R20 billion alarm bell for EC municipalities

Issued by Retief Odendaal, MPL
Shadow MEC for Finance

Eastern Cape residents and businesses have been especially hard hit by the economic fallout of the Coronavirus pandemic, as money owed to local government for services soars past R20-billion.

Alarm bells should be ringing across the province for all local municipalities currently determining their rates and service increases for the new financial year. Ratepayers are already under significant strain, and excessive price hikes are more likely to result in additional defaults than additional revenue.

The Democratic Alliance is appealing to Provincial Treasury to provide guidelines to local government structures to keep rates and service charges to a minimum for the next financial year.

The figures, provided by Premier Oscar Mabuyane in response to a parliamentary question from the Democratic Alliance, show that municipalities are owed in excess of R20-billion in arrear service charges.

Domestic households appear to be struggling the most when it comes to paying municipal bills, as ordinary consumers now owe municipalities some R14,5-billion, while commercial consumers owe municipalities some R3,45-billion in arrear debt.

Of this amount, R10-billion accrued over the last year, a clear indication of the decimating effect Covid-19 has had on household income in the province.

SEE IQP 3 question 15

The ballooning debt owed to local government in the province doesn’t bode well for many municipalities that have serious cash flow problems, or that are on the verge of bankruptcy. The National Treasury revealed last year that 10 Eastern Cape Municipalities had negative cash flows as at the end of the previous financial year, in June 2020.

The arrear debt is also impacting on local government’s cashflow, which in turn has impacted on its ability to pay for services rendered. Based on the response, some R2,8-billion was owed to service providers, as of 31 December 2020.

Another concerning trend is that government is also not paying municipalities their dues, as organs of state now owe Eastern Cape Municipalities R1,33-billion in arrear debt. An amount of R521-million has been outstanding for more than a year already.

A capable state would be identifying ways of cutting local government expenditure and implementing cost saving measures, rather than expecting already overburdened consumers to pick up the tab.

I will be writing to Finance MEC, Mlungisi Mvoko, to request that Provincial Treasury provides guidelines to local government structures, to keep rates and service charges to a minimum, in line with consumer price inflation, for the next financial year.

Provincial Treasury also needs to provide additional support to vulnerable municipalities with the view of strengthening financial controls.

Now more than ever we require responsive provincial departments that can rebuild our local government to get local government and our people working again.