Treasury Releases Q2 report on local govt revenue and expenditure

By Corruption Watch 22 Mar 2024, 10:33

Source: South African government

National Treasury (NT) has released the local government revenue and expenditure report for the second quarter of the 2023/24 financial year. The report, which applies to the second quarter of the municipal financial year ending on 31 December 2023, covers the performance against the adopted budgets of local government and includes spending against conditional grant allocations for the same period.

This information is published in terms of Sections 71 of the Municipal Finance Management Act, 2003 (Act No. 56 of 2003) (MFMA), and 30(3) of the Division of Revenue Act, 2023 (Act No. 5 of 2023). The budgeted figures shown are based on the 2023/24 adopted budgets approved by municipal councils.

The second-quarter publication covers 257 municipalities on financial information and conditional grant information. Municipal managers and CFOs were required to sign and submit data to the National Treasury by 2 February 2024.

NT explains that the Section 71 report facilitates transparency in reporting, better in-year management, and the oversight of the financial performance of municipalities against their adopted budgets.

“This report is, therefore, a management tool that serves as an early warning mechanism for councils, provincial legislatures, and municipal management to monitor and improve municipal performance timeously. Improving the credibility of the data strings is a priority for national and provincial treasuries and the submitted data strings are analysed monthly and errors are communicated to municipalities for correction.”

It is common among municipalities to overstate or inflate revenue projections while preparing annual budgets, NT notes. This may be to reflect a surplus, or on the surface to show that excess expenditure requirements are adequately covered by revenues to be collected.

“Therefore, the revenue estimates are seldom underpinned by realistic or realisable revenue assumptions resulting in municipalities not being able to collect this revenue, resulting in difficulties in cash flow. Should such situations arise, municipalities must adjust expenditures downwards to ensure that there is sufficient cash to meet these commitments.”

Spending under way

A municipal budget must be funded in terms of Section 18 of the MFMA before a municipal council can adopt it for implementation, explains NT. “A funded budget is essentially a budget that is funded by a combination of cash derived either from realistically anticipated revenues to be collected in that year, or from cash-backed surpluses of previous years.”

As of 31 December 2023, aggregate municipal spending (for both operating and capital budgets) was 46.3% or R283.5-billion of the total adopted expenditure budget of R612-billion. Aggregated billing and other revenue was 50.3% or R310.9-billion of the total adopted revenue budget of R618.5-billion.
Capital expenditure was R25.6-billion or 31.1% of the adopted capital budget of R82.5-billion.

The adopted operating expenditure budget was R536-billion, of which R285.3-billion or 53.2% was spent by 31 December 2023.

Municipalities adopted a budget of R154.5-billion for salaries and wages (including remuneration of councillors’ remuneration), representing a R7.9-billion or a 5.4% increase from the adopted budget of R146.6-billion for the 2022/23 municipal financial year. As of 31 December 2023, R72.8-billion or 47.2% of the adopted salary budget, had been spent.

Billions owed by consumers and municipalities

Aggregate municipal consumer debts amounted to R338.2-billion (compared to R306.7-billion reported in the first quarter of 2023/24) as at 31 December 2023. A total amount of R6.4-billion or 1.9% has been written off as bad debt. The largest component of this debt relates to households and represents 72.7% or R245.8-billion (71.9% or R220.4-billion in the first quarter of the 2023/24 financial year). Debt owed to municipalities in the category of below 90 days, amounts to R43.1-billion.

The creditors’ age analysis shows that R104.3-billion is owed by municipalities as at 31 December 2023, an increase of R2.9-billion compared to the R101.4-billion reported in the first quarter of 2023/24.

The analysis of the collection rates indicates that while municipalities year-to-date have budgeted for a 75.6% collection rate, aggregated actual collection performance against billed is only 58.4%. The underperformance of actual collections against billed revenue holds a significant risk for the liquidity position of most municipalities as the planned expenditure is based on a higher performance level.

Low expenditure on important conditional grants

As of 31 December 2023, R27.8-billion, or 63.5%, of the R43.7-billion allocated to municipalities in direct conditional grants for 2023/24 has been transferred to municipalities.

The performance of the infrastructure grants to municipalities during the second quarter was not satisfactory. The Municipal Infrastructure Grant (MIG) is the highest performing direct infrastructure grant to municipalities during the second quarter, with a performance of 49.3% which is higher than the 37.6% reported for the same period in the previous financial year.

The Integrated Urban Development Grant Water is the second highest performing grant with a performance of 46.7%. The MIG grant has been the highest performing grant for the third consecutive time as at the end of the second quarter year-on-year.

The Municipal Disaster Recovery Grant had the lowest spending grant during the second quarter, with a 12.7% expenditure, equivalent to R40.1-million expenditure against the R320-million allocation. The Public Transport Network Grant (PTNG) is the second lowest performing grant with expenditure performance of 25%. It should be noted that the PTNG is an infrastructure grant allocated to metropolitan municipalities only and it is an observation that metropolitan municipalities are increasingly struggling to implement this programme.

“Low expenditure on infrastructure grants is a source of concern because this slow performance may eventually lead to unspent conditional grants that have to revert to the National Revenue Fund (NRF),” says NT. “The surrendering of unspent conditional grants to the NRF has negative consequences to the communities that must receive the services linked to the infrastructure to be built.”