Local Government Finances

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Cooperative Governance and Traditional Affairs

16 March 1999
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Meeting Summary

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Meeting report

CONSTITUTIONAL AFFAIRS COMMITTEE

CONSTITUTIONAL AFFAIRS PORTFOLIO COMMITTEE
17 March 1999
LOCAL GOVERNMENT FINANCES

Documents distributed:
Survey on Information Requirements of the Constitutional Affairs Committee
Letter from Standing Committee on Public Accounts regarding Departmental Y2K Compliance
Rationale and Record of Municipal Service Partnerships
Provincial and Local Government Finances

SUMMARY:
The Committee heard presentations on local government finances and equitable share distribution from Mr Murphy Morobe, Chairperson of the Finance and Fiscal Commission, and Mr Momoniat, Chief Director for Intergovernmental Relations in the Department of Finance. It was agreed that the main purpose of the meeting was not to enter into debate or try to find resolution to concerns that MPs had, but rather to place issues on the table. The issues that were raised would be summarised by the Chair to help the Committee address them in more detail after the election.

MINUTES:
The Chair welcomed the Chairperson of the Finance and Fiscal Commission, Mr Murphy Morobe. He also welcomed Mr Momoniat, Chief Director for Intergovernmental Relations in the Department of Finance. He said the idea of this briefing is to start developing the ability for the Committee itself to be able to oversee local government finances and be involved in decisions of allocating equitable share.

Mr Morobe of the Finance and Fiscal Commission said he would address the role of local government and its status in the system of intergovernmental finances. There are disparities and imbalances within the governmental system in terms of expenditure responsibilities versus ability to raise revenue. There is a strong case that can be made for increasing the flow of funds to local government. This idea is contentious, though, because some would argue that local government is able to raise almost all of its own funds. This is probably true on an aggregate level, but may not be true at the level of certain individual municipalities. In other words, the total revenue raised by local governments is close to the total expenditure required of local governments, but this aggregate view obscures the fact that some individual municipalities raise much less than their expenditure responsibilities. The issue of local government equitable share is therefore a major issue.

The Chair said that this meeting is only intended to be an initial foray into the subject of local government finances, because some issues had been raised during the budget briefings that needed to be addressed. The Committee will obviously have to consider the topic further at a later date. But some questions he would like to raise now, even if they cannot all be answered today, include: What criteria is used to determine the local government equitable share of the national revenue? How is this formula created, if in fact there is such a formula? Is this distribution even Constitutional, especially in the context of R293 towns? And does it take sufficient account of the need for fiscal equalisation based on the ability of individual municipalities to raise revenue?

Professor Du Toit (ANC) said he had several comments to make. First, it seems that the Finance and Fiscal Commission has a different approach to this issue than the Department of Finance. Second, it appears that there is a problem because it is only the revenue raised nationally that is subject to equalisation. Third, he is worried about possible distortions emanating from horizontal inequalities.

Mr Bhabha (NCOP, ANC Mpumalanga) said it seems that the equalisation programme as it currently stands would penalise municipalities that are more efficient in revenue collection.

The Chair said that since this meeting is intended to be more of a dialogue than a question-and-answer session, he will not ask for responses to these questions now. People should note that the issues have been raised. He invited Mr Momoniat, Chief Director for Intergovernmental Relations in the Department of Finance, to speak.

Mr Momoniat read a section from the handout he distributed on the division of revenue. It reads: "The vertical division of resources is not done by means of a formula. It is a function of the expenditure responsibilities of each sphere and their revenue capacity. National government is mainly responsible for economic services (finance, trade and industry, labour), protection services (police, defence, justice, prisons), housing and general administration. The responsibilities of provinces include primary and secondary education, health and welfare services, provincial roads and local economic development. Housing is a joint responsibility."

"Local government responsibilities include municipal infrastructure and the provision of services such as refuse collection, electricity and water supply. Local government raises the bulk of its revenue on its own through property taxes, regional levies and user charges on water and electricity. Provinces, on the other hand, raise less than 5 per cent of their budgets through own revenue sources."

"In addition to the equitable share that each sphere receives, the Constitution provides for transfers to provincial and local governments out of the national equitable share. These grants can be assigned for particular purposes with or without specific conditions."

Mr Momoniat then said that the horizontal division of equitable share among the provinces is based on a formula. The factors in this formula include: size of the school-age population, use of the public health system by people without insurance, the population of elderly and disabled people, the total population share that each province represents of the country, and the level of capital needs (i.e., backlog of school and hospital construction).

The Chair thanked Mr Momoniat for his comments. He repeated that the point of this meeting is not to actually debate these issues today, but just to become informed. He will draw up a report on the issues that were raised in order for the next Constitutional Affairs Committee to know what the basic issues are.

Ms Verwoerd (ANC) said she is always concerned when the Department of Finance states that local governments raise the majority of their own revenues, given that she has not seen any individual statistics. The Committee should really spend some time looking at this issue more carefully.

Professor Du Toit (ANC) said he still does not see where uniformity of living conditions is taken into account in division of revenues, and that is what the Constitution requires.

The Chair said there is not time for Mr Momoniat to address these questions – the Committee is just alerting him to the issues they have. He asked Ms Verwoerd to make a Y2K announcement.

Ms Verwoerd said that MPs need to hand in reports on municipal Y2K readiness by tomorrow (18 March), in order for the Committee to follow up and have all the inputs by Monday (22 March).

Mr Momoniat said he wanted to make a brief reply to Professor Du Toit’s comment on equity of living conditions. This is really in the hands of local governments – the national government can give them the money but whether they spend it in ways that address living conditions is another issue. They do not really have the capacity to monitor the use of the equitable share funds.

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