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Date : 11/04/2005
Source: Ministry of Provincial and Local Government
Title: Mufamadi: National Forum on Municipal Finance


Remarks by Minister of Provincial and Local Government FS Mufamadi at the National Forum on Municipal Finance

Chairperson;
His Lordship the Executive Mayor of Ekurhuleni, Councillor Duma Nkosi;
Honourable MECs responsible for local government affairs;
Mayors and Councillors here present;
Officials representing our three spheres of government;
Distinguished Guests;
Ladies and Gentlemen.

This National Forum on Municipal Finances takes place at a time when local government has come to rank amongst the issues which dominate public discourse in our country. Whatever the differences relating to the characterisation of the fundamental causes of the problems we face today, the debate is coalescing around the need for us to find the most efficient ways by which to run the affairs of our municipalities. This forum is one of the steps that are intended to give further momentum to such a laudable enterprise.

Indeed, many of our municipalities are still grappling with such challenges as redressing significant levels of service delivery backlogs, redressing significantly higher levels of municipal infrastructure backlogs; as well as overcoming the problems caused by the paucity of financial management skills.

The existence of these and other challenges should never obscure our perspective as to the fundamental causes of the problems we face today. Neither should we be cowed by the doomed-to-fail forecasts that some people are fond of making.

Not so long ago, this country was subjected to allocative patterns which were designed to entrench a profound disequilibrium between racially segregated residential areas. By introducing the new fiscal framework, and with it, some of the laws which are the subject of discussion in this forum, we institutionalised a process of pushing back the boundaries of what was previously thinkable. It is through the enactment of such laws as the Intergovernmental Fiscal Relations Act and the Division of Revenue Act that we signalled our commitment to the promotion of the efficient allocation of resources across all the three spheres of government, and across all the geographic areas of our country. We also imposed an obligation on the national and provincial spheres of government, to provide the support necessary for local government to be able to use such resources as are allocated to it, effectively to discharge its obligations to the people.

Government takes the view that the basic tasks of development and democratic-institution-building cannot be undertaken without a sound municipal fiscal base. We are also of the view that municipal finances play an important role in the daily lives of our people. Our ability to access such basic services as water, electricity, refuse-removal and sanitation depends on the efficacy with which the finances of our municipalities are managed and the efficient way in which these and other resources, are allocated.

Chairperson, a financially viable local government system is visualised as having two principal sources of revenue stream: own- revenue sources as well as nationally raised revenue. As you are aware, local government’s share of nationally collected revenue is set to increase by an average 13% per year over the next three years. This translates into an increase from R14,8 billion in 2004/05 to R17,2 billion in 2005/06.

Not only does this intended injection of additional resources speak to our faith and confidence in the future of our local government system, but also, it will be a source of inspiration and an added stimulus for current and future generations of local government practitioners. It will inspire them to greater levels of performance in the service of our country and its people.

Clearly, for some of our municipalities to be able to cultivate their own revenue sources, systematic support will have to be mobilised and provided. It is for this reason that in his May 2004 State of the National Address, President Mbeki announced that the local government equitable share would be revised. That has now been done. A simpler and more transparent formula will be phased in from this year (2005) to 2007. The review was aimed in part, at increasing the financial resources which are allocated to those municipalities with low fiscal capacity. The simplified formulae also provide for a revised services component that recognises and rewards municipalities who show progress in the acceleration of basic services delivery.

Chairperson, we cannot understand the central importance of municipal finances outside its relations with other fundamentals of a state which places the pursuit of development at the centre of its purpose. Consequently, we need to adopt an approach which emphasises interaction between finances and other fundamentals such as the heightening of civic awareness amongst our people, as well as the development of planning capacity for sustainable service delivery; and the implementation of growth-stimulating programmes.

It will be recalled that last year government set aside an amount of R15, 6 billion to be allocated to municipalities over a period of three years in order to redress municipal infrastructure backlogs. Some of our municipalities are still constrained by the problem of limited capacity to absorb grant funding and to direct it towards the goal of improving service delivery as well as meeting other policy objectives. This forum provides us with the happy opportunity to identify the things which need to be done in order to improve the treasury capacities of such municipalities.

Indeed, the Auditor-General’s report for the past financial year tells us that improving the treasury capacity of our municipalities has become urgently necessary. This is one of the tasks to be undertaken by the experts we are deploying into 136 municipalities in terms of Project Consolidate. As they go into these municipalities, our service delivery facilitators will find that there exist already, the voice of the masses which is galvanised into a veritable avalanche of energised sound calling for improved municipal performance.

The call for improved municipal performance does not constitute a subversive challenge to democracy. On the contrary, this is a call for the democratic state to meet its commitment to the people. This call provides us with the opportunity to institutionalise cooperation between government and the people.

It is only when we have better functioning ward committees that we shall be better informed about local priorities and about the expectations of our people. Likewise, community expectations are much more likely to be disciplined by the knowledge that we operate with a finite resource base whose expansion requires cooperation between municipal authorities and the people.

In other words, if we are to find lasting solutions to the problems that are under the spotlight of this forum, we must bring the people at the centre of the search for such a solution. Without a firm commitment from our people, all our revenue-enhancement efforts will come to naught.

A significant income source for the metropolitan and local municipalities was put in place when the Municipal Property Rates Act was promulgated in May 2004. This legislation will assist municipalities to broaden their rates base to include previously excluded property. This Forum will be looking at the mechanisms which must necessarily be put in place in order to ensure that the transition from the old to the new does not occur in ways which visit avoidable pain on the people. It is for this reason that the Forum is expected to adopt guidelines to be followed by the municipalities as they implement the legislation. Those guidelines must also provide for the monitoring role of provinces and national government.

Ladies and Gentlemen, you have two days on which to deliberate on all the issues germane to the task of building financially viable municipalities. I know that you would rather immediately have got into the business of reflecting on the challenge than to continue listening to me. As you ready yourselves to do so, please accept my heartfelt thanks to you all for coming here in such a splendid display of commitment to the cause of enriching the lives of our people. Our people keenly await your decisions. The expectations are high. They serve to emphasise the great responsibility that is yours to live up to.

Thanks, and ever thanks.

Issued by: Ministry of Provincial and Local Government
11 April 2005

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