1. 1 Local Government Budgets and Expenditure Review 2001/02 – 2007/08

2. 2 Overview This is the first publication by National Treasury devoted to local government finances It tracks progress in the reforms and highlights the challenges in local government Key elements of LG framework being refined: –Alignment of functions and fiscal powers of category B and C municipalities –Reforms to municipal own revenue sources –Appropriate capital finance arrangements for infrastructure e.g. borrowings –Continued assessment of formulae for equitable share and MIG –Assessment of roles of municipalities and provinces on housing, health and public transport –Impact of REDS and Water Distribution reforms on local government finances

3. 3 Underlying budget trends Aggregate budgets of munis nearly doubled from R64 billion to R119 billion in four years Increases largely driven by capital expenditure which has grown by 22 per cent against 17 per cent growth in operating expenditure over the same period Capital budgets rose from R12 billion in 2001/02 to R26 billion in 2005/06 Increase fuelled by increased grants from R2.3 billion (19%) in 2001/02 to R6.4 billion (38%) in 2005/06 Operating budgets rose from R53 billion in 2001/02 to R93 billion in 2005/06

4. 4 Underlying budget trends (cont) Metropolitan municipalities make up 57 per cent or R68 billion of the combined local government budget Local municipalities account for 34 per cent or R41 billion District municipalities account for 9 per cent or R10 billion Operating budget of metros are double the size of local’s and seven times those of districts Capital budgets of metros are 1.3 times the size of local municipalities and 4 times higher than those of districts The reason is metros and local municipalities have larger trading activities than the districts

5. 5 Electricity Institutional arrangements of the electricity sector Recent developments in the electricity supply industry Progress made with electrification and provision of free basic electricity Proposed reforms to the electricity regulatory environment Future of the electricity distribution sector in the context of the restructuring process

6. 6 Electrification and FBE 72% or 7,7m households were connected to the electricity grid by 2005 (DME data) Target to eliminate backlog by 2012 R4,3 bn will be made available over next three years to address electrification backlogs (R1,2bn to muni and R3,1bn to Eskom) As at 30 June 2004, municipalities provided basic electricity to 4,7m households, of which 3m households received free basic electricity (Stats SA, 2004 non-financial LG census) Eskom provided free basic electricity to 1m households as of 28 February 2006

7. 7 Water and Sanitation Classifies water sector into two main areas: water resources and water services. Water and Sanitation are crucial for improving health, alleviating poverty and facilitating economic development. Significant commitment of resources: in 05/06 –National capital budget allocation is R3,8 billion –Municipal budgets contribution is R5,9 billion –Total municipal budgets for water services R9,8 billion –Water boards - approximately R3 billion

8. 8 Water and Sanitation Complex sector involving a wide range of organisations –Primary responsibility for water services rests with municipalities as water services authorities (WSA) –DWAF is ending it’s role as an implementing agent –Water boards’ are mainly responsible for bulk water provision, with limited retail and reticulation Coordination, accountability and capital investment for new infrastructure, rehabilitation and maintenance Institutional reforms are still in early stages and are likely to take several years to complete

9. 9 Basic Services Significant increases on number of households receiving basic services Total number of households receiving basic services increased by 39,2% from 2002 to 2005 14% more households received access to free basic water in 2004 than in 2003 18% more households received access to free basic sanitation sewerage in 2004 than in 2003

10. 10 Personnel Expenditure 1.6 million employed in the SA public sector in 2005 180 000 employed by 283 municipalities (i)The R23,9 billion accounted for 25,6% of the combined municipal operating budget of about R93,3 billion (ii)The six metro's personnel expenditure accounted for 63,3% of total personnel expenditure Table 5.1 Salaries and wages as a percentage of expenditure, 2005/06 R millionSalaries, wages and allowances Number of employees Salaries, wages and allowances as a % of expenditure Budget operatin g expenditure Average annual salaries 1/c Category A (Metro)15 134103 71427,4%55 308145 924 Category B (Local)8 22374 74026,7%30 816110 017 Category C (District)5372 7587,5%7 197194 610 Total23 894181 21225,6%93 321131 855 Source: National Treasury Local Government database

11. 11 MFMA Promoting sound financial governance Ensuring a strategic approach to budgeting Modernising financial management Promoting cooperative and consultative governance Promoting sustainable local government

12. 12 Improvements in budgeting Many municipalities show improvement in the following elements of budgeting: –Multi-year budgets –Approval of budget before 1 July –Integration with IDP –Service delivery and budget implementation plan –Consultation with community & governments –Documentation, content and quality

13. 13 Challenges –Continue with skills training and capacity building programmes –Improve quality and timely reporting –Strengthen ability to raise and collect revenue –Implement reforms in planning and budgeting –Increase spending on infrastructure development –Improve ability to deliver basic services