1. 2016 Medium Term Budget Policy Statement
Standing and Select Committee on Appropriations
02 November 2016

2. INTRODUCTION
Thanks once again for inviting us to share our views on the MTBPS
As is always the case, we were part of the processes leading to the crafting of the MTBPS through our participation in the Budget Forum and other technical meetings
Currently we are busy with provincial conferences leading up to our national conference which will be from the 28 November to 01 December
In these provincial conferences we take stock of a number of issues, including trends in LG finances
The intention is to have a consolidated program and proposals to be presented at our national conference, which will in turn develop a program for the next 5 years
A chosen theme for this exercise is: Inspiring Revenue Enhancement and Sound Financial Management 2

3. INTRODUCTION
SALGA acknowledges the difficult economic situation the country is currently undergoing with a long-term average rate of GDP growth – that has fallen from 4 per cent a decade ago to under 1 per cent today.
The household net wealth fell to 386 per cent of disposable income in the second quarter of 2016, compared with 391 per cent a year earlier. This will have a knock on effect on municipalities’ ability to collect revenue.
SALGA welcomes the recognition of urban planning reforms as key policy focus over the medium term to encourage more rapid growth and innovation in South Africa’s large cities.
SALGA and FFC have launched a costing study which should provide more insight to the thinly stretched Local Government Equitable Share as utility prices (Electricity and Water) outpace inflation 3

4. OVERVIEW
The MTBPS highlighted the slow growth of our economy and need for reform
Slower economic growth will also impact the ability of municipalities to raise more revenue
Municipalities must work to ensure that they provide an enabling platform for growth through building denser, more inclusive and productive settlements and making doing business easier and more efficient
SALGA welcomes the Minister of Finance’s call for all spheres to maximize efficiency
SALGA will encourage its member municipalities to adhere to the cost containment guidelines issued in MFMA circulars 4

5. Launch of “Municipal Money” Website
SALGA welcomes the launch of Municipal Money website and encourages citizens to use the information to more meaningfully participate in municipal budget processes
We will work with NT in encouraging municipalities to publicize and market this important tool
Through it we hope for better informed IDP engagements, accountability by councillors on financial decisions and spending trends
With time we hope that the website will contain other elements of accountability such as audit outcome reports 5

6. Division of Revenue
Local government has the fastest growing share of the DoR (at an average of 8% per year over the MTEF)
LG share of the DoR increases from 9% to 9.2% over MTEF
SALGA welcomes the stable growth in the MTEF for Local Government DORA allocations 6

7. Summary of changes to local government allocations
Additions to the local government equitable share
Relatively small reductions to some conditional grants
Local government allocations will be lower than previously expected in 2017/18, but higher than expected in 2018/19 and 2019/20
SALGA proposes that reductions to baselines to prioritise the high education subsidies though welcomed should not be undertaken in such a way that they compromise the viability of local government and impair its ability to deliver on its mandate. 7

8. Local government Financial Health
SALGA is concerned with the financial health of municipalities as sighted in the NT 9 indicator measure and the AGSA audit outcome
AGSA 2014/15 outcomes report
In the financial health of 92% of the municipalities is rated as either concerning or requiring intervention
The most concerning indicators are municipalities spending more than the resources they had available (thus incurring a net deficit); current liabilities exceeding current assets at year-end (net current liability position); debtors (ratepayers and consumers of water and electricity) not paying or taking very long to pay their debt; and creditors not being paid on time. In total, 26% (just over a quarter) of municipalities were in a particularly poor financial position by the end of , with material uncertainty with regard to their ability to continue operating in the foreseeable future 8

9. Intergovernmental Debt DPW project
The verification process has been finalised, with expectation of full sign-off from all municipalities (22 municipalities non compliant)
Non-Compliant municipalities given till 22 December 2016 to provide invoices
A reprioritisation of budgets process is being undertaken by departments to settle debts
The debt is expected to be paid off by 31 December 2016: R 1,2 Billion of the R 3,9 Billion has been paid already
A parallel process is being undertaken to address disputed properties(ownership, unregistered, unsurveyed): 55 thousand properties are unresolved
Further processes will involve development of practice note by NT and standardised template of settling government debt and development of state domestic facilities 9

10. Local Government Equitable Share
Government has recognized the cost pressures facing municipalities
Above inflation cost pressures on bulk purchases
HH growth of over 3% per year
The MTBPS proposes significant additions to the LGES that result in average annual growth of 9.6% per year over the MTEF
Formula will also be updated to reflect pattern of HH growth seen in the 2016 Community Survey 10

11. Conditional Grants
The following four large conditional grants are reduced to fund fiscal consolidation and other urgent priorities
however government has said these grants will continue to grow by at least 5% per year over the MTEF, so this should have minimal impact on Service delivery:
Municipal Infrastructure Grant
Urban Settlements Development Grant
Water Services Infrastructure Grant
Public Transport Network Grant
Reductions of small amounts are also effected out of:
RBIG to fund catchment management agencies
INEP (Eskom) for the management of nuclear waste
EPWP Grant for the CCMA 11

12. Review of Infrastructure Grants
SALGA is part of the review of infrastructure grants. Changes highlighted in the MTBPS include:
Refining the rules for how grant funds are used for refurbishment
Working towards performance incentives for cities
Exploring a new dispensation for secondary cities that provides greater flexibility for them to promote integrated urban development and increase their own capital investment
A possible shift of INEP (municipal) funds to the USDG in metros so that electricity is funded through the same instrument as other basic services
Our concerns about the treatment of the USDG remain. Some of the conditions purported are not in line with DoRB
The attempt to treat this grant as solely for HS undermines the discretion of municipalities and arbitrarily changes this grant into a schedule 5 instead of schedule 4 grant
We will continue engaging at MinMec and in the grants review team against this practice 12

13. Conclusion
SALGA aims to support new councils through continuous training and support subsequent the induction programme.
Portfolio based training and committee training is planned to capacitate councillors in their oversight roles
We are also concerned about the state of readiness of municipalities to implement mSCOA
An indication we are getting is that quite a number of municipalities are not yet ready for these reforms, which come into effect on 1 July 2017
We have requested a meeting with Treasury to discuss this matter
The changes in LG personnel after the LGE could result in some instability leading to challenges when it comes to audit outcomes.
We will monitor these developments and continue providing support through the MASP program 13