Us Id-116342

Municipal Governance
Municipal Governance
NQF Level 5
SAQA ID: 67467
Apply approaches to managing municipal income and expenditure within a
multi-year framework
US SAQA ID: 116342
LEARNER GUIDE
US SAQA ID: 116342 Learner Guide
Developed by BBT INSTITUTE info@nsaconsulting.co.za

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No part of this Publication may reproduced, stored in retrieval system, or transmitted, in any
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Although every attempt has been made to ensure that the management guidelines are safe
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responsibility for errors arising from the use of this manual for any purpose.
BBT-6-US: 116342
Apply approaches to managing municipal income and expenditure within a multi-year framework 2
Table of Content
ACKNOWLEDGMENT ............................................................................................... 9
Preface: ........................................................................................................................... 10
1.Introduction ......................................................................................................... 11
2.2 Learner Support .................................................................................................... 13
3. Assessment .............................................................................................................. 14
3.1 Formative Assessment ...................................................................................... 14
3.2 Summative Assessment .................................................................................... 14
4. Navigating the Learner Guide ................................................................................... 15
4.1 Use of Icons ...................................................................................................... 15
5. Learner Administration ............................................................................................. 16
5.1 Attendance Register .......................................................................................... 16
5.2 Learner Registration Form ................................................................................. 17
5.3 Programme Evaluation Form ............................................................................. 17
(US ID: 116342) Apply approaches to managing municipal income and
expenditure within a multi-year framework ......................................................... 18
Introduction ..................................................................................................................... 18
SO 1: Develop approaches to managing a municipality's revenue in a
sustainable manner................................................................................................ 19
Sources of municipal income .................................................................................... 19
Main sources of capital budget financing .............................................................. 19
Main sources of operational budget financing ....................................................... 20
1.1: The Criteria for assessing tax instruments and user charges are applied in the local
government context. ........................................................................................................ 20
Taxes ....................................................................................................................... 21
Revenue Assignment ................................................................................................... 22
Principles of Tax Assignment ................................................................................... 22
Efficiency of the Internal Common Market............................................................. 23
National Equity...................................................................................................... 23
Administrative Costs ............................................................................................. 23
Fiscal Need ........................................................................................................... 24
Reconciling the Difference: Making Sub national Governments Accountable, While
Preserving Efficiency and Avoiding National Distortions. .......................................... 24
Resolving the Problem .......................................................................................... 24

Individual Activity: 1.1 ..................................................................................... 25
1.2: Recommendations for achieving sustainability are provided in relation to municipal
revenue. .......................................................................................................................... 25
Planning for sustainable development .......................................................................... 26
Protecting and enhancing the natural environment ...................................................... 26
Tariffs for municipal services .................................................................................... 28
Property rates ........................................................................................................... 29
Managing the money flow ......................................................................................... 29
Ward Committee role ............................................................................................ 30
Tax impact ................................................................................................................... 30
Subsidy impact ............................................................................................................ 30
Effect of elasticity ......................................................................................................... 31
An illustration ............................................................................................................... 31
Group Activity / Pair Activity: 1.2 ................................................................... 32
1.3: Tax incidence of revenue levying collection legislation. ............................................ 32
Inelastic supply, elastic demand ............................................................................... 32
Similarly-elastic supply and demand......................................................................... 33
Transfer tax........................................................................................................... 33
Wealth (net worth) tax ........................................................................................... 33
1.4: The incentive effects of municipal tariffs and user charges ....................................... 34
Purposes and effects ................................................................................................... 34
What is financial management? ................................................................................ 35
SO2: A subsidy framework for municipal rates and tariffs. ............................... 36
2.1: The need for subsidies ............................................................................................. 41
Tariffs & subsidies........................................................................................................ 41
Way to check if your name is listed on the housing waiting list ................................. 41
The Housing subsidy and what you need have to qualify for it .................................. 41
Types of housing subsidies available ....................................................................... 42
Creative ways of making your subsidy go further ...................................................... 43
BUDGET FOR THE SUBSIDY ..................................................................................... 44
2.2: An indigent policy for payment. ................................................................................. 45
2.3: The socio-economic impact of a subsidy .................................................................. 47
Dispersal Impact on Poor Families ............................................................................... 48

Development in a world of complexity ...................................................................... 48
Bridging divides, working for systems change .......................................................... 48
2.4: A range of subsidy designs is applied and control instruments are designed for
"subsidy leakages............................................................................................................ 50
2.5: Information sets are developed to manage an effective subsidy framework. ............. 53
FINANCING THE RDP................................................................................................. 53
SO3: Apply the different approaches to forecasting municipal income and
expenditure over the medium term....................................................................... 56
The budgeting cycle and community participation .................................................... 56
What is a budget? ................................................................................................. 56
The "Financial Year" and budget consultation ....................................................... 56
Types of budgets .................................................................................................. 56
The difference between the operating and capital budgets ................................... 57
1. Importance of effective municipal financial planning and management .............. 57
Forecasting Income and Expenditure ........................................................................... 58
Levels of Income and Expenditure for a Start-up Business .......................................... 58
Profit and Loss Forecasts ............................................................................................ 58
3.2: Programme cycles in the municipal context. ............................................................. 59
Introducing PPRIME .................................................................................................... 59
5 P's and the DRUM .................................................................................................... 59
3.3: Social, institutional, economic, environmental and technical influences are forecast on
municipal revenue over the medium term. ....................................................................... 60
Budget Forecasting ...................................................................................................... 60
Short-range Budgeting No Longer an Option ............................................................ 60
A Powerful Tool for Improved Fiscal Management ................................................... 60
3.4: Indicators are interpreted relating to municipal income and expenditure. .................. 62
Sources of municipal income .................................................................................... 62
Main sources of capital budget financing .............................................................. 62
Main sources of operational budget financing ....................................................... 63
The circular flow of income .............................................................................................. 63
Factor incomes ......................................................................................................... 64

The public sector.......................................................................................................... 64
SO4: Assess the organisational implications of planning income and
expenditure over the medium term....................................................................... 65
Rows ............................................................................................................................ 67
4.1: The impact of political 'buy in' is commented on in writing explaining its relation to
setting revenue-management approaches over the medium term ................................... 68
The Revenue Management Process ............................................................................ 69
Data Collection ......................................................................................................... 69
Segmentation ........................................................................................................... 69
Forecasting .............................................................................................................. 69
Optimization ............................................................................................................. 69
Dynamic Re-evaluation ............................................................................................ 70
Revenue Management in an Organization ................................................................... 70
4.2: An organisational structure is developed to facilitate revenue and expenditure
management over the medium term. ............................................................................... 71
Organizational structure types .................................................................................. 72
Pre-bureaucratic structures ................................................................................... 72
Bureaucratic structures ......................................................................................... 72
Post-bureaucratic .................................................................................................. 72
Functional structure .............................................................................................. 73
Divisional structure................................................................................................ 73
Matrix structure ..................................................................................................... 73
EXAMPLE OF ORGANISATION CHART ........................................................................ 75
Revenue Control Procedures .......................................................................................... 76
Cash Deposits ............................................................................................................. 76
Revenue Bank Accounts .............................................................................................. 76
Deposits through Government Agents ......................................................................... 77
4.3: The key role players are identified in the revenue management process. ................. 78
4.4: The responsibilities of the key role players in relation to revenue and expenditure
management over the medium term. ............................................................................... 81

SO5: Contribute to the design rates, tariffs and user charges .......................... 85
5.1: The legislative framework affecting the structure and types of tariffs permitted by
municipalities and the various tariff-types. ....................................................................... 86
 Equity and Redistribution................................................................................... 88
 Categories of Tariff Charges.............................................................................. 88
5.2: Tariffs and rates and policy ....................................................................................... 90
Tariff Policy Principles ..................................................................................................... 90
5.3: The administrative implications are forecast for a tariff and rates policy. ................... 92
SO6: Develop a credit control and debt collection policy .................................. 94
Need for Credit Control ................................................................................................ 94
Objectives of Credit Control ......................................................................................... 94
Methods of Credit Control ............................................................................................ 95
Qualitative Method ................................................................................................... 95
Controllable Risk .......................................................................................................... 95
Inherent Risk ................................................................................................................ 96
Group Activity / Pair Activity: 6.1 ........................................................................ 96
6.1: The legislatively required components of a credit control policy ................................ 96
What the Credit Act means for you! .......................................................................... 96
Only borrow what you can afford........................................................................... 97
6.2: Municipal specific credit control policy. ..................................................................... 99
Group Activity / Pair Activity: 6.3 ................................................................. 103
6.3: Sound principles of debtor management................................................................. 103
Debt Management Principles.................................................................................. 103
1. Create an accurate assessment of your debt situation and know your Credit
Score. ................................................................................................................. 103
2. Pay off the debts one by one........................................................................... 104
3. Use debt consolidation or debt restructuring. .................................................. 104
4. Make a budget and stick to it!.......................................................................... 104
Group Activity / Pair Activity: 6.4 ................................................................. 105
Portfolio Activity: Assignment (116342) ...................................................... 105
Self Assessment............................................................................................................ 106
ACKNOWLEDGMENT
This learning material has been entirely developed and organized by Bull’s Business and
Skills training institute (BBT Institute) under supervision of NSA Consulting.
Many people have contributed in various ways to help develop and produce the original
version and the later edition of this manual. We wish to thank all those who have contributed
in one way or another.
We are heartily thankful to BBT and NSA agency employees, family and friends, whose
encouragement, guidance and support from the initial to the final level enabled us to compile
and have an understanding of this manual.
Lastly, we offer my regards and blessings to all of those who supported us in any respect
during the compilation of this Manual, especially LG SETA, for the practical support and
resources required to put up this manual.
Other sources
 National Department of Education

 South African Qualification Authority
 LG SETA
 SALGA
 The DTI
 DBSA
 NSA (Nsamba) consulting and training
 Wikipedia
Preface:
This guide should be used to prepare the learner to be able to participate in the Municipal
governance environment.
The qualification is aimed at senior managers and future senior managers in local
government. The typical learner will be an employee in local government, wishing to gain the
competence to fulfill the requirements of his/her current job obligations or a municipal
employee wishing to gain a qualification so as to advance his/her career opportunities. In
addition persons seeking future employment in the local government sector may choose to
complete the qualification. Persons employed in non-profit organizations and non-
governmental organizations as well as private sector agencies which interface with local
government would benefit from the qualification.
Qualifying learners may operate at the level of executive mayor, executive councilors,
councilors, municipal manager; chief financial officer; department managers; strategic
managers and managers of municipal entities.
Office bearers and employees at local government level are responsible for managing the
provision of services to the community. The Constitution of the RSA (Act 108 of 1996)
section 27 (1) states that all South Africans have the right to access health care services;
sufficient food and water and social security. Section 27(2) requires the state to take
reasonable measures within its available resources to provide these basic human rights. The
state is also responsible for providing education for the community and managing all of the
country's resources. The constitution therefore allows the community to demand that
services are met and that government office bearers and managers have the skills to take
reasonable measures in providing services.
In this manual, the knowledge and skills achieved will enable the learner to maximally
combat the processes involved in assessment and disseminate accurate and relevant
information regarding assessment procedures to achieve the specific outcomes.
Welcome come.
TRAINING MANAGER
Introduction
1. Introduction
This Unit Standard is for all people involved in municipal financial management. The unit
standard can contribute to social and economic transformation through equipping municipal
practitioners with skills in managing income and expenditure, which could translate into
better use of resources and improved delivery of services that will benefit the economy and
social development.
The qualifying learner will be able to:
 Advise on, and choose from a range of approaches that will ensure a municipality
uses its resources and revenue raising instruments in an efficient and sustainable
manner.
 Contribute to managing municipal income and expenditure over the medium
term.
 Budget in a manner, which conforms to the legislative framework for local
government.
Apply approaches to managing municipal income and expenditure within a

multi-year framework
SAQA US UNIT STANDARD TITLE

ID
116342 Apply approaches to managing municipal income and expenditure
within a multi-year framework
ORIGINATOR ORIGINATING PROVIDER
SGB Public Administration
and Management
QUALITY ASSURING BODY
-
FIELD SUBFIELD
Field 03 - Business, Commerce and Public Administration
Management Studies
ABET UNIT OLD NQF LEVEL NEW NQF LEVEL CREDITS
BAND STANDARD
TYPE
Undefined Regular Level 6 New Level 15
Assignment Pend.
REGISTRATION STATUS REGISTRATION REGISTRATION SAQA
START DATE END DATE DECISION
NUMBER
Reregistered 2009-07-01 2012-06-30 SAQA
0480/09
LAST DATE FOR LAST DATE FOR ACHIEVEMENT
ENROLMENT
2013-06-30 2016-06-30
UNIT STANDARD ESSENTIAL EMBEDDED KNOWLEDGE
 Legislation affecting municipal income.

 The principles of sustainable revenue management
 The effects of subsidy frameworks in a municipal context.
 Different approaches to forecasting income and expenditure over the
medium term.
 Organisational implications of managing income and expenditure in
multi-year budget framework.
Critical Cross-field Outcomes (CCFO):
UNIT STANDARD CCFO IDENTIFYING
Identify and solve problems using critical and creative thinking processes, e.g. by
trying to find the best possible income and expenditure management options.
UNIT STANDARD CCFO WORKING
Work effectively with others as a member of a team, group, organization or

community, e.g. through communicating with others regarding legislative issues
and fostering team commitment to maintain effective income and expenditure
management over a medium term period.
UNIT STANDARD CCFO ORGANISING
Organise and manage oneself and one's activities responsibly and effectively, e.g.
through the demonstration of ethical and moral principles in all income and
expenditure management processes.
UNIT STANDARD CCFO COLLECTING
Collect, analyse, organise and critically evaluate information, e.g. through

researching all possible income and expenditure management options and
presenting conclusions.
UNIT STANDARD CCFO COMMUNICATING
Communicate effectively using visual, mathematical and / or language skills in the

modes of oral and/or written persuasion, e.g. through advising and motivating
others with regard to income and expenditure management options.
UNIT STANDARD CCFO SCIENCE
Use Science and technology effectively and critically, showing responsibility to the
environment and health of others, e.g. use appropriate computer software for
financial calculations, data capturing and document storage purposes.
UNIT STANDARD CCFO DEMONSTRATING
Demonstrate an understanding of the world as a set of interrelated systems by

recognising that problem-solving contexts do not exist in isolation, e.g. in keeping
in mind that medium term income and expenditure management affects the
financial well being of not only the municipality but the country as a whole.
UNIT STANDARD CCFO CONTRIBUTING
Participating as responsible citizens in the life of local, national and global

communities, e.g. acting as custodian of ethical behaviour and maintaining a high
level of commitment to providing effective income and expenditure management
policies and practice.
2.2 Learner Support

Please remember that as the programme is outcomes based – this implies the following:
 You are responsible for your own learning – make sure you manage your study,
practical, workplace and portfolio time responsibly.
 Learning activities are learner driven – make sure you use the Learner Guide and
Portfolio Guide in the manner intended, and are familiar with the Portfolio requirements.
 The Facilitator is there to reasonably assist you during contact, practical and workplace
time of this programme – make sure that you have his/her contact details.
3. Assessment
Learning Outcomes:
Please refer to the beginning of each module for the learning outcomes that
will be covered per module.
3.1 Formative Assessment

In this Learner Guide, several activities are spaced within the content to assist you in
understanding the material through application. Please make sure that you complete ALL
activities in the Learner Guide, whether it was done during the contact session, or not!
3.2 Summative Assessment

You will be required to complete a Portfolio of Evidence for summative assessment
purposes. A portfolio is a collection of different types of evidence relating to the work being
assessed. It can include a variety of work samples.
The Portfolio Guide will assist you in identifying the portfolio and evidence requirements for
final assessment purposes. You will be required to complete Portfolio activities on your own
time, using real life projects in your workplace environment in preparing evidence towards
your portfolio.
Portfolio Activity:
DO NOT WAIT until the end – the programme is designed to assist you in
evidence preparation as you go along – make use of the opportunity!
Remember:
If it is not documented, it did not happen!
In some evidence, the process you followed is more important than actual
outcome / end-product.
Therefore …
Please make sure all steps for the Portfolio Activities are shown where
required.
4. Navigating the Learner Guide
4.1 Use of Icons

Throughout the learning programme icons are used to focus your attention on important
aspects of the learning programme. The following icons are used in this learning programme
to direct your attention in using at as a reference guide.
Group Activity / Pair Activity:
You will be required to complete an activity in your group or in pairs with

fellow colleagues / programme participants, and provide feedback to the
participants in a report back or presentation session.
Individual Activity:
You will be required to complete an activity on your own that relates to the
outcomes covered in the module.
Portfolio Activity:
Complete the assessment activity that will be assessed as part of your

Portfolio of Evidence for the particular module.
Self Reflection:
Reflect on the question(s) asked to identify the relevance of learning

outcomes in your own working environment.
Learner Tip:
A useful tip or essential element regarding the concept under discussion is

given as a basis to further discussion.
Resources:
Possible sources for further research and study is listed under this icon.
Resources may include additional reading, handouts, web-sites, multimedia
Facilitators Note:
Content matter that is critical to the understanding of the module. The

learner must pay careful attention to this section.
Mentored Discussion:
Refer to your Mentor or Workplace Supervisor to assist in this activity, as

they will conduct the assessment or sign off of the activity once completed.
Learning Outcomes:
Please refer to the beginning of each module for the learning outcomes that
will be covered per module.
Self Assessment:
You have come to the end of this module – please take the time to review
what you have learnt to date, and conduct a self assessment against the
learning outcomes of this module
5. Learner Administration
Learner Tip:
The following Learner Administration is critical in assisting your provider in

managing this programme effectively.
Please take a moment to familiarize yourself with the requirements.
5.1 Attendance Register
You are required to sign the Attendance Register every day of attendance. Please make
sure you sign daily!
5.2 Learner Registration Form

Pease refer to the portfolio Guide for the Learner Registration Form. Make sure you
complete it using the Key Document, and submit to your Facilitator before the end of the
contact session with a copy of your ID document.
Learner Tip/Truths:
Without the Learner Registration and ID Documents we will not be able to

register you with SETA for certification purposes.
5.3 Programme Evaluation Form

At the end of the Learning Guide is a Learning programme Evaluation Form. Please
complete the form before the end of the contact sessions, as this will assist us in improving
our service and programme material. Your assistance is highly appreciated!
(US ID: 116342) Apply approaches to managing

municipal income and expenditure within a multi-year
framework
Learning Outcomes:
The following learning outcomes are covered in this module.
1. Develop approaches to managing a municipality's revenue in a

sustainable manner.
2. Develop a subsidy framework for municipal rates and tariffs that
encourages efficient and effective use of resources while promoting
equity.
3. Apply the different approaches to forecasting municipal income and
expenditure over the medium term.
4. Assess the organisational implications of planning income and
expenditure over the medium term.
5. Contribute to the design rates, tariffs and user charges.
6. Develop a credit control and debt collection policy.
Introduction
Municipal finance is about the revenue and expenditure decisions of municipal governments.
It covers the sources of revenue that are used by municipal governments – taxes (property,
income, sales, excise taxes), user fees, and intergovernmental transfers. It includes ways of
financing infrastructure through the use of operating revenues and borrowing as well as
charges on developers and public-private partnerships. Municipal finance also addresses
issues around expenditures at the local level and the accountability for expenditure and
revenue decisions, including the municipal budgetary process and financial management.
SO 1: Develop approaches to managing a

municipality's revenue in a sustainable manner.
Sources of municipal income
Municipalities must ensure that there will be adequate money to pay for their planned
expenditure if they are to "balance the budget". There are various sources of income that
can be used by municipalities to finance their expenditure. This section outlines the various
sources of municipal income, and looks at ways of deciding which will be best for your
municipality’s needs.
Main sources of capital budget financing
External loans - External loans (from a bank or other financial institution) are an expensive
form of financing the capital budget because of the high interest rates in South Africa.
External loans should only be used to finance the purchase of major capital items such as
roads, buildings, sewerage works and water systems.
Internal loans - Many municipalities have internal "savings funds" such as Capital
Development Funds or Consolidated Loan Fund. These funds can make internal loans to the
municipality for the purchase or development of capital items, usually at a lower interest rate
than for an external loan and the municipality is paying the interest back to its own "savings
fund", which can later be used for another capital project.
Contributions from revenue - When purchasing a small capital item, the small total cost
can be paid for from the operating income in the year of purchase. This financing source is
known as "contributions from revenue". In most municipalities, this source of financing is
used to pay for smaller capital items, such as one or two items of furniture and equipment.
As no interest is payable, this source of financing is considerably cheaper than external or
internal loans.
Government grants - Municipalities may apply to national government for grants for
infrastructure development. The two main funds available are:
 CMIP [Consolidate Municipal Infrastructure Programme] – available from the

