The National Treasury has today published on its website (www.treasury.gov.za/mfma) the 2010/11 MTREF budget information for all 283 municipalities. This is an annual occurrence.
The information reflects aggregated municipal budget totals for the 2010/11 financial year and over the medium term period. It is summarized in a variety of ways including per category of municipality and per province. Compared to last year's publication, the following information has been introduced to further enrich the analysis of municipal budgets: a summary of financial dimensions, and details of schedules A1 to A10, as per the Municipal Budget and Reporting Regulations format.
I. Audited results for 2008/09 3. The information will assist policy makers, researchers, sector specialists, elected representatives, academics and those responsible for implementation. It will also be used by National Treasury as the basis for the In-year Management, Monitoring and Reporting System for Local Government (IYM) in terms of Section 71 of the Municipal Finance management Act (MFMA). The MFMA envisages that regularly published budget information will enable and empower communities to hold their Municipal Councils accountable.
Section 24(3) of the Municipal Finance Management Act, 2003 (Act No. 56 of 2003)(MFMA) requires that Accounting Officers submit to National Treasury and the relevant provincial treasury their municipality's annual budgets, once these have been approved by their respective Councils. The National Treasury has published these budgets on its website on an annual basis since the 2005/06 financial year. Any queries on figures reflected in the statement should therefore be referred to the relevant Municipal Manager, or the relevant Chief Financial Officer.
The Municipal Budget and Reporting Regulations were promulgated on 17 April 2009. All municipalities were required to conform to the new budget formats by completing and submitting their 2010/11 MTREF Budgets in the prescribed formats (A1 Schedules). Of the 283 municipalities, only 11 municipalities did not conform. This is a massive achievement and has exceeded expectations. However, challenges remain in municipalities regarding the quality of information.
National Treasury extends appreciation to all municipalities who sought to comply with the new Budget and Reporting Regulations for the 2010 Budget. This greatly enhances the transparency of municipal budgets.
See the attached annexure A for a high level analysis of the 2010/11 MTREF for municipalities.
The analysis below is restricted to the aggregated expenditure by category of municipality, an overview of the budgets of the six metropolitan councils, the secondary cities (next top 21 municipalities in terms of budget size) and a summary of municipal budgets per province. The detail in the supporting tables will provide more information by type of expenditure item and other operational information. Additional information on individual municipalities is contained in the supporting schedules published on the National Treasury website.
Table 1a represents the aggregated budgeted revenue by category of municipality over the 2010 MTREF period. Category A refers to metros, category B to local municipalities and category C to district municipalities. In aggregate, budgeted revenue for 2010/11 is approximately R243.4 billion which is projected to increase to R258.5 billion in 2011/12 and R285.7 billion in 2012/13. Total budgeted revenue for 2010/11 has increased by 14.7 per cent compared to original estimates for 2009/10. This change is the result of a 22.1 per cent decline in capital revenue and a 26 per cent increase in operating revenue.
Table 1b represents the aggregated budgeted expenditure by category of municipality over the 2010 MTREF period. Total municipal expenditure in 2010/11 is projected to be R232.6 billion, increasing to R244.4 billion in 2011/12 and R269.7 billion in 2012/13. Total budgeted expenditure for 2010/11 has increased by 14.6 per cent compared to the original budget estimates for 2009/10. This comprises a 17.5 per cent decrease in capital expenditure and a 25.1 per cent increase in operating expenditure.
As a share of the total local government expenditure budget for the 2010/11 financial year, the expenditure budget of the six Metros represents 57.2 per cent, whereas local municipalities represent 35.1 per cent. District municipalities represent only 7.7 per cent of total expenditure. These trends remain largely constant over the MTREF period.
Of the overall budget of municipalities, aggregated capital expenditure represents 17.7 per cent in 2010/11, 16.1 per cent in 2011/12 and 15 per cent in 2012/13.
The aggregated budgeted expenditure for all metros over the 2010 MTREF period is contained in Table 2a. Total expenditure appropriations amount to R133.0 billion in 2010/11, R149.7 billion in 2011/12 and R167.4 billion in 2012/13, reflecting a total increase of 12.5 and 11.8 per cent in the two outer years of the MTREF. Spending by metros on capital increases over the MTREF by 10.1 per cent, while operating expenditure will on average increase by 13.4 per cent per annum. The capital budget of the metros constitutes 47.5 per cent of the total municipal capital budget for 2010/11 and capital expenditure by metros accounts for 53.2 per cent of total municipal capital expenditure in 2012/13. This highlights the overall importance of the metros in the government's drive to promote job creation and economic growth.
The table also expresses the total spend of each metro as a percentage of total expenditure by all metros. This comparison reflects the size of each metro's expenditure relative to others, and this generally remains stable over the MTREF. The comparison of metros relative share of capital expenditure to their relative share of operating expenditure indicates that the eThekwini and Nelson Mandela Bay metros have very ambitious capital programmes, while Ekurhuleni and City of Johannesburg have relatively low levels of capital spending. The impact of eThekwini and Nelson Mandela Bay's capital programme on their cash position and overall financial sustainability will need to be monitored closely.
