Treasury demands action plans before releasing council funds

Four of the six Gauteng municipalities from which the National Treasury has withheld grants owe more than R4bn to water boards, while the City of Johannesburg has a R3.7bn debt with Eskom.

National Treasury on Tuesday announced that it has flagged 69 municipalities across the country for poor financial management. As a result, the flagged councils will not get their July equitable share transfers until they get their houses in order.

In Gauteng, the Treasury flagged Johannesburg, Emfuleni, Lesedi, Sedibeng, Merafong and Rand West. The City of Joburg owes Rand Water R1.2bn as of March 31, while Merafong owes R1.5bn, Rand West City has a debt of R950m, followed by Sedibeng with R122m debt to a water board. The Treasury identified 13 councils that owed water boards.

Not only did the municipalities fail to make payments to service providers, 16 of them stole from their own employees by not paying over their monthly pension contributions to fund administrators. Not paying over pension fund contributions of employees is a criminal offence in South Africa.

The 16 defaulters owe a combined R1.43bn to administrators, with Kopanong municipality in the Free State owing R378m in pension fund contributions, followed by Mafube with R267m and Mohokare with R168m. Tokologo owed R156m, while Ditsobotla in the North West is R48m in the red.

Some 13 municipalities owe the South African Revenue Services (Sars), with Kai !Garib municipality leading the pack of defaulters with a R126.3m debt, followed by Tswaing (R103m), Naledi (R105m), Ditsobotla (R66m), Kopanong (R49m), among others.

The Treasury said the temporary withholding of funds is intended to enforce fiscal discipline and ensure municipalities properly manage public money.

“The decision follows persistent and serious non-compliance with the Municipal Finance Management Act [MFMA] and its supporting regulations, despite support provided by National Treasury through guidance, engagement, and formal and informal communication.

“The municipalities have been given sufficient written notice and urged to take measures to improve their financial management before the withholding of funds,” the Treasury said.

The South African Local Government Association (Salga) said it was concerned about the continuous failures of the municipalities, saying the withdrawal of the grants might affect service delivery.

“While non-compliance cannot be condoned, many face severe fiscal and economic pressures that weaken financial sustainability and service delivery. These realities must be addressed to resolve recurring financial distress,” said the entity.

Salga said the nonpayment of pension contributions undermines employee rights. It also said municipal consumer debt now exceeds R480bn.

Sister publication Sowetan understands that the Treasury will take strict financial measures against affected parties and this includes the payment of a third of what the municipality owes to Eskom, water boards and third parties before the grants are restored.

The Treasury will then release the remaining funds once the municipalities have shown proof of payment.

Of the 69 municipalities flagged, 39 failed to properly address unauthorised, irregular, fruitless and wasteful expenditure, with the majority located in the Free State.

According to National Treasury and Auditor-General figures, municipalities have collectively accumulated R287.46bn in unauthorised, irregular, fruitless and wasteful expenditure since the 2021/22 financial year.

Budget discipline has also deteriorated, with 116 municipalities adopting unfunded budgets during the 2024/25 financial year, up from 113 the previous year.

“Despite support interventions, many municipalities are still failing to comply with the provisions of the MFMA and its supporting regulations, particularly in relation to adopting funded budgets and ensuring statutory commitments are met ...” the Treasury said.

The Treasury maintains the withholding of funds is a temporary measure and should not affect service delivery. It has issued a list of conditions that affected municipalities must meet before the withheld funds are released.

Among them is a requirement to reduce their total UIFWE balance by at least 25% by September 30, or earlier where possible. Municipalities must also submit consolidated reports detailing council resolutions, investigations, recovery efforts and proof of corrective action.

They must also ensure that all allegations of financial misconduct are investigated and referred to disciplinary boards.

“The affected municipalities are required to submit to National Treasury a signed payment agreement entered into with their creditors.

“Once the agreement is received, the Treasury will release an amount equivalent to the invoice, guided by the payment agreement and adjusted for any shortfalls from previous months, where applicable,” the Treasury said.

Another condition requires municipalities that adopted unfunded budgets for the 2025/26 financial year to submit reports to finance minister Enoch Godongwana committing not to table or approve unfunded budgets in future.