Local government stakeholders are proposing drastic changes to the funding model of municipalities, including giving municipalities the ability to charge their own taxes to enhance sustainability.
One municipality pointed out that there are minor taxes municipalities could charge without overtaxing or negatively affecting the local population. Additionally, they could be given creative licence to explore different areas with economic potential.
The Department of Co-operative Governance and Traditional Affairs (Cogta) is collaborating with stakeholders in the local government sector to develop a new funding model that could help municipalities become more self-sustaining.
This process is led by Cogta along with the Department of Treasury, with stakeholders including the South African Local Government Association (Salga)and various municipalities. A working document outlining the proposed funding model is expected by the middle of the year.
Cogta spokesperson Legadima Leso said: “At the moment, there are still discussions between the stakeholders that can change drastically, so we cannot say specifically that these are the changes, as they might not be included in the documents produced. We can only speak once a working document has been produced by the stakeholders.”
Leso continued: “What we can say is that there are things that the department has identified, such as the equitable share. We know that the equitable share has never been sufficient; however, we cannot simply advocate for an increase without examining the process for achieving this.”
Municipalities have highlighted the changes they want to see.
UMngeni mayor Chris Pappas emphasised that the key to the necessary changes was giving municipalities the licence to be creative and generate revenue. He noted that municipalities were under immense pressure to maintain well-functioning services.
“I recently returned from a trip to Tanzania, where the municipality has what is called an infrastructure levy. It’s a fee that tourists pay for the use of water, roads and infrastructure while they are there, and it does not affect the local population. I paid that levy while I was there,” he said.
Pappas also pointed out that taxes charged on alcohol and cigarettes currently go to the national government. However, if there is an accident or a need for clean-up, the responsibility falls on the local government.
“If you look at investment, a shopping area can be developed in your area, and the municipality receives a small rate, creating a few low-income jobs. However, the pressure of supporting those low-income jobs with services falls on the municipality.
“There are municipalities that are able to charge certain taxes; we are not talking about overtaxing residents, as that is not the point. We need to allow for creative ways that municipalities can generate their own revenue, with many opportunities in areas like solar energy where municipalities could foster creative economies,” he said.
When it comes to grants, Pappas said they have either been cut or used as a punitive tool.
Msunduzi mayor Mzimkhulu Thebolla expressed the need for a funding model that met the needs of municipalities.
“The current situation is that only 9% of the country’s fiscal budget is allocated to all municipalities, yet municipalities are at the coalface of service delivery, with people coming to seek assistance even for matters that fall outside the mandate of municipalities,” said Thebolla.
He explained that allocations were not made based on the needs of the area but rather on the size of the municipality, which meant there were councils that would always struggle under this model.
“We are told that we should live on the revenue we collect, yet Msunduzi is owed more than R7 billion, and a portion of that money we will never be able to collect.”
The eThekwini Metro declined to comment, saying it would be premature for the mayor to speak on such discussions until he was formally engaged.
Salga manager in KwaZulu-Natal Sabelo Gwala, said in the past, Salga had proposed a review of the municipal funding framework with three substantive changes.
“The first one being a substantial increase from the current 9% share of the national collected revenue. The second being recalibration of the current conditional grants to remove red tape and bureaucracy.
“The third proposal by Salga was the introduction of local collected tax. Salga proposed the introduction of a local business tax to the Minister of Finance, who was Pravin Gordhan at the time; however, Salga’s proposal was deferred due to economic challenges at the time, among other reasons.”
He concluded, “It is our hope that the National Treasury will have sufficient appreciation for the need to urgently introduce these three measures. We are therefore quite optimistic about the current review of the municipal funding framework.”