In South Africa, large cities face a myriad of challenges such as rapid urbanisation, poverty, inequality, unemployment and huge infrastructure needs. Although these are not unique to large cities, the magnitude of the challenges in large cities is greater and is increasingly becoming a major risk to the socioeconomic development of the country. The ability of cities to deal with these challenges depends, to a large extent, on their ability to generate more of their own revenues. It is therefore critical that cities leverage non-traditional revenues sources and other innovative financing mechanisms as transfers and own revenues for large cities are heavily constrained. 

Despite being hubs of economic activity and engines of growth, these large municipalities have not been able to significantly leverage non-traditional revenues streams. It is reported that South African municipalities, which are already struggling with big financial problems, will face increased pressure in coming years as government battles with its own ballooning budget deficit. Municipalities, which in total are owed more than R150 billion in unpaid taxes and levies, are experiencing a cash crunch, with half of these municipalities not in a position to pay their short-term debts.  According to the latest Financial census of municipalities report South African municipalities had slightly more current assets than current liabilities in 2019. Dividing current assets (R152,5 billion) by current liabilities (R151,6 billion), the working capital ratio comes to 1,01. 

In 2019, half of all municipalities reported a working capital ratio of less than one. Free State, North West and Northern Cape had the highest proportions of municipalities falling into this category. A working capital ratio below one can be a warning sign for creditors and investors. It might be a sign that a business or government institution is not operating efficiently and that it may struggle to meet its debt obligations. If an entity is unable to lift the ratio to a value equal to or above one, it may eventually find itself in financial difficulty It is worth noting that a municipality that consistently struggles with a low ratio might be facing a number of challenges. These can include high debt levels, decreasing sales revenues, mismanagement of inventory or problems receiving monies owed from households and businesses using municipal services.

The Financial and Fiscal Commission released a Technical Report on the Division of Revenue for the 2020/21 financial year which proposes new ways for local governments to raise their own income. According to the report, “… virtually all municipalities face diminishing own revenue and, in almost all instances, a very difficult task of financing their own infrastructure and services to meet the needs of a rapidly growing population, the urgency to find alternative revenue sources to augment conventional ones cannot be overemphasised.”

The Financial and Fiscal Commission researched these alternative income options from around the globe and found a number of new taxes that could work in South Africa. These options are explored further in the preceding sections. 

Background

Section 229 of the Constitution, mandates municipalities the authority to raise their own revenue by means of property rates and surcharges for services, for example, water, sanitation, waste removal and electricity, and the use of municipal facilities such as sports grounds, etcetera. These services must be provided in a way that contributes to the economic, efficient and effective use of resources, be financially sustainable and be regularly reviewed to ensure upgrading, extension and improvement of existing infrastructure (Oosthuizen and Thornhill, 2017:3). 

As the closest sphere to the people, local government therefore has a duty to ensure the provision of services to its communities in a sustainable manner as provided for in the 1998 White Paper on Local Government. The White Paper underlines the local government developmental outcomes such as the provision of household infrastructure and services; creating integrated cities, towns and rural areas; the promotion of local economic development; and community empowerment and redistribution. It also includes finding sustainable ways to meet the needs of the communities and improve their quality of life. In this way, it is evident that the White Paper on Local Government originally envisaged a sector that would be well funded and enabled by different policy, legislative and regulatory measures to discharge its mandate effectively and efficiently. 

The Municipal Fiscal Powers and Functions Act, 12 of 2007 (MFPFA) defines surcharges as charges in excess of the municipal base tariff that a municipality may impose on fees for a municipal service provided by or on behalf of a municipality. A municipality must ensure that its customers are billed; that it collects all money due and payable to it; and that it adopts, maintains and implements a credit control and debt collection policy. These activities must be in line with its rates and tariff policies provided for in sections 95 and 96 of the Local Government: Municipal Systems Act. 

The ability to raise own revenue to finance the functions that are allocated to them differs radically across municipalities. Poor rural municipalities receive most of their revenue from grants through the annual Division of Revenue Act (DoRA), while urban municipalities raise the major part of their revenue from own sources. Poor and rural municipalities rely heavily on national transfers through various forms of grants since they have significant lower tax bases than large cities. Therefore, government allocates larger portions of the available equitable share allocated through the annual DoRA to poor and rural municipalities, while urban municipalities are urged to use their own resources to increase investment in infrastructure. 

