PRETORIA, Gauteng — National Treasury’s decision to withhold municipal funding from 69 municipalities over financial management and governance concerns has prompted the South African Local Government Association (SALGA) to call for a comprehensive review of systemic structural challenges. While the funding pause—which includes the City of Johannesburg—and its attached conditions aim to enforce fiscal discipline, SALGA warns that the move could inadvertently disrupt critical service delivery if underlying financial mismatches are not addressed.
Lerato Phasha, SALGA’s portfolio head for municipal finance and fiscal policy, explained that the equitable share is specifically formula-driven to subsidize poor households unable to afford basic water, electricity, and general municipal services. Withholding these funds means municipalities cannot pay bulk providers like Eskom and water boards, or cover related salaries.
“If that money is not received in time, it will affect the late payment of those services,” Phasha noted, adding that this inevitably results in interest being charged on billed accounts, which will eventually impact service delivery if the withholding continues.
The R400 Billion Debt Crisis and Outdated Formulas
While SALGA welcomes measures that improve governance and address issues like unfunded budgets, unauthorised, irregular, fruitless and wasteful (UIFW) expenditure, and the nonpayment of creditors, Phasha emphasized that local government funding models require an urgent review.
A major point of contention is the R400 billion owed to municipalities by various government departments and state-owned entities. Phasha highlighted that municipalities are currently only recovering about 10% of this debt. She noted that municipal revenues have not increased at the pace of their expenditures, especially as the cost of living has risen much faster than the income of municipal consumers.
Furthermore, the equitable share formula relies on outdated 2011 data, which accounted for 11 million poor households. “We have not received the 2022 census data,” Phasha stated, emphasizing that the actual number of indigent households has likely surged between 2011 and 2026 due to rising unemployment, job losses, and business closures.
Phasha urged National Treasury to utilize its existing power to withhold the equitable share from defaulting provincial governments and state-owned companies. Although the minister has issued notices, Phasha noted they have not been effectively enforced. She pointed out that enforcing this could recover 17% of the total R400 billion debt, which would go a long way in servicing current arrears with Eskom and water boards.
Eskom Tariffs and Financial Year Mismatches
Addressing the severe erosion of municipal revenues, Phasha pointed to the rationalization of bulk electricity tariffs. She noted that Eskom’s tariffs have increased by over 400% since 2008. However, the National Energy Regulator of South Africa (NERSA) has not approved municipal tariff increases at an equal rate, creating a massive shortfall that municipalities cannot fully pass on to consumers.
Additionally, a financial year mismatch forces municipalities to absorb Eskom’s tariff hikes during April, May, and June before they can legally implement their own tariff increases for consumers, further straining local budgets.
Distribution Losses and Strict Credit Control
Beyond bulk costs, municipalities are grappling with high distribution losses. Phasha explained that electricity is lost through technical faults, theft, unmetered properties, and broken meters. She also highlighted the existence of “no-go areas”—such as those seen in the City of Johannesburg—where municipalities are unable to implement credit control or remove illegal connections. Resolving these spatial and security challenges requires interministerial intervention.
However, Phasha maintained that municipalities must also improve internal efficiencies, establish a culture of payment, and enforce strict credit control on residents and businesses that can afford to pay. Notably, she highlighted that many government officials have municipal accounts in arrears for over 90 days, and the principle of strict enforcement must apply to all government staff as well.
To mitigate the crisis, SALGA is implementing consumer education programs to explain the severe implications of non-payment, which can lead to Eskom restricting bulk supply and affecting entire communities.
“We really need a holistic intervention in terms of addressing this problem,” Phasha concluded, emphasizing the critical need to protect law-abiding ratepayers from becoming collateral damage in the ongoing local government financial crisis.
