Deciphering SALGA's Stance on the 2024/25 Division of Revenue Bill
The South African Local Government Association, SALGA, presents insights on the 2024/25 Division of Revenue Bill, emphasizing the challenges faced by municipalities due to fiscal risks and inadequate funding. SALGA recommends directing fiscal gains towards local governments to enhance financial sustainability, especially in municipalities with revenue constraints and infrastructure deficiencies. The organization highlights the importance of inclusive economic recovery strategies at the local level.
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Comments on the 2024/25 Division of Revenue Bill STANDING COMMITTEE ON APPROPRIATIONS SALGA Date: 12 March 2024 www.salga.org.za
Presentation Outline Macro Economic & Fiscal Policy Outlook Organised Local Government position on 2024/25 DoR Bill Conclusion and Recommendations www.salga.org.za 2
Macro Economic & Fiscal Policy Outlook www.salga.org.za
SALGA Views on the Macro Economic & Fiscal Policy Outlook SALGA acknowledges government s efforts to attain fiscal sustainability by narrowing the budget deficit and stabilizing debt. The 2024/25 Budget outlines fiscal risks at national and provincial level yet these risks have the most detrimental effect on municipalities and their ability to deliver on their constitutional mandate to provide basic services. www.salga.org.za 4
Recommendations on the Macro Economic & Fiscal Policy Outlook SALGA suggests that any fiscal gains that government achieves must be directed at local government level to improve the financial sustainability of municipalities, particularly those with lower revenue raising potential and high infrastructure backlogs. SALGA recommends that the implementation of the economic recovery strategies and investment into economic infrastructure projects be inclusive of local economies in municipalitiesandshould be accelerated in the short to medium term. www.salga.org.za 5
Organized Local Government comments on 2024 Budget and DoR Bill www.salga.org.za
Division of Nationally Raised Revenue 2024 Budget The allocation to local government is R177 billion an increase of R4.9 billion, from the previous year, this still constitutes a share of 9.7% from the fiscus. Organised Local Government still maintains that the local sphere of government is not adequately funded as municipalities are only able to cover 60% of their expenditures from their own generated revenues. Municipalities are experiencing revenue challenges due to the high level of unemployment and poverty, resistance to pay for services, illegal connections and theft. www.salga.org.za 7
Division of Nationally Raised Revenue 2024 Budget There is an observed net decrease of R384 million in the conditional grants to local government in the 2024/25 financial year, which is unacceptable given the infrastructure backlogs within municipalities. MTEF budgeting continues to stagnate and decline for local government. Allocations for the MTEF ignore the current realities local government of growing expenditures which are outpacing eroding own revenues of municipalities. www.salga.org.za 8
Division of Nationally Raised Revenue 2024 Budget It is important to note that with the current allocation individual municipalities are either allocated more or less than what was allocated in the last financial year. In some instances, the municipalities whose allocations are reduced, the reductions are significant and detrimental, because some reductions are not linked to non-compliance of the conditions of their grants. www.salga.org.za 9
SALGAs position on the R 2 billion Smart Meter Grant SALGA welcomes and appreciate the Smart Meter Grant R2 billion, it will certainly go a long way in assisting municipalities in the area of metering for water and electricity and revenue collection. National Treasury should ensure end-to-end support on project rollout. Business Case readiness assessment of municipalities should be conducted before implementation by National Treasury. Clear framework on how municipalities will access the grant must be developed. A steering committee to support and assist in developing the framework be established. We support the use of NT transversal tender (RT29-2024) and National Treasury managing the grant www.salga.org.za 10
SALGAs position on the Smart Meter Grant SALGA is concerned that the Smart meter grant comes from reprioritization of MIG & INEP The shifting is troublesome to the local government sphere, since the funds ought to originate from additional grants that each municipality has been awarded such as USDG and IUDG Although money is taken these are not the same municipalities from MIG recipients, thus funding allocation is not equitable the grant criteria target selected municipalities on the debt relief program Funding must keep the MIG's sector emphasis, funds intended for Water projects cannot be utilised for electricity projects. www.salga.org.za 11
Infrastructure Delivery Reforms SALGA welcomes the initiatives to government s reforms to reduce waste and improve quality of public investment. SALGA implementation support agency that will cut across all spheres of government. welcomes the establishment of infrastructure and SALGA proposes consultation of organized local government on all municipal legislative changes as well as constant impact assessment of legislation to achieve its intended outcomes www.salga.org.za 12
Review of the LG Fiscal Framework Organised local government supports the NT review of the local government fiscal framework, particularly the refinements to the equitable share formula. SALGA also welcomes the proposed review of the capacity building systems, so as to improve the administration and programmes and rationalizing the capacity building grants www.salga.org.za 13
Review of local government fiscal framework (Continued) SALGA also welcomes measures to improve the efficiency of urban utility services through grant reforms for water, however, this must not be limited to metros but be extended to secondary cities. SALGA is concerned that the horizontal budget allocations to municipalities located on the borders of the country do not take into account the fiscal and service delivery constraints that these municipalities are under due to uncontrolled and illegal immigration. www.salga.org.za 14
Preliminary outcomes SALGAs Study 3.Municipalities are experiencing constrained expenditures of R98 billion 1. At current levels of revenue, there is a transfer gap of R150 billion per year. One of the resolutions at the 2022 Local Government Summit mandated to take a leading role in determining the ideal fiscal allocation to the local government sphere. 5. Under-funded mandates cost municipalities an estimated R31 billion per year. 2. The vertical allocation of nationally raised revenue to local government will have to increase to a maximum of 18.8% of the national fiscus 4. Municipalities can potentially save R92 billion per year through various efficiency measures, reducing debt impairment and eliminating fruitless and wasteful expenditure. www.salga.org.za 15
Page Divider Conclusion and Recommendations www.salga.org.za
Conclusions on the 2024 Budget and DoR Bill 1. SALGA acknowledges government s efforts to attain fiscal sustainability by narrowing the budget deficit and stabilizing debt. 2. SALGA does not welcome the net decrease of conditional grans allocation of R384 million in the 2024 budget. 3. We welcome and appreciate the Smart Meter Grant R2 billion, the grant should be expanded to all municipalities and end to end support should be provided. 4. SALGA welcomes all reforms to fast-track spending on infrastructure and financing thereof. 5. We welcome the review of the equitable share formula and the reforms to supplement the own revenue of municipalities. www.salga.org.za 17
Recommendations on the 2024 Budget and DoR Bill SALGA recommends that: Any fiscal gains that government achieves must be directed at local government to improve financial sustainability of municipalities. National Treasury should expedite the review of the Local Government Fiscal Framework and consider the outcome of SALGA s study The Joint Standing and Select Committee of Appropriations take note of and escalate the preliminary findings of SALGA s review of the LG Fiscal Framework. www.salga.org.za 18
Thank You www.salga.org.za
