Local government is the most common interface between the State and consumers, and where the rubber really meets the road when it comes to taxpayer perceptions of how well their money is being spent.
And with local government elections on the way later this year, it’s no surprise that Finance Minister Enoch Godogwana spent a good part of his Budget Speech today outlining what is being done to address the dismal state of many municipal water, electricity and road networks and the longstanding challenges in local service delivery.
So says Stephen Whitcombe, MD of leading Johannesburg property company FIRZT Realty, who notes that the Budget allocation for municipalities this year R182bn, of which R86,9bn will go to support the provision of free basic services to just over 11m households and the rest mostly towards upgrading essential infrastructure and supporting the reliable provision of basic services.
And over the next three-year medium term budget period, it is envisaged that the municipalities will spend R205,7bn of the R1trn in public funds allocated to infrastructure development.
“But as the Minister acknowledged, the biggest problem with local government at the moment is not lack of funds but a high degree of financial mismanagement, as reflected in the fact that so few municipalities ever achieve clean audits from the Auditor General.”
This state of affairs, he says, has major implications for the real estate industry. “Just recently, we have seen the residents of several Johannesburg suburbs publicly expressing their dissatisfaction with water and electricity supply breaks as well as the poor maintenance of roads and other public amenities. They clearly don’t feel that they are getting value for the property taxes they pay, and at the same time, prospective buyers are being discouraged from purchasing homes in these areas.
“Consequently, we welcome one of the key reforms announced today, which is to ensure that local governments ring-fence the revenue collected from the provision of basic services and spend it only on the infrastructure needed to provide those services.”
Currently, the revenue collected is often used to cross-subsidise other projects instead of being spent on essentials, as in Johannesburg where, as the Minister explained, Johannesburg Water collects almost R12bn a year in revenue but has only been getting R1,3bn back to spend on repairing, maintaining or replacing the city’s ageing water network, with the result that there is now a R64bn backlog of expenditure required to effectively address Joahnnesburg’s water supply problems.
Almost R28bn has been allocated over the medium-term to help correct this situation but in the meanwhile, Whitcombe notes, National Treasury will also be overseeing the development by local governments of much stricter financial plans and controls.
“This renewed focus on the basics of public service is certainly encouraging, and the reforms detailed in the Budget hold the promise of tangible improvements for millions of households and small business owners who have been trying to operate normally in the face of increasing water and electricity supply problems.
“If they are swiftly implemented, they are also likely to have a very positive effect on the property sector within a relatively short time. As local infrastructure becomes more reliable and service delivery standards rise, we expect to see strong demand from property buyers and investors who have been waiting for evidence of change on the ground. Improved amenities typically also drive higher property values and often act as a catalyst for further investment and development, benefiting both local economies and the national growth outlook.”
