MUNICIPAL FINANCE

Local government is a constitutional sphere of
government.
The legal framework for local
government is contained in Chapter 7 of the
Constitution of 1996 (SA 1996). Section 151 of the
Constitution makes provision for the establishment
of municipalities “for the whole of the territory of the
Republic”.
Objects of Local Government

 Provide democratic and accountable government
 Ensure provision of service to communities in a
sustainable manner
 Promote social and economic development
 Promote a safe and healthy environment
 Encourage the involvement of communities and
community organisations in matters of local
government
The Role of Local Government

 Promoting democracy
 Ensuring that government is efficient
effective in the rendering of services
and
 Promoting social and economic development.
MUNICIPAL FINANCE

 Municipalities require financial resources to realise
their constitutional obligations
Democracy – delivery of service – development
 The ability of municipalities to generate and spend
financial resources is at the heart of municipal
governance
Municipal Fiscal Capacity

 Municipal fiscal capacity reflects the ability of a
municipality to raise revenue for public spending. This
capacity is determined the following:
 The level of economic activity within the boundaries
of the jurisdiction and the government’s ability to
translate this economic activity into public revenues.
 The ability to transform the economic base into
public revenues is determined with available taxing
powers and tax administration capacity.
Fiscal Capacity

 Without
adequate
financial
resources,
municipalities will not be able to achieve their
objectives.
 Therefore municipalities require sufficient financial
resources from its own revenue base and
predictable intergovernmental transfers in order to
efficiently provide functions in a way that is
responsive to local communities
Municipal Fiscal Power

 Section 229 of the Constitution – Municipality may
impose –
 Rates on property and surcharge on fees provided
by or on behalf of the municipality; and
 If authorised by national legislation, other taxes,
levies and duties appropriate to local government or
to the category of local government into which that
municipality falls, but no municipality may impose
income tax, value-added tax, general sales tax or
customs duties.
Fiscal Autonomy

Municipal Fiscal Autonomy means that local
governments have the power to create their own
sources of revenue in addition to their equitable
share in the national taxes released by the national
government, as well as the power to allocate their
resources in accordance with their own priorities.
Exercise 1
ADVANTAGES

DISADVANTAGES
GIVE EXAMPLES
GIVE EXAMPLES
Accountability
Lack of Technical Capacity
Improved Revenue Mobilization
Horizontal fiscal imbalance
Subsidiarity
Maintenance of National Norms and
Standards
Responsiveness
Lack Fiscal Discipline
Basic calculation of revenue autonomy

Revenue Autonomy
= Municipality’s Own Revenue
Municipality’s Total Revenue
A key indicator of revenue autonomy from a municipal
perspective is its ability to generate more revenue from
its communities.
Finance Management

Municipalities are the custodians of public funds, whether
raised from their own revenues or received through
intergovernmental grants.
They are tasked with using these resources to respond to
the needs of their communities for infrastructure, local
services such as water, electricity and refuse removal and
enabling and guiding the spatial development of their
localities.
The Current Finance Management
Situation

 Growing grant depedency
 Asset maintenance and life-cycle management are very
weak as the low levels of maintenance expenditure reflect.
 Service backlogs for previously ignored communities are
coming up against significant cost pressures that partially
result from inappropriate decisions by municipalities on the
level of service to be provided.
 Weak investment in infrastructure for local economic
development
 Declining quality of service are growing constraints to
economic growth and poverty reduction
Exercise 2

What could be the reasons for the failure of your
municipality to address finance management
challenges?