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Residents forking out for poor service

Pretoria - Residents of towns and cities, as well as business enterprises, are having to shell out ever more for municipal taxes and services, but receive less and less in exchange.

Municipalities use an ever-diminishing amount of this money to create infrastructure and budget little for repairs to and maintenance of existing infrastructure.

This is evident from National Treasury's overview of municipal finances spanning the years 2006 to 2013, which was publicised last week.

According to the Treasury report, municipal revenue from services since the 2007 financial year has risen an average 16.6% a year, reaching R72bn in the 2010 financial year. Over the next three years an average growth of 18.6% is expected. The steep escalation of bulk electricity costs is one driver of these increases.

Accordingly, property tax has risen an average 12% a year and this increase is expected to persist at a rate of 10.2%. Other revenue from residents' pockets, including traffic fines, licences and permits, rose an average 12.4% between 2007 and 2010.

Treasury has expressed concern over the fact that municipalities are relying more on government grants for infrastructure expenditure. These grants have also risen sharply in recent years.

Municipalities are using less and less of their own money for infrastructure development.

According to Treasury, this indicates that municipalities have exhausted their own historical cash reserves and, as a result of cost pressures, are struggling to keep generating surpluses on their operating budgets. Treasury said it is also possible that municipalities are deliberately replacing their own money with government grants in their capital budgets to enable them to use their own money - that coming from residents’ pockets - elsewhere. The major part of the operating budget towards which their own funds are increasingly being applied is staff costs, said Treasury.

According to Economists.co.za director Mike Schüssler, in 2009 municipal staff members earned an average R17 375 a month. Workers in the formal private sector at that time earned an average of R9 495 - virtually half as much.

According to Treasury, municipal salaries rose an average 15.4% from 2007 to 2010.

Schüssler said municipal officials generally take home much more pay than those living in their council areas. They have greater security and take fewer risks than residents do.

"Other expenses" in municipal operational budgets rose an average 16.7% over the same period. What exactly is included is not clear, but Treasury warns that municipalities should stop wasting money on things like large sponsorships for music fests and beauty competitions; expensive campaigns for eg voter education; liquor and entertainment; foreign "study trips"; motor vehicles, housing and cellphones for mayors, council members and staff; legal expenses and long suspensions of staff members on full pay; as well as consultants performing routine management tasks.

Treasury is worried that municipalities are setting aside less and less money for repairs to, and maintenance of, infrastructure. The consequences are not evident in the short term and these types of savings are less "politically sensitive" than cancelling capital projects or cutting entertainment expenses, said Treasury.

In the long run both service delivery and the local authority's ability to earn money from service delivery are impaired.

Schüssler said operating revenue could soon run to more than 8% of the gross domestic product (GDP). In the 2007 financial year it was 5.9% and in the 2009/10 year 7.2%.

The international norm is that state revenue should equal no more than 30% of GDP. According to government’s figures it is - with the exclusion of municipalities - already 28% of GDP. If municipalities and state enterprises are included, total government revenue in South Africa is certainly already more than 40% of GDP, said Schüssler..

Schüssler reckons municipalities' portion of the cake can in no way continue growing at this rate. Municipalities have to employ the money they receive more efficiently. 

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