When organisations come under financial pressure they often act in a panic and start to make savings in obvious and inconsequential spending. So the instruction comes down to cancel free biscuits at tea time, when what is needed as a solution are controls to massive cost over-runs in a major project.
When organisations come under financial pressure they often act in a panic and start to make savings in obvious and inconsequential spending. So the instruction comes down to cancel free biscuits at tea time, when what is needed as a solution are controls to massive cost over-runs in a major project.
When South African Associated Newspapers (SAAN) was on the brink of bankruptcy, back in the 1980s, the same management that was contemplating building an exorbitant new HQ put out a memo about not wasting printer paper.
The Sunday Times reported at the weekend that Eskom, facing a cash crunch, is cutting its biscuit allocation along with other measures.
Its staff is an early victim of organisational savings drives.
Eskom is planning cutting staff costs through, among other measures, “less overtime, a recruitment embargo and early retirement packages”.
I guess the same happens with individual budgets. We resolve to eat out less often and retire the gardener when what will really solve the problem of spending exceeding income is buying a less expensive car or moving to a house in a cheaper area, or getting a job that pays more.
What will Makana do to balance its budget?
Cutting back on staff tea and coffee is not going to do much when the hole in the finances is R185 million. For that is the amount the municipality says it has to find.
The draft three-year budget had by law to be adopted by the council at least three months before the start of the municipal financial year, which is July 1.
This was done on April 1.
In the council report on the adoption of the budget, an “illegal” budget deficit of R108 million on Makana’s operational spending budget is noted.
The document goes on to state that Makana needs a further R77 million to “fund the own funded capital requests”.
The result is that R185 million in total needs to be cut from the spending budget if it is to equal the revenue that can feasibly be raised, said the document.
“Alternatively, additional revenue of R185 million needs to be sourced, which is not realistic," the document said.
Something has to give, but there was no indication in the draft budget of exactly what.
The document said that by May 1, a fully funded, that is, balanced budget will be presented to the council.
What has clearly limited Makana’s ability to balance its budget is the National Treasury-inspired, around 6% cap, on raising revenue from residents.
Except for electricity, all revenue items – rates, water, sanitation, and waste removal – provisionally rise by 6%.
Likewise, a municipal salary increase is set at 6,8%, while spending on most other items has gone up by 5,6%.
Electricity rises by 7,39%.
The draft Budget itself astutely comments that high tariff increases year after year will mean that a point will come where no one can afford them anymore.
“National Treasury continues to encourage municipalities to keep increases in rates, tariffs and other charges as low as possible. Municipalities must justify in their budget documentation all increases in excess of the 6 percent upper boundary of the South African Reserve Bank’s inflation target. Excessive increases are likely to be counterproductive, resulting in higher levels of non-payment,” it said. "On the other hand, the budget also points to the need to do something about “aging and poorly maintained water, roads and electricity infrastructure”.
We all know too well about the water and sewage infrastructure problems, and the patched-up Grahamstown roads, but there are indications that city’s electricity infrastructure will soon also show its age.
The draft Budget says that the reticulation network in most suburbs was built or upgraded in the early 1980s and expected to last 20 to 25 years. That means we are about 10 years behind on renewing that network.
“The upgrading of the municipality’s electricity network has to become a strategic priority, especially the substations and transmission lines.”
It’s a tall order so we will see, by May 1, whether the municipality has managed to effect savings of R108 million in operating budget, out of which comes general spending and salaries; never mind finding the R77 million from “internally generated funds” for the capital budget.
The capital budget is supposed to be devoted to repair and maintenance of infrastructure, as well as making up the backlogs in black areas left by the apartheid regime.
More details should be available when the final budget is released.
The 6% increase for services, plus the 7,4% for electricity tariffs, is a welcome change from rises of 9% or more in the past.
Let’s hope the municipality can stick to that in its final budget.
