Intergovernmental Transfers

Local Government Organization and Finance: South Africa 73

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 oflocal government services they use and the national government’s right to regulate this form oftaxation through legislation are contained in section 229 ofthe constitution.In addition,the Systems Act (section 11(3)) provides for surcharges.

Protagonists ofsurcharges 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 ofthis tax on electricity service on the grounds that it is not part ofa national strategy,and in part because the practice oftrading surpluses as a source oflocal revenue has continued.Surcharges may well become a more prevalent form oflocal revenue generation as the restructuring ofservice sectors unfolds.The introduction ofregional distributors (as in the electricity sector) could increase the pressure for local governments to use this form oftaxation.

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 ofannual 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 ofmunicipal 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 oftransfers to municipal expenditure.