XOLISILE NGUMBELA | Why National Treasury correctly withheld municipal grants

Predictable political fallout has resulted from the National Treasury’s decision to deny transfer of grants to 69 municipalities.

The measure has been characterised by some as punitive and anti-development, claiming that it penalises communities for the shortcomings of local governments.

Although these issues are worth considering, they mask a more basic constitutional principle, which is the rule of law, which requires that public finances be handled legally, openly, and effectively.

Treasury’s participation was the fulfilment of a constitutional duty to protect public finances, not a political ploy. Fiscal accountability and co-operative governance are purposefully balanced in the constitutional framework governing public finance.

Regardless of their financial behaviour, municipalities are not granted an unqualified right to receive national transfers under the constitution. Instead, transfers must adhere to legal and constitutional requirements meant to safeguard taxpayer funds and guarantee efficient service provision.

Section 216(2) of the constitution, which gives the National Treasury the authority to halt the flow of funds to an organ of state if such institution commits a serious or persistent substantial breach of measures established under Section 216(1), provides the main legal basis for Treasury’s action. These steps include nationally mandated guidelines and standards to encourage openness, budgetary restraint, and prudent financial management across the government.

One of the most effective fiscal accountability tools in the constitution is Section 216. It represents the constitutional understanding that public funds should never be disbursed without accompanying accountability.

Therefore, Treasury is expected by the constitution to step in when persistent financial malfeasance occurs, not only when it is permitted to do so. The public’s trust in the integrity of state institutions would be weakened, and constitutional government would be undermined if this authority were not used when the legal criteria were fulfilled.

These fundamental principles are put into practice by the Municipal Finance Management Act 56 of 2003 (MFMA). A comprehensive governance structure for municipal budgeting, spending management, internal controls, financial reporting, debt management, procurement and accountability is established by the act.

To guarantee responsible financial management, it assigns certain duties to CFOs, mayors, accounting officers and local councils.

A legislative expectation that municipalities will manage public resources in accordance with accepted standards of good governance is created by sections pertaining to the duties of accounting officers, internal financial controls, unauthorised expenditure, irregular expenditure, fruitless and wasteful expenditure, annual financial statements and audit compliance.

Persistently failing to fulfil these responsibilities is a violation of the legislative duties imposed by parliament, not just a case of administrative inefficiency.

Worth noting here is that the annual Division of Revenue Act (DoRA), which governs the distribution of funds raised nationally to provinces and municipalities, is equally important.

And that should be done with the concurrence of the Intergovernmental Relations Framework Act 13 of 2005. Many infrastructure and development grants include certain requirements governing spending, reporting, implementation milestones, and performance monitoring, in contrast to unconditional constitutional entitlements.

When towns violate these requirements or when there is proof that funds will not be used for their intended purposes, DoRA gives National Treasury the authority to postpone, withhold, or halt transfers. In political discussions, this distinction is often disregarded. Municipal resources are not being seized by the Treasury.

Instead, it is stopping the transfer of conditional grants in cases where municipalities have shown that they are unable or unwilling to meet the legal requirements associated with those allocations. In addition to lowering the possibility that limited development funds may be misappropriated due to corruption or poor administration, such action safeguards the integrity of the intergovernmental fiscal system.

Treasury’s stance is further supported by the co-operative government principle found in Chapter 3 of the constitution. All branches of government must respect each other’s constitutional standing while carrying out their respective responsibilities in order to practise co-operative governance.

When one domain consistently fails to fulfil its obligations, national intervention safeguards the constitutional integrity of the entire system rather than undermining municipal authority.

Treasury’s intervention, however, also highlights provincial governments’ inability to carry out their own constitutional obligations. The constitution’s Section 139 gives provincial executives the explicit power to step in when municipalities are unable or unwilling to carry out their executive duties.

Directives, taking over local duties, and, in extreme cases, dissolving municipal councils are examples of such actions. The purpose of Section 139 was to serve as an early warning system that could stop an institution from collapsing.

However, provincial interventions have far too frequently been politically motivated, uneven, and reactionary. The National Treasury has often imposed fiscal fines that could have been prevented by prompt constitutional scrutiny because provincial governments have often allowed worsening governance until financial distress becomes irreversible.

Therefore, provincial governments have legal obligations that go beyond only handling emergencies. Provinces have an explicit constitutional obligation to regularly assess municipal performance and take action before governance shortcomings jeopardise the provision of services or the viability of the economy.

The constitutional framework of co-operative governance is compromised if these powers are not used properly. These constitutional values have been continuously upheld by the judiciary.

Municipal procurement procedures that violate these fundamental requirements erode public trust in democratic institutions and expose public funds to malfeasance.

The idea that legality in public procurement is a constitutional requirement rather than a procedural detail was further reinforced by the Constitutional Court’s historic ruling in All Pay Consolidated Investment Holdings (Pty) Ltd vs Chief Executive Officer of the South African Social Security Agency (2014).

The case’s logic applies to towns as well, even though it dealt with national procurement: political expediency or administrative ease cannot come at the expense of constitutional conformity. When combined, these rulings create a significant constitutional theory.

Legality, accountability and reason are the guiding principles of public administration. Local autonomy cannot be used by municipalities to avoid constitutional examination of ongoing financial malfeasance.

However, SA’s municipal dilemma cannot be solved by only adhering to the law. Political issues are the deeper problem. Patronage networks, erratic leadership, politically charged appointments, and inadequate professional administration have all had a growing impact on municipal governance.

The root causes of institutional failure are not addressed by fiscal punishments, only its manifestations.

The professionalisation of municipal government is the long-term solution. Senior technical authorities, CFOs, and municipal administrators should only be hired on the basis of their qualifications, expertise and integrity — not their political affiliation.

The main tenets of municipal reform should include independent hiring procedures, required competency standards, ongoing professional development, and improved consequence management. Protecting local government from political meddling is equally crucial.

Elected officials must set policy as part of democratic accountability, but professional administrators must carry it out in accordance with the law rather than political factions. Building competent municipalities requires this constitutional division between politics and administration.

Therefore, rather than being seen as a political penalty, Treasury’s decision should be interpreted as a constitutional protection. The unusual remedy of grant withholding is intended to maintain the constitutional ideals of accountability, transparency and effective administration while also preserving public resources and restoring financial discipline.

Now, SA must make a crucial decision. It can adopt constitutional governance based on professionalism, moral leadership, and strict financial accountability, or it can keep funding institutional dysfunction while hoping for different results.

Treasury has carried out its constitutional obligation. Municipal councils, provincial governments, and political leaders now face the bigger problem of determining whether constitutional government will triumph over patronage politics.

• Ngumbela is assistant dean for teaching and learning at the Central University of Technology

Sowetan