Abstract:
This article seeks to analyse the fiscal sustainability of municipalities in South
Africa in view of increasing protests about the poor level of service delivery
– especially in the smaller municipalities. International evidence also reflects
disappointment with the classical view that government closer to people addresses
the allocation problem more effectively with the lower spheres of government more
accountable to the residents. The lack of “hard budget constraints” with revenue support
in the form of grants and subsidies causes fiscal prudence to be eroded and in many
instances local fiscal objectives are not aligned with that of the national government.
Of crucial importance is the sustainability of the finances of the municipalities and this
article identifies criteria with which sustainability at the local government sphere can
be quantified. Two distinct dimensions are discussed, namely a static dimension as well
as a dynamic dimension where the impact of changes in income and expenditures on
debt ratios is measured. The results show that if grants and subsidies be deducted from
revenue, most municipalities will not survive financially. In many instances revenue
is only collected after a long lag if collected at all. Municipalities’ debt is increasing
and backlogs in the expansion and maintenance of infrastructure are widening. The
research results tend to support the view that government should carefully re-evaluate
the number of municipalities allowed to manage their own budgets and that more
stringent financial reporting be enforced.
