An Assessment of Local Government Revenues during Limited Economic Growth and a Constrained National Fiscus

By Jugal Mahabir This policy brief undertakes an analysis of municipal revenues over a 12-year period, covering two major recessions (2008 global financial crisis and the COVID-19 pandemic), its aftermath and a period of constrained economic growth in the country. This period was large recessions, followed by small periods of economic recovery and a general struggle for the economy to reach sustained and acceptable levels of economic growth. The policy brief provides simple trends in key municipal revenue instruments over this period to ascertain potential impacts of depressed economic activity on municipal revenue collection. Furthermore, the policy brief explores whether there is a systematic change in the nature of intergovernmental fiscal transfers to local government during recessions and/or depressed economic growth. In addition to the constitutional and economic role grants play in South Africa’s intergovernmental fiscal system, it is worth assessing whether expansionary fiscal policy, be it via increased social services or capital expenditures, is implemented via increases in local government grants. Also, one needs to ascertain whether the national government and the intergovernmental\ transfers system assessed and intended to remedy the potential negative impacts of lower levels of economic activity on local government finances. During the period of analysis, the South African government initiated a period of fiscal consolidation, attempting to reel in expenditures towards paying off public debt and consolidating the debt to GDP ratio. This followed a period of expansionary fiscal policy following the 2008 global financial crisis and subsequent recession in 2009. It is important to find out whether this change in fiscal position and priorities of the national government impacted on the nature of the distribution of grants to local government. It is important to emphasise that the analysis in this policy brief is descriptive and makes observations based on