To lay the foundation for a discussion of the performance challenges in municipalities in South Africa, this picture sets out the key characteristics of a well-functioning municipality.
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In South Africa there is a perennial debate on the issue of whether local government is being given its fair share of nationally collected revenues through the local government equitable share. Municipalities argue that they are underfunded, while national government argues that they are not showing fiscal effort given the revenue sources available to them. Cornerstone developed this picture to bring clarity to the discussion and to define the following terms:
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This picture illustrates the five components in the relationship between municipal finances and service delivery:
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South African municipalities are permitted to raise revenues through a specific set of taxes, tariffs and surcharges. They are also required by various policies to provide free or subsidized basic services to indigent households, ensure tariffs are structured to promote cost recovery and promote the efficient use of services. Taxes and tariffs need to be carefully designed so as to achieve these different objectives.
This picture shows how a block tariff structure for, say, electricity or water seeks to reconcile these objectives.
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