In his budget speech on 25 February 2015 Finance Minister, highlighted that “Today’s budget is constrained by the need to consolidate our public finances, in the context of slower growth and rising debt we must intensify our efforts to address economic constraints, improve our growth performance, create work opportunities and broaden economic participation.”
As outlined by the President of South Africa in the State of the Nation Address on the 12th of February 2015, Cabinet has agreed on nine strategic priorities to be pursued this year, in partnership with the private sector and all stakeholders. They include:
• Resolving the energy challenge,
• Revitalising agriculture,
• Adding value to our mineral wealth,
• Enhancing the Industrial Policy Action Plan,
• Encouraging private investment,
• Reducing workplace conflict,
• Unlocking the potential of small enterprises,
• Infrastructure investment, and
• Support for implementation of the National Development Plan through in-depth, results-driven processes, known as phakisa laboratories.
The following impacts directly on local government’s budgets:
• Global economic growth is expected to remain sluggish over the period ahead, rising from 3,3% in 2014 to 3,5% this year.
• Electricity shortages hold back growth in manufacturing and mining, and also inhibit investment in housing and raise costs for businesses and households. Mainly for this reason, local projected economic growth for 2015 is only 2%, down from 2,5% indicated in October last year. Growth is expected to rise to 3% by 2017.
• Consumer price inflation peaked at 6,6% in June last year. It has subsequently declined to just 4,4% last month, and is expected to average 4,3% in 2015, laying a foundation for economic growth.
The focus of the draft 2015/16 MTREF is to ensure that the City is financially viable and sustainable.
This required reviewing of the current spending levels within prudent financial limits, necessitating re- alignment and addressing basic service delivery.
The IDP remains the implementation framework for service delivery interventions, good governance and a mobilisation platform for partnership with the private sector and social partners and communities.
The preparation of the budget is directly informed by the needs submitted by the community through the
upon. To achieve the aspirations of the theme, strategic objectives and indicators were identified and these remain as per the amendment of the 2014/15 IDP as follows:
• Provide sustainable services infrastructure and human settlement.
• Promote shared economic growth and job creation.
• Ensure sustainable, safer communities and integrated social development.
• Promote good governance and an active citizenry.
• Improved financial sustainability.
• Continued institutional development, transformation and innovation.
Subsequently, through the development of Tshwane Vision 2055, the City has set a long term development agenda which will guide all future initiatives of the City. The long term vision of the City is as follows:
In 2055, Tshwane is liveable, resilient and inclusive whose citizens enjoy a high quality of life, have access to social, economic and enhanced political freedoms and where
citizens are partners in the development of the African Capital City of excellence.
National Treasury issued Circulars 74 and 75, guiding municipalities in the preparation of their 2015/16 MTREFs.
Figure 1: City of Tshwane’s guiding principles
The 2015/16 MTREF reflects the reality of the current budgetary pressures. The following budget guidelines directly informed the compilation of the budget:
• Produce a surplus budget and build cash reserves.
• Resources will be redirected towards the Mayoral priorities.
• Departments and Entities must ensure that ongoing expenditure is funded with ongoing revenues and any reduction in revenues should be followed by a reduction in expenditure.
• Departments should critically review their current activities and redirect funds towards priority areas.
• Maintain all assets at a level adequate to protect the capital investment and minimize future maintenance and replacement costs.
• Explore alternative options of providing services, thereby ensuring value for money.
Other strategies and measures implemented to ensure sustainability are as follows:
• Budget Policy.
• Revenue Enhancement Strategy.
• Budget principles and guidelines.
• Cash-flow management intervention initiatives.
• Balance sheet restructuring and optimisation.
• Revenue, Expenditure and Performance Committee (REPCO).
• A Joint Operating Committee (JOC) for Revenue was established to improve revenue collection and synergize revenue collection efforts across the city.
The City of Tshwane has the following active municipal entities which are found to be viable and functioning in compliance with the Municipal Finance Management Act and the Local Government Systems Act:
• Sandspruit Works Association.
• Housing Company Tshwane.
• Tshwane Economic Development Agency (TEDA).
With the promulgation of the 2015 Division of Revenue Bill (DoR Bill) on 25 February 2015, the grant allocation (including indirect grants) towards the City of Tshwane amounted to R5,8 billion, R6,2 billion and R6,6 billion in the 2015/16, 2016/17 and 2017/18 financial years respectively. For the 2015/16 financial year, total Capital Grants of R2,5 billion and Operational Grants of R3,3 billion are included in the budget.
The outcome of the budgeting process can be summarised as follows:
Table 1: Consolidated overview of the 2015/16 MTREF
The total operating revenue has grown by 4,7% or R1,2 billion for the 2015/16 financial year when compared to the 2014/15 Adjustment Budget. For the two outer years, operational revenue will increase by 8,5% per annum, equating to a total revenue growth of R5,8 billion over the MTREF when compared to the 2014/15 financial year.
Total operating expenditure for the 2015/16 financial year has been appropriated at R26,3 billion and translates into a budgeted surplus of R584,9 million. When compared to the 2014/15 Adjustment Budget, operational expenditure has grown by 4,6% in the 2015/16 financial year and by 8,4% and 8,1% for each of the respective outer years of the MTREF. The operating surplus for the two outer years increases to R660,9 million and R833,5 million respectively.
The funding capacity of the capital budget amounts to R3,9 billion, R4,0 billion and R4,2 billion over the medium term. Borrowing amounts to R1,2 billion per annum over the medium term and contribute to 31,1%, 30,1%, 28,9% of capital expenditure respectively. Grant funding constitutes 63,6%, 62,8% and 63,2% over the medium-term. The balance will be funded from own funds (internally generated funds and Public Contributions and Donations) which amount to 5,3%, 7,1% and 7,9% for the three years respectively.
Adjustments
Budget 2014/15 Budget
2015/16 Budget
2016/17 Budget 2017/18
R’000 R’000 R’000 R’000
Revenue (25 110 962) (26 295 831) (28 530 226) (30 955 278)
Expenditure 24 589 717 25 710 916 27 869 289 30 121 737
(Surplus)/ Deficit (521 245) (584 915) (660 937) (833 541)
Capital Grants (2 623 113) 2 453 160) (2 506 939) (2 632 126)
(Surplus)/ Deficit incl. capital grants (3 144 357) (3 038 075) (3 167 876) (3 465 667) Total Capital Expenditure 4 388 781 3 856 566 3 991 839 4 162 126