The National Treasury’s decision to withhold the equitable share of municipalities that owe creditors such as Eskom, water boards and the auditor-general, who have adopted unfunded budgets or have failed to address irregular expenditure, is misguided.
History and extensive empirical evidence demonstrate this approach does not resolve the financial crisis facing municipalities; instead, it deepens it.
This is particularly concerning because the equitable share is intended to enable municipalities to provide basic services and fulfil their constitutional mandate contemplated in section 152 of the Constitution. This paradoxical approach amounts to “cutting off the nose to spite the face”.
Rather than addressing the underlying structural and institutional causes of municipal financial distress, the National Treasury has chosen a punitive intervention that ultimately harms the communities local government is constitutionally mandated to serve.
If anything, this irrational and ineffective decision is likely to have far more serious consequences for our constitutional democracy. There is substantial empirical evidence suggesting the withholding of budgets, coupled with austerity measures and fiscal consolidation, contributes to growing voter apathy.
By adopting a policy that is likely to further suppress voter turnout on the eve of the local government elections, the National Treasury risks exacerbating an already worrying democratic trend.
This concern is particularly significant in light of South Africa’s declining voter participation in local government elections, where voter turnout fell sharply from 57.95% in 2016 to 45.86% in 2021.
Pursuing a policy that undermines the ability of municipalities to deliver basic services is likely to erode public confidence in local government, deepen voter disillusionment, and ultimately contribute to a legitimacy crisis for our electoral system, thereby posing a threat to the constitutional foundations of our democracy.
The auditor-general’s 2025 MFMA report illustrates this strategy has failed. Despite similar interventions in previous years, the number of municipalities that adopted unfunded budgets increased from 113 in 2023/24 to 116 in 2024/25. More concerning is that 77 municipalities have adopted unfunded budgets for four consecutive financial years.
This clearly demonstrates withholding transfers has not changed municipal financial behaviour. The same report, read together with the 2025 Financial Census of Municipalities, reveals an increasing number of municipalities face going-concern uncertainties, while key indicators of financial health continue to deteriorate.
The current ratio, which measures a municipality’s ability to meet its short-term obligations, declined from 0.80:1 in 2023/24 to 0.77:1 in 2024/25, well below the Treasury benchmark of 1.5:1. Similarly, the municipal debt-to-income ratio worsened to 0.71:1 by the end of June 2025, meaning municipalities owed 71c for every rand they generated in revenue.
The exigency of the financial distress that has engulfed the local government sector demands a departure from the perturbing trend of “cutting off the nose to spite the face” and acting as illegitimate “Laqashas” of credible institutions such as Eskom, Rand Water and the auditor-general, all of which possess adequate legal and institutional mechanisms to recover debts owed to them.
Thus, the National Treasury should reconsider its reliance on withholding equitable share and instead address the root causes of municipal financial instability. A more meaningful intervention would be to reform the local government funding model.
Revenue transfers from national government have steadily declined as a proportion of total municipal revenue, from 33.3% in 2009 to 26.6% in 2025. At the same time, consumer debt owed to municipalities increased dramatically from R339.9bn in June 2024 to R427.7bn in June 2025.
These realities point to a structural mismatch between municipal responsibilities and available resources. The National Treasury must expedite efforts to assist municipalities in recovering the almost R23bn owed to them by government departments, as announced by the minister. While this intervention will provide much-needed fiscal relief, it will only begin to address the significant revenue shortfalls confronting municipalities.
More importantly, the National Treasury, through the Government Technical Advisory Centre, should spearhead a comprehensive municipal efficiency project aimed at reducing wasteful and inefficient expenditure. Such an initiative should prioritise expenditure on overtime, particularly in light of the exorbitant overtime costs revealed by the Sunday Times in 2025.
The project should also critically assess municipalities’ continued reliance on consultants for financial reporting. The auditor-general has consistently observed that, despite increasing expenditure on consultants, many municipalities continue to submit financial statements containing material misstatements, thus at odds with the credo of economies of scale.
This demonstrates the return on every rand spent in this area remains unacceptably low and underscores the need for targeted efficiency reforms that improve value for money while strengthening internal institutional capacity. The Treasury should incorporate the socio-economic realities of municipalities equitably with withholding when assessing their financial performance.
The ongoing review of the 1998 White Paper on Local Government correctly acknowledges many municipal boundaries were established in areas with limited economic prospects and an inadequate revenue base.
Consequently, applying uniform Treasury norms, such as expecting a 95% collection rate for property rates and service charges across all municipalities, is unrealistic. This challenge is compounded by broader economic conditions. Recent statistics indicate gross earnings paid to employees declined by 4% during the first quarter of 2026, while municipal tariffs, particularly in metropolitan municipalities such as Tshwane, increased by about 8%.
These circumstances require a more nuanced and context-sensitive assessment of municipal budgets and financial performance. The National Treasury should avoid punishing innocent residents for irregular expenditure and other instances of non-compliance.
The Treasury has already issued comprehensive frameworks and circulars that prescribe how irregular expenditure should be investigated, assessed and addressed.
Furthermore, the amended Public Audit Act and the auditor-general’s accountability ecosystem clearly identify the different role players and accountability mechanisms within the public finance management value chain. Withholding equitable share effectively punishes citizens, including those who consistently pay for municipal services, for failures committed by public officials.
It reduces municipal budgeting to a narrow compliance exercise rather than recognising that municipal budgets are instruments for addressing historical inequalities, expanding access to water and sanitation, promoting spatial transformation and improving the quality of life of communities.
Municipal budgets embody the hopes and aspirations of local communities, which is precisely why legislation requires them to be developed through meaningful public participation. Authorities should therefore resist the temptation to undermine the constitutional rights of residents through blanket financial sanctions.
Instead, stronger accountability measures should be directed at those responsible for financial mismanagement. Consider creative and firm instruments, such as suggesting the salaries of the people who failed in the accountability value system should not be paid, instead of depriving an innocent citizen of clean water, as the equitable share is used for basics, including purifying water.
South Africa’s local government crisis cannot be resolved through punitive financial measures alone. Sustainable reform requires a balanced approach that combines accountability with structural funding reform, realistic financial oversight and an unwavering commitment to protecting the constitutional rights of communities.
The National Treasury must shift from punishment to partnership if it is serious about restoring the financial sustainability of municipalities and strengthening developmental local government.
- Mokako is an ANC PEC member and chairperson of the ANC economic transformation subcommittee in Mpumalanga.
Sowetan
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