Page 220 - UGU Dstrct Mun IDP Report '21-22

Chapter 6: Financial Plan
6.1 Municipal Budget Overview
In terms of section 16(1) of the MFMA, the Council of the municipality must for each financial year approve an annual budget for the municipality.
6.1.1 South African Economy and Inflation Targets
The analysis of the current South African Economy and Inflation targets must be done when preparing the credible budget for 2018 / 2019 to 2020 / 2021 financial years. South Africa has experienced a period of protracted economic weaknesses which diminishes private investment across all sectors of economy due to declining in businesses and consumer confidence. The prerequisite for increased revenue to expand service delivery are rapid growth, investments, and job creation. These economic challenges will continue to exert pressure on municipal revenue generation and collections levels hence a conservative approach is advised for revenue projections. Therefore, municipalities will have to improve their efforts to limit non-priority and to implement stringent cost containment measures.
Macroeconomic performance and projections that must be considered when preparing 2018/2019 Medium Term Revenue and Expenditure Framework (MTREF) municipal budgets are captured in Table 6.1.1.1 below:
Table 6.1.1.1: Macroeconomic performance and projections
Source: Ugu District Municipality Draft Budget, 2021
Also, the South African Reserve Bank (SARB) has tried to contain an inflation to a target band of 3% - 6% despite economic challenges facing South Africa.
6.1.2 Proposed Tariffs Increments for 2021/2022
The municipalities are encouraged to maintain tariff increases at levels that reflect an appropriate balance between the affordability to poorer households and other customers while ensuring the financial sustainability of the municipality. The Consumer Price Index (CPI) inflation is forecasted to be within the upper limit of the 3% to 6% target band. Therefore, municipalities are required to justify all increases in excess of the projected inflation target for 2021/2022 in their budgets. Local government confronts tough fiscal choices in the face of financial and institutional problems that results in service delivery breakdowns and unpaid bills. These trends can be offset by improving own revenue collection, working more efficiently and implementing cost containment measures. The tariffs increment is proposed at 6.5% in 2021 / 2022 financial year. The justification for the increment of 6.5% is the fact that the projected Consumer Price Inflation for 2021 / 2022 is 5.3% in terms of Macroeconomic performance. It is still below the maximum targeted inflation rate of 6%. Furthermore, the justification is the fact of the ESKOM and Water Boards tariffs are as follows:
· ESKOM is 15.5%; and
· Water Boards is 5%.
The proposed tariffs increase is far less than ESKOM and Water Boards tariffs increment of which the municipality is also expected to incur in provision of basic services to the community. Income Budget for 2018 / 2019 – 2020 / 2021 According to 2018 Division of Revenue Bill recently approved by Parliament together with National Budget in February 2018, the allocations to uGu District Municipality have been made per schedule reflected in Table 6.1.3.1 for 2018 / 2019 to 2020/2021. The Municipal Infrastructure Grant (MIG) and Water Services Infrastructure Grant (WSIG) has been reduced substantially. In respect of internal revenue, a recently recent Adjustment Budget has been used as a base for 2018 / 2019 budget by talking into account an inflation of 5.3% in 2018 / 2019 financial year.
Economic Indicator
2018 / 2019
2019/ 2020
2020 / 2021
2021/2022
Consumer Price Inflation (CPI)
5.3%
5.4%
5.5%
Real Growth Domestic Product (GDP) Growth
1.5%
1.8%
2.1%
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