Ballooning municipal arrears shows EC residents are suffering

Issued by Retief Odendaal, MPL
Shadow MEC for Finance

Municipalities are owed a staggering R22 billion by Eastern Cape residents and businesses, a ballooning spiral of debt that highlights just how dire the state of household finances in our province has become.

The figures were provided by Finance MEC, Mlungisi Mvoko, in response to a parliamentary question from the Democratic Alliance and raise alarms over upcoming municipal rates hikes.

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The DA will once again appeal to Provincial Treasury to provide guidelines to local government structures to keep any potential rates and service charge increases within the targeted CPI band.

It’s clear that many households and businesses are struggling to pay their municipal accounts. The increasing trend of defaults should be a serious cause for concern for local municipalities currently determining their rates and service increases for the new financial year.

Further excessive price hikes to rates are more likely to result in additional defaults than additional revenue.

Many residents must choose between paying municipal rates and putting food on the table. When the municipality fails to provide the most basic of services, such as clean water, electricity or refuse removal, the decision not to pay becomes easier.

It’s feared that the ballooning debt owed to local government will severely impact the financial sustainability of Eastern Cape municipalities.

The debt is already having a negative impact on the local government’s cash flow in the province, which in turn has impacted its ability to pay for services rendered.

MEC Mvoko revealed that R5.3 billion was owed to service providers, as of 31 December 2021.

More than R4 billion of this amount represents arrear debt, an increase of more than R1.2 billion compared to the same period the year before.

State and provincial departments that fail to pay local authorities their dues are also adding to the financial woes of municipalities.

As of the 31st of December 2021, organs of state owed Eastern Cape municipalities R529 million, of which R470 million was funds in arrears.

The DA will once again appeal to Provincial Treasury to provide guidelines to local government structures to keep any potential rates and service charge increases within the targeted CPI band.

The Democratic Alliance will make the following suggestions to Provincial Treasury with regard to the ballooning municipal debt in the province:

  1. Guidelines should be provided to local government so that any increases in municipal service charges and municipal rates are aligned with national government’s targeted CPI;
  2. All provincial organs of state to settle arrear municipal debt within the first 30 days of the start of the new financial year;
  3. All municipalities to consider implementing a responsible, costed debt relief program in a bid to assist struggling account holders and manage their debtors’ book;
  4. Ringfencing electricity sales revenue within municipalities in a bid to prevent them from spending revenue earned from electricity sales without honouring their ESKOM accounts;
  5. All municipalities to urgently review Debt Control Policies.

Provincial Treasury needs to provide support to vulnerable municipalities with the view of strengthening financial controls. Now more than ever we require responsive provincial departments that can rebuild local government so that we can get local government and our people working again.

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