allocations to the city by the National Treasury
20 February 2009
The National Treasury wishes to respond to the article published in the Cape
Times newspaper of 18 February 2009. The allegations made by the city that it
was unfairly treated in the 2009 budget allocations and is being punished for
being well run are simply untrue and is a distortion of facts.
The city contends that there has been a shortfall in its allocations
compared to projections given in the 2008 budget. However, these projections
form part of the National Treasury's efforts to assist municipalities in
putting in place multi-year budgeting and the amounts are only indicative. The
City of Cape Town was therefore guaranteed to receive 90 percent of the
indicative amount for 2009/10 as per the 2008 Medium Term Expenditure Framework
(MTEF).
The full amount allocated for the 2009 budget is based on the equitable
share formula. Furthermore, the Financial and Fiscal Commission, a
Constitutional body, oversees this formula to ensure that it conforms to the
principles espoused in Section 214 of the Constitution.
The City of Cape Town indicates that it falls in the same category as
municipalities such as Ekurhuleni, which is allocated an equitable share amount
of R1 billion in 2009/10 compared to Cape Town's R609 million. It appears that
the City of Cape Town is not fully cognisant of the demographics that underpin
how the formula works. The formula does indeed ensure that municipalities with
similar socio-demographic and service delivery constraints will receive similar
allocations. Although the population sizes of these two and most other
metropolitan municipalities are similar, their levels of poverty and access to
services vary. Ekurhuleni Metro has nearly 100 000 more poor households than
the City of Cape Town (2001 Census) which explains at least part of the
variance in the equitable share allocations between these two metros.
The City of Cape Town also raises the difference in the projected and actual
grant allocation in terms of the Regional Services Council (RSC) replacement
grant. Again, the projected amount was indicative only.
The City of Cape Town's contestation that the replacement grant amount is
intended to replace the revenue from the abolished RSC levies is
misleading.
These RSC levies were abolished in 2006 as they were inequitable. The system
was biased towards municipalities who had a strong company head office base,
such as Johannesburg and Cape Town. Nearly 60 percent of the 'metro' RSC levies
collected accrued to these two metros only. However many companies with head
offices in these two metros had large operations in other municipalities and
provinces as well.
These other metros did not receive the funds which were collected by the RSC
levies. Naturally, with the introduction of a new revenue source, distribution
would have to differ from the existing RSC levy distribution. Continuing to
allocate funds along the same structures as the previous system would continue
the flaws inherent to the RSC levies.
The general fuel levy was agreed upon as a replacement to the RSC levy after
extensive consultation, including with local government stakeholders, and was
politically endorsed. It complied with the four main criteria informing the
replacement levy, mainly: an endeavour to maintain local government fiscal
autonomy; to meet the criteria of a good local tax regime, closely approximate
the same incidence as the RSC levies, and to protect municipalities from fiscal
shocks. Government is phasing in the fuel levy over three years to ensure a
smooth transition from the RSC levy replacement grant.
The National Treasury remains committed to a transparent budgeting system,
protecting the poor and marginalised communities while ensuring that the
macro-economic fundamentals remain in place.
Issued by: National Treasury
20 February 2009
Source: National Treasury (http://www.treasury.gov.za)
