/ 26 October 2018

‘Fraud, poor governance’ cause municipal crisis

Municipalities already owe R23.4-billion to service providers.
Municipalities already owe R23.4-billion to service providers. (James Oatway)

A growing financial crisis and governance failures at local and provincial government levels have been identified as a “serious fiscal risk” by the treasury in the medium-term budget policy statement (MTBPS).

Unpaid bills and accruals are piling up and these costs, which are not reflected in the budget, could have detrimental effects on service delivery if money for this has to be spent on outstanding bills.

Provincial departments have an estimated R25-billion in unpaid bills, plus provincial health departments have contingent liabilities of R80-billion from medical legal claims. In 2017-2018, R1.5-billion was paid out for these and this figure is expected to exceed R2-billion in 2018-2019.

The situation at municipal level is getting worse. Of 257 municipalities, 113 local governments adopted unfunded budgets in 2018-2019, an increase of 83 on the previous year.

An unfunded budget is when “municipalities make operational spending commitments without identifying revenue sources to fund them. One consequence is that municipalities may not pay service providers”, the budget documents state.

Municipalities already owe R23.4-billion to service providers. “A default on these obligations would weaken the public-sector balance sheet,” according to the documents.

Minister of Finance Tito Mboweni said, although some municipalities had capacity issues, which made it difficult for them to meet their obligations, many problems stemmed from governance failures, fraud and corruption. “The funds lost by municipalities in the collapse of VBS Mutual Bank offer a dramatic illustration of how greed and corruption impacts the achievement of developmental objectives.” He said it was not the only case where public finances were improperly used and diverted for the benefit of a “few greedy individuals”.

READ MORE: Municipalities to feel the heat over VBS investments

Mboweni said retired professionals who heeded President Cyril Ramaphosa’s Thuma Mina call would be deployed to local government to support revenue collection functions and assist in stabilising operations.

Tebogo Tshwane is an Adamela Trust business reporter at the M&G

Poor outlook for aging population

At a minimum, economic growth of 2.5% to 3% is required to sustain current public spending commitments, observes the 2018 medium- term budget policy statement released on Wednesday.

Because the economy has gone from listless to dwindling in the past two quarters, the growth trajectory is on a shaky path. But recent actuarial analysis from the University of Cape Town raises another red flag: South Africa’s population is ageing more rapidly than previously expected.

The policy statement suggests this is a result of gradual declines in fertility and mortality rates. In a 2014 report compiled by Statistics South Africa, the organisation notes that 40% of elderly people in South Africa are poor.

An aged, poor population implies even heavier reliance on social grants, which further encumbers the chances of meeting growth targets. — Thalia Holmes

Tito gives zero rating to pads

Sanitary pads, bread flour and cake flour have been added to the list of zero-rated consumables, Finance Minister Tito Mboweni announced on Wednesday.

The revenue loss associated with zero-rating these items is about R1.2-billion, he said, adding that the decision “targets low-income households and restores the dignity of our people”.

Already on that list, according to the treasury website, are brown bread, maize meal, samp, mealie rice, dried mealies, dried beans, lentils, tinned pilchards and sardines, milk powder, dairy powder blend, rice, fresh fruit and vegetables, vegetable oil, milk and cultured milk, eggs and edible legumes.

The decision to zero-rate sanitary pads is part of a greater movement towards the recognition of women’s health rights in South Africa. — Thalia Holmes