Although mismanagement and corruption play a role in the financial state of affairs at municipalities, it is not the only reason they are failing
that the power utility poses to the national fiscal framework because of these huge financial demands. The more money that goes to prop up Eskom, the lower the amount available for critical socioeconomic developmental needs. The enormous fiscal cost of the coronavirus pandemic — both direct, through new expenditure demands, and indirect, through a collapsing tax-revenue base — makes the price of supporting Eskom from our limited national resources even higher.
Local government already had some own-revenue-raising capacity , but provinces had hardly any. All income, value-added and related taxes were levied at a national level. In order to counter demands for a federal fiscal system , an agreement was reached on a system for the equitable distribution of nationally raised revenue in order to attain a fiscal balance between the available revenue and expenditure of the three spheres of government.
What would be the main sources of this own revenue? Property rates and service charges — electricity, water, sewerage and refuse removal being the major items — were forecast to be sufficient to finance 73% of total operating expenditure requirements . But that was not the only way in which electricity was going to be central to the local government fiscal framework: the White Paper was also clear that in order to meet these revenue-raising projections, two critical factors had to be in place. The first was that there had to be effective revenue management; municipalities had to be able to collect revenue from customers.
The second critical factor was that municipal charges were to be set at a rate that households could actually afford to pay. Not only was this a key part of the developmental goal of ensuring that all households could access basic services, but affordable charges would increase the likelihood that revenue could actually be collected.
This is because Eskom directly supplies power to just over half of all South African households, and a large portion of commercial users, and will not use disconnection of their customers as a means of assisting local government to collect outstanding revenue.
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