Financial planning in metropolitan municipalities—lessons for South Africa from selected countries

• Author: Lourens J. Erasmus,Solomon Kungaera Mayo,Heinz Eckart Klingelhöfer
• Published date: 01 November 2015
• Date: 01 November 2015
• DOI: http://doi.org/10.1002/pa.1541

■Academic Paper

Financial planning in metropolitan

municipalities—lessons for South Africa

from selected countries

Heinz Eckart Klingelhöfer

1

*,Lourens J. Erasmus

2

and Solomon Kungaera Mayo

3

1

Department of Managerial Accounting and Finance, Tshwane University of Technology, Pretoria, Gauteng,

South Africa

2

Department of Public Sector Finance, Tshwane University of Technology, Pretoria, Gauteng, South Africa

3

City of Tshwane Metropolitan Municipality, Pretoria, Gauteng, South Africa

In South Africa, municipalities are central to government’s service delivery efforts to its communities. Because of inadequate

revenue collection processes or impoverished communities that are unable to supply necessary operational revenues, both

national and provincial government need to transfer funds to the local government to achieve delivery of priority services

and economic development infrastructure. This study investigates, through a desktop study,the best financial planning prac-

tices for municipalities to implement in order to be financially viable, by reviewing and comparing the legislative and legal

frameworks relating to financial planning and the financial planning practices in Australia and New Zealand, whose legisla-

tion served as an example for the drafting of current South African legislation. Copyright © 2014 John Wiley & Sons, Ltd.

INTRODUCTION

Although municipalities are not primarily profit-

making enterprises, they still need to maintain

liquidity, cope with limited budgets and be finan-

cially viable and sustainable in the short, medium

and long terms. Similar to for-profit organisations,

municipalities must exercise proper financial plan-

ning, albeit within the parameters of relevant legisla-

tion. If legislation does not insist on best financial

planning practices,it can compromise effective finan-

cial management in municipalities, with inadequate

or poor service delivery as an obvious consequence.

A study by Graves and Dollery (2009) found the

budget funding in South African municipalities to

be ineffective and unsustainable. These findings, to-

gether with the concerns raised by the South African

National Treasury and the service delivery protests,

indicate that financial planning in South African

municipalities may be ineffective because the budget

funding is directlyinformed by the outputs ofa finan-

cial plan (National Treasury, 2008; Managa, 2012).

PURPOSE

The purpose of this study is to identify similarities

and differencesin the public sector financial planning

legislative requirements of South Africa, Australia

and New Zealand, with the objective of improving

the financial planning legislation in South Africa.

South African legislation does not specifically re-

quire or regulate long-term financial planning for

municipalities. Therefore, although some South

African municipalities have already adopted long-

term financial plans (10-year long-term financial

strategy, City of Tshwane Metropolitan Municipal-

ity, 2004), without statutory requirements for long-

*Correspondence to: Heinz Eckart Klingelhöfer, Department of Man-

agerial Accounting and Finance, Tshwane University of Technology,

Pretoria, Gauteng, South Africa. E-mail: KlingelhoeferHE@tut.ac.za

Journal of Public Affairs

Volume 15 Number 4 pp 364–376 (2015)

Published online 16 September 2014 in Wiley Online Library

(www.wileyonlinelibrary.com) DOI: 10.1002/pa.1541

Copyright © 2014 John Wiley & Sons, Ltd.