Equitable share formula and fiscal capacity in municipalities with particular reference to Msunduzi Municipality.
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Date
2015
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Abstract
The apartheid regime left its imprint on South Africa's municipalities with systematic
under-investment in municipal infrastructure in black areas. Deprivation of communities
with limited access to basic services including water, sanitation, refuse collection and
roads created skewed settlement patterns as one of ‘enduring planned and deliberate’
poverty. The Constitution of the Republic of South Africa, 1996 established ‘wall-to-wall’
local government with municipalities to address past inequalities. There was no equally
corresponding increase in the tax base of communities within municipalities. As a result,
they are faced with fiscal imbalances in raising adequate funds to meet mandated
functions with municipalities heavily dependent on intergovernmental transfers from
national government. Twenty one years into democracy, municipalities continue facing
infrastructural disparities evidenced by significant increases in service delivery protests.
A suitable redistributive approach is envisaged as current local government funding
arrangements may not be addressing objectives of development and redistribution
adequately. National Treasury recently completed a review of the 2008 LGES formula
and introduced a new formula for the equitable distribution of funds to municipalities.
The purpose of the study was to assess the appropriateness of the new LGES formula
as a resource allocation and mechanism for equitable resource sharing in government,
deemed a focal point in addressing municipal fiscal challenges, using Msunduzi
Municipality as reference. Underpinned by the pragmatic paradigm or philosophical
worldview, the study used mixed methods research design which included review of
documented data, as well as questionnaires for empirical data. The key research
question was if the current Local Government Equitable Share formula fiscally
capacitates municipalities such that they are able to provide basic services to
communities? The study revealed that there is insufficient data available at the local
government level to support the design of an appropriate LGES formula. The formula is
unable to accurately quantify fiscal structural gaps in municipalities, and therefore fails
to respond to basic service needs of municipalities. Furthermore, the LGES formula
cannot be effective if the restraints on municipal own revenue sources are unresolved.
National government must identify constraints to revenue generation and collection in
municipalities to provide appropriate and sustainable financial support whilst promoting
economic development, good governance and social progress for all financially ‘ailing’
municipalities.
Description
Master of Commerce in Public Administration. University of KwaZulu-Natal, Durban 2015.
Keywords
Local government--Finance--South Africa--Msunduzi., Municipal government--Finance--South Africa--Msunduzi., Local finance., Resource sharing., Public administration.