Department of Provincial and Local Government
 Water Services Projects – available from the Department of Water Affairs.
Donations and public contributions - Local and foreign donors may sometimes donate a
capital item or money to be used specifically for the purchase of a capital item, in a
disadvantaged area. They may want publicity for their donation, which the municipality can
arrange to acknowledge their sponsorship.
Public/Private Partnerships - Capital costs can be paid for by means of partnerships

between the private sector and the municipality. In most cases the private sector partner will
have a profit motive in the services and capital being financed, so the terms and conditions
must be carefully defined, to protect the community's interests.
Main sources of operational budget financing
Property Rates - All people and businesses who own fixed property (land, houses,
factories, and office blocks) in the municipal area are charged "Property Rates" - a yearly tax
based on the value of each property. Rates income is used by the municipality to pay for the
general services to all people, which cannot easily be charged to a specific service user as a
"service charge" for example roads, pavements, parks, streetlights, storm water
management, etc.
Service Charges / Tariffs - For specific services that can be directly charged to a house or
factory, the principle of "user pays" should be adopted. That is, to charge a price or "tariff" for
services such as water, electricity or approval of building plans; where the exact usage of the
service can be measured, to the person or business who actually used that service.
Fines -Traffic fines, late library book fines, penalties for overdue payment of service
charges: these fines are another source of income or "revenue" , while at the same time
motivating users of services to have a culture of obeying democratic laws, rules and
deadlines.
Equitable share - The equitable share is an amount of money that a municipality gets from
national government each year. The constitution says that all revenue collected nationally
must be divided equitably [fairly] between national, provincial and local spheres of
government. The local government equitable share is meant to ensure that municipalities
can provide basic service and develop their areas. The amount a municipality gets depends
mainly on the number of low-income people in the area – rural municipalities usually get
more. Most municipalities only get a small part of their operating budget from the equitable
share.
Municipal Revenues and Land Policies offers analysis of a variety of municipal revenue
instruments such as intergovernmental transfers, property tax, tax increment financing, and
local option sales and income taxes. Other nontraditional public good financing mechanisms
including business improvement districts, homeowners' associations, impact fees,
certificates of additional construction potential, debt financing, and public-private
partnerships are examined. The analysis focuses on comparing the viability of these
municipal revenue sources in the face of fiscal uncertainty.
1.1: The Criteria for assessing tax instruments and user charges are applied in the
local government context.
Optimal tax theory has shown that, under weak assumptions, indirect taxation such as
production subsidies, tariffs, or differentiated commodity taxation, are sub-optimal and that
redistribution should be achieved solely with the direct income tax. However, these important
results of optimal tax theory, namely production efficiency and uniform commodity taxation
under non-linear income taxation, have been shown to break down when labor taxation is
based on income only and when there is imperfect substitution of labor types in the
production function. These results in favor of indirect tax instruments are valid in the short-
run when skills are exogenous and individuals cannot move from occupation to occupation.
In the long-run, it is more realistic to assume that individuals choose their occupation based
on the relative after-tax rewards. This paper shows that, in that context, production efficiency
and the uniform commodity tax result are restored. Therefore, in a long-run context, direct
income taxation should be preferred to indirect tax instruments to raise revenue and achieve
redistribution.
Government expenditures are financed in three ways:
 Government revenue
o Taxes
o Non-tax revenue (revenue from government-owned corporations, sovereign
wealth funds, sales of assets, or Seignior age)
 Government borrowing
 Printing of Money or Inflation
 Privatization
How a government chooses to finance its activities can have important effects on the
distribution of income and wealth (income redistribution) and on the efficiency of markets
(effect of taxes on market prices and efficiency). The issue of how taxes affect income
distribution is closely related to tax incidence, which examines the distribution of tax burdens
after market adjustments are taken into account. Public finance research also analyzes
effects of the various types of taxes and types of borrowing as well as administrative
concerns, such as tax enforcement.
Taxes
Taxation is the central part of modern public finance. Its significance arises not only from the
fact that it is by far the most important of all revenues but also because of the gravity of the
problems created by the present day heavy tax burden. The main objective of taxation is
raising revenue. A high level of taxation is necessary in a welfare State to fulfill its
obligations. Taxation is used as an instrument of attaining certain social objectives i.e. as a
means of redistribution of wealth and thereby reducing inequalities. Taxation in a modern
Government is thus needed not merely to raise the revenue required to meet its ever-
growing expenditure on administration and social services but also to reduce the inequalities
of income and wealth. Taxation is also needed to draw away money that would otherwise go
into consumption and cause inflation to rise.
A tax is a financial charge or other levy imposed on an individual or a legal entity by a state
or a functional equivalent of a state (for example, tribes, secessionist movements or
revolutionary movements). Taxes could also be imposed by a sub national entity. Taxes
consist of direct tax or indirect tax, and may be paid in money or as corvée labor. A tax may
be defined as a "pecuniary burden laid upon individuals or property to support the
government a payment exacted by legislative authority." A tax "is not a voluntary payment or
donation, but an enforced contribution, exacted pursuant to legislative authority" and is "any
contribution imposed by government whether under the name of toll, tribute, tallage, gable,
impost, duty, custom, excise, subsidy, aid, supply, or other name."
There are various types of taxes, broadly divided into two heads - direct (which is
proportional) and indirect tax (which is differential in nature):
 Stamp duty, levied on documents

 Excise tax (tax levied on production for sale, or sale, of a certain good)
 Sales tax (tax on business transactions, especially the sale of goods and services)
 Value added tax (VAT) is a type of sales tax
 Services taxes on specific services
 Road tax; Vehicle excise duty (RSA), Registration Fee (USA), Regco (Australia),
Vehicle Licensing Fee (Brazil) etc.
 Gift tax
 Duties (taxes on importation, levied at customs)
 Corporate income tax on corporations (incorporated entities)
 Wealth tax
 Personal income tax (may be levied on individuals, families.
A tax is defined as a compulsory unrequited payment not proportional to the good or service
received in return for that payment. Characteristics of a tax include:
 No direct benefits accrue to individual beneficiaries in exchange for payments;

 Payments are enforced in terms of legislation; and
 Government or organs of State directs the use of tax revenues.
A statutory levy is a compulsory payment and is, therefore, a tax.
A user-charge is defined as a requited payment for a specific service rendered. User

charges are therefore very close to prices or consumer tariffs in the case of electricity, for
example. Characteristics of a user-charge include:
 A marketable good or service is provided to identifiable beneficiaries;

 Direct and proportional benefits accrue to beneficiaries in exchange for payments;
and
 Transactions take place in a willing buyer market.
Administrative fees are a form of user-charges and are usually implemented by

(government) agencies to recover all or more usually, a proportion of the costs involved in
providing a service. Characteristics of administrative fees include:
 A good or service is provided to identifiable beneficiaries;

 Direct benefits accrue to beneficiaries; and
 Payment is required for the provision of certain government goods and / or services.
Despite the significant conceptual differences between taxes and user-charges, under
certain circumstances relating to the environment, it might be difficult to clearly distinguish
between the two. In order to minimize any grey areas, the definitions must be applied as
strictly as possible and different situations, particularly with respect to the environment, may
need to be considered on a case-by-case basis.
Revenue Assignment
Governments rely on a wide variety of tax instruments available for their revenue needs,
such as direct, indirect, general, specific, business and individual taxes. The question
addressed here is which types of taxes are most suitable for use by each level of
government.
Principles of Tax Assignment
The assignment of taxes by jurisdiction depends partly on the mix of various taxes used in
the country overall. In public finance theory, the issue of the ideal tax mix even in the unitary
state has not been widely developed. Governments almost universally employ balanced tax
systems which have the feature that different taxes apply to basically the same bases. For
example, general sales taxes, payroll taxes, and income taxes have bases which overlap
considerably. From the point of view of standard efficiency and equity, one should be able to
make do with a single general tax base, yet no governments behave that way. The usual
reason given for this is that administrative considerations play an important role. A mix of
taxes keeps the rate on any tax low, thereby reducing the incentive to evade or avoid the
tax. Furthermore, by using a mix of taxes, taxpayers who would otherwise be able to avoid
taxation of one type are caught in the net of another, making the tax system fairer. The
importance of the various taxes in the overall mix remains, however, a matter of judgment
rather than something that can be deduced from the principles.
These same general considerations apply in the case of assigning taxes in a federal
government system. Efficiency and equity arguments have to be tempered by administrative
considerations, and the exact assignment depends upon informed judgment. We can,
however, outline the economic principles that come into play in deciding which taxes to
assign to lower levels of government. They are as follows:
Efficiency of the Internal Common Market
The internal common market will be functioning efficiently if all resources (labor, capital,
goods, and services) are free to move from one region to another without impediments or
distortions imposed by policy. Decentralized tax systems can interfere with the efficiency of
the economic union in two ways. For one, the uncoordinated setting of taxes is likely to lead
to distortions in markets for resources which are mobile across states, especially capital and
tradable goods. This problem will be lessened considerably if state governments recognize
that resources are mobile. However, if they do recognize that, they may engage in socially
wasteful beggar-thy-neighbor policies to attract resources to their own states. If all
jurisdictions engage in such policies, the end result will simply be inefficiently low taxes (or
high subsidies) on mobile factors.
National Equity
The tax-transfer system in one of the main instruments for achieving redistributive equity.
The argument for making equity a federal objective is simply that all persons ought to enter
into society’s ‘social welfare function’ on an equal basis, and presumably the federal
government is the only level that can ensure that residents in different regions are treated
equitably. This may be tempered if states have different tastes for redistribution, or if
centralized decision making is not guided by normative criteria. To the extent that equity is
viewed as being a federal policy objective, decentralized taxes can interfere with the
achievement of those objectives. As with the efficiency case, uncoordinated state tax
policies may unwittingly induce arbitrary differences in redistributive consequences for
residents of different states. Also, given the mobility of labor and capital across the states,
the states may engage in perverse redistributive policies using both taxes and transfers to
attract high-income persons and repel low-income ones. Beggar-thy-neighbor redistributive
policies are likely to be offsetting with respect to resource allocation, but will result in less
redistribution than in their absence. (Of course, those who abhor redistribution through
government will prefer decentralized policies for precisely the same reason.) This is
obviously likely to be more of a problem for those taxes which are redistributive in nature, as
well as for transfers.
Administrative Costs
The decentralization of revenue rising can also serve to increase the costs of collection and
compliance, both for the public sector and for the private sector. There are fixed costs
associated with collecting any tax which will have to be borne for each tax type that is used
by the states. Taxpayers will also have to incur costs of compliance for all taxes levied. The
possibilities for evasion and avoidance will increase with decentralization for some types of
taxes. This will be true where the tax base is mobile, or where the tax base straddles more
than one jurisdiction. In the latter case, there will need to be rules for allocating tax revenues
among jurisdiction; in their absence, some tax bases may face either double taxation or not
taxation at all. Auditing procedures may also be distorted for those tax bases which involve
transactions across state boundaries.
Fiscal Need
To ensure accountability, revenue means should be matched as closely as possible to

revenue needs. Thus tax instruments intended to further specific policy objectives should be
assigned to the level of government having the responsibility for such a service. Thus
progressive redistributive taxes, stabilization instruments, and resource rent taxes would be
suitable for assignment to the national government; while tolls on inter municipal roads are
suitably assigned to state governments. In countries with a federal level VAT, it may be too
cumbersome to have sub-national sales taxes. In such circumstances, the fiscal need
criterion would suggest allowing sub national governments access to taxes which are
traditionally regarded as more suitable for national administration, such as personal income
taxes.
Reconciling the Difference: Making Sub national Governments Accountable, While

Preserving Efficiency and Avoiding National Distortions.
The main problem with the tax assignment that emerges from the preceding prescriptions,
as illustrated in the attached table is that it generally does not provide sufficient revenues for
lower-tier governments. In part for this reason, local and especially intermediate-level
governments in many countries levy a variety of specific (excise) taxes on gambling, motor
vehicles, and so on. Again, however, such levies seldom produce anything like the revenue
needed to finance a significant part of major expenditures such as education and health that
are often assigned to sub national governments.
Resolving the Problem
 The first way is to supplement local revenues by intergovernmental fiscal transfers -

without undesirably reducing local efforts to collect their own taxes.
 The second option is to permit sub national governments to levy their own broad-
based taxes - as long as they burden local beneficiaries only. In principle, a retail
sales tax or a tax on personal income would be possible. In practice, however, the
only efficient, desirable broad-based sub national tax that seems feasible is likely to
be a flat-rate surtax (often called "piggybacking") on a national personal income tax.
Retail sales taxes are seldom feasible in the circumstances of developing or
transitional countries.
Whether with respect to such a surtax, a local property tax, or local taxes in general, the
critical elements required to ensure local accountability without efficiency costs are (1) to
restrict local governments as much as possible from exporting taxes and (2) to permit them
to set their own tax rates. For efficiency, it may be desirable to assess the base of a tax
centrally and even to have it collected by the central government; but for accountability it is
critical that the local authorities are responsible (perhaps within limits) for setting the tax rate.
Individual Activity: 1.1
1. Identify 3 ways in which government expenditures are financed
2. Explain the different sources of income tax for local governments.
3. Describe three ways in which government expenditures are made.
1.2: Recommendations for achieving sustainability are provided in relation to

municipal revenue.
Sustainable urban infrastructure is a term used to describe infrastructure that facilitates a

place or regions progress towards the goal of sustainable living. Attention is paid to
technological and government policy which enables urban planning for sustainable
architecture and initiatives that promote sustainable agriculture.
Generally speaking the following could be considered sustainable urban infrastructure:
 public transport networks

 Distributed generation and integrated energy demand management initiatives and
programs
 high efficiency buildings and other development constraints such as only permitting
the construction of green buildings and sustainable habitats with energy-efficient
landscaping.
 connected green spaces and wildlife corridors
 Low impact development practices to protect water resources.
Sustainable development (SD) is a pattern of economic growth in which resource use aims
to meet human needs while preserving the environment so that these needs can be met not
only in the present, but also for generations to come (sometimes taught as ELF-
Environment, Local people, Future).
A renewable resource is a natural resource with the ability to reproduce through biological
or natural processes and replenished with the passage of time. Renewable resources are
part of our natural environment and form our eco-system.
Sustainable communities (local economic development ) are communities planned,

built, or modified to promote sustainable living. This may include sustainability aspects
relating to reproduction , water, transportation, energy, and waste and materials. [1] They tend
to focus on environmental sustainability (including development and agriculture) and
economic sustainability. Sustainable communities can focus on sustainable urban
infrastructure and/or sustainable municipal infrastructure.
Sustainable living is a lifestyle that attempts to reduce an individual's or society's use of the
Earth's natural resources and his/her own resources.[1] Practitioners of sustainable living
often attempt to reduce their carbon footprint by altering methods of transportation, energy
consumption and diet. Proponents of sustainable living aim to conduct their lives in ways that
are consistent with sustainability, in natural balance and respectful of humanity's symbiotic
relationship with the Earth's natural ecology and cycles.[3] The practice and general
philosophy of ecological living is highly interrelated with the overall principles of sustainable
development.
Planning for sustainable development
Responding to calls for clarification of the definition of sustainable development
 Is crystal clear that sustainable development embraces social and environmental as

well as economic objectives and does so in a balanced way;
 Refers explicitly to the five principles of the Sustainable Development Strategy;
 Goes further than ever before and is clear that councils should look for net
improvements on all dimensions of sustainability;
 Makes explicit that the presumption in favour of sustainable development works
through, not against, local plans;
 Makes it clear that relevant policies – such as those protecting the Green Belt, Sites
of Special Scientific Interest, National Parks and other areas – cannot be overridden
by the presumption;
 Recognises the intrinsic value and beauty of the countryside (whether specifically
designated or not).
Protecting and enhancing the natural environment
The National Planning Policy Framework is consistent with and helps implement the
ambitions of Defra’s Natural Environment White Paper ambitions. It aims to enhance and not
just protect the natural environment, aiming for a net gain for nature. It also supports the
creation of better local ecological networks, allows local planning authorities to recognise
Nature Improvement Areas in their plans, and reflects the important role of Local Nature
Partnerships on strategic planning matters.
Environment Secretary Caroline Spelman welcomed the new Framework’s presumption in

favour of sustainable development:
“The new planning framework is good news for local communities, the environment and the
economy. It shows that economic recovery and protecting the environment can go hand in
hand. Sustainable development will be the cornerstone of economic growth – and the new
planning framework clearly sets out that any new development must be environmentally
friendly. It gives local communities more powers to shape the neighbourhoods they live in
and protect the green spaces that are important to them, and will mean we won’t see the
kind of unsustainable development which has blighted rural areas in the past.
“The planning system was in dire need of overhaul as it was too complex and costing R3
billion a year in delays. Our two departments have been working closely on this project, and
the final results will see the development we urgently need while still protecting the
environment.
“By placing sustainable development at the heart of planning policy, the new planning
Framework demonstrates the Government’s commitment to mainstreaming sustainable
development by embedding it in everything we do.
Cost recovery,
South Africa has a history of inequitable distribution of water services, skewed by racially
discriminatory policies and severe socio-economic inequality. The advent of democracy not
only gave all South Africans the right to participate freely in public affairs, but it also
constitutionally entrenched rights to eventual access to basic social and economic services.
The approach of the Department of Water Affairs and Forestry (DWAF) - outlined in a 1994
white paper - paid careful attention to the financial dimension of expanding basic water
services. Drawing in part on conventional thinking in international development
organisations, this approach sought to recover recurrent (operation and maintenance) costs
of basic services through user charges.
Difficulties in securing user payments soon emerged as a major threat to the continued
expansion of basic water services. In 1998, DWAF admitted that, "many of the Department's
RDP water projects are proving unsustainable as cost recovery is not taking place."
The purpose of the study is to identify the main determinants of successful cost recovery for
water services in South Africa and to use this information in the development of practical
strategies to overcome obstacles to cost recovery.
Project Objectives
The purpose of the project as a whole is to identify the main causes (determinants) of
successful cost recovery for water services in South Africa and to use this information in the
development of practical strategies to overcome obstacles to cost recovery. As stated in the
project contract, the aims are:
 To audit (countrywide) successful cost recovery for water services provision.

 To establish the institutional, social, economic and political contributions necessary
for successful water service provision.
 To identify examples of successful cost recovery programmes which show the way
forward.
 Based on the synthesis of these findings, to formulate guidelines for the water
service sector.
 To unpack all the above issues and to develop strategies for use by local authorities
and other service providers progressively to overcome the obstacles in achieving
cost recovery.
All the aforementioned project objectives have been achieved in this Final Project document.
Project Methodology
The project used the following methodology:
a. Consulting stakeholders such as the Department of Provincial and Local

Government, Department of Water Affairs and Forestry, the South African Local
Government Association and selected local authorities on the issues, research,
design and products required.
b. Undertaking a national survey of local authorities to identify issues affecting cost
recovery. The main objective of the national survey was to collect quantitative data
on the cost recovery situation countrywide.
c. Reviewing literature and existing data.
d. Identifying four successful local authorities and undertake case studies (in-depth
review).
e. Synthesising findings into a report and identify broad trends and access of
interventions
The principal aim of this study is to account for differences in cost recovery outcomes, with
particular attention to issues related to low income households. It investigates the interplay
between socio-political and institutional context, service infrastructure, and billing and
payment policies and procedures in influencing payment rates and debt ratios in diverse
municipalities countrywide.
Tariffs,
Tariffs for municipal services
A "tariff" means a service charge that the municipality charges for the use of services. The
prices of these services should be affordable, to the people who use the services, and to the
municipality itself. Ward committees should advise councillors on the services needed in the
area, what is an affordable price (or "tariff") for the services, and how to ensure that people
pay for their services. Community organisations should get involved in consultation meetings
to discuss efficient and cost-effective service delivery.
Every year, as part of the budget preparation cycle, there should be a review of tariffs ("price
list") for:
 basic services, such as water, electricity, sewerage or rubbish removal

 specialised services, such as the approval of building plans
 fines and penalties, such as for traffic fines or late payments, interest on arrears.
Decisions should be taking the following into account:
 Tariffs should be reasonable and affordable, for the people who use these services.
 Based on a sliding scale, so that everybody gets the basic amount free, then pay
increasingly higher tariff amounts, for the amount of water or electricity they use.
These higher-volume tariffs are essential, to cover the free basic supply to those who
only use a little, to survive.
 Policy to deal with poor households that cannot afford to pay anything
 Fair to the municipality, to recover most (or all!) of the costs of providing the service
to the people, so that the tariff income can pay for staff salaries, water pipe repairs,
and to repay Eskom for their bulk supply of electricity to your municipality.
Property rates
In South Africa (and in many other democratic countries), property rates are an important
source of income for the municipality, to pay for the general services and facilities which the
municipality provides to the people of the area.
 "Rates" are the property taxes that the municipality can raise from all people and
businesses that own fixed property (land and buildings) in the municipal area, based
on the estimated value of that property.
 The "Rate in the Rand" is set each year by council, as the "percentage" of the
property value that the owner must pay to the municipality. The rate could be (for
example) 2c in the Rand, so that if the value of someone’s land and house is R100
000, the property owner (or "ratepayer") must pay R2 000 in property tax (or "rates")
to the municipality. Usually, this tax can be paid either annually, or in twelve, monthly
instalments.
 The "Valuation Roll" for a municipality lists all the fixed properties in the municipal
area, - who owns them and – what the official value of the land and building is.
It is important that these values are updated regularly, as your area develops, people
improve their properties, and the price of land changes. Rates must be based on a fair, up-
to-date value of each property; otherwise people could accuse your municipality of charging
an unfair property tax on them.
Here are some important factors for your ward committee and council to remember about
property rates:
Affordability - Property rates are a democratic form of taxation that is legally enforceable.
Should ratepayers not pay their rates, municipalities are legally entitled to obtain a court
order to sell the ratepayer’s property to enable the municipality to recover the unpaid rates,
which they have budgeted for, to provide community services.
Although a form of taxation, ratepayers may not be able to afford to pay an extremely high
level of rates. Affordability is therefore a very important factor to consider when approving
the budget, otherwise there may be a rates boycott.
Impact on business organisations - Rates and service charges can be a significant cost to
a business organization in your area. If rates and services charges are too high, a business
may relocate their factory or shops to other municipalities where the rates are lower. This
could cause job losses or inconvenience to residents of your area.
The extent of cross-subsidisation - The extent of cross-subsidisation of rates (and service

charge tariffs) is one of the more difficult factors to consider when approving the budget.
Cross-subsidisation is the extent to which one group or (richer) ratepayers pay an additional
amount so that other groups of (poorer) ratepayers can pay a lesser amount.
Rates Rebates - One way of cross-subsidising the property rates from richer to poorer
ratepayers is for council to agree a "rebate" (like a "discount") for pensioners or small
businesses. In other words, these groups will pay less than the normal rate for the real value
of their property, provided that they can prove to the municipality that they are earning below
a defined amount, that year.
Managing the money flow
"Money flow" or "cash flow" is the movement of money into and out of the municipality’s
bank account, as money is received from ratepayers or paid out to staff and service
providers. When more money flows in to the bank account than has to be paid out, the
municipality has a "surplus" of money – and can proceed with planned development projects
that have been planned in the budget.
When more money has to be paid out than the money that flows in, your municipality could
be heading for big financial problems or go "bankrupt". The municipality can borrow money
from the bank (overdraft), or from another sphere of government (a loan or grant), or
increase the property rates and service charges (tariffs) which people must pay for local
services to avoid the situation
None of these options is very good for your municipality’s reputation. Even though ward
committees and community organisations are not involved in the municipality’s "cash flow
management" you need to know how important it is to avoid a "negative cash flow", or
"deficit". This is when the municipality owes more money than it has in the bank, and has to
stop projects that it cannot afford to pay for. "Cash flow management" should be a regular
item on the council meeting agendas and documents about this should be presented to
council or ward committee meetings. Ask questions about how well the money flow is being
planned, monitored and followed up, by the treasurer and executive committee or mayoral
committee.
Ward Committee role
Your ward committee members all need to help achieve a "positive cash flow" for your
municipality’s development projects, by:
 setting the example in paying your rates and service charges fully, and before the
due date
 encouraging everybody in your community to pay their rates and service charges, on
time
 challenging any waste of municipal money that you hear about, and asking for a
proper explanation or investigation
 holding your councillor accountable for fighting corruption or wastage of municipal
cash or other assets.
Subsidies
Tax impact
A marginal tax on the sellers of a good will shift the supply curve to the left until the vertical
distance between the two supply curves is equal to the per unit tax; when other things
remain equal, this will increase the price paid by the consumers (which is equal to the new
market price), and decrease the price received by the sellers. [1]
Subsidy impact
Marginal subsidies on production will shift the supply curve to the right until the vertical
distance between the two supply curves is equal to the per unit subsidy; when other things
remain equal, this will decrease price paid by the consumers (which is equal to the new
market price) and increase the price received by the producers. Similarly, a marginal subsidy
on consumption will shift the demand curve to the right; when other things remain equal, this
will decrease the price paid by consumers and increase the price received by producers by
the same amount as if the subsidy had been granted to producers. However, in this case,
the new market price will be the price received by producers. The end result is that the lower
price that consumers pay and the higher price that producers receive will be the same,
regardless of how the subsidy is administered.[1]
Effect of elasticity
Depending on the price elasticities of demand and supply, who bears more of the tax or who
receives more of the subsidy may differ. Where the supply curve is more inelastic than the
demand curve, producers bear more of the tax and receive more of the subsidy than
consumers as the difference between the price producers receive and the initial market price
is greater than the difference borne by consumers. Where the demand curve is more
inelastic than the supply curve, the consumers bear more of the tax and receive more of the
subsidy as the difference between the price consumers pay and the initial market price is
greater than the difference borne by producers.
An illustration
The effect of this type of tax can be illustrated on a standard supply and demand diagram.
Without a tax, the equilibrium price will be at Pe and the equilibrium quantity will be at Qe.
After a tax is imposed, the price consumers pay will shift to Pc and the price producers
receive will shift to Pp. The consumers' price will be equal to the producers' price plus the
cost of the tax. Since consumers will buy less at the higher consumer price (Pc) and
producers will sell less at a lower producer price (Pp), the quantity sold will fall from Qe to
Qt.
Affordability.
Over the last few years the increasing saturation of the unsecured credit market has given
rise to concern amongst banking regulators that indebtedness is on the increase. Several
cases where over-indebtedness has precipitated consumers to drastic action have received
considerable press coverage, placing pressure on regulators and lenders to address the
issue.
Group Activity / Pair Activity: 1.2
Using an illustration explain the Effect of elasticity of demand and

