The National Treasury has introduced critical changes to the funding architecture for local government it believes will help improve the outcomes of spending at a municipal level and help fix the collapse of basic services.
Speaking at a Momentum post-budget breakfast, National Treasury director-general Duncan Pieterse said Treasury has plans in motion to redirect funding from serial misspending councils to better-managed councils or development finance institutions where relevant.
“In the conditional grant space we give infrastructure grants to municipalities to build new infrastructure. We are saying to those municipalities that have a poor track record of spending that they are not going to receive the grants. The grants are going to go to a district that’s better capacitated or to the Development Bank of Southern Africa or other implementing agents.”
Pieterse’s remarks come after finance minister Enoch Godongwana tabled the 2026 budget. They also come before this year’s local government elections, where the ANC is expected to further slide in local poll support after the 2024 general elections forced the party into the power-sharing arrangement with the government of national unity.
In municipalities where there is a poor track record of spending the equitable share and where councils do not pay water boards, Eskom, or pension funds, money could be withheld if reforms are not introduced. He said R54bn has been allocated to support the reinvestment of revenue by metros into entities delivering bulk services.
“We’ve introduced a new incentive to get the [metropolitan] municipalities to reinvest the revenue they collect from their basic trading services such as water and electricity back into those businesses so the water utilities, water infrastructure and electricity infrastructure are properly maintained.”
The department of cooperative governance is in the final stages of a white paper on local government that will propose fundamental reforms to the local government ecosystem and that will be finalised this year.
Pieterse said an early budget consultation process helped Treasury to infuse stability and a buy-in at cabinet level into the budget proposals, minimising the risk of the budget being rejected, as it was twice last year.
“We’ve made certain changes to the budget process at a technical level and, to some extent, the minister at his level as well on the political side to ensure some of the lessons from last year are embedded in the way we do our work.
“One example of that is every year the budget process starts in the previous year through the issuance of budget guidelines. Typically that would be a Treasury event where we tell departments this is how we think you should be thinking about your budgets. Last year we started preparation for this year’s budget by tabling the guidelines in cabinet and getting its endorsement.”
Thabiso Ndebele, MD of Ntiyiso Revenue Consulting Growth, said government debt stands at nearly 78% of GDP but is stabilising after years of rising costs.
“Substantial debt service costs remain, limiting spending on services that many communities rely on. This is why local government reform remains important in this national budget. The current funding model allocates municipalities roughly 10% of the revenue raised nationally, and the other revenue needs to be derived from the services municipalities provide, namely water, sanitation, electricity distribution and refuse removal.
He said when services fail at the local government level, trust erodes, billing suffers and municipal revenue drops. Projects stall and planning cycles are disrupted.
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