‘Failing’ municipalities to get hefty slice of virus money pie

Local government, a hotbed of maladministration and financial mismanagement, is set to have its funding share increased from R133 billion to R140 billion due to Covid-19 devastation, with an additional R11 billion in equitable share.

Finance Minister Tito Mboweni also announced on Wednesday in his supplementary budget that the national budget share for the 2020-21 has been increased from R758 billion to R790 billion, while the provincial share was slashed from R649 billion to R645 billion.

The number of municipalities in financial distress has doubled from 64 to 125 in the past decade, with data analytics firm Municipal IQ pointing out that service delivery protests had risen from 107 in 2009 to 218 in 2019.

“We urge communities to hold councils accountable for the spending of Covid-19 funds. National Treasury will also monitor the spending through monthly and quarterly reports,” said Mboweni, who proposed R21.5 billion for Covid-19-related healthcare spending, with a further allocation of R12.6 billion to the front line of the government’s response to the pandemic.

The finance minister painted a picture of economic doom and gloom, with stern warnings about the state of the economy which has been compounded by the Covid-19 devastation.

He said the projected total consolidated budget spending, including debt service costs, would exceed R2 trillion for the first time and gross tax revenue collected during the first two months of 2020-21 was R142 billion, compared to the initial forecast of R177.3 billion.

“Put another way – we are already R35.3 billion behind on our 2020-21 target. As a consequence, gross tax revenue for the 2020-21 fiscal year is revised down from R1.43 trillion to R1.12 trillion. That means that we expect to miss our tax target for this year by more than R300 billion,” Mboweni said.

Part of this revision was because the measures announced earlier this year gave taxpayers outright relief of R26 billion and delays in tax collection of approximately R44 billion.

The minister said, taken together, the measures and adjustments translated into a consolidated budget deficit of R761.7 billion in 2020-21, compared with the deficit of R370.5 billion projected in February.

“The main budget deficit is projected to be 14.6% of GDP. Our early projection is that gross national debt will be close to R4 trillion, or 81.8% of GDP by the end of this fiscal year. This is compared to an estimate of R3.56 trillion or 65.6% of GDP projected in February,” Mboweni said.

Without external support, these borrowings would almost entirely consume all the annual domestic saving, leaving no scope for investment or borrowing by anyone else.

The minister said government intended borrowing about $7 billion (R121 billion) from international financial institutions but stressed that “we must make no mistake, these are still borrowings. They are not a source of revenue. They must be paid back.”

He said a fiscal reckoning loomed and public finances were dangerously overstretched. Debt would also spiral.

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