supply.
1.3: Tax incidence of revenue levying collection legislation.
To tax (from the Latin taxo; “estimate") is to impose a financial charge or other levy upon a
taxpayer (an individual or legal entity) by a state or the functional equivalent of a state such
that failure to pay is punishable by law. Taxes are also imposed by many administrative
divisions. Taxes consist of direct tax or indirect tax, and may be paid in money or as its
labour equivalent (often but not always unpaid labour).
In economics, tax incidence is the analysis of the effect of a particular tax on the distribution
of economic welfare. Tax incidence is said to "fall" upon the group that, at the end of the day,
bears the burden of the tax. The key concept is that the tax incidence or tax burden does not
depend on where the revenue is collected, but on the price elasticity of demand and price
elasticity of supply. The concept was brought to attention by the French Physiocrats and in
particular François Quesnay who argued that the incidence of all taxation falls ultimately on
landowners and is at the expense of land rent. For this reason they advocated the
replacement of the multiplicity of contemporary taxes by the Single Tax, or Impôt Unique. A
leading advocate of this tax was Turgot. In the first instance, however, the incidence of the
tax falls elsewhere. For example, a tax on apple farmers might actually be paid by owners of
agricultural land but the incidence may initially fall on consumers of apples.
Inelastic supply, elastic demand
Inelastic supply, elastic demand: the burden is on producers
Because the producer is inelastic, he will produce the same quantity no matter what the
price. Because the consumer is elastic, the consumer is very sensitive to price. A small
increase in price leads to a large drop in the quantity demanded. The imposition of the tax
causes the market price to increase from P without tax to P with tax and the quantity
demanded to fall from Q without tax to Q with tax. Because the consumer is elastic, the
quantity change is significant. Because the producer is inelastic, the price doesn't change
much. The producer is unable to pass the tax onto the consumer and the tax incidence falls
on the producer. In this example, the tax is collected from the producer and the producer
bears the tax burden. This is known as back shifting.
Similarly-elastic supply and demand
Similar elastic ties: burden shared
Most markets fall between these two extremes, and ultimately the incidence of tax is shared
between producers and consumers in varying proportions. In this example, the consumers
pay more than the producers, but not all of the tax.
Transfer tax
Historically, in many countries, a contract needed to have a stamp affixed to make it valid.
The charge for the stamp was either a fixed amount or a percentage of the value of the
transaction. In most countries the stamp has been abolished but stamp duty remains. Stamp
duty is levied in the S.A on the purchase of shares and securities, the issue of bearer
instruments, and certain partnership transactions. Its modern derivatives, stamp duty reserve
tax and stamp duty land tax, are respectively charged on transactions involving securities
and land. Stamp duty has the effect of discouraging speculative purchases of assets by
decreasing liquidity. In the South Africa transfer tax is often charged by the state or local
government and (in the case of real property transfers) can be tied to the recording of the
deed or other transfer documents.
Wealth (net worth) tax
Some countries' governments will require declaration of the tax payers' balance sheet
(assets and liabilities), and from that exact a tax on net worth (assets minus liabilities), as a
percentage of the net worth, or a percentage of the net worth exceeding a certain level. The
tax may be levied on "natural" or legal "persons".
1. Distinguish between Inelastic supply, and elastic demand.

2. Explain the term tax incidence.
1.4: The incentive effects of municipal tariffs and user charges
Purposes and effects
Money provided by taxation has been used by states and their functional equivalents
throughout history to carry out many functions. Some of these include expenditures on war,
the enforcement of law and public order, protection of property, economic infrastructure
(roads, legal tender, enforcement of contracts, etc.), public works, social engineering, and
the operation of government itself. Governments also use taxes to fund welfare and public
services. A portion of taxes also go to pay off the state's debt and the interest this debt
accumulates. These services can include education systems, health care systems, pensions
for the elderly, unemployment benefits, and public transportation. Energy, water and waste
management systems are also common public utilities. Colonial and modernizing states
have also used cash taxes to draw or force reluctant subsistence producers into cash
economies.
Governments use different kinds of taxes and vary the tax rates. This is done to distribute
the tax burden among individuals or classes of the population involved in taxable activities,
such as business, or to redistribute resources between individuals or classes in the
population. Historically, the nobility were supported by taxes on the poor; modern social
security systems are intended to support the poor, the disabled, or the retired by taxes on
those who are still working. In addition, taxes are applied to fund foreign aid and military
ventures, to influence the macroeconomic performance of the economy (the government's
strategy for doing this is called its fiscal policy; see also tax exemption), or to modify patterns
of consumption or employment within an economy, by making some classes of transaction
more or less attractive.
A nation's tax system is often a reflection of its communal values or/and the values of those
in power. To create a system of taxation, a nation must make choices regarding the
distribution of the tax burden—who will pay taxes and how much they will pay—and how the
taxes collected will be spent. In democratic nations where the public elects those in charge
of establishing the tax system, these choices reflect the type of community that the public
wishes to create. In countries where the public does not have a significant amount of
influence over the system of taxation, that system may be more of a reflection on the values
of those in power.
All large businesses incur administrative costs in the process of delivering revenue collected
from customers to the suppliers of the goods or services being purchased. Taxation is no
different, the resource collected from the public through taxation is always greater than the
amount which can be used by the government. The difference is called compliance cost, and
includes for example the labour cost and other expenses incurred in complying with tax laws
and rules. The collection of a tax in order to spend it on a specified purpose, for example
collecting a tax on alcohol to pay directly for alcoholism rehabilitation centers, is called
hypothecation. This practice is often disliked by finance ministers, since it reduces their
freedom of action. Some economic theorists consider the concept to be intellectually
dishonest since, in reality, money is fungible. Furthermore, it often happens that taxes or
excises initially levied to fund some specific government programs are then later diverted to
the government general fund. In some cases, such taxes are collected in fundamentally
inefficient ways, for example highway tolls.
Some economists, especially neo-classical economists, argue that all taxation creates
market distortion and results in economic inefficiency. They have therefore sought to identify
the kind of tax system that would minimize this distortion.
The effect of the work habits of an individual when they are offered some type of increase in
pay or other type of benefit.
The effect of these changes on taxable income using time-series/cross-section analysis of

data on income and taxes by small slices of the income distribution. We find that the
elasticity of taxable income to changes in the log after-tax share (one minus the marginal
rate) is positive but small (approximately 0.2) and precisely estimated (a t-statistic over 6).
The estimate is highly robust. We also examine the time-series response of available
indicators of investment and entrepreneurial activity to changes in marginal rates. We find
suggestive evidence of an impact on business formation, but no evidence of an important
impact on other indicators.
What is financial management?
The table below sets out the financial management processes that are used in
municipalities.
PROCESS WHAT IS IT?

Budgeting  Working out what income the municipality will get
and balancing this with the planned expenditure,
by preparing detailed plans and forecasts.
Safeguarding  Putting in place controls to ensure that the

income, capital and assets such as money, motor
vehicles, computer equipment etc., are
safeguarded against misuse, damage, loss or
theft.
Monitoring  Monitoring actual income and expenditure and

(Financial comparing this to the budget, through regular
Reporting) financial reporting and corrective action when
needed.
Auditing  Reporting financial results to all stakeholders by
(Accountability) preparing municipal financial statements that are

audited by the Auditor-General, who reports to
Parliament.
Ward committees have the right (and duty!) to discuss, ask questions and make
recommendations to the council on the best ways to generate income, to keep costs down,
prevent corruption and safeguard the assets of the municipality. That is good financial
management!
1. What is financial management?

2. Explain how municipal finance is managed.
SO2: A subsidy framework for municipal rates and

tariffs.
According to the White Paper on Local Government, dated March 1998, National
Government and other stakeholders have agreed on a set of principles to guide tariff
policy as follows:
Government and other stakeholders have agreed on a set of principles to guide tariff policy
as follows:
 Payment in Proportion to the Amount Consumed.

 As far as it is practically possible, consumers should pay in proportion to the
amount of services consumed.
 Full Payment of Service Costs.
 All households, with the exception of the indigent, should pay the full costs of
services consumed.
Ability to Pay
Municipalities should develop a system of targeted subsidies to ensure that poor households
have at least a minimum level of basic services.
Fairness
Tariff policies should be fair in that all people should be treated equitably.
Transparency
Tariff policy should be transparent to all consumers and any subsidies and concessions
must be visible and understood by all consumers.
Local Determination of Tariff levels
Municipalities have the flexibility to develop their own tariffs in accordance with these
principles.
Consistent Tariff Enforcement.
A consistent policy for dealing with non-payment of tariffs must be developed. This must be
targeted and enforced with sensitivity to local conditions.
Ensure Local Economic Competitiveness.
Municipal tariffs must not unduly burden local business through higher tariffs, as these costs
affect the sustainability and competitiveness of such businesses.
These policy principles were incorporated into the Local Government Municipal Systems Act
No. 32 of 2000. In terms of section 74 (2) of the Local Government Municipal Systems Act
2000, the Municipality's tariff policy must reflect at least the following principles, namely that:
 Users of municipal services should be treated equitably in the application of

tariffs;
 The amount individual users pay for services should generally be in
proportion to their use of that service;
 Poor households must have access to at least basic services through:
 Tariffs that cover only operating and maintenance costs;
 Special or life line tariffs for low levels of use or consumption of services or for
basic levels of service; or
 Any other direct or indirect method of subsidisation of tariffs for poor
households.
 Tariffs must reflect the costs reasonably associated with rendering the
service, including capital, operating, maintenance, administration,
replacement costs and interest charges;
Tariffs must be set at levels that facilitate the financial sustainability of the service, taking into
account subsidisation from sources other than the service concerned. A service is financially
sustainable when it is provided in a manner that would ensure its financing from internal and
external sources is sufficient to cover the costs of the initial capital expenditure required,
operating the service, maintaining, repairing and replacing the physical assets used in its
provision:
 Provision may be made in appropriate circumstances for a surcharge on the

tariff for a service;
 Provision may be made for the promotion of local economic development
through special tariffs for categories of commercial and industrial users; and
 The economical, efficient and effective use of resources, the recycling of
wastes and other appropriate environmental objectives must be encouraged.
 The extent of subsidisation of tariffs for poor households and other categories
of users should be fully disclosed.
The Municipality must treat members of the community equitably with regard to the provision
of services.
Development and Investment
Meeting basic needs in the context of existing services backlogs, will require increased
investment in municipal infrastructure.
Sources of Revenue
In terms of section 229 of the Constitution of the Republic of South Africa 1996 (Act No 108
of 1996) the Municipality may impose:
of services.Meeting basic needs in the context of existing services backlogs, will require
increased investment in municipal infrastructure.In terms of section 229 of the Constitution of
the Republic of South Africa 1996 (Act No 108 of 1996) the Municipality may impose:
 Rates on property and surcharges on fees for services provided by or on

behalf of the Municipality; and
 If authorised by national legislation, other taxes, levies and duties appropriate
to Local Government, but it may not impose income tax, value-added tax,
general sales tax or customs duty.
The power of a Municipality to impose rates on property, surcharges on fees for services
provided by or on behalf of the Municipality, or other taxes, levies or duties:
 May not be exercised in a way that materially and unreasonably prejudices

national economic policies, economic activities across municipal boundaries,
or the national mobility of goods, services, capital or labour; and
 May be regulated by national legislation.
 In terms of section 4(1)(a) of the Local Government: Municipal Systems Act
2000 (Act No 32 of 2000) the Council may finance the affairs of the
Municipality by:
 Charging fees for services; and
 Imposing surcharges on fees, rates on property and to the extent authorised
by national legislation, other taxes, levies and duties.
 Section 16 of the Local Government Municipal Systems Act 2000 (Act No 32
of 2000) requires the Municipality to establish appropriate mechanisms,
procedures and processes to ensure community participation in, amongst
other things, the preparation of its budget.
Section 10G(7)(a)(ii) of the Local Government Transition Act No. 209 of 1993, as amended,
and the Kwazulu-Natal Joint Services Act No.84 of 1990, authorises the Municipality to levy
and recover, by resolution supported by a majority of the members of the Council levies,
fees, taxes and tariffs in respect of any function or service of the Municipality. It further
authorizes the Municipality, when it determines property rates, levies, fees, taxes and tariffs
to:
 Differentiate between different categories of users or property on such

grounds as it may deem reasonable;
In respect of service charges from time to time by resolution, amend or withdraw such
determination and determine a date, not earlier than 30 days from the date of the resolution,
on which such determination, amendment or withdrawals will come into operation;
 Advertise on notice boards calling for objections; and

 Recover any charges so determined or amended, including interest on any
outstanding amount.
The Local Authorities Ordinance (Ordinance No. 25 of 1974) contains the following
provisions:
 Rates can be paid in not less than ten instalments in a financial year if it
cannot be paid in one lump sum.
 The revenue of the Municipality consists of the rates, taxes, fees, charges,
fines and other sums imposed or recoverable by or payable to the Council
under any law;
Interest charged at 18% per annum (1.5% per month), must be paid to the Municipality on
rates that have not been paid within thirty days from the date on which such rates became
due. The interest rate charged should be higher than the rate payable by the Council to its
bank in respect of an overdraft, for the period during which such rates remain unpaid after
the expiry of the period of thirty days;
Rates that are outstanding for more than two months should incur a 10% collection charge
(Local Authorities Ordinance, Section 171);
The Council may charge interest on any other amount due to it that may not have been paid
within thirty days from the date on which such amounts became due. The interest rate
charged is one percent higher than the rate payable by the Council to its bank in respect of
an overdraft for the period during which such amounts remain unpaid after the expiry of the
period of thirty days. Interest may not be charged on:
 Fines imposed by a court and due to the Council; and

 Monies due to the Council in terms of a law and in respect of which that law
provides that a penalty on interest must be levied if such monies are not paid
on the date when due or payable.
 The interest rates referred to above must be amended on the first day of the
month following on the month in which the Council's bank has amended the
interest rate payable by the Council to its bank in respect of an overdraft; and
 Any fine imposed or money treated as bail in respect of any offence under the
ordinance or a bylaw made by the Council, must be paid to the Municipality.
Differentiate between different categories of users or property on

such grounds as it may deem reasonable.
2.1: The need for subsidies

Tariffs & subsidies
Tariffs and Subsidies: The issue: Perhaps the most complex and politically sensitive of
policy issues is the level of energy prices. Low or below-market energy prices have two
consequences: 1) they do not encourage consumers to invest in energy efficiency; and 2)
low prices fail to provide enough revenue for heat supply companies to repair and modernize
their own systems.
Tariff structures sometimes provide exemptions for so many types of consumers - regardless
of income - that heating and water enterprises cannot recover their costs and invest in
improving their infrastructure. Tariffs should reflect the cost of production and only those
below a certain income should be subsidized. But this is much more difficult than it sounds.
National governments need to set the laws that allow cities to take those non-payers who
have the means to court (since district heating companies cannot cut off individual
consumers). Some countries, like Poland, allow for non-payers' wages to be reduced by the
amount of the heating debt. And when cities are responsible for paying the subsidies (as
opposed to the national government) it provides an incentive for the city to reduce heat
losses - particularly in buildings with a high percentage of subsidized consumers. Every
wasted calorie means more money out of the city budget.
Local government is responsible for the delivery of housing and most local governments
have housing departments. It is here that you will be able to put your name on the waiting
list. You do this by going to the housing department at your local council offices. Many
councils have set up help desks to assist families with housing problems.
Remember, young people who are not married or do not have children, will not qualify for
subsidies. They can still rent council houses.
Way to check if your name is listed on the housing waiting list
Some people complain that they have been on the housing waiting list for a long time but
they have not yet received a house. They see new housing developments and want to know
when they will receive an RDP house. It is possible to check if someone is on the housing
waiting list through the internet. Go to www.ndd.co.za . You will then be able to enter the ID
of the person to see if he/she is on the waiting list.
The Housing subsidy and what you need have to qualify for it
A subsidy is a grant of money which does not have to be paid back. This money does not go
directly to the homeowner. Instead it goes to the developer that is building the house. The
developer can be a private company, the local authority or a community organisation.
In order to qualify for a housing subsidy, you need to have the following:
 You have to be a South African citizen;

 You must be over 21 years of age;
 You must have a total household income of less than R 3500 per month;
 You must be married or live with a partner or be single and have dependents
(children you are responsible for);
 You must never have owned a house or a property anywhere in South Africa
It is very important to warn people who want to apply for a housing subsidy of the following:
 They will only ever get one housing subsidy (except for consolidation subsidy) so
they must use it wisely;
 The names of both partners go on the data base. If you split up with your partner you
will not get another subsidy with your new partner.
Types of housing subsidies available
a) Individual subsidy
This subsidy is for low-income households wishing to buy residential property for the first
time and may be used to purchase an existing house including the land on which the house
stands. This subsidy can only be used once by a successful applicant. In 2006 households
with an income of R1 500 per month or less are eligible for a subsidy of R31 929.
Households with an income between R1 501 and R 3500 per month are eligible for a
subsidy of R29 450 and must pay a contribution of R 2 479.
b) Consolidation Subsidy
This is for people who have previously received a subsidy, live on a serviced site and want
to build a better house such as building a top structure. This money can only be used for
building as services have already been provided on the site. In 2006 households with an
income under R1 500 per month are eligible for a subsidy of R18 792. Households with an
income between R1 501 and R 3500 per month are eligible for a subsidy of R16 313 and
must pay a contribution of R2 479.
c) Institutional Subsidy
This is for non profit organisations like churches, local authorities or housing associations
(also called “social housing institutions”) that want to provide rented accommodate to people
from lower income groups. It is called an institutional subsidy because it goes to the
institution who can rent out the housing to different families. A family who lives in this type of
rented accommodation does not jeopardise their chance to apply for their own subsidy at a
later date. This is because the subsidy for rented housing is taken in the name of the
organisation and not in the name of the individual. The homes developed through the
institutional subsidy must remain in the ownership of the organisation for at least four years
after they are built. In 2006, the subsidy for the institutional subsidy per household is R29
450 which is paid directly to the non-profit organisation. The organisation must add capital.
d) People’s Housing Process establishment grants
These are special subsidies that are available to communities, or organised groups of
households to enhance their housing subsidy by building or organising the building of their
own homes themselves. By using their own labour rather than paying someone else, these
households can make their housing subsidy and personal contribution go further by building
better quality and/or larger houses for less money. An add-on of up R570 per subsidy is
available under this scheme. In addition, the People’s Housing Process can also include the
following support:
 access to land that can be serviced,
 training opportunities, and

 Technical assistance.
e) Rural subsidy
This subsidy is available to people who don’t have formal tenure rights to the land on which
they live. (Such land is owned by the government and tenure granted in terms of traditional
laws and customs). The rural subsidy is available only on a project basis and beneficiaries
themselves may decide on how to use their subsidies. The subsidy may be used for building
houses, providing services of a combination of both. In 2006 the value of this subsidy was
R29 450.
f) Project linked subsidy
This may be used towards purchasing a house, and the land on which it stands, in an
approved Municipal housing. This is usually within a municipal housing project. The subsidy
is paid directly to the Municipality that is building the housing. Households with an income of
R1 500 per month or less are eligible for a subsidy of R31 929, Households with an income
between R1 501 and R 3 500 per month are eligible for a subsidy of R29 450 and must
contribute R2 479.
g) Discount benefit scheme
This scheme promotes home ownership among tenants of publicly-owned rental housing
(municipal and provincial). From April, 2006, purchasers can receive a discount on the
selling price of the property. In many cases, this amount is greater than the purchase price.
When this happens the property is transferred free of any further costs. Some Municipalities
have already transferred much of their housing stock to tenants who have utilised the
Discount Benefit Scheme.
h) Relocation assistance
This is for home owners who are locked into paying for home loans they cannot afford. The
loan must have been from an accredited lender and the borrower must have defaulted on at
least three payments. This subsidy will help them purchase a home they can afford A person
who is eligible for relocation assistance must enter into a relocation agreement, so as to
relocate to more affordable housing Households with an income of R1 500 or less are
eligible for a subsidy of R31 929, Households with an income between R1 501 and R 3000
per month are eligible for a subsidy of R29 450 and must contribute R2 479.
An updated table of housing subsidies can be found on the government housing website:
www.housing.gov.za
NOTE: People with are disabilities (or who are health-stricken) may receive the higher
housing subsidy for Individual, Project-Linked or Relocation Assistance even if their
household income is more than R1 500 but less than R3 500 (and do not have to make a
personal contribution). They are also entitled to receive an amount higher than the usual
subsidy amount to cover the cost of special structures to meet their needs such as a
wheelchair ramp for the mobility impaired.
Creative ways of making your subsidy go further
Some people have complained that the housing subsidy is too little and that the houses that
are built are too small. This is an important area where development workers can help
communities to build better quality houses.
Some ways to do this include:
 Organising unemployed people and especially women to form People’s Housing

Organisations and contacting non governmental organisations that can help the
community with a people’s housing process;
 Members can contribute their labour free of charge and help each other to build
bigger and better houses;
 Organising collective ways to buy building materials so that they are cheaper;
 Setting up savings schemes so that banks are prepared to lend the community extra
money to build better houses. This can be done by opening a group account at a
bank. The group will have to get a name, a constitution, and select a chairperson and
treasurer.
BUDGET FOR THE SUBSIDY