Oosthuizen and Thornhill (2017) state that it is to be expected that gaps in available funds will result when the cost to address the needs or demands of local communities exceeds the revenue generated by municipalities. This gap remains the main reason for intergovernmental transfers through grants to municipalities largely in the form of infrastructure conditional grants and also unconditional grants. These authors maintain that the aim of these grants is to address the financial shortcomings of  municipalities, support the strategic priority of government to eradicate service delivery backlogs and moreover contribute to local economic development in the country. 

Current state of municipalities

In July 2020, the AGSA expressed concern about the financial governance of most municipalities in the Consolidated General Report on the Local Government Audit Outcomes 2018/19. The AG painted a picture of municipalities that are “crippled by debt and being unable to pay for water and electricity; inaccurate and lacklustre revenue collection; expenditure that is unauthorised, irregular, fruitless and wasteful; and a high dependence on grants and assistance from national government.” The 2018-19 report narrates a story of how the efforts of these diligent municipalities had been overshadowed by the overall regression in audit outcomes. Over the three-year period, the audit outcomes of 76 municipalities regressed with those of only 31 improving.

Furthermore, the financial statements show increasing indicators of a collapse in local government finances. The Auditor General assessed 79% of the municipalities as having a financial health status that was either concerning or requiring urgent intervention. Just under a third of the municipalities were in a particularly vulnerable financial position. The inability to collect debt from municipal consumers was widespread. Overall, 34% of the municipalities disclosed a deficit (in other words, their expenditure exceeded their income); the total deficit of these municipalities amounted to R6,29 billion.

As shown above, the sustainability of municipalities continues to be at risk, because of the following factors:

• Poor financial management 
• Profiting from procurement has become endemic.
• Declining or stagnant “own revenue
• Slow growth of transfers
• Unhealthy balance between core and non-core municipal services.
• Weak asset management
• Weak municipal accountability and oversight institutions

Municipal revenue stream as a percentage of total revenue for the year ended 30 June 2019

The largest contributor to total municipal revenue of R402 503 million for the year ended 30 June 2019 was grants and subsidies received at 29,2%, followed by electricity sales at 26,2%, property rates received (16,5%), other revenue (11,9%), water sales (9,6%), sewerage and sanitation charges (3,8%) and refuse removal charges (2,9%).

Municipal operating expenditure as a percentage of the total expenditure for the year ended 30 June 2019

In 2019 the largest contributor to municipal total operating expenditure of R379 554 million was employee-related costs at 28,1%, followed by electricity purchases at 21,0%, depreciation and amortisation (8,6%), bad debts (8,5%), contracted services (7,6%), other expenditure (7,3%), water purchases (6,4%), general expenditure (5,1%), interest paid (2,9%), repairs and maintenance (2,0%), grants and subsidies paid (1,5%) and remuneration of councillors (1,1%).

Current revenue challenges

The current revenue streams are fraught with many challenges which place the viability and sustainability of many municipalities at risk. This section looks into some of the main municipality revenue streams and the associated challenges: 

• Property rates: In many instances, property rates have stagnated even when they should ideally be responding to economic and population changes. Some of the reasons highlighted for this stagnation include high levels of unemployment and limited formal employment opportunities, poverty, inadequate capacity to assess property values or collect property taxes, difficulties in property tax administration, many exemptions and consumers’ unwillingness to pay (given poor service delivery in some municipalities). 
• Service fees: The key drivers of service revenues are electricity and water charges. For many years, municipalities have been heavily dependent on electricity and surpluses from electricity have been used to subsidise many other municipal services. Recently, however, with the steep Eskom tariff increases coupled with NERSA capping of prices that municipalities charge final consumers, a sharp decline in surpluses has been evident. The decline in surpluses has also seen many municipalities failing to service their Eskom debt. Water revenues have also been under pressure. To illustrate, payment for water services has declined from 61.9% in 2005 to 43.9% in 2015 (Financial and Fiscal Commission, 2019-20). The reasons for this include the culture of non-payment poor billing systems, climate change induced droughts and water losses associated with decaying infrastructure. 
• Borrowing: Borrowing among municipalities is generally low. Municipalities have not fully leveraged on borrowing for various reasons. Firstly, the South African credit markets for municipalities remains largely underdeveloped. In addition, many municipalities have poor financial management skills and information systems that make loans to them very risky for financing institutions and they often borrow in small quantities, which makes financing them expensive. 
• Transfers: Municipalities benefit from two types of transfers, that is conditional and unconditional grants. During the past decade or so, transfers have come under severe pressure. Low economic growth since the 2008 global financial crisis has had a direct impact on revenues available for sharing. This has also affected revenue collection for local government as many consumers have defaulted on their bills. Since 2012, the country has adopted fiscal consolidation measures in order to reduce the budget deficit, stabilise the debt/GDP ratio, and reverse a decade-long trend of low growth. Local government has had to bear the brunt of these consolidation measures due to reductions on transfer baselines. 
• RSC replacement grant and fuel levies: The RSC replacement grant (for District Municipalities) and fuel levy (for metros) replaced the Regional Services Council (RSC) and Joint Services Board (JSB) levies that were phased out on 30 June 2006. The RSC Levy Replacement Grant was then introduced as a temporary measure focusing on District Municipalities. However, it has lasted more than many subsequent conditional grants and a suitable replacement for the RSC levy has not been found. Currently the RSC Levy Replacement Grant is funding about 22% of District Municipality budgets. The grant is criticised for being regressive, as allocations are based on previous (2006/07) collections, and thus perpetuate historical inequalities as former homeland areas that generated smaller revenues continue to receive relatively smaller amounts of this grant (Financial and Fiscal Commission, 2020:30-32). 

