The Treasury has not been able to update the formula it uses to allocate national collected revenue to provinces and municipalities because it lacks updated data.
It is awaiting the results of Stats SA’s income and expenditure survey of 2022/23, the first time the survey was undertaken since 2013 because of a lack of funds.
Last week statistician-general Risenga Maluleke told MPs the agency lacked sufficient funds and had about 720 vacant posts, a vacancy rate of 21.8%. The situation was “dire” he said.
“If we don't arrest this situation the quality of statistics will start imploding,” Maluleke said. “The vacancy level is dangerous for our ability to produce reliable statistics.”
He indicated the results of the 2022/23 income and expenditure survey, which measures poverty would be released this year.
Experts have questioned the reliability of Stats SA’s Census 2022 results, who have said the data did not reflect realities. Stats SA’s calculation of the performance of the agriculture sector in the third quarter of 2024 (it was said to have contracted by about 29%) was also labelled flawed by AgriSA.
In a written reply to a question in parliament, finance minister Enoch Godongwana said the Treasury recognised the critical importance of using the most up-to-date official data for effective planning and budgeting.
“However, the decision not to update the local government equitable share (LGES) formula with the 2022 Census and 2024 midyear population estimates (MYPE) data was driven by significant data limitations. To determine the basic services component allocations of the LGES formula, data on households per municipality and poverty levels per municipality are required since municipal transfers are primarily targeted at poor households.”
He was responding to MK party MP Des van Rooyen, who asked whether the use of outdated household estimates risked inequitable and unrealistic allocations together resulting in the inadequate provision of basic services.
The SA Local Government Association has long complained about the inadequate allocation to the countries 257 municipalities, which receive about 10% of national revenue. The Western Cape government has also highlighted the fact that the provincial equitable share formula that the Treasury used failed to account for population shifts and the increase in the province’s population.
The LGES formula considers several cost factors, including the number of poor households in each municipality, the costs of providing basic services (such as bulk water and electricity), the costs of delivering nontrading services, and basic administrative expenses. These factors determine the funding required to subsidise free basic services for poor households and to ensure that municipalities with limited revenue-raising capacity can afford to provide essential services and maintain basic administrative functions.
Godongwana said that to determine the poverty levels per municipality, the Treasury had been awaiting the results of the 2022/23 income and expenditure survey, which was essential for determining levels of indigence.
“Although Stats SA provided household growth estimates for the two years after the release of the 2022 Census, this data could not be used in the LGES formula for the 2025 medium term expenditure framework (MTEF) as this data was based on the 2024 MYPE only and did not incorporate demographic shifts from the 2022 Census.”
Godongwana said in preparation for the 2025 MTEF, the LGES data challenges were discussed in several intergovernmental forums which resolved to pause the growth of household numbers over the 2025 MTEF period. This decision would allow Stats SA to finalise a new data series rebased on the 2022 Census, which was expected to be available for the 2026 MTEF.
“Despite these constraints, there is no evidence at this stage to suggest underfunding for the provision of free basic services (FBS) to poor households. When the 2022 Census data was released in 2023, the LGES formula accounted for 1.1-million more households than were reported in the Census. If household numbers had been recalibrated to align with the 2022 Census for the 2024/25 and 2025/26 periods, fewer households would have been provided for in the LGES formula.
“Furthermore, analysis of municipal budgets and Stats SA’s non-financial census of municipalities consistently shows that the actual number of households receiving FBS annually is significantly lower — approximately one-third of the number estimated in the LGES formula.”
Godongwana explained that the discrepancy was largely due to the way municipalities implemented their indigence policies. In the absence of a national poverty line, municipalities set their own poverty thresholds, which were often much higher than the R2,300 income threshold used in the LGES formula. As these local thresholds increased annually, fewer households qualified for FBS. Also, many municipalities struggled to maintain accurate and credible indigent registers, resulting in poor targeting and the exclusion of eligible households.
“While data limitations have delayed updates to the LGES formula, the current allocations appear sufficient to meet the needs of poor households, and efforts are under way to ensure future updates are based on robust and accurate data,” Godongwana said.
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