Newcastle Mayor responds to Treasury’s budget statement

Estimated reading time: 6 minutes

The Newcastle Municipality has found itself under the preverbal spotlight from the National and KZN Treasury for its unfunded 2022/2023 budget. But, it would appear the local municipality is on top of the situation, according to the Newcastle Mayor. 

In two letters seen by Newcastillian News, the local government entity is additionally under fire for reinstating the 223 employees, without having the money to pay them back.

In a letter, dated 4 October 2022, National Treasury informed the Newcastle Municipality that it was in contravention of the Municipal Finance Management Act (MFMA).

It stated that their records showed that the local municipality had adopted a budget not funded or aligned to section 18 of the MFMA, as well as showing non-compliance with the MFMA. The adoption of an unfunded budget, according to Treasury, goes against the resolutions taken by both the Budget Council and Budget Forum.

“Our experience confirms that adopting an unfunded budget is indicative that the municipality will experience cash flow challenges during the year, which ultimately contributes to a transgression of the legal prescripts for payments to creditors within 30 days as per section 65 (2)(e) of the MFMA,” National Treasury wrote to the Newcastle Municipality.

As a result of this, the Treasury pointed out that during the Eskom Political Task Team meeting that took place on 20 May 2020, it resolved that municipalities must address their unfunded budgets.

“The practice of municipalities not paying their bulk suppliers is now placing the financial viability of large state-owned enterprises at risk. Furthermore, we are aware that municipalities deliberately prioritise bulk suppliers last in the ranking for payment, a practice the National Treasury do not support as it is inconsistent with the legislative responsibility to pay all suppliers for service rendered within 30 days of receipt of the invoice,” the letter further read.

With the above in mind, the National Treasury stated that it was giving the Newcastle Municipality the opportunity to self-correct.

“The municipality (by implication the accounting officer and ultimately the municipal council) is requested to ensure that all steps are taken to rectify the situation. This may require the municipality to make unpleasant and unpopular decisions regarding operating revenues and expenditure projections immediately,” began the Treasury.

However, it added that it fully understood that the local municipality was presented with several dynamic challenges in achieving a funded status and that collection levels were compromised.

National Treasury further encouraged the government entity to work with the KZN Provincial Treasury Department to rectify the current situation, which can be implemented in the main adjustments budget in February 2023.

Furthermore, the Newcastle Municipality was additionally encouraged to provide current payments of bulk suppliers over the 2023/2024 MTREF, as well as to show a gradual improvement of cash surpluses to settle arrear payments that the municipality failed to honour in the past.

“Credible measures to achieve these changes must be set out in the Budget Funding Plan adopted by Council and progress on implementing these must be reported on monthly to your provincial treasury,” continued the letter.

According to National Treasury, Section 5(2) of the MFMA mandates National Treasury to take appropriate steps if a municipality commits a breach of this Act, including the stopping of funds to a municipality in terms of section 216(2) of the Constitution.  

Moreover, National Treasury pointed out that failure to resolve these transgressions can be construed as an act of financial misconduct in terms of section 171 of the MFMA with the Municipal Regulations on Financial Misconduct Procedures and Criminal Proceedings.

Additionally, KZN Treasury explained that the department was somewhat irked by the Newcastle Municipality, saying the entity intended to make budget adjustments in order to fork out the necessary monies to pay the dismissed municipal employees.

As the Newcastle Municipality planned to incorporate the cost impact during the mid-year adjustments budget, the KZN Treasury letter highlighted that Provincial Treasury was not informed by the municipality that it intended to table a special 2022/2023 Adjustments Budget prior to its adoption by Council.

It further requested that the municipality provide an explanation on why Treasury was not consulted during the process, and what or who informed the basis for the preparation, tabling and approval of the Special 2022/2023 Adjustment Budget.

Delving further into the matter, KZN Treasury pointed out that the Newcastle Municipality had a negative balance of cash available of R128.5 million for the 2022/23 period.

As a result, the Newcastle Municipality’s December 2022 Equitable Share might now be withheld by National Treasury, as KZN Treasury explained that the credibility of the Budget Funding Plan was now questionable.

Due to the serious nature of the above-mentioned, Newcastillian News contacted the Municipality’s Communications Unit to set up a meeting with Municipal Manager Zamani Mcineka. However, Newcastle Mayor, Cllr Xolani Dube addressed the matter first-hand.

“The issue of an unfunded budget is not new. In fact, when the IFP-led coalition took over the governance of Newcastle Municipality one of our priorities was to address the issue of the unfunded budget which we inherited.”

Therefore, he said the new leadership urgently instructed its administration to prepare a budget funding plan, which was subsequently submitted to the Treasury in response to the issue of the unfunded budget as required by legislation.

“Furthermore, Treasury approved the budget funding plan which subsequently meant that the treasury endorsed our financial recovery plans in order to ensure that Newcastle Municipality achieves a funded budget status,” added the Mayor.

In regard to KZN Treasury’s letter regarding the dismissed employees returning to work and the monies that now needed to be forked out, Cllr Dube highlighted, “As I indicated in our previous Media engagements, the Council resolved to seek two legal opinions one from SALGA and the other from independent attorneys. On both legal responses, it was clearly indicated that the prospects of the Municipality winning the case against the workers are practically non-existent and furthermore, delaying the case any further would continue to financially strain the Municipality given the financial costs that had already been incurred by the Municipality on this matter.”

It was with this in mind, he said, that Council accordingly applied its mind on the matter and took a just decision that would be in the best interest of the Municipality financially, and fair to the 223 workers.

“Hence, we are aware that this decision was unpopular to others who wheel a certain degree of power to influence an administrative attack on Newcastle Municipality,” he declared. 

In conclusion, the Newcastle Mayor stressed that in reference to the correspondence, the Media must appreciate the fact that the Newcastle Municipality is an organ of the state.

“Therefore, this is an engagement between organs of state, which is a normal exercise that takes place. Therefore, the members of the media must afford the Newcastle Municipality and its leadership the opportunity to appropriately respond to Treasury, and not use these letters from Treasury to unjustly paint an incorrect narrative about Newcastle Municipality.”

With Treasury demanding answers and the Newcastle Mayor assuring residents that all is in order, what are your thoughts? 

Share your thoughts in the comment section below.