Treasury tightens public purse on red-flagged municipalities

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JIMMY MOYAHA: This morning National Treasury put out a release confirming that 70 municipalities in South Africa would have funds withheld from them as a result of not meeting the requirements it had previously set out for these stakeholder funds to be released to them. Among those municipalities is the City of Johannesburg.

Read: Godongwana withholds July funds to Jhb, 70 municipalities nationwide

We know that this is off the back of promises made by National Treasury relating to budgets of municipalities and how it intends to enforce administration, and ensure that municipalities get back on the right track.

We are going to be looking at this in a bit more detail with the director for the School of Economics and Management at the University of Limpopo, Professor Samuel Koma. He joins me on the line now to see what we make of this.

Prof Koma, lovely having you on the show. Thanks so much for taking the time. National Treasury and particularly the minister – promises made, clearly promises kept.

PROFESSOR SAMUEL KOMA: Yes. In fact, it should be pointed out that the decision taken by National Treasury is unprecedented since the existence of the local government system in the country.

However, it is a necessary decision, and in fact it’s a decision that is informed by the Auditor-General’s reports, looking at the performance of municipalities in terms of municipal audit outcomes. And in fact the AG has indicated that the situation facing many municipalities is dire and requires decisive and turnaround action.

So the National Treasury through this decision has exercised its constitutional power, which allows it to stop the transfer of equitable share grants to municipalities that have committed serious or persistent breaches of the applicable law.

In this instance it would be the Municipal Finance Management Act.

So that is the context that informed the decision taken by National Treasury.

In fact, National Treasury says this is not a punitive measure. It is a corrective measure.

[It] put it in place to force these municipalities to begin to exercise fiscal discipline and ensure that there is proper management of taxpayers’ funds, by ensuring that there are strong internal controls and also that they are able to take decisions around consequence management and ensuring accountability.

JIMMY MOYAHA: Prof Koma, did National Treasury have any alternative in this particular case?

I’m looking at the municipalities listed here – and, as you rightly mentioned, this is persistent non-compliance with the Municipal Finance Management Act.

In this situation, you refer to it as unprecedented measures taken by National Treasury, did they really have any alternatives, given that the municipalities have been non-compliant?

PROFESSOR SAMUEL KOMA: A great question, Jimmy.

In fact, National Treasurer says: “Over a four-year period as National Treasury we have provided guidance and also embarked on support intervention to these municipalities.

“But to this day, municipalities have failed to act to ensure [they follow] the guidance they received from National Treasury, including the support interventions put in place to turn around the situation.”

So through this decision one hopes that municipalities will begin to ensure fiscal discipline and strengthen accountability oversight in consequence management across the local government sector.

JIMMY MOYAHA: Prof Koma, can we take a look at some of the other sentiments echoed by National Treasury? You touched on the fact that Treasury did confirm that this is [not] a punitive measure – not designed to be harmful or hurtful towards these municipalities, but rather to get them back on a corrective path.

Does this look like a measure that could be in place longer than expected, or is it one of those where by design, if the municipalities get themselves back on a corrected course, they would not be subjected to this in the future?

PROFESSOR SAMUEL KOMA: You’re quite correct, Jimmy.

In fact, National Treasury has given these municipalities 120 days to secure the release of the equitable share grants due to them by demonstrating that they’ve taken steps to subject municipal officials who have committed serious breaches of the Municipal Finance Management Act and other related legislation [to consequences].

Also they need to demonstrate that criminal proceedings, including civil action to recover funds that are due to these municipalities, have since been implemented.

National Treasury says: “‘Show cause and furnish us with documentary proof that speaks to the decisive action you have taken as a municipality” – including the municipalities having to submit client-payment agreements that involve the Eskom debt, the debt that is also being incurred and owed to the Water Board by these municipalities.

National Treasury will also want to see those signed payment agreements, to show that these municipalities are committed to a turnaround situation facing them.

JIMMY MOYAHA: Prof Koma, what kind of precedence does this set if we are to look at municipalities like the City of Johannesburg, where, for example, they had an unfunded budget and National Treasury issued a warning ahead of this particular decision – which warning the City of Johannesburg did not heed – does this sort of action then remind municipalities throughout the country that National Treasury has constitutional powers it can enforce? And clearly is willing to enforce if necessary.

PROFESSOR SAMUEL KOMA: You’re quite right, Jimmy, and this is the call we’ve been making.

It is high time National Treasury begins to take decisive steps in intervening in the financial affairs of municipalities which have consistently failed to adhere to legislation in terms of compliance.

This is also the part that has been lamented by the Auditor-General on several occasions – to say there is just sheer and blatant disregard of the law by many municipalities that don’t want to comply with the law, especially around issues of procurement and other related financial aspects.

So it’s a wake-up call for all municipalities, and we can only hope that these municipalities will now ensure that there is proper fiscal discipline and, where there is deviation from the law, [they] are able to take decisive action to recover funds and also deal with issues of unauthorised, irregular, fruitless and wasteful expenditure.

JIMMY MOYAHA: Well, the minister in the department of National Treasury did commit to dealing with the fiscal challenges that plague South Africa. This is one of them. It has been one that has plagued not only the national budget, but also organisations like Eskom.

This unprecedented measure is hopefully getting the message across that we need to address these issues more urgently and more seriously.

We’ll leave the conversation on that note. Professor Samuel Koma of the University of Limpopo joined us to take a look at National Treasury’s decision to withhold the equitable share of its contributions towards municipalities that remain non-compliant.