Local Government Organization and Finance: South Africa
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Surcharges Although not widely used, surcharges (or consumption taxes) represent a potentially significant taxing power exclusive to local government. Municipalities’ power to tax consumers on the amount of local government services they use and the national government’s right to regulate this form of taxation through legislation are contained in section 229 of the constitution. In addition, the Systems Act (section 11(3)) provides for surcharges. Protagonists of surcharges argue that they are more transparent than surpluses generated from profits on trading services (Bahl and Solomon 2000; Whelan 2004). However, they have not been widely used, in part because the national electricity regulator disallowed the use of this tax on electricity service on the grounds that it is not part of a national strategy, and in part because the practice of trading surpluses as a source of local revenue has continued. Surcharges may well become a more prevalent form of local revenue generation as the restructuring of service sectors unfolds. The introduction of regional distributors (as in the electricity sector) could increase the pressure for local governments to use this form of taxation.
The Revenue Collection Issue Although many local governments enjoy considerable autonomy over local resources, revenue collection remains a concern. The National Treasury (2003b, 2004b) estimated total outstanding consumer debt to all municipalities in 2004 at R 28 billion. Annually, municipal accumulated debtor balances, mainly to metropolitan and local municipalities, have been rising in recent years by about 3 percent of annual expenditure.9 Despite National Treasury and DPLG initiatives to help municipalities improve service delivery, billing, and systems, capacity shortcomings and large household debts remain major impediments.
Intergovernmental Transfers In aggregate, 10 to 16 percent of municipal expenditure is financed through intergovernmental transfers, but this range disguises significant variance between larger urban municipalities and others. Some smaller municipalities are almost fully dependent on grants. The 2005 announcement that the RSC levy is to be replaced—at least on an interim basis—by a new grant to district and metropolitan municipalities has introduced a new dimension, which it has not been possible to fully consider for this analysis. Table 2.5 reflects the relative contribution of transfers to municipal expenditure.