Municipalities can draw resources for targeting from existing sources:
 The equitable share, CMIP grants and other capital grants;

 Profits generated from the sale of luxury services or levels of consumption.
For these resources to be used for a new purpose they would have to be uncommitted.
This implies that most municipalities will have to cut activities to find the necessary
resources for subsidies. This needs to be done sensitively. Cutting should not interrupt the
functioning of the municipal area and the municipality should still be able to deliver sufficient
services to generate the revenue it requires to remain viable.
The alternatives to cutting services are:
 To induce resource savings through increasing delivery efficiency;

 To introduce additional sources of revenue.
An example of the latter would be a surcharge on service consumption in wealthier areas.
VALUE OF THE SUBSIDY
Once the budget and the target group have been decided, the value of the subsidy can
easily be worked out by simply dividing the budget by the number of households in target
group (if there is only one level of subsidy going to one target group). This may not be
adequate, as no account has been taken so far of the cost of providing the service to be
subsidised. More planning may have to be done to determine a meaningful subsidy.
Another decision that is necessary to determine the value of the subsidy is the contribution
beneficiaries should make towards meeting the costs of providing the services. This
decision, in turn, should be informed by the costs of collecting this contribution.
DESIGN OF THE SUBSIDY
In designing the subsidy, the municipality must decide on issues such as the method of
transference, the degree of choice, and the level of transparency associated with the
subsidy.
The key trade-offs here lie between greater degrees of choice and higher levels of
transparency and the increased cost associated with these options. Schemes that allow for
choice and involve the transference of vouchers might be open to leakage due to unintended
individual consumption decisions, theft or other forms of misappropriation.
Political constraints on targeting: The seven steps listed here assume that the constraints on
targeting relate to resources: financial, administrative and technical. However, targeting is
very vulnerable to political factors. Considerable political ability may be necessary to steer
targeting proposals through the policy-making process. Compromises might have to be
made along the way.
MONITORING, EVALUATION AND REVIEW
We have not covered this issue in any detail in these Guidelines (see monitoring and
evaluating the impact for a brief discussion on monitoring and evaluation). The same
indicators used in identification can be used in monitoring and evaluation. Evaluation
requires deeper analysis of the reasons behind patterns that have emerged in monitoring.
Explain the different types of housing subsidies available for

municipalities.
2.2: An indigent policy for

payment.
City's Indigent policy
The City of Cape Town has created a special policy

to assist struggling households in paying their rates
and service charges.
The policy has been designed to give a 100% rates

rebate to property owners who meet predetermined
criteria. Provided their property does not exceed R199,000 (in municipal value), household
owners receive an automatic grant of R30,00 towards the payment of their water and other
municipal accounts (except electricity). If the property is valued at over R199,000, its owners
will need to qualify as indigent to receive this benefit. Other policy benefits include free
refuse or subsidised waste collection for all residential properties valued at R300 000 or less
and an once-off arrears write off (for indigent people who are over 60 years of age, and in
receipt of a disability pension/grant or an occupant of a child headed household).
To qualify for the policy’s benefits, property owners who think they might be eligible need to
register as indigent. The City uses the following criteria to evaluate applicants:
Proof of gross income: This must not exceed R2,880 per household per month,
irrespective of the municipal valuation of the property
Ownership status: The applicant must be the registered owner of the property or an
occupant of a child headed household where the property in which they reside is registered
in the name of a deceased parent/s. In addition, the applicant must not be the registered
owner of more than one property
Occupancy status: The applicant must be a full time occupant of the property, and the
property must be used for residential purposes only
Registration can be undertaken at any City of Cape Town office, or by calling 0860 103 089
for further information.
Once registered, indigent people will need to re-register each year.
The relief measures form part of the City’s endeavours to provide relief for economically
vulnerable residents. These include:
 A 100% rates rebate for senior citizens and disabled people who meet the criteria for
a rates rebate and indigence.
 6,000 litres of water free to all households each month
 50 kWh free electricity for households that consume less than 400kWh per month on
average
 The first R88 000 of all residential properties are exempt from property rates
 Special rates, refuse removal, water and sanitation rebates to accredited shelters for
homeless people
 Upper limit for rates rebates to the disabled and elderly up to R7,000 per month from
all sources
 Retirement schemes and life rights schemes now pay only the residential rate.
The City has rates and services arrears of R2,753 billion as at 30 September 2008, and
manages this in accordance with its Credit Control and Debt Collection Policy. This has in
turn been designed around the Indigent Relief benefits, so that people who are struggling
financially can continue to receive City services (refuse, sewerage, water) during tough
economic times. Indigent homeowners who are indebted to the City will not face debt
collection action or pay interest, but will need to adhere to a repayment schedule.
Today, we have gathered to launch the Indigent Policy which seeks to address the
challenges of poverty and underdevelopment. We have developed this framework to guide
municipalities in determining and defining the indigents within the national framework
parameters.
Our determination in resolving contradiction of poverty and economic growth remains

paramount. Our economic growth must continue to filter down in resolving critical issues of
poverty eradication and employment creation.
In the same vein our municipal Local Economic Development (LED) must strive to create
employment that seeks to eradicate dependency on government and create employment for
all. This will result in few indigents receiving the grant; further most of our residents will be
able to pay for services rendered.
The policy framework attempts to indicate categories of options which municipalities must
take in selection of beneficiaries. We must at municipal level quantify the number of
indigents we have registered in our Indigent Register.
Equally problems involving indigent debtors must be resolved to enable them to qualify for
receiving free basic services. We urge municipalities to dedicate personnel to be responsible
to this milestone achievement in order to ensure that all indigent people are on the Indigent
Register.
In conclusion, one of the modern philosophers Henriot said "Poverty eradication is the
challenge of restructuring society so that there is no longer growing poverty and absolute
numbers of impoverished decrease to minimal exceptional cases. This calls for planning for
setting priorities, for shifts in power, for restructuring society, for radical social and economic
changes. This is basically the transformation of society through policies based on justice.
2.3: The socio-economic impact of a subsidy

The Effects of Subsidized Housing on Communities
Current housing policy initiatives at all levels of government emphasize the dispersal of
subsidized housing as a means of deconcentrating poverty. This paper presents a review of
research conducted over 25 years that examines the various ways in which dispersal is
achieved and the impacts of these programs on the poor families affected, as well as the
receiving communities into which the poor (or the subsidized units) are placed. Though the
programs tend to improve the conditions of poor families relative to other forms of subsidized
housing, their potential to significantly deconcentrate poverty is limited by their small scale
and by continued political opposition from receiving communities.
Impact on Receiving Communities
Research on the impact of subsidized housing on neighborhoods is mixed. Early studies

indicated that subsidized housing had positive or undetectable impacts on neighborhoods. In
more recent years, some studies have shown slight negative effects for public housing and
other forms of subsidized housing, while others have found no effect or slight positive
impacts. The evidence suggests that whatever effects occur, they are highly dependent
upon the local context.
Dispersal Impact on Poor Families
The argument for housing dispersal programs is partially based on the contention that poor
families in concentrated neighborhoods lack role models for success. The benefits of role
models require, as a prerequisite, some interaction among the different income groups in
diverse communities. On the other hand, critics of dispersal strategies argue that the
wholesale displacement of residents has the immediate effect of pulling apart the very
networks of social and family ties upon which low-income households depend.
Development in a world of complexity
Under the apartheid regime, South Africa was marketed as a tourist destination with the
slogan "A World in One Country." Ironically, the marketers of the racist past may have got
one thing inadvertently right. South Africa's development challenges certainly reflect world-
scale complexity and mirror the unequal distribution of wealth in a globalized world.
In the midst of political stability and strong economic growth, post-apartheid South Africa is
faced with the stubborn reality of widespread poverty and growing inequality. As economic
empowerment benefits an expanding, mainly urban black middle class, the majority of
people continue to live in poverty and mass unemployment. As the country's remarkable and
peaceful transition to democracy unfolds, millions -- both urban and rural -- are trapped on
the margins of society, contending with the multiple crises of unemployment, landlessness,
homelessness, lack of basic services, HIV/AIDS, food insecurity and unacceptable levels of
crime and violence.
All these contradictions persist under the leadership of a government that has
unprecedented legitimacy, democratic credentials and popular support. If nothing else, this
vexing situation confirms that we continue to underestimate the depth and complexity of the
problems we face.
Bridging divides, working for systems change
Confronted by the complexity of our development challenges, one of our biggest failings is a
lack of trust, common purpose and collaborative leadership between the various sectors and
stakeholders in development. South Africa remains a polarized society, in which the fault
lines of race, class and sector run deep. Nearly thirteen years after the end of apartheid, a
"silo mentality" remains widespread. Some leaders in government, business and civil society
still lack a basic understanding of the role or potential of other sectors. At worst, cross-sector
collaboration is subverted by underlying patterns of mutual hostility, arrogance or
indifference.
Key challenges facing South Africa
It doesn’t take Einsteinian wisdom to realise that the Rainbow picture would be lacking in
rosiness, but a chunk of change was spent on getting to the bottom of our country’s ills, and
a frank assessment is what we got:
1. Too few South Africans in work

2. The quality of school education for most black people is sub standard
3. Poorly located and inadequate infrastructure limits social inclusion and faster
economic growth
4. Spatial challenges continue to marginalise the poor
5. South Africa's growth path is highly resource intensive and hence unsustainable
6. The ailing public health system confronts a massive disease burden
7. The performance of the public service is uneven

8. Corruption undermines state legitimacy and service delivery
9. South Africa remains a divided society.
1. Explain the Key challenges facing municipalities in South

Africa.
2. Suggest ways to solve those problems.
2.4: A range of subsidy designs is applied and control

instruments are designed for "subsidy leakages
WHAT IS TARGETING? WHY IS IT IMPORTANT?
INTRODUCTION
Targeting is one method of getting subsidies for basic services to the people who really need
them - the very poor.
To understand the concept of targeting it is important to take a new look at what is meant by
poverty. Some economists argue that people are not poor simply because they are
unemployed. They say that one of the key reasons that people are poor is that they cannot
get access to certain essential goods and services which help them to function at an
acceptable minimum level in their daily lives. Some examples of these goods and services
are food, shelter, clothing, access to health services, and the availability of water. Thus, a
way of alleviating poverty is to provide opportunities for the poor to get access to some of
these goods and services so that they can achieve a basic level of functioning. More
specifically, providing basic municipal services to the poorest section of the population can
help to address issues of poverty. (See Box 1 for more information on this view of poverty.)
The South African Constitution recognises the importance of providing access to basic
services to all, including the poor. These guidelines look at how municipalities can meet their
constitutional responsibility. One of the ways in which they can do this is to give poor people
a subsidy to enable them to access a basic service. This is a complex issue as subsidies
can be applied in different ways. Targeting and universal subsidies are two approaches
which will be discussed later in this chapter.
PROVIDING SUBSIDIES FOR SERVICES
Services are commonly supplied through a market of some kind, where the user has to pay
a price for the service. The price paid by the user is used to cover the costs of providing the
service. If the municipality cannot cover these costs, it cannot continue to run the service. At
the same time, poor people cannot access the goods and services, because they cannot
afford the full economic cost of providing the service.
One way of addressing poverty, then, is to give poor people a subsidy to get a service. This
means that poor people do not have to pay the full economic cost of a service and are
therefore better able to afford it. The subsidy can be applied in different ways. For example,
it can be given directly to a user to allow him or her to buy the service at the full economic
cost, or it can be used to provide the good or service to the user at a reduced price. (See
design possibilities for different ways of applying the subsidy.)
By providing a subsidy, the municipality does not collect income from the user to cover the
full economic cost of providing the service. Thus, the money for subsidies has to come from
another source. Service subsidies come from the pool of resources earned (for example, by
selling services), or transferred to the municipality (from sources such as central
government). The resources are limited and therefore valuable. They enable the municipality
to carry out the many tasks entrusted to it; spending resources on one thing means that the
municipality cannot spend them on others. The cost of doing this is called opportunity
costs.
THE TARGETING APPROACH TO SUBSIDIES
It is essential that subsidies are used efficiently and effectively because they come from the
limited resource pool of the municipality. This is why targeting is important. Targeting is
about getting the subsidy to the right people, the people who really need it. Every time the
subsidy gets to the wrong person or leaks, it is wasted. Leakage results both from the
design of the subsidy scheme and the way that it is implemented.
Targeting is also about administering the subsidy in the cheapest way possible. The very act
of getting the subsidy to the right people takes up resources and costs money as there are
many administrative tasks involved. Subsidy administration should be as efficient as
possible. If it is efficient, more of the resources in the pool can be used for the actual subsidy
and more people can get access to essential services. However, by lowering the
administrative cost, the accuracy with which subsidies are passed on to the poor may be
lowered. Targeting often involves a trade-off between keeping costs down and increasing
the size of the subsidy to the target group.
THE UNIVERSAL APPROACH TO SUBSIDIES
Universal approaches may be relatively simple and cheap to administer, but leakage is very
high. Everyone, no matter how rich, is provided with the subsidy. Therefore, the total size of
the required subsidy pool is very high. The value of the subsidy needs to be balanced
against the administrative cost of getting the subsidy to the target. When leakage from a
universal approach for a service is much higher than a targeted approach for the same
service, the targeted approach should be used. Figure 1 compares the distribution of
benefits of a universal approach with a targeted approach.
The figure shows that municipalities can increase the subsidy (the distance between the full
economic cost curve and the top of the user charge column) going to very poor households
by targeting it at them. The user charge for very poor households is therefore lower in the
targeted case than in the universal approach case. Depending on the arrangements,
households other than the very poor may receive less of a subsidy for basic services in the
targeted case compared with what they receive in the universal approach. User charges for
medium and high levels of service remain unchanged by targeting and are the same for all
households because these levels of service are not subsidised.
The universal approach remains a strong alternative to targeting, because it is simple, easy
to make transparent, needs relatively little administrative and technical capacity, and is far
more politically acceptable than targeting. Some argue that at least the poor get some
assistance quickly, instead of having to rely on a process, such as targeting, that can very
easily become caught up in complicated administrative schemes and lengthy political battles.
A municipality can apply both systems in its jurisdiction at the same time. The universal
approach obviates the need for a multiplicity of targeting strategies to deal with the differing
levels of poverty often present in a single local jurisdiction in the South African context.
The problem of unemployed young people is too big to be solved through a R5 billion wage
subsidy, the National Union of Metalworkers of South Africa (Numsa) said on Saturday.
“This huge problem requires a bigger response,” he said.
Government solutions must involve a massive skills revolution for young people. This
included the reopening of nursing colleges, the filling of all further education and training
facilities and the adoption of a manufacturing-based industrial strategy, Numsa president
Cedric Gina said in a speech.
He was speaking at the 25th anniversary of Numsa in Athlone, in the Western Cape.
The Congress of South African Trade Unions (Cosatu) was opposed to the current proposed
youth wage subsidy. This was because “unpatriotic” South African employers would use the
subsidy to “line their pockets”, he said.
There was also a fear employers would replace older employees with younger ones to avoid
higher salaries.
“Today, we talk of lack of critical skills as a country because South African unpatriotic
employers have not trained young people in numbers in order to ensure that when big
projects like Kusile and Medupi take place, we do not import skills from other countries,” said
Gina
He called on Numsa members to approach the upcoming Cosatu congress with the purpose
of ensuring that the federation emerged united.
“We must be self critical as we approach this congress and pose a frank question about
whether (or not) we have implemented the 2015 plan that we adopted in 2003.”
Numsa was a forum that debated issues across its structures, he said.
“You are a union that still believes and subscribes to democratic centralism,” he told the
audience.
“The country is grappling with the role of the Reserve Bank today because of your
campaigns. You are striking union. The country is grappling with the issue of labour brokers
today because of your campaigns where you achieved superior agreements about phasing
out labour in your sectors,” said Gina. – Sapa.
1. Define and explain SUBSIDIES.

2. Describe the different types of SUBSIDIES
2.5: Information sets are developed to manage an effective subsidy framework.
The NP believes that every family deserves to have a decent quality house where they can
create a home for themselves. Too many people have been disadvantaged in the past by
not having houses, running water or electricity.
A well-planned housing subsidy system can greatly contribute to pushing back the housing
backlog. The NP believes that a more efficient administrative capacity and the effective
financial management of housing subsidies are needed to ensure that South Africans who
qualify for such a subsidy get their fair share. Government policy must also be revised in
order to prevent that people are placed in houses that they cannot afford. The NP believes
that no person must be on any housing waiting list longer than 24 months.
The serious housing backlogs can however only be really addressed if the private sector
accepts co-ownership. The NP will push for greater participation by this sector.
FINANCING THE RDP

The RDP will mean nothing if it cannot be financed. Two questions arise: can we afford such
an extensive programme, and will people be required to pay more? If the democratic
government were to attempt to finance all the proposals contained in the RDP then the
answer to the first question would be a clear 'no' and to the second a clear 'yes' - in other
words, the RDP would fail. We must remind ourselves of the six basic principles underlying
the RDP as set out in Chapter One. These six principles distinguish the RDP from all other
programmes proposed by political parties.
The success of the RDP does not only require finance. It also requires labour, skills and
coordinated effort in combination with that finance. The six principles allow for this
combination by harnessing the underutilised resources of the democratic government, the
private sector, labour communities and women, and by utilising these resources in a rational
and effective way. Only the ANC and its allies are capable of such a programme. Finance for
the RDP will come from revenues, issuing debt (including general obligation and revenue
bonds) and grants. The largest portion of all RDP proposals will be financed by better use of
existing resources.
However, it is clear that government policy and mechanisms of raising finance are crucial to
the success of the RDP. If they were to cause excessive inflation or serious balance of
payments problems they would worsen the position of the poor, curtail growth and cause the
RDP to fail. Government contributions to the financing of the RDP must, therefore, avoid
undue inflation and balance of payments difficulties. In the long run, the RDP will redirect
government spending, rather than increasing it as a proportion of GDP.
The financing of the programme is a national responsibility, and provincial and local
governments would not be expected to rely on their own tax bases and resources in its
implementation, although contributions from these sources should be made in order to

enhance accountability. Allocations from national resources will take into account the
existing inequalities between provinces and localities, and will be based on population size,
development backlogs, and other objective criteria as may be determined by the Financial
and Fiscal Commission.
Restructuring the national budget. Despite relatively high levels of government spending,
South Africa displays a worse record than many poorer countries in meeting basic needs.
This situation reflects the impact of apartheid in terms of both racially skewed spending and
corrupt, unaccountable government. In addition, low growth rates and an absence of growth-
promoting capital expenditure by the public sector created fiscal problems. A severe
imbalance exists at present between insufficient capital expenditure and excessive
consumption expenditure.
The RDP is, therefore, committed to a programme of restructuring public expenditure to

finance the democratic government's contribution to the RDP. Given the fiscal malaise left by
apartheid, careful programmes must be developed around financing increased capital
expenditure, increasing the efficiency of consumption expenditure and improving the
revenue-recovery capacities of the government.
The existing ratios of the deficit, borrowing and taxation to GNP are part of our macro-
economic problem. In meeting the financing needs of the RDP and retaining macro stability
during its implementation, particular attention will be paid to these ratios. The emphasis will
be on ensuring a growing GDP, improved revenue recovery, and more effective expenditure
in order to make more resources available. In the process of raising new funds and applying
them, the ratios mentioned above must be taken into account.
The democratic government must end unnecessary secrecy in the formulation of the budget.
To that end, it must change the relevant regulations. We must establish a Parliamentary
Budget Office with sufficient resources and personnel to ensure efficient democratic
oversight of the budget. Transformation of the parastatals and cooperation with forums will
also help ensure more efficient and open budgeting processes.
Efficient and open transformation of the budget requires the development of a five-year fiscal
plan as the framework for multi-year budgets.
By combining the ministries of State Expenditure and Finance to form a single finance
ministry, we will reduce duplication and streamline decision-making.
The democratic government must make the development of effective and open performance
auditing a top priority. Auditing of public institutions must broaden from its narrow focus on
financial accountability to assess how well expenditures meet RDP targets. The Interim
Constitution gives the Auditor-General responsibility for performance auditing mandated by
the President. We must begin to define the priority sectors and agencies for performance
auditing.
The democratic government must mandate the Financial and Fiscal Commission to review
the tax structure in order to develop a more progressive, fair and transparent structure.
Priorities will include:
 eliminating bias in tax against women regardless of marital status, and recognising
women's child-care costs and the unpaid labour they perform;
 reviewing personal income tax to reduce the burden caused by fiscal drag on middle-
income people;
 rationalising company tax breaks for health, education, housing and other
expenditures which may conflict with RDP priorities;
 simplifying the unnecessarily complex company tax system, which is biased against
small and medium-sized enterprises and leads to low effective tax rates despite a
fairly high nominal rate, and
 Zero-rating VAT on basic necessities.
Taxation policies should provide incentives for institutional affirmative action programmes
covering race and gender, with respect to employment and education.
All macro-economic allocations must be accompanied by social and economic impact

analyses on gender, race, urban-rural dimensions, class/income distribution, regional
inequalities, and age (to encompass marginalised young people and pensioners). Future
budgetary allocations must concretely show the commitment of a future government to
women's development and empowerment. The budget should be gender-sensitive. It should
contain a social impact statement detailing how budgetary allocations affect women with
respect to workload, income, education and career options.
Describe how the national budget can be Restructured.
SO3: Apply the different approaches to forecasting

