning systems should be adopted to identify fiscal stress in municipalities. The commission specifically proposed that section 71 of the Municipal Finance Management Act should be amended to “require that accounting officers report on actual revenue per source and on the percentage of collected revenue to the total value of billed revenue”. I believe this practice would make Treasury’s job in assisting with debt reconciliation much easier.


Seeing that non-payment for municipal services is as much a product of administrative disarray as of poverty, I believe that municipal managers should allocate sufficient human resources to debt collection. And finally, municipalities should introduce b improvement programmes that focus on revenue, expenditure and efficiency based interventions.


Local government is an autonomous sphere of government whose powers are no longer delegated from the national or provincial government, but are derived from the Constitution. Given these considerations, local government mustn’t become a burden on the provincial government and nor must the provincial government take its involvement in the matters of local government too far. In assisting municipalities, Provincial Treasury has largely respected these rules of engagement. 


I thank you.


Contact: Roman Liptak, 078 302 0929