Internal and external funding/ financing mechanisms

A survey targeting all 257 municipalities (eight metros, 44 district and 205 local municipalities) was undertaken using a structured questionnaire. The purpose of the survey was to obtain direct feedback on what practitioners in municipal spaces believe could be on the list of alternative revenue sources. The list of possible alternative revenue sources as cited by municipal managers is provided below. 

Alternative revenues as suggested by different categories of municipalities

This section reviews examples of the alternative (both internal and external) funding instruments that local government has adopted internationally to supplement traditional revenue streams (Financial and Fiscal Commission, 2020:33-34).

Flat-rate piggyback income taxes (PIT)

In many countries a “piggyback” or surcharge on personal income taxes (PIT) and value added tax (VAT) has been adopted as part of the basket of revenue sources for local government. For many years, countries under the Organisation for Economic Development (OECD) have used the surcharge on PIT, while in Latin America, Mexico, Brazil and Argentina have adopted a surcharge on VAT for their local governments. It is reported that in Africa, Dar es Salaam (Tanzania) has a surcharge on PIT as well. 

The most commonly used form of a surcharge is a flat, locally established rate  on the same tax base as the national income or VAT tax collected by the central government. As it is always collected by central government, revenues are allocated to municipalities on a derivation basis. Municipalities are only allowed the discretion to set the flat rate, although the centre establishes the minimum and maximum rates from which many municipalities pick their flat rate. According to the Financial and Fiscal Commission Technical Report, a surcharge on PIT has some merits. This is due to the fact that firstly, a flat rate local surcharge on PIT easily satisfies the benefit principle. Secondly, it is visible, thus promoting political responsibility and accountability by municipalities. In addition, it is also an elastic revenue source. The only drawback with piggybacked taxes is that they require careful co-ordination between the centre and municipalities, and sound data to ascertain their revenue potential. 

Local business taxes

Local business tax is another revenue source that has been introduced across the globe. In South Africa, the idea of a local business tax has been discussed since 2012, when eThekwini municipality applied for permission to levy this tax. Although the application was not successful, many municipalities and public finance practitioners have not relented in arguing for a local business tax. Those in favour of such a tax have argued that businesses benefit directly and indirectly from many local public expenditures. Subsequently, such a tax would serve as a way of recapturing some of these benefits. The benefits these businesses derive from public expenditures such as services and infrastructure provided are often associated with their size rather than their profitability. As such this tax would be linked to the size of a business and not the profits it makes.

The potential for such taxes is greater in larger cities where business activity is concentrated. In South Africa, local business taxes would suit metros, intermediate cities and some fast-growing urban municipalities as they need the revenues to accommodate their rapid growth and development. Local business taxes are more stable and simpler to administer than taxes on profits. 

Many have argued for a local business value added tax (LBVT) which is neutral to the factor mix. The experiences of Italy, Japan and France with LBVT show that a local business value added tax is a reasonable way of capturing the benefits that businesses derive from public expenditure. The experience of these three countries further shows that LBVT can be administered efficiently at the local level with no serious economic costs. It is noted that the only drawback of LBVT is that it requires high levels of accounting and record-keeping and sound tax administration capacity. 

