Budget amended downwards

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Wooden blocks and the inscription Budget and the arrow down. Unsuccessful business and poverty. Profit decline. Loss of investment. Low wages and savings. Economic crisis. fall of the financial market

During the Special Council sitting on Friday, 8 November, an item relating to the adjustment of the budget was presented to council.
The first line of the item read as follows: “On the advice received from National Treasury, to submit a 2019/2020 Special Adjustment Budget for consideration and approval.” And also: ”In a letter dated the 08th of October 2019, National Treasury informed the municipality that it has failed to comply with the stipulations of Section 18 of the Local Government: Municipal Finance Management Act, Act 56 of 2003, which prohibits the adoption of an unfunded budget.”
The leading paragraph in the letter from National Treasury reads as follows: “According to our records, your municipality has proceeded to adopt an unfunded budget for the 2019/20 financial year. As you are aware in terms of your fiduciary duties as the Accounting Officer of the municipality, section 18 of the Municipal Finance Management Act, 2003 (Act No 56 of 2003), prohibits the adoption of an unfunded budget. Your failure to comply with the requirements of the MFMA is not only disappointing but can have adverse consequences for your municipality if left uncorrected.” Followed by: “An unfunded budget is indicative that the financial plan adopted by the municipality is inadequate to give effect to the priorities identified by a municipality for a particular year. It is also a leading indicator of impending financial distress.”
On 23 October the Provincial Treasury met with GMM and the following recommendations were made: “The municipality should reduce the bulk purchase electricity by R90 million or 15 percent from an original budget of R601 million, representing the distribution losses reduction. Ultimately the final budget for bulk purchases for electricity will be R511 million.
The bulk purchases for water expenditure should be decreased from R313 million to R294 million, which translate to R18 million of 6 percent reduction on distribution losses.
The municipality should reduce the contracted services by R8 million from technical services, which is from an original budget of R271 million to R263 million which translates to a 3 percent
saving.
The municipality should restructure their balance sheet through Eskom and Rand Water debt of R931 million being moved from current to long term liabilities. Municipality should negotiate a re-payment plan with the two creditors and pay the debt over a long term and the payment plan should be implemented from the 1st of July 2020.
The municipality was advised to increase their collection rate from 65 percent to 90 percent and this shift will assist the municipality in reducing the unfunded budget.
The municipality should collect 20 percent of R1.2 billion of the total debtors which would amount to R240 million, the deficit will be reduced.
The municipality should reduce the debtors with credit balances with R24 million from R34 million and they will be left with R10 million.
The municipality should consider improving its collection rate from 65% to 90% and all adjustments mentioned above. The municipality should finally realise a surplus of R38 million.”
This would be a tall order indeed.
The original budget was opposed by all opposition parties when presented in council earlier this year.
“The Democratic Alliance had vehemently opposed the approval of both the 2018/2019 and 2019/2020 unfunded budgets which reflected deficits of millions of Rands to the point that several extraordinary council meetings were left without a quorum due to walkouts. It was responded at the time by the ANC Executive Mayor that Treasury had given permission for the municipality to approve a budget with a deficit and that this was not a problem. Despite the cardinal warning of the DA against approving an unfunded budget which is prohibited by law, the budgets were pushed through the council every time by an ANC majority vote.” Said DA Caucus leader Cllr Ciska Jordaan, “It is inexcusable that the council must now be slapped on the wrist by the province and threatened with funds that could be withheld from Provincial and National treasuries, should these strategic documents not be implemented. In addition, it is extremely disconcerting how the “special adjustment budget” could have been conjured without the Annual Financial Statement having been presented to the council, the Auditor General and the respective Treasuries.”
“Had the council adopted and implemented motions that were submitted by the DA to this effect in the past year, the municipality would have been well underway in improving the status quo,” said Ciska, “The DA is also immensely concerned that communities are yet to receive word on the status of negotiations with ESKOM since there had been notice to the municipality of a cut-off due to non-payment.”
FF+ Cllr Aranda Nel-Buitendag said in a statement that “While the opposition voted against the said budget – the ruling party ANC approved it. The ANC must stop using our political interferences in the budget. This just shows with all the red lights that came out of council and the ruling party did not take it into consideration the financial crises the municipality is in. The municipal is using Eskom and Rand Water like a bank to generate income from the paying community while the others enjoy services for free.”
The opposition parties decided not to oppose nor approve the budget. All opposition parties voted against the first budgets and have made their choices clear.
The budget is a tough one and it will be hard to keep to the requirements of the budget.
Let us all hope that the political will be enough to put GMM on the recovery path.

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