Culture of non-payment threatens stability of municipal finances - Treasury

Cape Town – National Treasury has flagged the non-payment for public services as a threat to the financial stability of municipalities.

Treasury officials briefed members of the standing committee on appropriations on Thursday, on the 2018 division of revenue bill, where they gave an update on local government debt.

As at December 31 2017, municipalities owed Eskom R16.2bn and owed water boards R7.3bn, the oversight committee heard.

The overall creditors number is R41.2bn, said Jan Hattingh, chief director of local government budget analysis at Treasury.

In turn, Treasury highlighted government debt owed to municipalities. As at December 31 2017 provincial government owed R3.7bn, down from R4bn reported on June 30 and national government owed R2.9bn, an increase from R2.5bn reported on June 30. The process of reducing outstanding debt should be accelerated, Treasury said.

"The culture of non-payment threatens municipal financial sustainability," said Hattingh.

Hattingh referred to the finance minister’s Budget Speech, where he highlighted that the director general will be issuing a directive to all government departments and public institutions to pay suppliers on time, or be charged with financial misconduct.

Hattingh also stressed that when suppliers, usually small and medium enterprises, are not paid within 30 days, in effect it destroys the jobs government is trying to create.

Majileng Mgqaleni, deputy director general of intergovernmental and fiscal relations also spoke on the issue of non-payments. “It is a societal problem. Government owes municipalities, municipalities owe Eskom,” she said.

“We believe it is a political issue to be addressed on a political level. Everyone as citizens has the responsibility to pay for services for government to work.”

Municipal recovery plan

Treasury is also collaborating with local government stakeholders to achieve municipal financial sustainability over the long term. Treasury is currently reviewing municipal borrowing policy as well.

Ngqaleni explained that the worst performing municipalities will be assisted to implement turnaround plans. In the 2017 mini budget Treasury announced a new funding mechanism to support recovery plans to help municipalities in financial crisis.

A new Municipal Restructuring Grant may be introduced in 2019/20, she explained. But municipalities must demonstrate a commitment to implement necessary reforms before they can access funding. This includes containing employee related costs, limiting non-priority spending, increasing revenue collection and adopting funded budgets.

The mechanism is not meant to “bail out” municipalities. If necessary, government may place municipalities under intervention, Treasury said.

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