Vehicle and transportation taxes

Vehicle and transport levies are another attractive local government revenue source. These taxes take many forms such as a licence to operate a vehicle, a tax on the estimated value of the vehicle and/or a sales tax on motor fuel, tolls, or parking fees. In many countries, taxes on surface travel are levied by local authorities. These are generally attractive because they link ownership of a vehicle and benefits in terms of local service and infrastructure usage. Besides being revenue elastic, this revenue source can effectively be used to counteract negative externalities such as air pollution, noise and local traffic congestion. Motor vehicle taxes are attractive especially for financing large city services (Bird and Slack, 2013). 

Examples from other countries or municipalities also show this diversity. In Barcelona, Budapest, Istanbul and Madrid, residents are taxed based on vehicle ownership and on the value of their vehicle. On the other hand, Tokyo charges a tax on the purchase of a vehicle, while Seoul, Shanghai, Guangzhou, and Beijing charge owners of vehicles a tax that is based on the usage and capacity of vehicle. In South Africa, VAT is levied on the acquisition of a car, car licence, toll fees and fuel levies. The VAT on the sale of a car is administered by the central government, while the fuel levy is administered at national level although proceeds accrue to the eight metros. Toll fees on national roads accrue to South Africa National Roads Agency Ltd (SANRAL), a government entity managing national roads. Some of the toll fees accrue to the toll road concessionaires as SANRAL has three 30-year concession contracts in operation. Surcharges on these toll fees is possible since local governments also provide ancillary infrastructure to vehicles passing through their jurisdiction (Financial and Fiscal Commission, 2020:35). 

Natural resource taxes

Natural resource taxes are charged on extraction activities such as mining and quarrying, forestry or fishing. Because there is a link between natural resource extraction and the benefit principle at local level, many have argued that this tax should be localised. Extraction activities benefit from local infrastructure such as roads and health facilities and tend to pollute the local environment. Local taxation of natural resources has been met with resistance in many jurisdictions because it may perpetuate uneven development, inefficient population migration and the dislocation of businesses or even fiscal imbalances. Furthermore, given the fact that the prices of natural resources are volatile, these taxes may not augur well for municipalities that need a stable and predictable revenue base. 

While natural resource taxes may not be relevant for many municipalities, they may fare well in rural municipalities to levy a flat rate surcharge or piggyback a tax on them. Alternatively, they could impose levies that would partly pay for the damage on the environment and infrastructure caused by natural resource extraction. Rural municipalities could have weigh-in bridges for trucks that carry natural resources within their jurisdiction to pay a tax or levy. 

Development charges (DC)

According to the report (2020:36), an increasing number of municipalities in both developed and developing countries supplement conventional revenue sources with development charges (DCs). DCs are one-time levies imposed by municipalities on property developers of new or existing properties. This is usually done at the point when the property is subdivided or when a building permit is issued. The purpose of DCs is to ensure that private developers contribute to the cost of the municipal infrastructure they will use, for example costs of new connections to water, sanitation, roads and electrical infrastructure or other infrastructure services such as roads, schools, parks and library services. Proceeds of the DC are then used to finance infrastructure projects such as local roads, street lighting and sewers. 

The attraction of DCs is that they make urban development pay for itself. DCs also impose fewer negative externalities on existing residents, but instead shift the burden to property developers or new property owners. In addition, as DCs approximate user fees by attempting to equalise marginal social costs to marginal private costs, they are considered efficient. 

In South Africa, DCs in their various forms for example, betterment levies and impact fees have a long history. Since then, South African municipalities have had various forms of DCs. However, the report provides that South African municipalities have not exploited this revenue source to its fullest, given the potential for additional revenues to finance large capital expenditures. To date these levies hardly go beyond 5% of the value of improvements. Most of DC revenues are collected (60%–70%) by metros and intermediate cities while district municipalities and small urban municipalities get negligible amounts from DCs. 

Other taxes

Local governments across the globe also impose a mix of the following small levies:

• advertisement taxes, 
• hotel/occupancy taxes, 
• fire and drought levies, 
• amusement taxes or 
• construction taxes. 

