Double-blow for municipalities in South Africa
South Africa’s municipalities are expected to blow their budgets in the coming financial year, National Treasury warns, with costs being driven up by rising prices and lower sales due to households being hit by affordability issues.
Treasury published the operating and capital budgets of municipalities as adopted by their respective councils on Tuesday (6 December), highlighting the problems.
It noted that aggregated budgeted revenue for 2022/23 is at R529.7 billion, which is expected to increase to R558.1 billion in 2023/24 and R593.9 billion in 2024/25 – however, total municipal expenditure in 2023/24 is estimated to be R557.4 billion, increasing to R582.1 billion in 2023/24 and R614.5 billion in 2024/25.
Total expenditure for 2022/23 is 5.1 % higher than the adjusted budget for the 2021/22 financial year.
“Municipalities will realise operating deficits on the operating budgets in the 2022/23 financial year as the total operating expenditure increases at a higher rate than the revenue projections,” Treasury said.
“This is an indication that municipalities are living beyond their means and the first sign of financial challenges.”
However, the department noted that the situation is projected to improve in the outer years of the 2022/23 MTREF as operating surpluses will be realised;
A net deficit of R269.6 million is expected in the 2022/23 financial year, which is expected to improve to a surplus of R3.5 billion in 2023/24 and R7.3 billion in 2024/25;
The main cost drivers are employee-related costs and materials and bulk purchases, representing 28.9% and 32.7% of the operating expenditure, respectively, it said.
Notably, municipalities are experiencing a two-fold impact of the high electricity and water tariff increases – and the subsequent increase in bad debt at a result of affordability pressures within households – as well as lower sales levels owing to changes in consumption patterns.
The department said these budgets give an overview of expected revenue and expenditure trends in local government over the next three years, referred to as the 2022/23 Medium Term Revenue and Expenditure Framework (MTREF).
The revenue and expenditure numbers are aggregated from the annual budgets that municipal managers are legally required to submit to the National Treasury and the relevant provincial treasury.
“The published information is presented in a variety of ways, including aggregated municipal budget totals for the 2022/23 financial year and over the medium-term period. In addition, the information is presented per category of municipality and province,” said Treasury.
Other highlights include:
- Capital expenditure increased by 1% to R69.7 billion in 2022/23 compared to the original budget for the 2021/22 financial year. Capital expenditure in aggregate represents 12.5% in 2022/23, 11.7% in 2023/24 and 11.4% in 2024/25 of the overall budget of municipalities;
- Trading services (electricity, water, wastewater management and waste management) represent 49.7% of the total capital expenditure of R69.7 billion in 2022/23 and slightly decreases to 49.1% by 2024/25;
- The 2022/23 capital expenditure budget reflects a R43.8 billion investment in new infrastructure, which is 62.8% of the total aggregated capital budget. Investment in the renewal and upgrading of existing assets is much lower at R10.9 billion (15.6%) and R15.1 billion (21.6%) of the total capital budget, respectively; and
- Reporting on operational repairs and maintenance figures has been institutionalised as part of Section 71 in-year reporting. Municipalities allocated R27.7 billion to repairs and maintenance of assets in 2022/23. This will increase to R29.2 billion in 2023/24 and to R30.9 billion in 2024/25.
National Treasury publishes local government MTREF information on an annual basis.
Regularly published budget information enables communities to hold their municipal councils to account. The information is also used by National Treasury as the basis for the In-year Management, Monitoring and Reporting System for Local Government (IYM).
The Section 71 reports published by the National Treasury give an account of actual revenue collection and spending by municipalities per quarter against their budgeted figures.
To improve the quality of reporting, the Municipal Budget and Reporting Regulations promulgated in 2009 prescribed new budget reporting formats for municipalities. In terms of the 2009 regulations, municipalities had to submit their 2022/23 MTREF budgets in the prescribed A1 Schedules as per the regulations.
In addition, with the implementation of the Municipal Standard Chart of Accounts (mSCOA) on 1 July 2017, municipalities must now prepare their budgets at the posting level over all segments as prescribed in the mSCOA classification framework.
All financial systems must have the facility to produce the A1 Schedule directly from their financial systems from the mSCOA classification framework.
Therefore, municipalities must put controls in place to ensure alignment of the adopted A1 Schedule to the financial system and the mSCOA data strings submitted to National Treasury. This publication is therefore based solely on the new regulated framework in terms of mSCOA.
With SA News
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