Municipalities can’t treat Treasury like a piggy bank

National Treasury’s announcement that it would withhold equitable share transfers from 69 municipalities has dominated headlines the past two weeks.

Most South Africans welcomed the decision, given that they have been on the receiving end of endless water outages, collapsing roads and other service failures. Some have criticised it, not least the department of co-operative governance and traditional affairs.

Yet citizens are tired of watching municipalities receive billions in public funds while failing to provide even the most basic services. Too many municipalities have become sites of political dysfunction, along with administrative failure and weak accountability. The Ditsobotla local municipality in the North West is the poster child for this. Political infighting has seen multiple mayors and speakers elected, simultaneously, while services and administration collapse.

For years, National Treasury has made huge efforts to support municipalities, not punish them. It has drafted legislation, issued Municipal Finance Management Act (MFMA) circulars and guidance, provided training, and used its limited resources and technical expertise to help municipalities repair their financial management and improve services.

Arguably, Treasury’s willingness to support municipalities has too often been mistaken for an unlimited willingness to tolerate failure. Take the expansion of already bloated staffing structures among many municipalities, including the country’s biggest metros like Joburg, while allowing infrastructure to decay and services to fail. Ultimately, and despite these efforts, the situation in many local authorities has simply worsened.

Endless bank account

It should be obvious that South Africans do not expect national government to function as an endless bank account that transfers funds, regardless of whether municipalities fulfil their constitutional responsibilities.

Which is why the requirements imposed on the affected municipalities, under the constitution and the MFMA, are neither arbitrary nor unreasonable. Municipalities are duty-bound to strengthen controls over unauthorised, irregular, and fruitless and wasteful expenditure. They must improve financial reporting, conduct investigations where funds have been misused, and ensure meaningful consequence management for those responsible.

Municipal budgets must also be credible and funded. This is a legal requirement. Revenue projections and expenditure plans cannot simply be wishful thinking. Rather, these budgets are required by law to be based on realistic revenue assumptions and achievable spending plans. Instead, Treasury has to inform dozens of municipalities year after year that their budgets are financially unsustainable from the day they are adopted.

Municipalities must also honour their obligations to creditors. Water boards, Eskom and other service providers cannot continue supplying services indefinitely while invoices remain unpaid. This is particularly unacceptable where residents have already paid the municipality for those very services, only for the municipality to divert or mismanage those funds, resulting in reduced water pressure or load reduction.

National Treasury has issued guidance. It has offered training. It has repeatedly warned municipalities about deteriorating financial management. Yet many have failed to correct course.

At some point, support without accountability ceases to be support; it becomes enabling.

Withholding transfers is therefore not about punishment. It is about restoring accountability. For municipalities in severe financial distress, it may be the only mechanism capable of forcing meaningful reform.

Undermining growth

The consequences of municipal failure extend far beyond town halls. By raising property rates and tariffs far in excess of CPI to cover budget shortfalls, municipalities are driving up the cost of living, which in turn undermines South Africa’s growth prospects. Businesses are reluctant to invest in municipalities that cannot guarantee reliable infrastructure and basic services, while residents are left paying more for steadily declining service delivery.

Critics argue that withholding equitable share may place further pressure on already struggling municipalities. That concern deserves consideration, but it ignores an important reality: National Treasury did not arrive at this decision lightly. Years of support, engagement and repeated warnings preceded this intervention. Continuing to transfer funds without pushing reform would simply perpetuate failure and betray both taxpayers and residents.

Restoring local government requires firm standards coupled with enforcement and a willingness to make difficult decisions.

That is why I commend the National Treasury team for having the resolve to withhold transfers from municipalities that have persistently failed to meet basic financial standards. Good governance is measured by the willingness to act in the public interest, even when doing so is politically inconvenient.

South Africans deserve municipalities that deliver services. Equitable share is an essential instrument for supporting local government. It is not, and should never be treated as, a piggy bank.

Ashor Sarupen is the deputy minister of finance.