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Financial Problems in Local Government

Decent Essays

1 LOCAL GOVERNMENT’S FINANCIAL CHALLENGES A fresh look at local government’s deliver obligations and resource requirements is needed. HILDEGARDE FAST makes the case for a differentiated approach. It is common knowledge that many municipalities in South Africa are financially in dire straits. In the public discourse, the focus is often on operational issues such as poor revenue collection, unsustainable debt burdens, and lack of financial management capacity. In seeking to understand the financial challenges facing municipalities, it is important first to take a step back and ask broader questions, namely: What is local government required to do? Where should the resources come from? And is there a need to change the current …show more content…

The FFC is currently engaged in a project that seeks to understand the various components of municipal service costs. Gaining insight into service delivery costs is only half of the task. It is also necessary to measure the extent to which municipalities are able to raise revenue locally, which is closely related to their economic base. It is important to choose a revenue-raising measure that will encourage municipalities to maximise their revenue sources. A further conceptual issue with the equitable share is its relationship to infrastructure transfers. The equitable share is intended for operating expenditure, although due to its unconditional nature it can be used for capital infrastructure projects. If only a minority of residents in a municipality have access to water and sanitation services and electricity supply, then the operating expenditure needs of such a municipality will be relatively low. The equitable share currently does not take account of this. The solution lies either in encouraging municipalities with substantial backlogs to use a significant portion of their equitable share for capital infrastructure, or to ensure that the equitable share and municipal infrastructure formulas relate to one another. The second and third categories of transfers are infrastructure and capacity-building transfers. The current trend with both types of transfers is to consolidate the numerous grants into one funding stream. It is

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