How do Local Government Budgets work?

In this video we explain how local government budgets are created and what mechanisms exist to ensure accountability in local government budgeting.

Just as the national Minister of Finance delivers a national budget every year in his budget speech, every local municipality must prepare and publish its own annual budget. 

Section 215 of the Constitution requires that these budgets must adhere to national legislation. Municipal budgets are accordingly regulated by the Local Government: Municipal Finance Management Act of 2003 (the MFMA) along with the Municipal Budget and Reporting Regulations made under it. The budget must set out the estimated revenue and expenditure of the municipality. That is, the budget must show what the income and the expenses of the municipality will be over the coming financial year commencing on 1 July. 

Additionally, the budget must set out projected income and expenditure figures for the next two years. All municipal budgets thus involve a three-year planning period. 

The budget is divided into two main parts: the operating budget and the capital budget. The operating budget reflects the cost of the day-to-day running of the municipality, while the capital budget reflects expenditure on capital projects such as services infrastructure for water, sanitation, waste disposal sites and roads.  

While the operating budget lapses at the end of the financial year, the capital budget may extend over a three-year period.