municipal income and expenditure over the medium
term.
The budgeting cycle and community participation
What is a budget?
A budget is a financial plan. It summarises, in financial figures, the activities planned for the
forthcoming year by setting out the costs [expenses] of these activities, and where the
income will come from to pay for the expenses.
The "Financial Year" and budget consultation
The financial year of South African municipalities runs from 1 July of each year to 30 June
the following year. Municipalities must prepare budgets for each financial year. Council must
approve these budgets before the new financial year begins, after proper planning and
consultation with ward committees and other stakeholder groups in the area. For example,
the budget for the financial year beginning in July 2002 must be approved before the end of
June 2002. The draft budget should be ready a few months before so that it can be used for
consultation. (Around March)
The approval of the budget is one of the most important tasks undertaken by councillors,
after consultation with ward committees and other stakeholders.
Ward committees should carefully look at the parts of the budget that affect the people in
their area. Ward councillors can also call ward meetings to discuss the budget. If your
organisation is affected by the municipal budget and plans, invite a councillor to come and
discuss the budget and plans with you. All members of the community also have the right to
observe the special council meeting at which the budget is debated and voted on.
Types of budgets
There are two types of budgets: operating budget and capital budget.
Capital budget deals with big costs that you pay once to develop something, and how you
will pay for this – for example putting in water pipes to a new township.
Operating budget deals with the day-to-day costs and income to deliver municipal services –
for example the meter readers’ wages and maintenance work to keep the water flowing.
The operating budget – the municipality’s operating budget lists the planned operating
expenditure (costs) and income, for the delivery of all services to the community.
Operating expenditure is the cost of goods and services from which there will be short-term
benefit - that is, the services will be used up in less than one year.
For example, the payment of staff salaries results in a short-term benefit as salaried
employees are paid monthly for one month's work. They could resign, next month, and the
municipality would not have the benefit of their skills anymore. Examples of operating costs
are salaries, wages, repairs and maintenance, telephones, petrol, stationery.
Operating income is the amount received for services delivered for a short-term period. For
example, ratepayers pay rates monthly or annually as payment to their municipality for
receiving municipal services. Examples of operating income are property rates, service
charges, investment interest, and traffic fines.
The capital budget - The capital budget puts money aside, for planned expenditure on long-
term purchases and big investments such as land, buildings, motor vehicles, equipment and
office furniture that will be a municipal asset for more than a year - probably for many years
to come.
A municipality's capital budget will list the estimated costs of all items of a capital nature
such as the construction of roads, buildings and purchase of vehicles that are planned in that
budget year.
The difference between the operating and capital budgets
A useful way for to look at the difference between operating and capital expenditure is to
think about the purchase of a car. The purchase of a car is capital as the expected life of the
motor vehicle is much more than one year. The cost of fuel and repairs only provide short-
term benefit (less than a year) and therefore is operating expenditure.
The capital budget and operating budget have to be prepared and discussed together. This
is important because planned expenditure that is included in the municipality’s capital budget
will impact on the operating costs and income needed to "operate" the municipality’s assets,
efficiently.
This link between capital and operating budgets can be explained by using the car example
again. If you decide to buy a car, in addition to including funds for this in your capital budget,
you are going to have to include money in the operating budget for tyres, driver’s wages,
petrol, service and other operating expenses.
The increase in operating expenditure needs to be considered when making a decision on

whether or not to buy a new car. If fuel, tyres, repairs and wages costs cannot be included in
the operating budget because of insufficient funds to pay for them, then the municipality
should not buy the car.
1. Importance of effective municipal financial planning and management
Effective financial management can help municipalities to transform their local areas into a
better place to live and work. Most councillors and members of the community know what
municipal services they would like to have in their area. This dream of the ideal community is
known as a "vision" for the municipality.
One of a councilor's greatest responsibilities is approving and regularly monitoring a

municipality’s budget that provides money to implement the visions. This work should be
done in consultation and co-operation with the ward committee. The community should be
involved as much as possible in deciding what should be the spending priorities for the area
they live in. Ward councillors and ward committees should report to ward meetings about the
broad budget plans and consult the residents about programmes and projects that will affect
them.
Without funds to implement the policies, councillors will not be able to "make a difference" or
serve their communities well. Effective financial management ensures that there are funds
available to implement council policies. This is a great responsibility as municipalities are
responsible for managing large amounts of money and delivering services that affect
people's lives every day. Councillors, committee members and officials all have a duty to
ensure that these monies are managed carefully, transparently and honestly.
Good financial management is the key to local delivery – local activists and ward committee
members should understand municipal finance and budgets so that they can engage
councillors on the bigger debates about spending and development priorities.
Forecasting Income and Expenditure
Most start-up businesses will have some form of profit measure in their statement of
objectives. During the planning stages of a new venture, forecasting might be employed to
demonstrate when the stated goals is likely to be achieved.
Levels of Income and Expenditure for a Start-up Business
Typically, such forecasts will depict a start-up business as having an excess of expenditure
over its income in the early periods of trading. This is especially apparent in situations
where a substantial capital investment is required to purchase stock, plant, carry out
research or engage in large advertising campaigns.
Over time, as sales are made and their volume starts to grow, the levels of income vs.
expenditure begin to reach equilibrium. Once this state is reached, earnings and revenues
then begins to outpace outflows by an ever increasing amount.
At this stage, each sale achieved makes a contribution towards the fixed costs of the
business and once volumes are sufficient, amounts earned then convert to the profits of the
business.
Profit and Loss Forecasts
Profit and loss forecasts should depict at which initial periods will be loss making, the
estimated breakeven point and the levels of profitability which are achieved at the various
stages of business activity.
3.2: Programme cycles in the municipal context.

The PPRIME Initiative is our programme to help improve project management practices
within municipalities, and within other government department institutions and agencies. Our
core focus on municipalities is because they are at the front-line of service delivery, for those
basic services which make a different on the ground, and which are the most basic level of
human needs - water, sanitation, roads, stormwater, electricity and range of others. The
allocation of which sphere of government does what is provided in the Constitution, as well
as by allocation of repsonsibilities between the provincial, district, and local levels of
government.
Introducing PPRIME
"PPRIME" is a mnemonic for "Programmes and Projects In Municipal Environments", and it

conveys both our emphasis on improving project management practices within municipalities
as well as this being one of the "prime" activities that every municipality should engage in in
order to improve their delivery of services.
It has been our experience that municipalities are not spending their allocation of funds, and
often are only spending around 50% of their total budget. This is a serious problem since it
means that whereas the overhead costs of the municipaity remain the same, the value of the
services delivered for this value of overhead is not what it should be. Our analysis of the
reasons for this highlight the complexity of the procurement processes, which are often not
well understood, and the long life cycle for the entire project management process.
5 P's and the DRUM
The full life cycle for municipal project management is complex and multi-faceted, and it is
for this reason that conventional project management tends to fall down if they are applied
diretly. Such conventional project management is focussed on product delivery, and does
not take into account the full needs analysis, the complexity of the planning cycles, the
administration of procurement, and the activities required to measure performance and the
effectiveness of the entire service delivery initiative.
We have developed a model for this, called "5 P's and the DRUM" in which the 5 P's identify
the major elements within project management, and the DRUM represents the manner in
which performance is managed and measured.
The 5 P's consists of the following:
 People : representing the communities and citizens served by the municipality - who
are both the start and the end of municipal process.
 Planning : the municipal planning environment is performed in a coordinated manner
leading up to an Integrated Development Plan (IDP)
 Procurement : the full administation of procurement requires compliance with the
Municipal Finance Management Act, which includes maintaining a strict set of
records to justify the selection of service providers
 Projects : once service providers are selected, then the projects can commence -
this is the primary project management process in which the goal is to create new
products for usage by the communities, or to increase the capacity of the municipality
to carry out its work
 Performance : the entire municipal life-cycle for project management is driven by the
performance measures defined during the planning stages
The performance management connects the other 4 P's and we call this the DRUM
 Defining Performance : in which the specific key performace indicators (KPIs) are
defined during the planing stage, taking into account the needs of the community,
and priorities at the local, provincial and national levels
 Reporting Performance : in which inform the community of the progress towards
the achievement of the KPIs
 Using Performance : in which we use the KPIs to help define the projects during the
procurement process
 Measuring Performance : in which we measure the performance during the
execution of the projects, on the basis of the KPIs defined at the start
1. Describe the 5’p’s of performance management.

2. Explain the Importance of effective municipal
financial planning and management.
3.3: Social, institutional, economic, environmental and technical influences are

forecast on municipal revenue over the medium term.
Budget Forecasting
Short-range Budgeting No Longer an Option
The once-common practice of developing single-year operating budgets for local

government funds are quickly becoming insufficient. Rapidly rising costs, combined with
stagnant or declining revenues, can result in unforeseen budget shortfalls, which may
require undesirable and sudden changes to service offerings, staffing levels or tax rates.
Extending the budget perspective to two, five or ten years can substantially improve a
government’s ability to proactively manage revenue and expenditure adjustments, rather
than simply react to changes that are happening in a more short-term horizon.
A Powerful Tool for Improved Fiscal Management
One of the most beneficial management tools that local governments could utilize is a
comprehensive forecasting model. A properly developed financial model provides a longer-
term perspective of revenues and expenditures, based on the best information available.
Armed with this information, managers and policy makers can anticipate the timing of budget
constraints or excess and make plans that conform to expected financial conditions. By
changing key assumptions, users can easily conduct “what if” analysis or test the impact of
multiple scenarios within a single fund or throughout the entire municipal budget.
A financial model integrates often disparate information into a single spreadsheet file. By
linking together budgets, debt service schedules, capital improvement plans, staffing
schedules, historical financial information, equipment replacement schedules, revenue
forecasts and other documents and data, the municipality gains a significantly greater
understanding of organization-wide financial conditions.
Financial models can be used as a single source of financial information for a variety of
purposes, including:
 Tax rate analysis

 Debt management
 Labor negotiations
 Bond rating reviews
 Budgeting
 Policy impacts
 Feasibility analysis
 Communicating with policy makers
Additionally, financial models can be expanded to include a cash flow forecast, personnel
cost calculator or other fiscal management functions.
We work closely with our clients to develop the appropriate scope and level of detail required
in each financial model. In the end, clients are provided a spreadsheet model that can be
used by in-house staff and updated as needed.
Municipality forecasting and budgeting can be tricky if you are relying on poor data.
Municipal managers and CFO's don't realise how easy and cost effective it is to achieve
accurate stats for precise municipality forecasting and budgeting.
Smart Metro has been analysing and correcting municipal data for more than 23 years. A
natural result of this process is for municipal managers and CFO's to be able forecast
revenues at the push of a button. Accurate municipality forecasting and budgeting is
essential for annual reporting and mistakes can result in undercapitalisation, shortfalls and
poor service delivery.
Most municipalities don't realise how easy it is to achieve accurate municipality forecasting
and budgeting. A simple, methodical process of producing clean data can be done and result
in enhanced revenues, improved cashflow and better compliance to contribute to unqualified
audits.
Its not easy to produce good budgets and forecasts when you are relying on unreliable data.
Have you heard the phrase "garbage in = garbage out" So first and best is to get people in to
clean the data. In the experience of Smart Metro, this is guaranteed to result in more
revenue, more cash, more liquidity and improved audits.
Get the basics right and then accurate municipality forecasting and budgeting is a natural
consequence for you. Make yourself look good, with limited or no input from you, minimal
effort from your staff and a guaranteed positive impact on your cash flow. The Smart answer
to municipality forecasting and budgeting for Smart municipal managers and CFO's.
List the sources of financial information stating the purposes of

each.
3.4: Indicators are interpreted relating to municipal income and expenditure.
Sources of municipal income
Municipalities must ensure that there will be adequate money to pay for their planned
expenditure if they are to "balance the budget". There are various sources of income that
can be used by municipalities to finance their expenditure. This section outlines the various
sources of municipal income, and looks at ways of deciding which will be best for your
municipality’s needs.
Main sources of capital budget financing
External loans - External loans (from a bank or other financial institution) are an expensive
form of financing the capital budget because of the high interest rates in South Africa.
External loans should only be used to finance the purchase of major capital items such as
roads, buildings, sewerage works and water systems.
Internal loans - Many municipalities have internal "savings funds" such as Capital
Development Funds or Consolidated Loan Fund. These funds can make internal loans to the
municipality for the purchase or development of capital items, usually at a lower interest rate
than for an external loan and the municipality is paying the interest back to its own "savings
fund", which can later be used for another capital project.
Contributions from revenue - When purchasing a small capital item, the small total cost
can be paid for from the operating income in the year of purchase. This financing source is
known as "contributions from revenue". In most municipalities, this source of financing is
used to pay for smaller capital items, such as one or two items of furniture and equipment.
As no interest is payable, this source of financing is considerably cheaper than external or
internal loans.
Government grants - Municipalities may apply to national government for grants for
infrastructure development. The two main funds available are:
 CMIP [Consolidate Municipal Infrastructure Programme] – available from the

Department of Provincial and Local Government
 Water Services Projects – available from the Department of Water Affairs.
Donations and public contributions - Local and foreign donors may sometimes donate a
capital item or money to be used specifically for the purchase of a capital item, in a
disadvantaged area. They may want publicity for their donation, which the municipality can
arrange to acknowledge their sponsorship.
Public/Private Partnerships - Capital costs can be paid for by means of partnerships

between the private sector and the municipality. In most cases the private sector partner will
have a profit motive in the services and capital being financed, so the terms and conditions
must be carefully defined, to protect the community's interests.
Main sources of operational budget financing
Property Rates - All people and businesses who own fixed property (land, houses,
factories, and office blocks) in the municipal area are charged "Property Rates" - a yearly tax
based on the value of each property. Rates income is used by the municipality to pay for the
general services to all people, which cannot easily be charged to a specific service user as a
"service charge" for example roads, pavements, parks, streetlights, storm water
management, etc.
Service Charges / Tariffs - For specific services that can be directly charged to a house or
factory, the principle of "user pays" should be adopted. That is, to charge a price or "tariff" for
services such as water, electricity or approval of building plans; where the exact usage of the
service can be measured, to the person or business who actually used that service.
Fines -Traffic fines, late library book fines, penalties for overdue payment of service
charges: these fines are another source of income or "revenue" , while at the same time
motivating users of services to have a culture of obeying democratic laws, rules and
deadlines.
Equitable share - The equitable share is an amount of money that a municipality gets from
national government each year. The constitution says that all revenue collected nationally
must be divided equitably [fairly] between national, provincial and local spheres of
government. The local government equitable share is meant to ensure that municipalities
can provide basic service and develop their areas. The amount a municipality gets depends
mainly on the number of low-income people in the area – rural municipalities usually get
more. Most municipalities only get a small part of their operating budget from the equitable
share.
The circular flow of income
National income, output, and expenditure are generated by the activities of the two most vital
parts of an economy, its households and firms, as they engage in mutually beneficial
exchange.
Households
The primary economic function of households is to supply domestic firms with needed
factors of production - land, human capital, real capital and enterprise. The factors are
supplied by factor owners in return for a reward. Land is supplied by landowners, human
capital by labour, real capital by capital owners (capitalists) and enterprise is provided by
entrepreneurs. Entrepreneurs combine the other three factors, and bear the risks associated
with production.
Firms
The function of firms is to supply private goods and services to domestic households and
firms, and to households and firms abroad. To do this they use factors and pay for their
services.
Factor incomes
Factors of production earn an income which contributes to national income. Land receives
rent, human capital receives a wage, real capital receives a rate of return, and enterprise
receives a profit.
Members of households pay for goods and services they consume with the income they
receive from selling their factor in the relevant market.
Production function
The simple production function states that output (Q) is a function (f) of: (is determined by)
the factor inputs, land (L), labour (La), and capital (K), i.e.
Q = f (L, La, K)
The public sector
In a mixed economy with a government, the simple model must be adjusted to include the
public sector. Therefore, as well as save, households are also likely to pay taxes (T) to the
government (G), and further income is withdrawn out of the circular flow of income.
Government injects income back into the economy by spending (G) on public and merit
goods like defence and policing, education, and healthcare, and also on support for the poor
and those unable to work.
Describe and explain a circular flow of income for municipalities.
SO4: Assess the organisational implications of

planning income and expenditure over the medium
term.
Distinction between receipt and income
"Receipt" means total cash received during the current year. But "income" means total
income earned for the current year.
The points of distinction between the two are stated below:-
Receipt
1. Any cash received in regarded as receipt.

2. It is not confined to any accounting year. In other words, it may include cash
received for any year-past, present or future.
3. It may be of both capital and revenue nature.
4. In case of receipt, cash increases equal to amount of receipt.
5. An item can't be called "receipt" unless equivalent amount of cash received.
6. It is recorded on debit side of cash book.
7. It is not included in final accounts. In other words, it is not considered in
determining the result of concern.
Income
1. Any cash received mayor may not be regarded as income. Cash received for current
year is regarded only as income.
2. It is confined to current accounting year only.
3. It is of revenue nature only.
4. In case of income cash may not increase equal to the amount of income.
5. An item may be "income", even though cash has not been received.
6. It is credited to income and expenditure account.
7. It must be considered in final accounts.
Distinction between payment and expenditure
Payment means total cash paid during the current year. But expenditure means total
expenses incurred for the current year only.
The points of distinction between the two, are as follows :-
Payments
1. Any cash paid in regarded as payments.

2. It is not confined to any accounting year, i.e. it may include cash paid for any year-
past, present or future.
3. It may be of both capital and revenue nature.
4. In case of payment, cash decreases equal to amount of payment.
5. An item can't be called "payment" unless equivalent amount of cash is paid.
6. It is recorded on credit side of cash book, i.e. credited to cash account.
7. It is not included in final accounts. In other words, it is not considered in determining
the result of concern.
Expenditure
1. Any cash paid mayor may not be regarded as expenditure.

2. It is confined to current accounting year only.
3. It is of revenue nature only.
4. Cash mayor may not decrease equal to the amount of expenditure.
5. An item may be "expenditure" even though cash has not been paid.
6. It is debited to income and expenditure account.
7. It must be considered in final accounts.
The author is an engineering graduate, B.E.(Hons), and is managing his own software
development firm, HiTech Computer Services, that mainly deals in accounting, billing and
inventory control software for traders, industries, business houses, hotels, hospitals, medical
stores, newspapers, magazines, petrol pumps, automobile dealers, commodity brokers and
other business segments, website and web application development for business. The
software are available both for intranet and internet. These software are available for
download from the website:
Model income and expenditure budget
Total Total Total

Total Surplus
Description staff running expen
income /deficit
costs costs diture
Full year
547,270 267,493 267,493 524,148 23,122
budget
This month
31,331 21,047 8,581 29,628 1,703
(actual)
This month
27,418 21,828 16,995 38,823 (11,405)
(budget)
This month
3,913 781 8,414 9,195 13,108
(variance)
Year to date
188,761 111,966 65,835 177,801 10,960
(actual)
Year to date
243,130 110,775 100,820 211,595 22,535
(budget)
Year to date
(45,369) (1,191) 34,985 33,794 (11,575)
(variance)
Last forecast 519,838 269,498 231,741 501,239 18,599
This forecast 511,177 271,264 226,258 497,522 12,255
Variance to
(8,061) (1,766) 5,483 3,717 (4,344)
last forecast
Variance to
(354,936) (3,771) 30,397 26,626 (8,867)
budget
 Staff costs are separately disclosed because they can represent up to 60% of total
expenditure and need careful monitoring.
 Total running costs will include both direct costs of projects and an element of
organisation-wide costs.
 The budgeted surplus or deficit should correspond to the target identified at the initial
planning stages.
Rows
 Full year budget represents the original budget or plan, compiled six months before
the start of the year and approved by the board approximately two months before the
start of the year
 This month variance represents the difference from the original plan for the current
month. These figures allows for the examination of current month activities in income
and expenditure terms.
 Year to date variance represents the accumulated difference from the original plan.
These figures enable the examination of six-month figures for income and
expenditure, and therefore serve as a guide to the feasibility of the year-end financial
goals.
 Last forecast, this forecast, variance to last forecast allow amendments to be made
to the original budget, to reflect changing circumstances since it was approved.
 Variance to budget enables the effect of changing assumptions on the original plan
or budget to be monitored
Using examples Distinguish between payment and expenditure

income and expenditure as used in municipality.
4.1: The impact of political 'buy in' is commented on in writing explaining its relation
to setting revenue-management approaches over the medium term
The Republic of South Africa is a unitary, parliamentary republic. The President of South
Africa is both head of state and head of government; in the same manner as the prime
minister of other nations, the President is elected by the National Assembly (the lower house
of the South African Parliament) and must enjoy the confidence of the Assembly in order to
remain in office. South Africans also elect provincial legislatures which govern in respect of
each of the country's nine provinces.
Municipal Revenue Management
Practically all municipalities are faced with the dilemma of revenue management in terms of
being able to account for what has been sold versus what has been supplied. RMS functions
as a regulator between the municipality and the consumer, to insure that every consumer
gets billed correctly and fairly. We have developed metering systems to allow municipalities
to improve revenue management, combined with switch off mechanisms which ultimately
results in better returns. We understand that communication is an integral key to revenue
enhancement and customer satisfaction. Thus, our aim is to meet (and succeed) our
customers’ expectations by providing them with transparency and control when it comes to
their utility metering. RMS has tamper detection and tamper proofing devices that enable us
to detect and eliminate electricity theft to diminish unnecessary financial loss. We will reduce
wastage of electricity of which value will be greater than RMS’s monthly cost. Our in-house
revenue management further allows for different financial aids and options, which ultimately
results in a higher recovery percentage
Revenue Management is the application of disciplined analytics that predict consumer

behavior at the micro-market level and optimize product availability and price to maximize
revenue growth. The primary aim of Revenue Management is selling the right product to the
right customer at the right time for the right price. The essence of this discipline is in
understanding customers' perception of product value and accurately aligning product
prices, placement and availability with each customer segment.[1]
The Revenue Management Process
Data Collection
The Revenue Management process begins with data collection. Relevant data are
paramount to a Revenue Management System’s capability to provide accurate, actionable
information. A system must collect and store historical data for inventory, prices, demand,
and other causal factors. Any data that reflects the details of products offered, their prices,
competition, and customer behavior must be collected, stored, and analyzed. Information
about customer behavior is a valuable asset that can reveal consumer behavioral patterns,
the impact of competitors’ actions, and other important market information. This information
is crucial to starting the Revenue Management process.[1]
Segmentation
After collecting the relevant data, market segmentation is the key to market-based pricing
and revenue maximization. Success hinges on the ability to segment customers into similar
groups based on a calculation of price responsiveness of customers to certain products
based upon the circumstances of time and place. Revenue Management strives to
determine the value of a product to a very narrow micro-market at a specific moment in time
and then chart customer behavior at the margin to determine the maximum obtainable
revenue from those micro-markets.[1] Useful tools such as Cluster Analysis allow Revenue
Managers to create a set of data-driven partitioning techniques gather interpretable groups
of objects together for consideration. Market segmentation based upon customer behavior is
essential to the next step, which is forecasting demand associated with the clustered
segments.
Forecasting
Revenue Management requires forecasting various elements such as demand, inventory

