CRISIS OF LOCAL GOVERNMENT LIES IN COST RECOVERY FINANCING

by Apr 26, 2023All Articles

NOT SO LONG AGO, LOCAL government was blamed for the failures of the “new” democratic order in South Africa. Once known as the hands and feet of government, it was the target of protest by working-class communities frustrated by poor service delivery and the unfulfilled promises of liberation. Safely ensconced in national and provincial state structures, far from the toy-toying masses and the whiff of the burning tyres, senior government leaders opportunistically joined in the scapegoating of this tier of government.

To be fair, local government has not redeemed itself, infested as it is with corruption, mismanagement and unaccountability. But as the crisis of everyday life for the working class and the poor worsens, and other classes in society increasingly find it harder to ignore or be immune to it, the whole system of government led by the ANC has come under fire.

Living in darkness because of power failures, or simply not being connected to the grid, was largely normalised for people in the townships, villages and shack settlements. Today, everyone feels it and knows it.

No one can seriously put the blame for the energy crisis on local government. Everyone knows that the ANC government has failed monumentally to run Eskom and other state-owned enterprises, such as Prasa, SAA and the Post Office. Like local government, these entities have become bastions of corruption, incompetence and unaccountability. Eureka! The common denominator is the ANC.

Crisis of finance

Yet, there is a lot of talk and concern about the money owed by municipalities to Eskom. This is often tied to complaints about the “culture of non-payment”. What is the working-class perspective on local government finances? How should local government be funded? How can it be made to serve the working class and the poor?

South African local government finances are in a complete mess. Things are so bad that the municipalities cannot possibly carry out their functions and adequately meet the needs of the people they supposedly serve. Reports by the Auditor General indicate that almost half of the country’s municipalities are under financial strain and plagued with financial mismanagement and billing crises. Most municipalities are hopeless at collecting money, handling their money, and spending it.

Historically, South African municipalities have three sources of revenue: property taxes, sales of services, and funding from national government. Large property owners have always resisted paying commensurate taxes on their properties and wealth. The ANC government has characteristically walked on eggshells when dealing with this issue because of its unwillingness to challenge vested interests. In a speech in 2011, a frustrated Archbishop Desmond Tutu called for a wealth tax.

Local government has developed an unhealthy reliance on selling services to make money. A large proportion of municipal funds comes from selling electricity and water. Municipalities typically slap hefty mark-ups on sales and exponential tariff increases. The City of Johannesburg has one of the highest profit margins with an “operational mark-up” of between 72% and 101%. Cape Town, like other metros, typically increases its tariffs by a significant factor above inflation. Research suggests that water and electricity tariffs have increased by between 1,120% and 1,270% over the past 25 years.

The question is: where does all the money go? A closer look at national government’s “equitable share” transfers to local government provides a clue. The “equitable share” is money given to municipalities, according to the National Treasury, “as a policy instrument …to subsidise services to the poorest of the poor”. Many municipalities, including the large metros, misuse this money, sometimes using it to pay municipal creditors. Poor people are robbed of their right to free basic services because of financial mismanagement. This is but one example of the “unauthorised” and “fruitless and wasteful” expenditure that the Auditor General regularly identifies in her reports.

We must, however, distinguish between municipalities with a large tax base, such as the metros, and smaller local councils in small towns and the rural areas. These are arguably as disorganised, corrupt and unaccountable as the large ones. But they face bigger challenges because of small tax bases and fewer “customers” to sell their services to. Often, they find themselves in economically depressed areas, where local communities are poorer and unable to pay for municipal services. So they need greater financial support from the national government, which often is not forthcoming.

This situation draws our attention to the elephant in the room when it comes to local government funding: the neoliberal ideology that underpins the running of capitalist states in the world today.

Full cost recovery takes over

After decades of fighting against the apartheid state, inspired by Africanist, social democratic and socialist ideals, the victorious national liberation movement marched into the corridors of state power, led by the ANC. But its leadership decided to follow the politics of class collaboration rather than of class struggle, thus betraying some of its historical principles and positions.

RDP houses in Mamelodi. The ANC momentarily adopted the Reconstruction and Development Programme (RDP) to consolidate its alliance with working-class formations and to win the 1994 Uhuru elections. Shortly thereafter it embraced neoliberal economic policies, including privatisation, commercialisation and commodification of public services.

It momentarily adopted the Reconstruction and Development Programme (RDP) to consolidate its alliance with working-class formations and to win the 1994 Uhuru elections. But it had already made its Faustian pact with the capitalist class and its organs, such as the World Bank and the International Monetary Fund (IMF). Shortly thereafter it embraced neoliberal economic policies, including privatisation, commercialisation and commodification of public services.

This shift to the right had profound implications for the funding of local government, with neoliberal ideology underpinning state finances. Transfers from the national to the local were reduced. Municipalities were instructed to outsource and contract out so-called “non-core” functions and to hand over municipal services to the private sector.

Today, just 10% of the national budget is allocated to local government. Cost-recovery and user-must-pay principles replaced the RDP’s redistributive approach that was meant to “roll back” the injustices of the past. Increasingly, the Treasury fell under the thumb of the World Bank and IMF. It abused its control of the national purse strings to enforce anti-working class, anti-poor and pro-capitalist policies. The public sector was turned into a conduit to channel public funds into private pockets. Self-enrichment drove the aspirant black bourgeoisie to scramble for government tenders and contracts.

Today the Treasury wants to address the inability of municipalities to pay the Eskom debt through the new Municipal Debt Relief programme. Municipalities will be required to sign agreements that commit them to pay the Eskom debt over 36 months, under strict conditions. These include balloon payments of arrears, and interest and penalties in case they break the terms of the agreement. Furthermore, Eskom will resume legal proceedings against defaulting municipalities, including implementing its credit control and debt management policy. Treasury can institute financial misconduct and criminal proceedings against responsible municipal officials and stop the transfer of funds to the municipality (Section 216 of the Constitution). As part of the deal, municipalities are required to take steps to force residents to pay for services, including service cut-offs.

In short, the ANC proposes to solve the problem of municipal finances and funding through top-down, bureaucratic and punitive methods.

Response of workers

An important aspect in the history of the ANC’s adoption of neoliberal policy was the attack on labour, in particular public sector workers. They were defined as a drain on the fiscus rather than as key social agents in the work of providing quality public services to the masses. The ANC government’s neoliberal policies were first felt by municipal workers, whose jobs were threatened by retrenchment, outsourcing and undermining of labour standards and benefits.

The South African Municipal Workers Union (Samwu) responded by mobilising its members and reaching out to working-class communities who used public services. In an important initiative in 1998, municipal workers in Cape Town repaired water leaks over weekends, during their spare time, in the Hillstar community. This demonstrated an alternative approach to the privatisation of water and the ANC government’s drive to bring foreign investment into local government.

Samwu’s strategy sought to build upon labour-community- youth social bonds and alliances that had been built during the struggle against apartheid. These were under direct attack by neoliberalism’s re-definition of communities as “customers” and individual consumers of services. The Samwu initiative was viewed then as a good example of public-public partnerships, as opposed to the capitalist public-private partnerships promoted by the neoliberal South African government.

The solution to the current local government funding crisis does not lie in capitalism nor neoliberalism. It lies in reviving the vision of a future where the government will act on behalf and on the side of the working class. Such a government would tax the rich to fund local government and the efficient provision of services for all. It would put working-class needs ahead of profits. A government that does that cannot be a bosses’ government. It must be and will be a workers’ government.

Trevor Ngwane is a director of the Centre for Sociological Research and Practice at the University of Johannesburg. He is also a member of the United Front and the Socialist Group.

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