Operating expenditure by metros accounts for more than half (59.3 per cent in 2010/11) of total municipal operating expenditure over the 2010 MTREF.
The revenue to be generated by metros through the sale of core municipal services is reflected in Table 2b. The major drivers of revenue in 2010/11 are electricity (R39.4 billion), water (R11.1 billion), sanitation (R4.7 billion) and refuse removal (R2.6 billion). Over the MTREF, large increases are expected for electricity, illustrated by the 23.4 per cent growth in 2011/12 and 24.4 per cent in 2012/13. This is primarily due to the increase in the bulk price of electricity being passed through to customers.
Table 2c shows projected expenditure by metros on bulk purchases for electricity and water provision over the MTREF. Metros have budgeted R25.5 billion to pay for electricity bulk purchases in 2010/11, a figure which is projected to grow by 27.4 per cent and 27.6 per cent in the respective outer years of the MTREF. It is estimated that expenditure on bulk purchases of electricity will exceed R41.6 billion by 2012/13. When comparing the revenue generated from the sale of electricity to the expenditure incurred on bulk electricity purchases, it appears that metros generate a substantial profit from the sale of electricity. However, bulk purchases only constitute on average 67 per cent of the cost to the metros of managing the electricity function. Other operational costs include expenditure on personnel, materials, refurbishment, repairs and maintenance and distribution losses. The net profit on the sale of electricity is important for metros but has been under significant pressure due to the very rapid increase in the bulk price of electricity.
Expenditure on bulk water amounts to R5.4 billion in 2010/11 and increases by 10.7 per cent to R5.9 billion in 2011/12 and 10.9 per cent in 2012/13 to R6.6 billion.
Table 3 is the aggregated budgeted expenditure for the secondary cities (top 21 municipalities) over the MTREF period. The total expenditure budget amounts to R38.2 billion in 2010/11, R36.8 billion in 2011/12, and R40.7 billion in 2012/13. Spending on capital by secondary cities over the MTREF is expected to decline, partly due to poor multi-year budgeting practices and insufficient provision for the eradication of backlogs. Operating expenditure is expected to increase by a marginal 1 per cent in 2011/12 and by 12 per cent in 2012/13. Once again these variances in the increases over the MTREF can be partly attributed to poor multi-year budgeting.
Municipalities with the lowest proportion of capital budget to total budget are Emfuleni, Matjhabeng, Buffalo City, Msunduzi and Mangaung - all with percentages below 12 per cent. For 2010/11 the average percentage capital budget to total budget for secondary cities was 16.4 per cent compared with 14.7 per cent for metros. Note that metros tend to deliver a wider range of services with higher levels of operational expenditure such as health and safety.
Over the medium term both the capital and operating budgets of the secondary cities exhibit some stability, with a slight growth in the operating budgets in 2011/12 and 2012/13, while the capital budgets decrease and then appear to stabilise over the medium-term.
Table 4 shows the aggregated budgeted expenditure for all municipalities per province over the 2010 MTREF. Total municipal capital expenditure in 2010/11 is estimated at R41.2 billion, declining to R40.5 billion in 2012/13. A provincial analysis shows that KwaZulu-Natal (with 61 municipalities, including 1 metro and 3 secondary cities) has the highest capital budget set aside for 2010/11, at R10.1 billion or 24.6 per cent of the total municipal capital budget. This is followed by Gauteng (14 municipalities, including 3 metros), at an estimated R9.3 billion or 22.5 per cent and the Western Cape (30 municipalities, including 1 metro and 3 secondary cities) at R6.1 billion or 14.7 per cent. The Eastern Cape, which is predominantly rural with 1 metro, is ranked fourth in terms of capital expenditure and is estimated to spend R5.2 billion in 2010/11. A concern is that many capital budgets may be overstated and inadequately funded.
The average national per capita spending in terms of operating and capital expenditure is estimated to be R4 796 in 2010/11. Only three provinces will exceed this national average in 2010/11, namely Western Cape at R8 100 per capita, Gauteng at R7 470 per capita and the Northern Cape at R9 715 per capita. The high per capita spend in the Gauteng and Western Cape provinces is likely because both of these provinces are home to a significant proportion of the country's economic activity. This tends to increase spending on traded items like electricity and water, which then skews the per capita analysis. Per capita expenditure numbers will also tend to be higher in those provinces where service delivery backlogs are lowest.
The lowest level of per capita spending is in North West, where spending is estimated to be R1 199 per capita in 2010/11. In 2009/10 per capita spending in the North West was R3 277. This is a significant deterioration and is a cause for concern especially given the province's relatively low levels of development.