availability, market share, and total market. Its performance depends critically on the quality
of these forecasts. Forecasting is a critical task of Revenue Management and takes much
time to develop, maintain, and implement. Quantity-based forecasts, which use time-series
models, booking curves, cancellation curves, etc., project future quantities of demand, such
as reservations or products bought. Price-based forecasts seek to forecast demand as a
function of marketing variables, such as price or promotion. These involve building
specialized forecasts such as market response models or cross-price elasticity estimates to
predict customer behavior at certain price points.[4] By combining these forecasts with
calculated price sensitivities and price ratios, a Revenue Management System can then
quantify these benefits and develop price optimization strategies to maximize revenue.
Optimization
While forecasting suggests what customers are likely to do, optimization suggests how a firm
should respond. Often considered the pinnacle of the Revenue Management process,
optimization is about evaluating multiple options on how to sell your product and to whom to
sell your product.[1] Optimization involves solving two important problems in order to achieve
the highest possible revenue. The first is determining which objective function to optimize. A
business must decide between optimizing prices, total sales, contribution margins, or even
customer lifetime values. Secondly, the business must decide which optimization technique
to utilize. For example, many firms utilize linear programming, a complex technique for
determining the best outcome from a set of linear relationships, to set prices in order to
maximize revenue. Regression analysis, another statistical tool, involves finding the ideal
relationship between several variables through complex models and analysis. Discrete
choice models can serve to predict customer behavior in order to target them with the right
products for the right price.[17] Tools such as these allow a firm to optimize its product
offerings, inventory levels, and pricing points in order to achieve the highest revenue
possible.
Dynamic Re-evaluation
Revenue Management requires that a firm must continually re-evaluate their prices,
products, and processes in order to maximize revenue. In a dynamic market, an effective
Revenue Management System constantly re-evaluates the variables involved in order to
move dynamically with the market. As micro-markets evolve, so must the strategy and
tactics of Revenue Management adjust.[1]
Revenue Management in an Organization
Revenue Management’s fit within the organizational structure depends on the type of
industry and the company itself. Some companies place Revenue Management teams within
Marketing because marketing initiatives typically focus on attracting and selling to
customers. Other firms dedicate a section of Finance to handle Revenue Management
responsibilities because of the tremendous bottom line implications. Some companies have
elevated the position of Chief Revenue Officer, or CRO, to the senior management level.
This position typically oversees functions like sales, pricing, new product development, and
advertising and promotions. A CRO in this sense would be responsible for all activities that
generate revenue and directing the company to become more “revenue-focused.”[1]
Supply Chain Management and Revenue Management have many natural synergies.
Supply chain management (SCM) is a vital process in many companies today and several
are integrating this process with a Revenue Management System. On one hand, supply
chain management often focuses on filling current and anticipated orders at the lowest cost,
while assuming that demand is primarily exogenous. Conversely, Revenue Management
generally assumes costs and sometimes capacity are fixed and instead looks to set prices
and customer allocations that maximize revenue given these constraints. A company that
has achieved excellence in Supply Chain Management and Revenue Management
individually may have many opportunities to increase profitability by linking their respective
operational focus and customer-facing focus together.[17]
Business Intelligence platforms have also become increasingly integrated with the Revenue
Management process. These platforms, driven by data mining processes, offer a centralized
data and technology environment that delivers business intelligence by combining historical
reporting and advanced analytics to explain and evaluate past events, deliver recommended
actions and eventually optimize decision-making. Not synonymous with Customer
Relationship Management (CRM), Business intelligence generates proactive forecasts,
whereas CRM strategies track and document a company’s current and past interactions with
customers. Data mining this CRM information, however, can help drive a business
intelligence platform and provide actionable information to aid decision-making.
Revenue Management in Municipalities
Before the budget is approved we take it to the people where they dissect the plans and
programmes and provide input. The public contribution is done through our budget hearings
in all areas of the city. Thereafter it is approved and the Mayor will sign off the process,” said
Du Plessis.
Michael Kihato from the SA Cities Network provided a useful comparative analysis of African
cities and suggested what opportunities exist to increase revenues in poorer cities. Roland
Hunter, ex-City Treasurer from Johannesburg City Council held the attention of all
participants with his stimulating presentation, where he urged African Chief Financial
Officers not to focus only on revenue management but on ensuring that local government is
accountable, and delivers services that its residents are happy with before tariffs are
charged.
Presentations also focused on the metering systems, property valuations and Municipal
billing systems and procedures, pro poor revenue management strategies, and credit
control. Delegates were also treated to a site visit to the Revenue Management call centre to
see how customer queries are dealt with.
Discussions were robust as cities debated approaches and shared experiences on ensuring
that their cities remain financially viable. All in all, delegates took away many lessons from
experiences of other cities, created networks, and found the master class extremely
useful.The Town Clerk of Kisumu, Kenya, Mr Christopher Rusana, praised MILE for
organising this master class. “The class was extremely insightful for me.
Proper financial management is the nerve centre for the success of any municipality, and
this exercise has provided real, practical examples of successful revenue management.”
The event ended with delegates setting up a system to collaborate with each other so that
the learning continues.
Explain how Revenues and expenditures is Managed in Municipalities.
4.2: An organisational structure is developed to facilitate revenue and expenditure

management over the medium term.
An organizational structure consists of activities such as task allocation, coordination and

supervision, which are directed towards the achievement of organizational aims.[1] It can also
be considered as the viewing glass or perspective through which individuals see their
organization and its environment.[2]
Organizations are a variant of clustered entities.[
An organization can be structured in many different ways, depending on their objectives.

The structure of an organization will determine the modes in which it operates and performs.
Organizational structure allows the expressed allocation of responsibilities for different

functions and processes to different entities such as the branch, department, workgroup and
individual.
Organizational structure types
Pre-bureaucratic structures
Pre-bureaucratic (entrepreneurial) structures lack standardization of tasks. This structure is

most common in smaller organizations and is best used to solve simple tasks. The structure
is totally centralized. The strategic leader makes all key decisions and most communication
is done by one on one conversations. It is particularly useful for new (entrepreneurial)
business as it enables the founder to control growth and development.
They are usually based on traditional domination or charismatic domination in the sense of
Max Weber's tripartite classification of authority
Bureaucratic structures
Weber (1948, p. 214) gives the analogy that “the fully developed bureaucratic mechanism
compares with other organizations exactly as does the machine compare with the non-
mechanical modes of production. Precision, speed, unambiguity, … strict subordination,
reduction of friction and of material and personal costs- these are raised to the optimum
point in the strictly bureaucratic administration.” Bureaucratic structures have a certain
degree of standardization. They are better suited for more complex or larger scale
organizations, usually adopting a tall structure. The tension between bureaucratic structures
and non-bureaucratic is echoed in Burns and Stalker's distinction between mechanistic and
organic structures.
The Weberian characteristics of bureaucracy are:
 Clear defined roles and responsibilities

 A hierarchical structure
 Respect for merit.
Post-bureaucratic
The term of post bureaucratic is used in two senses in the organizational literature: one
generic and one much more specific.[7] In the generic sense the term post bureaucratic is
often used to describe a range of ideas developed since the 1980s that specifically contrast
themselves with Weber's ideal type bureaucracy. This may include total quality
management, culture management and matrix management, amongst others. None of these
however has left behind the core tenets of Bureaucracy. Hierarchies still exist, authority is
still Weber's rational, legal type, and the organization is still rule bound. Heckscher, arguing
along these lines, describes them as cleaned up bureaucracies, rather than a fundamental
shift away from bureaucracy. Gideon Kunda, in his classic study of culture management at
'Tech' argued that 'the essence of bureaucratic control - the formalisation, codification and
enforcement of rules and regulations - does not change in principle.....it shifts focus from
organizational structure to the organization's culture'.
Another smaller group of theorists have developed the theory of the Post-Bureaucratic
Organization.,[8] provide a detailed discussion which attempts to describe an organization
that is fundamentally not bureaucratic. Charles Heckscher has developed an ideal type, the
post-bureaucratic organization, in which decisions are based on dialogue and consensus
rather than authority and command, the organization is a network rather than a hierarchy,
open at the boundaries (in direct contrast to culture management); there is an emphasis on
meta-decision making rules rather than decision making rules. This sort of horizontal
decision making by consensus model is often used in housing cooperatives, other
cooperatives and when running a non-profit or community organization. It is used in order to

encourage participation and help to empower people who normally experience oppression in
groups.
Still other theorists are developing a resurgence of interest in complexity theory and
organizations, and have focused on how simple structures can be used to engender
organizational adaptations. For instance, Miner et al. (2000) studied how simple structures
could be used to generate improvisational outcomes in product development. Their study
makes links to simple structures and improviser learning. Other scholars such as Jan Rivkin
and Sigglekow, and Nelson Repenning revive an older interest in how structure and strategy
relate in dynamic environments.
Functional structure
Employees within the functional divisions of an organization tend to perform a specialized

set of tasks, for instance the engineering department would be staffed only with software
engineers. This leads to operational efficiencies within that group. However it could also lead
to a lack of communication between the functional groups within an organization, making the
organization slow and inflexible.
As a whole, a functional organization is best suited as a producer of standardized goods and

services at large volume and low cost. Coordination and specialization of tasks are
centralized in a functional structure, which makes producing a limited amount of products or
services efficient and predictable. Moreover, efficiencies can further be realized as functional
organizations integrate their activities vertically so that products are sold and distributed
quickly and at low cost. For instance, a small business could make components used in
production of its products instead of buying them. This benefits the organization and
employees faiths.
Divisional structure
Also called a "product structure", the divisional structure groups each organizational function
into a division. Each division within a divisional structure contains all the necessary
resources and functions within it. Divisions can be categorized from different points of view.
One might make distinctions on a geographical basis (a US division and an EU division, for
example) or on product/service basis (different products for different customers: households
or companies). In another example, an automobile company with a divisional structure might
have one division for SUVs, another division for subcompact cars, and another division for
sedans.
Each division may have its own sales, engineering and marketing departments.
Matrix structure
The matrix structure groups employees by both function and product. This structure can
combine the best of both separate structures. A matrix organization frequently uses teams of
employees to accomplish work, in order to take advantage of the strengths, as well as make
up for the weaknesses, of functional and decentralized forms. An example would be a
company that produces two products, "product a" and "product b". Using the matrix
structure, this company would organize functions within the company as follows: "product a"
sales department, "product a" customer service department, "product a" accounting,
"product b" sales department, "product b" customer service department, "product b"
accounting department. Matrix structure is amongst the purest of organizational structures, a
simple lattice emulating order and regularity demonstrated in nature.
 Weak/Functional Matrix: A project manager with only limited authority is assigned

to oversee the cross- functional aspects of the project. The functional managers
maintain control over their resources and project areas.
 Balanced/Functional Matrix: A project manager is assigned to oversee the project.
Power is shared equally between the project manager and the functional managers.
It brings the best aspects of functional and projectized organizations. However, this is
the most difficult system to maintain as the sharing power is delicate proposition.
 Strong/Project Matrix: A project manager is primarily responsible for the project.
Functional managers provide technical expertise and assign resources as needed.
Below is a flowchart of departmental responsibilities at typical manufacturing company. The

chart clearly shows the how responsibilities flow from one department to another.
EXAMPLE OF ORGANISATION CHART
Revenue Control Procedures
Cash Deposits
Where cash and/or negotiable instruments are received through the mail on a regular basis,
at least two persons, where practicable, shall be present at the mail opening. A daily record
of such cash or negotiable instruments shall be maintained and signed by all persons
present at the mail opening and by the person receiving the cash for deposit.
For regular deposits, there are two basic cash deposit input processes that are in effect to
meet these requirements. Ministries may deposit:
 to a revenue bank account

 to a Government Agent
Ministries must reconcile all receipted Deposit Forms or bank deposit slips to Corporate
Accounting System reports (or equivalent ministry financial management reports) to ensure
cash deposits are recorded in the correct ledger accounts.
Note: Cash Management Services, Provincial Treasury must be informed immediately of

any large ($1 million or more) deviation from your normal bank deposit amount. Immediate
reporting of this information will assist Provincial Treasury in daily investment decisions.
Harmonized Sales Tax
Some fees and revenue sources of the government are subject to the HST. The HST portion
of the amount deposited should be coded to the HST Collected STOB 1576. Depending on
the ministry revenue system, the HST liability may be recognized when an invoice is issued
or when payment is received. If the HST liability is recorded when invoices are issued, then
HST will not have to be recorded again when payment is received. Staff involved in receiving
revenue should understand how their system operates, in order to avoid duplicate recording
of HST.
Payment by Cheque
Whenever payment is made by cheque by a member of the public in person, ministries shall
ensure that:
 two pieces of identification are presented and details therefrom entered on the
reverse side of the cheque including full name, address and telephone number of the
payer, unless these items appear on its face;
 the cheque bears the current date;
 the amount written in the body of the cheque is in agreement with the figure on the
cheque;
 the cheque bears a signature; and
 the person is informed that a R30.00 service fee will be charged for each cheque that
is dishonoured subsequent to its deposit.
Revenue Bank Accounts
Core Policy
This section deals only with those offices depositing to one of these four banks. If a ministry
prefers to deposit at another institution alternate procedures are available through Provincial
Treasury Banking Section to record these deposits to the General Ledger on manually
produced Journal Vouchers. (see Banking/Cash Management-government access only).
Deposit Procedures
Ministry branch offices shall prepare the deposit slip and will physically deposit public money
to their bank account. Cheques will be endorsed as indicated per government standards
(See Banking/Cash Management-government access only). These deposits are
automatically transferred to the Consolidated Revenue Fund bank account at the Victoria
branch of the appropriate bank. Daily, the four banks transmit files to Provincial Treasury
that detail all of the deposits processed for the previous day.
Ministries may use private couriers to transport cash (currency, coins) up to a daily limit of
$200 per location, per deposit, however, they do so at their own risk as couriers cannot be
held responsible for losses. When deposits exceed this limit alternatives should be
considered, such as armoured car service or more frequent deposits. Deposits should be
sent in tamperproof pouches or sealed envelopes. Contact the Provincial Treasury for
assistance in establishing armoured car service for cash deposits. (see Banking/Cash
Management-government access only)
Deposits through Government Agents
Whenever public money is deposited with a Government Agent, a Deposit (government

access only) is to be completed by the depositing ministry. A complete cash deposit
submission will include the Deposit Form, calculator tapes if more than one cheque or
money order is submitted and supporting documents as required.
The local Government Agent will maintain a current list of Service Codes for reference
purposes by ministry district offices. Ministries should use Service Codes specifically linked
to general ledger accounts where these linkages exist. For a deposit made to a general
ledger account not linked to a specific Service Code, use the blanket Service Code assigned
to your ministry and specify the full coding where the deposit is to be credited.
The Government Agent Revenue Management System (GARMS) will verify these codes
with the Corporate Accounting System. Forms with incorrect coding will be returned to the
ministry office for correction.
Province of BC Receipts – Form FIN 48
All ministry field offices can order Province of BC Receipt forms FIN 48 from the Queen's
Printer. Once revenue stock has been received and acknowledged by a ministry, that
ministry will be responsible for the control of the pre-printed revenue stock document
numbers.
Describe the Organizational structure types, state which one is

ideal for municipalities.
4.3: The key role players are identified in the revenue management process.
WHAT ROLE-PLAYERS CAN DO
MUNICIPALITIES
The forthcoming changes to the local government training system are comprehensive, and
they will take time to implement. Some important points to remember are:
 Standards development takes a long time.

 Training providers and their instructors are not yet qualified to deliver training based
on the NQF.
 There is not yet a municipal career system linked to training.
While the transformation of local government is a joint responsibility of all role-players,

municipalities need to take some immediate, concrete steps to address their training needs.
These are described below:
 Needs assessment
A good training solution for a municipality is one that significantly assists in

overcoming a performance problem. Therefore, the first step in finding a good
training solution for your municipality is to determine and establish agreement on
which problems can be solved through building the capacity of staff and which
cannot. Where internal capacity-building cannot solve the problem, there are other
approaches such as outsourcing, bringing in new technologies or public/private or
public/public partnerships. You may need some help in undertaking this work and
can seek advice through the list of resource organisations in the Annexure.
 Making a plan
The next step is to draft and prioritise your own capacity-building strategy as part of
your municipality’s integrated development plan. The IDP will describe your future
development plans and strategies and it is important to look at capacity-building
needs in relation to the IDP. Every IDP should have a skills development plan as a
key component.
The skills development chapter of your IDP should help you to find capacity-building
solutions within your community and also to make specific requests for training from
outside. You need to determine if the skills requirements can be responded to by use
of local training resources (either by making use of internal municipal staff or of
resource personnel which can be made available to the municipality at limited or no
cost). Some municipalities may derive great benefits from setting up and running
their own in-service training programme for frontline workers and councillors. You
may decide to appoint a small municipal task team to be responsible for this work.
 Capacity-building
This plan will then result both in sending some staff for training in other institutions
and in calling in training expertise to the municipality for in-house training. You can
also arrange on-the-job training to assist staff in solving problems and improving
performance while they are actually doing their job. This is usually the most
successful strategy.
The use of local community based organisations and NGOs may be of assistance
here. Also, inter-municipal cooperation is an area of training which could be more
developed. Municipalities might consider arranging a number of so-called ‘twinning
arrangements’ with other sister municipalities to share qualified technical staff for
training, where staff could be seconded for learning purposes for a period of time.
PROVINCIAL AND NATIONAL GOVERNMENT AND STAKEHOLDERS
There will always be a range of training needs that cannot be met by municipal resources
alone. This is where the NQF-based training system will be able to help. With the
introduction of the mandatory Skills Development Levy, municipalities will be entitled to
receive training funded by the LGSETA. The precise procedures to be followed for this are
not yet in place, so municipalities must regularly update themselves with progress related to
the establishment of the LGSETA.
Provincial government
In addition, municipalities need to further explore the extent and nature of support which they
can rely on, and are entitled to, from provincial governments. The Constitution obliges
provinces to build the capacity of local government. The municipal skills development plan
would be an important point of departure for discussions with the province. Bargaining
councils can also be used as a forum for discussions on municipal training issues and
developing common approaches and strategies.
Whatever training is being offered and/or requested, municipalities should monitor that it is
being provided in a form and language that facilitates maximum learning and job
performance by staff. Municipalities must feel free to be fairly critical about the quality of
training as this is the only way in which we can ensure that training is meeting people’s
needs.
Municipalities must pay particular attention to the requirement that training providers be
upgraded to meet the requirements of the NQF. Municipalities need to work individually and
through their representative bodies to ensure that the training received is NQF approved.
National government and stakeholders
National government is fully aware that the transformation of the local government skills
development system will take time and will not gain sufficient speed by just passing a set of
new policies and legislation.
This is why the range of support programmes mentioned earlier has been formulated. While
not being the primary focus, a capacity-building component is included into programmes
such as Project Viability, the Consolidated Municipal Infrastructure Programme, and
programmes for IDPs and local economic development.
SALGA also organises a range of training programmes, in particular for councillors.

Organised labour is not a provider of training, but both SAMWU and IMATU play important
roles in making sure that training is demand-driven and indeed that relevant and qualified
training is offered to officials and frontline workers. Local government staff should put
pressure on these organisations to express their views at places where local government
training is being discussed.
In addition to training, which will take place through official structures, a variety of non
governmental organisations (NGOs) and other institutions (for example, professional
institutes) offer training that is of interest to both councillors and officials. Once again there
may be a need for local government to enter into a dialogue with such organisations to
negotiate and ‘push’ for the alignment of their training approaches with the requirements of
the NQF.
The Local Government Transformation Programme (LGTP)
In an effort to coordinate the wide range of capacity-building initiatives from government,

business, NGOs and donors, the LGTP has been launched as a multi-stakeholder initiative.
It aims to build on the existing capacity-building initiatives by adding value in the following
ways:
 Building a database of existing capacity-building projects and support organisations.

 Identifying gaps and priorities for capacity-building and training and communicating
these to stakeholders.
 Bringing people together around key issues or themes to promote networking and
learning from each other.
 Highlighting best practices developed by municipalities and sharing these with local
government more generally.
 Building a ‘knowledge bank’ of easy-to-use systems and learning from other projects
for municipalities to use in developing their own structures and systems.
 You can get in touch with the LGTP and its various projects by using the contact list
in the Annexure
Describe the Local Government Transformation Programme used

in municipalities.
4.4: The responsibilities of the key role players in relation

to revenue and expenditure management over the medium
term.
THE RESPONSIBILITIES OF ROLE-PLAYERS
As you can see, the establishment process requires different role-players in the three
spheres of government to work together. If this does not occur, the process in your area is
likely to be disrupted and establishment delayed.
Municipalities are the most important role-players in the establishment process. However, as
we have seen, the primary legal responsibilities are held by the MEC for local government in
your province, the Demarcation Board and the Minister responsible for local government.
These role-players must act in consultation with one another and with municipalities, either
directly or through organised local government structures at provincial and national levels.
THE MEC FOR LOCAL GOVERNMENT
The MEC for local government in each province is responsible for formally establishing your
new municipality, through issuing an Establishment Notice. The MEC may also amend the
Establishment Notice. In addition, the MEC is responsible for ensuring that the provincial
legislature passes legislation that determines which types of municipal leadership structures
may be used for each category of municipality. Finally, the MEC is responsible for ensuring
that the establishment procedures laid down in the Municipal Structures Act occur on time
and in a coordinated manner.
However, the powers of the MEC in the establishment process are limited by the role of
other role-players. For example, should the MEC wish to depart from the recommendations
of the Demarcation Board regarding the allocation of powers and functions between district
(category C) and local (category B) municipalities, he or she must provide reasons for this
decision. Also, the Minister responsible for local government will assist the MEC through
developing various national guidelines and policy frameworks, and in certain cases may
amend provincial decisions on the allocation of powers and functions (see below - the role of
the Minister).
Most importantly, the MEC must consult with organised local government and each affected
municipality prior to making any decisions related to the establishment of municipalities. The
MEC cannot act on his or her own. Indeed, it is most likely that the MEC will want to
incorporate local views as far as possible and will only depart from local proposals if they do
not meet legal requirements or if they are not, in the MEC's view, appropriate.
Any proposed Establishment Notice or its amendment must be published prior to its
proclamation by the MEC, with sufficient time allocated for interested parties to respond.
Also, the MEC is required to take the interests of creditors into account when considering an
Establishment Notice or its amendment.
THE MUNICIPAL DEMARCATION BOARD
The Demarcation Board is an independent organisation appointed by the President in terms

of the Constitution. The Board has the authority to demarcate all municipal boundaries.
However, new municipalities will be established in all areas, regardless of whether the
Demarcation Board changes existing boundaries or not.
The Board will determine the outer boundaries of municipal areas. It will also make
recommendations to the MEC on the appropriate powers and functions of local and district
councils, based on the capacity of the municipality in question.
THE MINISTER RESPONSIBLE FOR LOCAL GOVERNMENT
The Minister responsible for local government will have some influence over the final
outcome of the establishment process, but his or her powers are also limited by the role of
other role-players. He or she can or will:
 Determine the category of municipality to be established in each area, following

consultation with the relevant MEC, the Demarcation Board, and national and
provincial organised local government structures (the Minister determines the
category by designating the nodal points of metropolitan areas, which are then
automatically category A (single tier) municipalities - all other areas are then
categories B and C (two-tier) municipalities).
 Declare an area as a district management area, following a recommendation of the
Demarcation Board and consultation with the MEC. A district management area does
not have a local (category B) municipality and there is therefore no Establishment
Notice for such an area as it will be represented and administered by the district
(category C) municipality.
 Determine national guidelines or policy frameworks on the:
o Appropriate types of municipalities for particular areas.
o The appointment of full-time councillors in municipalities.
o The determination of the number of councillors for a particular municipality.
o The procedures for any adjustments in the allocation of powers and functions
between district (category C) and local (category B) municipalities.
 Change any adjustments that the MEC for local government has made to the powers
and functions of an individual municipality. The Minister's decision must be published
in the Government Gazette. The Minister may also make such changes if the MEC
fails to follow the recommendation of the Demarcation Board to make adjustments. In
both cases the Minister must first consult with the MEC and the affected
municipalities.
ORGANISED LOCAL GOVERNMENT
Organised local government in each province is a crucial role-player in the establishment