Hotel or occupancy fees and tourism fees often assume a value added sales tax on the hotel bill. Amusement taxes and advertisement taxes are charged on admission to amusement parks and on the use of sign boards, respectively. Construction taxes are charges for securing a permit to build or sometimes can be a tax on the costs of construction. The fire service fee is a levy often imposed on contracts of insurance or added to property rates. In the former case, it is only paid by those who insure their properties while in the latter case, it is paid by all rate payers. These taxes generate little revenue due to the seasonality of the services being taxed. For rural municipalities tourism levies can be a significant source of income, while urban municipalities benefit from advertisement, hotel and construction taxes.

Potential external financing instruments 

Debt financing/ Improving access to capital markets for large cities

South African municipalities are under immense pressure to step up their infrastructure investments. Debt financing is a common and very efficient method for bridging the revenue gap. Although South Africa has one of the best borrowing frameworks, the low uptake of debt finance has been the biggest challenge and while metros and a few large cities use debt finance, the amounts are low relative to the needs on the ground. Surprisingly, the trends in borrowing are also on a downward spiral. Many factors account for this. First, municipalities have not found a reason to participate in credit markets because grant finance has been an easy way out for them. Second, many municipalities cannot participate because they are not creditworthy. Third, lending to municipalities has discouraged many financial houses as it is often seen as inefficient and costly because borrowing levels are often very low. 

The survey results for this study give more reasons for the low levels of debt finance. In this survey, municipalities noted that there is neither political will nor capacity to pursue debt finance as an option for closing the infrastructure funding gap. As debt financing is a viable option for closing the revenue gap, there is a need to promote orderly use of this option, especially for metros and large cities that have stronger and more diversified economic bases and large unmet demands for infrastructure. 

It is important to develop LG debt markets by, among other things, improving the credit worthiness of municipalities through: 

• Promoting transparency in budgeting and accounting; 
• Developing own revenues for LG; 
• Incentivising financial intermediaries that serve LG; 
• Promoting the pooling of funds by municipalities; and 
• Establishing a local government credit rating agency that is an independent entity that evaluates the financial condition or creditworthiness of each municipality. Establishing the financial strength of each municipality will enable them to access public or private debt markets (Financial and Fiscal Commission, 2020:44)

Land value capture

Furthermore, municipalities need to capitalise on one of their most important assets which is land. Land value capture mechanisms are one avenue with which municipalities can finance their infrastructure requirements. Options under value capture include: 

• Acquisition and sale of excess land: A municipality buys land adjacent to some public investment and then sells it later when its value has improved as a result of the public project; 
• Betterment levies: These (usually one time) levies/taxes capture the increment value of land as a result of public investment; 
• Developer exactions: Property developers are required to install on-site public infrastructure at their own cost; 
• Development impact fees: Once off levy charged on approval or on obtaining a permit to build; 
• Sale or leasing of municipal land: Local authorities sell or lease land that is near new infrastructure and use the proceeds to invest in additional infrastructure; and 
• Tax increment financing: A method of capturing the gain in tax revenue from an increase in property value due to public investment. 

Land value capture in Germany is a local fee, which is divided into technical development costs and traffic-related development costs. Technical development costs are costs incurred for the connection of land to supply and disposal networks. This includes electricity, gas, public water supply and sewage connection. Traffic-related development costs are costs for roads, sidewalks and lighting, public parks, children’s playgrounds, noise protection walls, telephone and cable television network. A building permit will only be granted if the development costs for the property are secured or even paid. Private landowners pay in Germany a maximum of 90% of the development costs and the remaining 10% are covered by the municipality. 

Development costs are distributed between private landowners on the basis of: 

• the nature and extent of building/numbers of the floor, e.g. for a noise protection wall 
• the size of the land, e.g. for a local road 
• the land width, e.g. for a sidewalk

The lesson here is that if municipalities do not want to shift the development cost directly onto the private landowner, they should at least update the value of the newly constructed land property to guarantee a sufficient revenue flow from the local property tax.  

Private Public Partnerships

Finally, local government infrastructure projects can be financed through private public partnerships (PPP). PPP infrastructure projects can take various forms such as the design, finance, build, operate and transfer (DFBOT) projects design, finance and operate (DFO) projects, design, build, operate and transfer (DBOT) projects, equity partnership projects and facilities management projects (National Treasury, 2017). 

