Municipalities teetering on the brink due to outstanding payments, billing

Stats SA reported recently it was not only taxpayers battling to make ends meet, as debt owed to South Africa’s 257 municipalities totalled R72.4 billion in the 2018 financial year, according to the latest financial census of municipalities report – less than half of what municipalities owed their creditors (R150 billion), according to the financial and fiscal commission (FFC) .

“If we take a closer look at the R72.4 billion, consumers of municipal services owed just over two-thirds of this amount,” the Stats SA report noted.

The FCC defined municipal consumer debt as the non-payment of property rates, fees or charges for services provided by municipalities (such as water, sanitation, electricity and refuse removal) and various other financial obligations to municipalities (such as traffic fines and rental housing payments).

“Possible reasons for the escalating current net debtors are the economic downturn, unaffordability due to low or loss of income, dissatisfaction with service delivery and ineffective municipal billing and credit control systems.”

Total debt owed climbed by 14.7% (R9.3 billion) between the 2017 and 2018 financial years, mostly driven by rising consumer debt (up R6.9 billion) and VAT receivable (up R1.3 billion).

Stats SA noted the amount owed to municipalities was steadily increasing every year.

“A number of municipalities may have poor strategies in place to collect debt. On the other hand, residents could be prioritising their spending on clothing, food and other commodities above those of rates and services.”

For the year to June 30, 2018 the largest contributor to municipal revenue of R370 324 million was grants and subsidies received (29.9%), followed by electricity sales (26.9%), property rates received (15.8%).

This was followed by “other revenue” (11.6%) made up of fines, licences and permits, public contributions and donations among others, as well as water sales (9.3%), sewerage and sanitation charges (3.7%), and refuse removal charges (2.8%).

In 2018, the largest contributor to municipal total operating expenditure of R346 655 million was employee-related costs (28%), followed by electricity purchases (21.4%), depreciation and amortisation (8.9%), other expenditure (8.1%) consisting of collection costs, loss on disposal of property, plant and equipment and impairment loss, to name a few.

Then there were contracted services (8%), bad debts (6.8%), water purchases (5.9%) general expenditure (5%) (accommodation, travel and subsistence costs, audit fees, bank charges, consultancy and professional fees, fuel and oil, hiring of equipment, insurance costs, etc), interest paid (3%), repairs and maintenance (2.1%), grants and subsidies paid (1.8%), and remuneration of councillors (1.2%).

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