process, and, together with the affected municipality, must be consulted from the beginning
of the establishment process for each municipality. The MEC is required to:
 Give these bodies advance notice of any intention to establish or amend the
establishment conditions of individual municipalities.
 Consult with these bodies over the content of any Establishment Notice or its
amendment prior to publishing it for public comment.
INDIVIDUAL MUNICIPALITIES
Individual municipalities have an important role to play in advising the MEC on the
appropriate items to be included in the Establishment Notice. They must also manage the
implementation of the Establishment Notice or its amendment. This role has three
components:
 To decide on the appropriate provisions (such as the type of municipality) they wish
to have in the Establishment Notice, and to inform the MEC of these decisions.
 To update and organise the necessary ledgers, financial statements, registers,
administrative records, contracts and other information that will be necessary to
facilitate the establishment process.
 To implement the provisions of the Establishment Notice in a timely and effective
manner and so reduce any disruption to the service delivery duties of the
municipalities concerned.
Municipalities will need to start preparation for the transition soon if they are to play these
roles effectively. Some suggestions for what you can do are given later on in this book.
OTHER ROLE-PLAYERS
Municipal trade unions
The primary concern of many staff members will relate to their job security and conditions of
employment. They may be concerned that their job descriptions will change, or that they will
have to move to different offices much further from their homes. They might also fear
retrenchment. These are important issues that will need to be addressed to ensure the
transition is not delayed or disrupted. Staff members may also have important viewpoints on
the likely effects of the transition on service delivery. For example, financial services staff
may be aware of particular problems in the billing and payment systems if the name of your
municipality is to be changed. It is absolutely critical that the knowledge of these staff
members is used to ensure uninterrupted service delivery through the transition.
Similarly, experience has shown that staff morale suffers during periods of transition,
particularly if there is uncertainty around their future posts, responsibilities and conditions of
service. While some changes may be inevitable, it is important to keep staff bodies fully
informed about developments. This will help to minimise any disruptions due to the
transition.
Community groups
The provisions of the establishment process may affect community groups in each area.
There may be changes to the way services are delivered, or new structures for community
participation - such as ward committees - may be set up.
Relations between the community and the municipality might also be changed. For example,
if a new system of executive leadership (see Types of municipalities) is to be introduced, the
relationship between the community development forum and the municipality will be
affected. The role of the forum may change quite dramatically. Similarly, if water services
functions are to be transferred to the district council, this may impact on the functioning of
community-based water delivery projects.
This means that targeted strategies must be adopted to ensure that stakeholders are able to
make meaningful input in the establishment process.
Creditors
Any creditors, such as banks, whose loans to existing municipalities may be divided up and
transferred to new municipalities in the establishment process. Creditors might be concerned
about the security of their loans in the transition process, particularly as the ability of a new
municipality to pay its instalments might be affected. Establishment Notices need to pay
particular attention to the security of loans and the future credit worthiness of the new
municipality.
Identify and explain all roll players in the municipal trade unions.
SO5: Contribute to the design rates, tariffs and user

charges
Property Taxation.
The major source of local taxation is the property tax (property rates). The owners of
property in municipal areas have to pay a tax based on a valuation of their properties in
order to finance certain municipal services. While this tax is by no means the sole source of
municipal revenue, it is an important source of discretionary revenue for the Municipality and
enables it to function effectively. For details of Property Taxation refer to Procedures on
Rates. For exemption of rating of State properties, refer to the relevant Act.
Services charges.
An important source of local own revenue is charges that are directly related to the provision
of municipal services. The majority of these are utility charges, such as electricity and water,
which have contributed significantly to the growth of Municipalities' revenue. Cost recovery is
an essential part of sustainable service delivery. The system of revenue sharing is aimed at
subsidising the operating costs of basic services to indigent and low-income households.
Refer to Procedures on 'Electricity and Water' for details of service charges.
Levy Collection.
Another source of income to the Council is regional levies. In terms of the KwaZulu and
Natal Joint Services Act,1990, all enterprises within the jurisdiction of the District Councils
are obliged to register with the Council for the payment of regional Council levies.
Registration is compulsory, but the Council may exempt the levypayer if the estimated levy
does not exceed R50 based on the total turnover and remuneration for the year as furnished
by the enterprise concerned. These totals are ascertained by assessing the financial status
of the enterprise.
Registered enterprises are liable for
 Regional services levy based on salaries, wages and drawings; and

 Regional establishment levy based on turnover (excluding VAT) and other income as
defined in the Regional Services Councils Act.
 In terms of the Regional Services Council Act No 109 of 1985 and the Kwazulu-Natal
Joint Services Act No. 84 of 1990, the Minister of Finance may from time to time,
after consultation with the Council for the co-ordination of the local Government
Affairs established by section 2 of the Promotion of Local Government Affairs Act,
1983 (Act No 91 of 1983), and by notice in the Gazette, determine the manner in
which the regional services levy and the regional establishment levy shall be
calculated and paid. The rates to be used in calculations are normally stipulated in
the monthly ML4 forms that are sent to levy payers.
5.1: The legislative framework affecting the structure and types of tariffs permitted by
municipalities and the various tariff-types.
Legislation
Section 160 of the Constitution of the Republic of South Africa 1996 determines that a
Municipality may not delegate the power to impose taxes, tariffs and other charges. Such
tariffs must be approved by decision of a majority of the Councillors in a Council after taking
into consideration all the required factors.
In respect of the provision of water and sanitation services, the Water Services Act of 1997
determines that a Municipality/Water Services Authority must supply water and sanitation
services in terms of conditions set by the Municipality/ Water Services Authority. The
conditions that a Municipality must set must provide, amongst other things, for the
determination and structure of tariffs. These powers must be read with section 21 of the Act
in terms of which the Municipality must pass bylaws that provide, amongst other things, for
the determination and structure of tariffs and the payment and collection of money due for
water and sanitation.
In terms of section 9 of the Electricity Act 1987 (Act No 21 of 1987) the holder of electricity
licence may not charge any consumer with other tariffs than those specified in the schedule
of approved tariffs in its licence. Further, an authority of an electricity licence is obliged to
supply electricity within the area of supply mentioned in its licence, to every applicant who is
in a position to make satisfactory arrangements for payment thereto.
The Local Authorities Ordinance regulates the determination of property rating tariffs. It
determines as follows:
 The Council must levy the property rates for an ensuing financial year not
later than 30 June;
 The Council may annually revise its budget and increase or decrease its
property rates;
The property rates may be levied in terms of any of three systems, namely:
 On the total municipal valuation of a property (flat rating);

 On the site value only (site rating); or
 At different tariffs on the municipal valuation of the site and improvements on
the site (composite rating); and
 The Council may differentiate in the determination of property rates on the
basis of the size of the land, the purpose for which the property is used, the
purpose for which the property is zoned for the area in which the property is
situated.
In terms of section 74 of the Municipal Systems Act, 2000, the Council must adopt and
implement a Tariff Policy that complies with the provisions of any applicable legislation on
the levying of fees for municipal services provided by or on its behalf. The Tariff Policy may
differentiate between different categories of users, debtors, service providers, service
standards, geographical areas and other matters as long as the differentiation does not
amount to unfair discrimination. Section 75 of the Act requires that the Council adopt by-laws
to give effect to the implementation and enforcement of its Tariff Policy. Such by-laws may
differentiate between different categories of users, debtors, service providers, services,
service standards and geographical areas as long as such differentiation does not amount to
unfair discrimination.
Revenue Adequacy and Certainty
The Municipality must have access to adequate sources of revenue to enable it to carry out
its functions. The Municipality must:
 Fully exploit the available sources of revenue to meet its development

objectives; and
 Be reasonably certain of its revenue to allow for realistic planning.
Sustainability
Financial sustainability requires that the Municipality must ensure that its budget balances.
This means that the Municipality must ensure that:
 Services are provided at affordable levels; and

 It is able to recover the costs of service delivery;
The Municipality realises that no bailout will be provided to it if it exceeds its budget or fails
to establish proper financial management controls. Councillors must set realistic budgets.
The Municipality believes that all members of the community have the right to have access
to at least a minimum level of basic services.
Therefore, there is a need to subsidise poor households, who are unable to pay even a
proportion of service costs.
Effective and Efficient usage of Resources
Resources are scarce and must be used in the best possible way to reap the maximum
benefit for the community. However, there are no mechanisms available to ensure that the
Municipality's decisions will ensure effective allocation of resources. It is therefore important
that the community provide the necessary checks and balances. They can do this by
participating in the budget process. In addition, performance audits should be carried out by
the office of the Auditor-General or outsourced to a private firm. Efficiencies in spending and
resource allocation will ultimately increase the access of the poor to basic services.
Accountability, Transparency and Good Governance
The Municipality must be accountable to the community for the use of its resources.
Councillors must be able to:
 Justify their expenditure decisions; and

 Explain why and how the revenue necessary to sustain expenditure, is raised.
Budgeting and the financial affairs of the Municipality must be open to public scrutiny. The
community should be part of the decision-making process about how revenue is raised and
spent. Community participation in budgeting should include those groups in the community,
such as women, who face particular constraints in participating. It must also include a
capacity-building component to ensure that people understand the prioritisation process
(why resources are allocated to one area rather than another).
 Equity and Redistribution

 Categories of Tariff Charges
Property Taxation
The major source of local taxation is the property tax (property rates). The owners of
property in municipal areas have to pay a tax based on a valuation of their properties in
order to finance certain municipal services. While this tax is by no means the sole source of
municipal revenue, it is an important source of discretionary revenue for the Municipality and
enables it to function effectively. For details of Property Taxation refer to Procedures on
Rates. For exemption of rating of State properties, refer to the relevant Act.
Services charges
An important source of local own revenue is charges that are directly related to the provision
of municipal services. The majority of these are utility charges, such as electricity and water,
which have contributed significantly to the growth of Municipalities' revenue. Cost recovery is
an essential part of sustainable service delivery. The system of revenue sharing is aimed at
subsidising the operating costs of basic services to indigent and low-income households.
Refer to Procedures on 'Electricity and Water' for details of service charges.
Levy Collection.
Another source of income to the Council is regional levies. In terms of the KwaZulu and
Natal Joint Services Act,1990, all enterprises within the jurisdiction of the District Councils
are obliged to register with the Council for the payment of regional Council levies.
Registration is compulsory, but the Council may exempt the levypayer if the estimated levy
does not exceed R50 based on the total turnover and remuneration for the year as furnished
by the enterprise concerned. These totals are ascertained by assessing the financial status
of the enterprise.
Registered enterprises are liable for
o Regional services levy based on salaries, wages and drawings; and
Regional establishment levy based on turnover (excluding VAT) and other income as
defined in the Regional Services Councils Act.
In terms of the Regional Services Council Act No 109 of 1985 and the Kwazulu-Natal Joint
Services Act No. 84 of 1990, the Minister of Finance may from time to time, after
consultation with the Council for the co-ordination of the local Government Affairs
established by section 2 of the Promotion of Local Government Affairs Act, 1983 (Act No 91
of 1983), and by notice in the Gazette, determine the manner in which the regional services
levy and the regional establishment levy shall be calculated and paid. The rates to be used
in calculations are normally stipulated in the monthly ML4 forms that are sent to levy payers.
Legislation
Section 160 of the Constitution of the Republic of South Africa 1996 determines that a
Municipality may not delegate the power to impose taxes, tariffs and other charges. Such
tariffs must be approved by decision of a majority of the Councillors in a Council after taking
into consideration all the required factors.
In respect of the provision of water and sanitation services, the Water Services Act of 1997
determines that a Municipality/Water Services Authority must supply water and sanitation
services in terms of conditions set by the Municipality/ Water Services Authority. The
conditions that a Municipality must set must provide, amongst other things, for the
determination and structure of tariffs. These powers must be read with section 21 of the Act
in terms of which the Municipality must pass bylaws that provide, amongst other things, for
the determination and structure of tariffs and the payment and collection of money due for
water and sanitation.
In terms of section 9 of the Electricity Act 1987 (Act No 21 of 1987) the holder of electricity
licence may not charge any consumer with other tariffs than those specified in the schedule
of approved tariffs in its licence. Further, an authority of an electricity licence is obliged to
supply electricity within the area of supply mentioned in its licence, to every applicant who is
in a position to make satisfactory arrangements for payment thereto.
The Local Authorities Ordinance regulates the determination of property rating tariffs. It
determines as follows:
 The Council must levy the property rates for an ensuing financial year not later than
30 June;
 The Council may annually revise its budget and increase or decrease its property
rates;
The property rates may be levied in terms of any of three systems, namely:
 On the total municipal valuation of a property (flat rating);

 On the site value only (site rating); or
 At different tariffs on the municipal valuation of the site and improvements on the site
(composite rating); and
 The Council may differentiate in the determination of property rates on the basis of
the size of the land, the purpose for which the property is used, the purpose for which
the property is zoned for the area in which the property is situated.
In terms of section 74 of the Municipal Systems Act, 2000, the Council must adopt and
implement a Tariff Policy that complies with the provisions of any applicable legislation on
the levying of fees for municipal services provided by or on its behalf. The Tariff Policy may
differentiate between different categories of users, debtors, service providers, service
standards, geographical areas and other matters as long as the differentiation does not
amount to unfair discrimination. Section 75 of the Act requires that the Council adopt by-laws
to give effect to the implementation and enforcement of its Tariff Policy. Such by-laws may
differentiate between different categories of users, debtors, service providers, services,
service standards and geographical areas as long as such differentiation does not amount to
unfair discrimination.
Identify and explain situations under which property rates may be charged
at municipality level.
5.2: Tariffs and rates and policy
Tariff Policy Principles
Government and other stakeholders have agreed on a set of principles to guide tariff
policy as follows:
Government and other stakeholders have agreed on a set of principles to guide tariff policy
as follows:
 Payment in Proportion to the Amount Consumed.

 As far as it is practically possible, consumers should pay in proportion to the amount
of services consumed.
 Full Payment of Service Costs.
 All households, with the exception of the indigent, should pay the full costs of
services consumed. (Refer to Indigent Policy)
Ability to Pay
Municipalities should develop a system of targeted subsidies to ensure that poor households
have at least a minimum level of basic services. (Refer to Indigent Policy)
Fairness
Tariff policies should be fair in that all people should be treated equitably.
Transparency
Tariff policy should be transparent to all consumers and any subsidies and concessions
must be visible and understood by all consumers.
Local Determination of Tariff levels
Municipalities have the flexibility to develop their own tariffs in accordance with these
principles.
Consistent Tariff Enforcement
A consistent policy for dealing with non-payment of tariffs must be developed. This must be
targeted and enforced with sensitivity to local conditions.
Ensure Local Economic Competitiveness.
Municipal tariffs must not unduly burden local business through higher tariffs, as these costs
affect the sustainability and competitiveness of such businesses.
These policy principles were incorporated into the Local Government Municipal Systems Act
No. 32 of 2000. In terms of section 74 (2) of the Local Government Municipal Systems Act
2000, the Municipality's tariff policy must reflect at least the following principles, namely that:
 Users of municipal services should be treated equitably in the application of tariffs;

 The amount individual users pay for services should generally be in proportion to
their use of that service;
 Poor households must have access to at least basic services through:
 Tariffs that cover only operating and maintenance costs;
 Special or life line tariffs for low levels of use or consumption of services or for basic
levels of service; or
 Any other direct or indirect method of subsidisation of tariffs for poor households.
 Tariffs must reflect the costs reasonably associated with rendering the service,
including capital, operating, maintenance, administration, replacement costs and
interest charges;
Tariffs must be set at levels that facilitate the financial sustainability of the service, taking into
account subsidisation from sources other than the service concerned. A service is financially
sustainable when it is provided in a manner that would ensure its financing from internal and
external sources is sufficient to cover the costs of the initial capital expenditure required,
operating the service, maintaining, repairing and replacing the physical assets used in its
provision:
 Provision may be made in appropriate circumstances for a surcharge on the tariff for
a service;
 Provision may be made for the promotion of local economic development through
special tariffs for categories of commercial and industrial users; and
 The economical, efficient and effective use of resources, the recycling of wastes and
other appropriate environmental objectives must be encouraged.
 The extent of subsidisation of tariffs for poor households and other categories of
users should be fully disclosed.
5.3: The administrative implications are forecast for a tariff and rates policy.
Equity and Redistribution
of services.
Development and Investment
Meeting basic needs in the context of existing services backlogs, will require increased
investment in municipal infrastructure.
Sources of Revenue
In terms of section 229 of the Constitution of the Republic of South Africa 1996 (Act No 108
of 1996) the Municipality may impose:
of services.Meeting basic needs in the context of existing services backlogs, will require
increased investment in municipal infrastructure.In terms of section 229 of the Constitution of
the Republic of South Africa 1996 (Act No 108 of 1996) the Municipality may impose:
Rates on property and surcharges on fees for services provided by or on behalf of the
Municipality; and
If authorised by national legislation, other taxes, levies and duties appropriate to Local
Government, but it may not impose income tax, value-added tax, general sales tax or
customs duty.
The power of a Municipality to impose rates on property, surcharges on fees for services
provided by or on behalf of the Municipality, or other taxes, levies or duties:
 May not be exercised in a way that materially and unreasonably prejudices national
economic policies, economic activities across municipal boundaries, or the national
mobility of goods, services, capital or labour; and
 May be regulated by national legislation.
 In terms of section 4(1)(a) of the Local Government: Municipal Systems Act 2000
(Act No 32 of 2000) the Council may finance the affairs of the Municipality by:
 Charging fees for services; and
 Imposing surcharges on fees, rates on property and to the extent authorised by
national legislation, other taxes, levies and duties.
 Section 16 of the Local Government Municipal Systems Act 2000 (Act No 32 of 2000)
requires the Municipality to establish appropriate mechanisms, procedures and
processes to ensure community participation in, amongst other things, the
preparation of its budget.
Section 10G(7)(a)(ii) of the Local Government Transition Act No. 209 of 1993, as amended,
and the Kwazulu-Natal Joint Services Act No.84 of 1990, authorises the Municipality to levy
and recover, by resolution supported by a majority of the members of the Council levies,
fees, taxes and tariffs in respect of any function or service of the Municipality. It further
authorizes the Municipality, when it determines property rates, levies, fees, taxes and tariffs
to:
o Differentiate between different categories of users or property on such

grounds as it may deem reasonable;
In respect of service charges from time to time by resolution, amend or withdraw such
determination and determine a date, not earlier than 30 days from the date of the resolution,
on which such determination, amendment or withdrawals will come into operation;
o Advertise on notice boards calling for objections; and

o Recover any charges so determined or amended, including interest on any
outstanding amount.
The Local Authorities Ordinance (Ordinance No. 25 of 1974) contains the following
provisions:
o Rates can be paid in not less than ten instalments in a financial year if it
cannot be paid in one lump sum.
o The revenue of the Municipality consists of the rates, taxes, fees, charges,
fines and other sums imposed or recoverable by or payable to the Council
under any law;
Interest charged at 18% per annum (1.5% per month), must be paid to the Municipality on
rates that have not been paid within thirty days from the date on which such rates became
due. The interest rate charged should be higher than the rate payable by the Council to its
bank in respect of an overdraft, for the period during which such rates remain unpaid after
the expiry of the period of thirty days;
Rates that are outstanding for more than two months should incur a 10% collection charge
(Local Authorities Ordinance, Section 171);
The Council may charge interest on any other amount due to it that may not have been paid
within thirty days from the date on which such amounts became due. The interest rate
charged is one percent higher than the rate payable by the Council to its bank in respect of
an overdraft for the period during which such amounts remain unpaid after the expiry of the
period of thirty days. Interest may not be charged on:
 Fines imposed by a court and due to the Council; and

 Monies due to the Council in terms of a law and in respect of which that law provides
that a penalty on interest must be levied if such monies are not paid on the date
when due or payable.
 The interest rates referred to above must be amended on the first day of the month
following on the month in which the Council's bank has amended the interest rate
payable by the Council to its bank in respect of an overdraft; and
 Any fine imposed or money treated as bail in respect of any offence under the
ordinance or a bylaw made by the Council, must be paid to the Municipality.
1. Describe the circumstances under which Interest may not be

charged in municipal.
2. Describe the Tariffs and rates and policies applicable to
municipalities.
SO6: Develop a credit control and debt collection

policy
Credit control policies should be well thought out and be known, and have support
through-out the company.
Often agreements have to be accommodated between sales and credit departments. Credit
controllers want fixed clear guide lines that apply to everyone and sales departments want a
referral for anything that will happen on an account; neither of these are workable in any
large company on a long term basis.
Need for Credit Control
Controlling credit in the Economy is amongst the most important functions of the Reserve
Bank of India. The basic and important needs of Credit Control in the economy are-
 To encourage the overall growth of the “priority sector” i.e. those sectors of the
economy which is recognized by the government as “prioritized” depending upon
their economic condition or government interest. These sectors broadly totals to
around 15 in number.[1]
 To keep a check over the channelization of credit so that credit is not delivered for
undesirable purposes.
 To achieve the objective of controlling “Inflation” as well as “Deflation”.
 To boost the economy by facilitating the flow of adequate volume of bank credit to
different sectors.
 To develop the economy.
Objectives of Credit Control
Credit control policy is just an arm of Economic Policy which comes under the purview of
Reserve Bank of S.A, hence, its main objective being attainment of high growth rate while
maintaining reasonable stability of the internal purchasing power of money. The broad
objectives of Credit Control Policy in S.A have been-
Ensure an adequate level of liquidity enough to attain high economic growth rate along with
maximum utilization of resource but without generating high inflationary pressure.
 Attain stability in exchange rate and money market of the country.
 Meeting the financial requirement during slump in the economy and in the normal
times as well.
 Control business cycle and meet business needs.
Methods of Credit Control
There are two methods that the RBI uses to control the money supply in the economy-
 Qualitative Method
 Quantitative Method
During the period of inflation Reserve Bank of India tightens its policies to restrict the money
supply, whereas during deflation it allows the commercial bank to pump money in the
economy.
Qualitative Method
By Quality we mean the uses to which bank credit is directed.
For example- the Bank may feel that spectators or the big capitalists are getting a
disproportionately large share in the total credit, causing various disturbances and inequality
in the economy, while the small-scale industries, consumer goods industries and agriculture
are starved of credit.
Correcting this type of discrepancy is a matter of Qualitative Credit Control.
Qualitative Method controls the manner of channelizing of cash and credit in the economy. It
is a ‘selective method’ of control as it restricts credit for certain section where as expands for
the other known as the ‘priority sector’ depending on the situation.
Daily tasks - Credit Control:
 Ensure implementation of credit control policy and correct interpretation of the policy.
 Ensure consistent application of credit control procedures to clients with outstanding
amounts on their accounts.
 Notify personnel, by written memo’s, of decisions taken on meetings or by Council
 Regular visits to credit control personnel to assure the correct interpretation of the
Credit Control- and Indigent Policies as well as other problems they may have.
 Receive and Process indigent applications. Implement Indigent subsidies and keep a
register and ensuring it is updated
Controllable Risk
Controllable relates to those factors which are within an organisation's control. It includes all
those procedures an organisation can apply BEFORE granting credit. It will also include all
procedures that can be applied to minimize the risk of default after credit has been granted
(this is call Compliance Risk).
Examples of controllable risk include:
 Credit control policy formulation

