Short-changed — National Treasury threatens to halt more than a billion rand to Gauteng metros

Johannesburg, Ekurhuleni and Tshwane have all received a communique from National Treasury deputy director-general Malijeng Ngqaleni this week, stating its intention to stop conditional grants, and an instruction to submit written representations for poor expenditure within seven days.

Should the National Treasury forge ahead with the decision, the country’s richest metro, Johannesburg, will be the most affected, as it stands to lose about R1.2-billion in conditional grants.

The National Treasury said it would stop payments for the programme and project preparation support grant, the urban settlement development grant, the public transport network grant, the informal settlement upgrading partnership grant, and the neighbourhood development partnership grant.

Johannesburg’s city manager, Floyd Brink, said upon receiving the letter, the city had conducted an analysis on spending for all the grants to date, and would be providing a comprehensive report to the National Treasury within the next two days.

“We want to assure our residents that a majority of the allocated funds have already been committed and contractors are currently working on approved projects in different regions of Johannesburg. These projects align with our Service Delivery Budget Implementation Plan. As part of our response to the National Treasury, we will outline the steps we are taking to expedite the completion of projects that are lagging behind, ensuring that all grant allocations are spent by the end of the financial year,” Brink said.

The city is in crisis, with electricity and water cuts now common enough to no longer make headlines. It has conceded that it has experienced a revenue collection crisis, mostly coming from the sale of water and electricity to residents. The revenue collection crisis has negatively affected the delivery of services in several areas in the city.

Ekurhuleni, on the other hand, stands to lose more than R600-million. The metro, a key contributor to the economy of Gauteng, was under the control of a DA-led coalition after the 2021 local government elections. In 2022, a marriage between the ANC, EFF and their allies saw a strong partnership and takeover of other metros, including Johannesburg, which the ANC lost to a DA-led coalition after the 2021 local government elections.

Ngqaleni said the urban settlement development grant, public transport network grant, and the neighbourhood development partnership grant would have their allocations affected.

“The National Treasury hereby informs you of the intention to stop an amount of R498.3- million from your 2023/24 USDG allocation of R1.2-billion, stop an amount of R73.6- million from your 2023/24 PTNG allocation of R773.2-million, and stop an amount of R35.2-million from your 2023/24 NDPG allocation of R216.9-million terms of section 18 of the 2023 DoRA.”

Of the three metros, Ekurhuleni is relatively well run, at least on paper. Its financial statements regularly get unqualified audits from the Auditor-General South Africa, meaning that the financial statements contain no material misstatements. Other than Cape Town, Ekurhuleni was the only metro to receive a clean audit in 2022/23. However, councillors now fear liquidity issues could cost the municipality its clean audit status. Despite the possible withdrawal or stoppage of the grants, Ngqaleni said the decision would not in any way affect future allocations of any of the municipalities.

Tshwane, home to more than four million residents, has been candid about its severe financial constraints. It stands to have more than R600-million taken back by National Treasury. On Monday this week, the city set itself an ambitious goal of collecting an additional R1-billion a month for the next six months, from defaulting customers and businesses, as part of its financial rescue mission.

Similar to Johannesburg, National Treasury said it would stop grants for the programme and project preparation support grant, urban settlement development grant, the public transport network grant, informal settlement upgrading partnership grant, as well as the neighbourhood development partnership grant. Tshwane executive mayor Cilliers Brink said he was not oblivious of the seriousness of the decision and that the city would comply with an instruction to account for the poor expenditure.

“To be sure, we take this risk very seriously as we know that the national government is in a similar position as the City – in serious financial trouble – and is looking to claw back money from municipalities ahead of the finance minister’s budget speech. We will give a full account of our situation to the National Treasury and outline plans to spend our full capital allocation.”

Tshwane’s financial woes were exacerbated by a four-month municipal strike over salary increments. The strike led to the collapse of services including waste collection, attending to electricity and water outages, and fixing leaks, potholes and streetlights. It turned violent and 255 vehicles belonging to the city were torched. Brink said his administration was aware that spending a full capital budget was essential to improving infrastructure for service delivery, especially to the poor.

The metros have since been requested to motivate to National Treasury on the following, among other issues:

1. Why expenditure reported as at 31 December 2023 is below 45%
2. Progress report against approved projects (provide list/names of approved projects)
3. Commitment that the allocated funds are committed and that they will be fully spent by the end of the financial year, 30 June 2024, i.e., commitment that the municipality will not request rollover against the funds proposed to be stopped.

• Excerpt from Njilo, N. (2024, February 16). Short-changed — National Treasury threatens to halt more than a billion rand to Gauteng metros. Daily Maverick. https://www.dailymaverick.co.za/article/2024-02-16-short-changed-national-treasury- threatens-to-halt-more-than-a-billion-rand-to-gauteng-metros/ (accessed April 4, 2024).

QUESTION 1 [30 MARKS]

Assess the effectiveness of Johannesburg’s revenue strategy in light of the revenue collection crisis mentioned in the article, and critically analyse the potential impact of the withdrawal of conditional grants on Ekurhuleni’s financial stability and its ability to contribute to the economy of Gauteng.

QUESTION 2 [30 MARKS]

Critically evaluate the role of the National Treasury in overseeing municipal finances, and its authority to stop conditional grants. Discuss the implications of the financial constraints faced by Tshwane on its ability to comply with public finance legislation and maintain service delivery standards.

QUESTION 3 [15 MARKS]

Evaluate the financial management practices of Johannesburg, Ekurhuleni and Tshwane based on their ability to spend allocated funds and comply with reporting requirements. Analyse the potential consequences of liquidity issues on Ekurhuleni’s clean audit status and the broader implications for municipal governance.

QUESTION 4 [15 MARKS]

Discuss the challenges faced by Johannesburg, Ekurhuleni and Tshwane in meeting their budgetary commitments and delivering essential services amid financial constraints. Evaluate the proposed strategies of the municipalities to expedite project completion and ensure the full use of allocated funds by the end of the financial year.

QUESTION 5 [10 MARKS]

Analyse the potential impact of the withdrawal of conditional grants on the future audit outcomes of Johannesburg, Ekurhuleni and Tshwane and discuss the importance of transparency and accountability in municipal financial management, particularly in times of financial crisis.

Answers to Above Questions on Case Study

Answer 1: An analysis of the given case study indicates that there are many challenges faced by the Johannesburg revenue strategy and it is mainly because of changes in consumer behaviour in terms of consumption of water and electricity. In terms of assessing the effectiveness of its revenue strategy, it is important to consider factors such as diversification of revenue streams, and the effectiveness of financial management in its operations.