In South Africa the adoption of PPPs as an infrastructure delivery model has been very low, owing to the following constraints: 

• Regardless of size and value, the process of getting a PPP deal approved is a long and cumbersome process. 
• Infrastructure projects serving the poor are often not bankable because “user fees from the poor are not sufficient to cover the payment to the private sector”. 
• Many municipalities have poor debtor books and are perceived to be a credit risk when they approach financial institutions for funding of a PPP. 
• Specialised capacity to originate, implement and manage PPPs within municipalities is thin.
• Although the PPP Unit at National Treasury is doing well in regulating PPPs, it lacks the resources to promote PPPs and build capacity within municipalities to originate, implement and manage them.

Towards an alternative funding model for LG

The scope for the revenue instruments discussed above to yield any significant revenues in many municipalities is limited because they lack many factors that underpin an effective revenue collection system. Many cannot collect fully the revenue due to them. This is a common problem in rural and smaller urban municipalities. In many instances such municipalities lack the administrative capacity to assess the revenue base and administrative capacity to enforce the payment of taxes. Some municipalities lack both tax administration infrastructure and human resources to fulfil the basic revenue collection function. Throughout the world, municipalities are establishing semi-autonomous revenue agencies to overcome their capacity challenges. 

In South Africa, district municipalities have the mandate of supporting municipalities. One area they could do this is in revenue administration by building own capacity to collect and distribute some revenues. JB Marks local municipality as a respondent in the survey by the Financial and Fiscal Commission suggested that “municipalities should be assisted with revenue collection.” One advantage of using the district to collect revenues of municipalities they overlay is that the costs of revenue administration will be lowered through a more efficient use of inputs because of economies of scale in production, greater specialisation of staff, and building dedicated systems, particularly in terms of information and communications technology (ICT) (Financial and Fiscal Commission, 2020:45). 

The preceding analysis therefore provides an indication of the need for local government to improve their revenue bases by exploiting some of the highlighted revenue sources. However, it should be noted that some revenue sources suit some municipalities and not others. In proposing alternative revenue instruments and ultimately a new revenue model for municipalities, the process should take the different economies and revenue bases into account.  

Metros and intermediate cities, for example, have stronger economies than rural municipalities. In the long run, the expectation is that if metros are granted more alternative revenue instruments they can rely less and less on transfers from the centre. In this context, metros and intermediate cities need to be granted or incentivised to exploit more alternative instruments. In addition, conditions for getting new revenue sources should be relaxed. On the other hand, for many rural municipalities their revenue base is too limited to sustain their activities, and transfers will always be the mainstay of their fiscal frameworks. Alternative revenue sources will not make a difference for this category of municipalities. To a large extent, rural district municipalities have the same limitation. 

The table below attempts to allocate the best possible local government structure to levy each of the alternative revenue sources or financing arrangement.

Alternative revenue options for each sphere of LG

Recommendations  

As evidenced from above, there is a real need for new innovative revenue mobilisation strategies. As it stands, virtually all municipalities face diminishing own revenue and a very difficult task of financing their own infrastructure and services to meet the needs of a rapidly growing population. As such, the urgency to find alternative revenue sources to augment conventional ones cannot be overemphasised.

In the same breath, however, new revenue instruments may not necessarily solve revenue problems identified in local government. Many municipalities are unable to fully collect revenue due to them. There exists a number of reasons for poor collection such as poor administrative capacity to assess their revenue bases, poor administrative capacity to enforce the payment of taxes and poor records on taxpayers. 

The research paper reviewed both the potential for internal and external financing arrangements which are detailed above. The Commission has therefore recommended that the Minister of Finance should take steps (including piloting) to add supplementary revenue sources to the list of allowable taxes for different types of municipalities in a differentiated manner that could include, the development charges, tourism levies, land value capture mechanisms, tourism levies and fire levies. 

It is evident from the above that provision of grants to municipalities does not necessarily ensure the sustainability of local government. The solution lies in the effective and efficient manner in which these funds are applied barring the misuse of funds, maladministration and corruption. Municipalities must take responsibility for adhering to the requirements of the MFMA to manage their budgets. They must address the Auditor-General’s findings to constantly aim at improving their financial performance. In addition, regular monitoring of municipal IDPs must take place to ensure that funding is allocated according to project plans and linked to performance and the budgets of the municipalities. 

Lastly, municipalities should ensure that they have sound billing systems in place and must further place high priority on the collection of revenue owed to them for services delivered. Municipalities must therefore act in accordance with the principles of good governance, transparency and accountability to manage public resources in such a way that it will contribute to the sustainability of local government in the country (Oosthuizen and Thornhill, 2017:16-17).