 Customer relationship management
 Credit vetting and screening

 Credit sale agreements
 Compliance (risk) procedures
 Invoicing and statements
 Query management
 Default management
 Printing & document management
 Tracing and recovery
 Write of management
 Journals and adjustments
 Cost management
 Workflow management
 Recruiting procedures
 Training
Inherent Risk
Credit inherently contains an element of the risk of default by the debtor. This risk may be
greater or lesser in different organisations. The organisation granting the credit has no
control over the inherent risk. This risk is determined by factors extraneous to the
organisation such as general unemployment levels, changing socio-economic conditions,
debtor attitudes and political issues.
Once credit is granted, every credit sale has some component of inherent default risk. It is
the organisation granting the credit that must ensure that this inherent risk is minimised by
applying prudent credit control procedures
Improve your collections by properly applying all the elements of the credit value chain.
Contact Debtpack today, and we will help you implement an effective debt collection
strategy.
1. Define and explain risks

2. Explain all the controllable risks available while giving examples.
6.1: The legislatively required components of a credit control policy
What the Credit Act means for you!
There's no denying that credit is a good thing. It gives you that extra edge when you want to
buy those things that have alwyas been out of your reach. Without access to these additional
funds how would you afford that dream lifestyle?
The problem comes in where debt can quickly spiral out of your control.
So the trick, manage your finances. Allow Wizard to help you manage your finances and
utilise your bond account to consolidate your debt.
Only borrow what you can afford
The NCA focuses on protecting people from becoming financially overcommitted. As such it
prevents us from lending money without ensuring that:
 We know your debt repayment history –

 You understand the costs, risks and responsiblity of your credit agreement –
 You can afford to repay your debt –
 You have supplied details of your income and expenses when applying for credit
Credit Act (hereinafter referred to as "the NCA") was passed by Parliament on the 10th of
March 2006. The main provisions of the Act came into effect on the 1st of June 2007.
The purpose of the Act is to:
1. promote a fair and non-discriminatory market place for access to the consumer
credit;
2. regulation of consumer credit and improved standards of consumer information;
3. prohibit certain unfair credit and credit marketing practices;
4. promote responsible credit granting and use;
5. prohibit reckless credit granting;
6. provide for debt re-organization in case of over-indebtedness;
7. to regulate credit information; and
8. Establish the National Credit Regulator and the National Consumer Tribunal.
Who is affected?
Anyone dealing in the credit industry be it a credit grantor, a credit grantee or any
intermediatery. The Act has a wide definition for the term "credit agreement" and the Act
therefore applies to any party involved in the credit agreement. A credit agreement is defined
in the Act as any agreement where goods or services are purchased and repayable on
installments and not on delivery, as well as any extension of money i.e. home loans,
personal loans, credit cards, store cards and short term loans.
The Act further classifies the credit agreements into three categories:
 Incidental credit agreements;

 Intermediate agreements; and
 Large credit agreements.
A loan over immovable property is considered a large credit agreement, which is our focus in
the real estate industry. The act is applicable to all natural persons, and for the purposes of
large credit agreements, juristic persons are excluded. It must be noted that a lease of
immovable property has specifically been excluded in terms of this act and this act will
therefore not apply to any rental properties.
The Effect of NCA
In terms of this act the onus has been shifted from the consumer, who should not borrow
more than they can repay, to the Banks and other credit extenders to fully asses the ability of
a person applying for credit to reasonably be able to repay such credit, as the debt falls due.
Should the financial institutions fail to do the necessary checks to ensure that credit is not
being extended to persons who would be unable to repay such credit, a magistrate may
declare it reckless lending.
The magistrate may then either:
 declare the agreement unenforceable, meaning the financial institution can not
recover the money;
 suspend the debt for a determined period, during which period no finance charges
nor interest may be charged; or
 Restructure the debt i.e. the interest rates and the repayment terms so that the
consumer will be in a position to repay same.
The act further prohibits negative marketing which may mean that no consumer may be pre-
approved for any bond subject to valuation of a property. The banks will probably have to
send out assessors and establish value in the property prior to granting the mortgage loan.
This will result in a delay in the turnaround-time for bond grants. Agents are therefore
advised to extend the period available in their suspensive conditions for the bond grant. This
will prevent the deal from expiring due to delays from the banks in performing all the
necessary checks on an applicant.
In terms of the NCA, financial institutions have to establish if the consumer, based on the
preponderance of available information at the time a determination is made, is or will be able
to satisfy in a timely manner all the obligations under the credit agreements to which the
consumer is a party, having regard to the consumer's financial means and prospects as
indicated by the consumers history of debt repayment. As there is no specific definition of
what percentage of the consumer's monthly income may be utilized towards debt repayment
the banks may initially be hesitant to extend credit as freely as in the past. The result will be
more frequent declines on bond applications. However on the bonds that are approved, one
should be assured that the consumer will have sufficient financial means to pay the
necessary transfer and bond costs to ensure that the transfer will be successfully concluded
The banks may have an initial delayed turnaround-time on approval of bonds. The bond
instructions may therefore enter the conveyancing/transfer process later than usual and may
result in a delay of the transfer process.
The National Credit Regulator
The act has established the National Credit Regulator (hereinafter referred to as “the NCR”).
In terms of the NCA the NCR has supervisory functions over the financial institutions. All
credit providers, credit bureaus and debt counselors have to register with the National Credit
Regulator.
The National Credit Regulator will enforce the NCA through:
1. promoting informal resolution of disputes;

2. receiving complaints concerning alleged contraventions of the NCA;
3. monitoring the consumer credit market and industry to ensure that prohibited conduct
is prevented or detected and prosecuted and evaluate and reprimand alleged
contraventions of the act;
4. Overseeing and ensure the correctness of the contents of the National Credit
Register.
In terms of the NCA, all consumer information will now be contained in the National Credit
Register. The information drawn on by the financial institutions and relevant financial
bureaus will have to be drawn from this credit record. The credit record will contain
information on all credit agreements, suretyships and judgments, past and current, of the
consumer. The consumer has a right to petition the NCR to correct any incorrect information
based on his or her credit record. The consumer further has a right of access to his/her
credit record at no charge once a year in the month of his/her birth.
The National Consumer Tribunal
The act has established a National Consumer Tribunal. The tribunal will adjudicate a matter
in relation to relief sought as provided for in the NCA and any allegations of prohibited
conduct and if appropriate, impose a remedy provided for in the NCA.
Consumer Credit Policy
In terms of the NCA the consumer now has certain rights against credit grantors. The
consumer has a right to:
1. apply for credit;

2. not be discriminated against in granting credit;
3. written reasons from a credit grantor for refusing any credit that was applied for; and
4. Receive all necessary documentation when applying for credit, in their official
language.
Identify and explain the purpose of the regulatory Act.
6.2: Municipal specific credit control policy.
The Constitution of South Africa envisages a robust local government system, which can
provide democratic and accountable government for local communities; ensure the provision
of services to communities in a sustainable manner; promote social and economic
development; promote a safe and healthy living environment; and encourage the
involvement of communities and community organizations in the matters of local
government.
The Municipal Systems Act is part of a series of legislation which aims to empower local
government to fulfill its Constitutional objects. In 1998 the government issued a Local
Government White Paper, which outlined a policy framework for local government. Later that
year government passed the Municipal Demarcation Act, which enabled the re-demarcation
of municipal boundaries; and the Municipal Structures Act, which defined the structures of
local government. The Municipal Systems Act will complement these pieces of legislation, by
regulating key municipal organizational, planning, participatory and service delivery systems.
National government has also prepared the Municipal Financial Management Bill, which
regulates municipal financial matters. Together, these pieces of legislation provide a
framework for a democratic, accountable and developmental local government system, as
envisaged by the Constitution.
CREDIT CONTROL AND DEBT COLLECTION
Customer care and management
The collection of rates, service charges and other taxes is an important part of a
municipality’s duties. It is vital to establish a system that creates a positive and reciprocal
relationship between customers and the municipality or service provider.
Municipalities should establish channels for customers to make complaints, and give
feedback on the quality of service and performance of the municipality or service provider.
Customer complaints should be dealt with promptly, with corrective action taken where
necessary. The municipality’s response times and their efficiency when dealing with
complaints should be monitored.
The municipality should inform users of services of the costs involved in service provision,
and how money raised from payment of service fees is spent.
Where the consumption of services has to be measured, municipalities must strive to

provide accurate and verifiable metering systems. Municipalities must also provide regular
and accurate accounts to customers, and accessible methods for customers to query or
verify accounts or meter readings. Each municipality should provide accessible pay points
and other mechanisms for settling accounts.
Debt collection responsibility of municipalities
Municipalities must adopt a credit control and debt collection policy consistent with its rates
and tariff policy, and with the Municipal Systems Act and other applicable legislation. A
municipality must collect all money that is due and payable to it.
Credit control and debt collection policy
A municipality’s credit control and debt collection policy must detail credit control and debt
collection procedures and mechanisms. It may differentiate between different categories of
user, ratepayer or debtor, as long as the differentiation does not amount to unfair
discrimination. The policy must provide for indigent debtors in a manner consistent with the
municipality’s tariff policy and any national indigent policy.
The policy must also set realistic targets in terms of estimates of income, with provisions for
bad debts. Municipalities should use generally acceptable accounting practices and
collection ratios. This will help municipalities to accurately estimate the amount of income
they will receive from service charges.
The rate of interest charged on arrears, extensions of time for payment of accounts and
other matters relating to late payments should be covered by the policy. The policy must also
detail the termination or restriction of services when payments are in arrears. Matters related
to theft, damages and unauthorised consumption of services should also be covered.
A municipal council must adopt by-laws to give effect to the municipality’s credit control and
debt collection policy, its implementation, and enforcement.
Supervisory authority
Each municipality should appoint a supervisory authority to oversee its credit control and
debt collection functions. If a municipality has an executive committee or executive mayor,
they must act as the supervisory authority. If a municipality does not have an executive
mayor or executive committee, the municipal council may act as the supervisory authority, or
appoint a committee of councillors to act as the supervisory authority.
The municipality’s supervisory authority must monitor the implementation and enforcement
of the municipality’s credit control and debt collection policy. The supervisory authority will
evaluate, review and adapt the policy to improve its efficiency when necessary.
Implementing authority
The municipal manager or service provider is responsible for the implementation and
enforcement of the municipality’s credit control and debt collection policy. The implementing
authority must establish effective procedures and processes to collect money due to the
municipality.
Both the supervisory authority and implementing authority should provide reports to the
municipal council when required.
Municipality’s right of access to premises
Authorized representatives of a municipality may need access to premises to read, inspect

or install meters or service connections. The people living on the premises must give these
representatives access to the premises at all reasonable hours.
Accounts
A municipality may consolidate any separate accounts of a person who owes the council
money for different services. A municipality may credit a payment from a person towards any
accounts which that person has with the municipality. A municipality may also implement any
of the debt collection and credit control measures provided for in the Municipal Systems Act
in relation to any arrears on accounts.
Agreements with employers
A municipality may enter into an agreement with an employer of a person to deduct amounts
owed to the municipality, or regular monthly amounts, as long as the person consents to it. A
municipality may provide special incentives for employers to enter into such agreements, or
for employees to consent to such agreements.
(J) PROVINCIAL AND NATIONAL MONITORING AND STANDARD SETTING
National and provincial government has a constitutional obligation to monitor and support
local government.
NATIONAL AND PROVINCIAL MONITORING OF MUNICIPALITIES
Monitoring
To enable national monitoring, the Minister for local government may, by notice in the
Gazette, require municipalities to submit specific information concerning their affairs to an
organ of state. The requirement may be for information to be submitted within a specified
period, or at regular intervals.
The provincial MEC for local government may also require municipalities to submit specific
information concerning their affairs. Provincial MECs must establish systems to monitor
municipalities and to assess the support needs of municipalities in the province. These
systems should allow for the monitoring of the performance and capacity of municipalities in
managing their own affairs, exercising their powers, and performing their functions. The
MEC should also monitor the development of local government capacity in the province.
When exercising their monitoring powers and duties, provincial MECs must rely as far as
possible on the annual and other reports of municipalities. Where additional information is
required, MECs may request municipalities to provide additional information. MECs should
take account of the administrative burden and costs incurred by municipalities in providing
additional information, as well as any performance monitoring systems which exist in the
municipality which could potentially provide the necessary information.
Non-performance and maladministration
There may be times when a provincial MEC believes that a municipality in the province is not
fulfilling a statutory obligation, or that some serious malpractice has occurred in the
municipality. On these occasions, the MEC must give a written notice to the municipality,
requesting the municipal council or municipal manager to provide required information.
Alternatively, if the MEC thinks it is necessary, he or she may initiate an investigation into the
matter. If there is no provincial legislation to guide this kind of investigation, the provisions of
the Commissions Act will guide the investigation.
An MEC who issues a notice requesting additional information from a municipality, or

instigates an investigation in a municipality, must submit a written statement to the National
Council of Provinces motivating their actions.
NATIONAL STANDARD SETTING
The Minister for local government may establish national standards and minimum standards
for any municipal service or function assigned to municipalities. National standards and
minimum standards may distinguish between different categories, types and kinds of
municipalities. Before implementing any such standards, the Minister must consult the
Minister of Finance, organized local government, the MECs for local government, and any
Cabinet member responsible for regulating that service.
Other national cabinet members may also exercise the power to set minimum and national
standards for the service for which they are responsible. Cabinet members must consult with
the Minister for local government before setting any such national standards.
Draft national standards must be published for public comment in the Gazette before their
enactment.
NATIONAL REGULATIONS AND GUIDELINES
LEGAL AND MISCELLANEOUS MATTERS
The Municipal Systems Act regulates and provides clarity on several legal issues relevant to
local government. For example, it deals with the use of certain certificates and the Provincial
Gazette as evidence in courts; the authority of municipal staff members to institute legal
proceedings; fines and bails; the serving of notices; public servitudes; offences and
penalties; and restraints on the transfer of property.
Describe and explain the credit control and debt collection policy as used in
municipalities.
6.3: Sound principles of debtor management
Debt Management Principles
1. Create an accurate assessment of your debt situation and know your Credit
Score.
Make a list, chart or whatever you're most comfortable with, of all your debts. Be sure and
include the amounts, interest rates, and expirations dates (especially on any no-interest for
## days type loans). Be sure and note any old accounts that you've got "laying around",
such as that department store credit account that you opened to get the 15% discount.
You can't manage your debt, until you've got an accurate picture of what you're trying to
manage!
Under a new S.Alaw, you have the right to receive a free copy of your credit report once
every 12 months from each of the three nationwide consumer reporting companies.
AnnualCreditReport.com allows you to request a free credit file disclosure (ie. Credit
Report) once every 12 months from each of the nationwide consumer credit reporting
companies: Equifax, Experian and TransUnion. This free credit report won't include your
credit score, but it does give you a consolidated list of your debts, a record of requests for
your credit history, and a summary of your rights under the Fair Credit Reporting Act.
Knowing how much debt, and to whom you owe, is crucial if you're going to start managing
your debt, and getting it under control.
Once you've gotten your free credit report, you should also get your Credit Score. Your
Credit Score plays a crucial role in your being approved for loans, and in the rates you
receive for mortgages, auto loans, or credit cards. You can get your Credit Score, along
with daily 3 bureau credit monitoring and other great services from FreeCreditScore.com
now!
If you've got bad credit, paying down your debts is of utmost importance. if you need help
understanding your credit score. If you still need more information on managing credit and
how it affects your credit report and FICO score, visit our Credit Education Center,
provided by myFICO. Depending how bad your score is, you may also consider additional
measures to repair your credit.
2. Pay off the debts one by one.
Pick the debt with the highest interest rate, and send extra payments to pay it off. Make
sure to maintain minimum payments to other debts, if any. There is a proven psychological
benefit to being able to take a debt off of your list. You will be able to see that you're
making progress!!! Once you're removed one debt, pick the remaining debt with the
highest interest rate, and begin to aggressively pay it off. Eventually you'll find that you are
DEBT FREE!! Paying off bills one by one is a sure sign of forward progress towards
reducing your debt. A part time job could also produce extra income to help pay off debts
sooner.
3. Use debt consolidation or debt restructuring.
With interest rates down, it also may be time to refinance your home mortgage loan and
cut your monthly payment. Why pay more on your mortgage, if you don't have too!
Refinance now while the rates are still low! Estimate you’re New Mortgage Payment - No
SSN Required When you refinance, make sure closing costs and other fees don't outweigh
the savings in your monthly payment. When you consolidate bills, you also get the benefit
of only keeping up with a single debt, rather than many.
You can also obtain a Second Mortgage or Home Equity Loan. Home equity loans are
good because they allow you to deduct the interest on your income taxes. Some lenders
also give you a 'credit card' that is linked directly to your home equity loan. Whenever you
use it, you're charging against your equity line.
Remember though, a Home Equity Loan, or any new credit is not a license to incur new or
more debts. Once you've transferred a balance by consolidating, or refinancing, don't add
more charges to the old account. If you've got a lot of open accounts, you may want to
close some of them, but you shouldn't necessarily always cancel the old account. Having a
good payment history with a few existing accounts can be better for your credit record than
many cancelled and new accounts.
4. Make a budget and stick to it!
Making a budget helps keep from increasing your debt, while you're trying to pay it down.
Be specific and detailed in your budgeting. Except for emergencies, you should only be
spending what is accounted for in your budget. Some people have found it helpful to keep
a 30 day log of their spending. Carry a little notebook, or some index cards with you, and
write down everything you spend each day. You'll probably be amazed at how much
money you spend on things you want, and don't really need. The smallest things, such as
that R10 cup of coffee every day, can slowly eat away at your finances. This will help keep
you from getting further in debt. Your budget should define how much money you'll send to
each of your creditors monthly and how much you need for bills, and how much is left for
discretionary spending. Try limiting your discretionary spending to things you can buy with
"pocket cash". This may be hardest thing you've ever done, but you won't get further in
debt if you only spend what you have.
One good way to enforce a budget is to use a Prepaid Debit card, instead of a Credit Card.
Debit cards allow you the convenience of a credit card, but limit you to the amount of
money that you deposit in your account.
5. If necessary, get help.
You may choose a credit counselling service, or debt counselling and debt help service to
help with each step of your debt solution. Learn how to handle debts!! Credit counsellors
can add accountability to your debt solution, and also serve as a source of
encouragement. They are used to dealing with bad credit or poor credit situations, and can
help you create a custom debt solution. They can suggest money lenders that might be
more willing to make a loan to someone with a lower credit rating. Once you start reducing
your debts without incurring new ones, you'll start to see your credit score rise. Reduce
your debts by up to 50%. Lower your monthly payment. Regain financial control and piece
of mind. Receive confidential advice for a no-obligation solution.
Identify and explain the principles of debtor management that can be

employed in municipal finance.
Portfolio Activity: Assignment (116342)
1. Write short notes on the following topics
a) The legal nature of municipalities

b) Municipal powers, functions and duties
c) Community participation
d) Integrated development planning
e) Performance management
f) Local public administration and human resources
g) Municipal services
h) Credit control and debt collection
i) Provincial and national monitoring and standard setting
j) National regulations and guidelines
2. Question two
a) What is the RDP?

b) Why do we need an RDP?
c) The six basic principles of the RDP
d) The key programmes of the RDP
Self Assessment
Self Assessment:
You have come to the end of this module – please take the time to review
what you have learnt to date, and conduct a self assessment against the
learning outcomes of this module by following the instructions below:
Rate your understanding of each of the outcomes listed below :
Keys :  - no understanding
 - some idea
 - completely comfortable
SELF
RATING
NO OUTCOME
  

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Municipal Governance

Developed by BBT INSTITUTE info@nsaconsulting.co.za

Resolving the Problem .......................................................................................... 24

Dispersal Impact on Poor Families ............................................................................... 48

Factor incomes ......................................................................................................... 64

Group Activity / Pair Activity: 4.4 ................................................................... 84

 National Department of Education

The qualifying learner will be able to:

Apply approaches to managing municipal income and expenditure within a

SAQA US UNIT STANDARD TITLE

UNIT STANDARD ESSENTIAL EMBEDDED KNOWLEDGE

 Legislation affecting municipal income.

Critical Cross-field Outcomes (CCFO):

UNIT STANDARD CCFO IDENTIFYING

UNIT STANDARD CCFO WORKING

Work effectively with others as a member of a team, group, organization or

UNIT STANDARD CCFO ORGANISING

UNIT STANDARD CCFO COLLECTING

Collect, analyse, organise and critically evaluate information, e.g. through

UNIT STANDARD CCFO COMMUNICATING

Communicate effectively using visual, mathematical and / or language skills in the

UNIT STANDARD CCFO SCIENCE

UNIT STANDARD CCFO DEMONSTRATING

Demonstrate an understanding of the world as a set of interrelated systems by

UNIT STANDARD CCFO CONTRIBUTING

Participating as responsible citizens in the life of local, national and global

2.2 Learner Support

3.1 Formative Assessment

3.2 Summative Assessment

If it is not documented, it did not happen!

4. Navigating the Learner Guide

4.1 Use of Icons

Group Activity / Pair Activity:

You will be required to complete an activity in your group or in pairs with

Complete the assessment activity that will be assessed as part of your

Reflect on the question(s) asked to identify the relevance of learning

A useful tip or essential element regarding the concept under discussion is

Content matter that is critical to the understanding of the module. The

Refer to your Mentor or Workplace Supervisor to assist in this activity, as

The following Learner Administration is critical in assisting your provider in

Please take a moment to familiarize yourself with the requirements.

5.1 Attendance Register

5.2 Learner Registration Form

Without the Learner Registration and ID Documents we will not be able to

5.3 Programme Evaluation Form

(US ID: 116342) Apply approaches to managing

The following learning outcomes are covered in this module.

1. Develop approaches to managing a municipality's revenue in a

SO 1: Develop approaches to managing a

Main sources of capital budget financing

 CMIP [Consolidate Municipal Infrastructure Programme] – available from the

Public/Private Partnerships - Capital costs can be paid for by means of partnerships

Main sources of operational budget financing

Government expenditures are financed in three ways:

 Stamp duty, levied on documents

 Personal income tax (may be levied on individuals, families.

 No direct benefits accrue to individual beneficiaries in exchange for payments;

A statutory levy is a compulsory payment and is, therefore, a tax.