Treasury draws a line on failing municipalities

In National Treasury’s most forceful intervention yet in local government finances, it has temporarily stopped the July “equitable share transfers” to 69 municipalities, including Joburg, Nelson Mandela Bay, Mangaung and Buffalo City. The move is aimed at instilling better fiscal discipline.

The “equitable share” amounts to about 15.5% of total municipal revenue on 2026/27 budget numbers, but its importance varies sharply by municipality. In 2026/27, local government is budgeted to receive R182.3bn in direct national transfers: R110.1bn through the equitable share, R54.7bn in direct conditional grants and R17.5bn through the general fuel levy sharing with metros. Treasury’s withholding notice reaches more than a quarter of the municipal system and half of the metropolitan layer of local government.

Treasury has insisted the measure is “corrective rather than punitive” and says it doesn’t expect service delivery to be affected because the withholding will be short term. The transfers will resume once affected municipalities meet the required conditions and submit proof that they’ve done so.

Chris Hattingh, executive director at the Centre for Risk Analysis, says Treasury had little choice after repeated warnings from both itself and the auditor-general.

“They have to show that they’re doing something – 100%,” Hattingh says. “For Treasury, for their fiscal credibility, for holding municipalities accountable, they had to deliver on the repeated warnings that they and the auditor-general kept giving the municipalities, including the City of Joburg.”

It’s tempting to see politics in the decision, particularly because Joburg is on the list, but this probably misses the point, Hattingh says. “It’s easy to go for the conspiracy theory and say, ‘Oh, you know, it’s political calculations’ – but I don’t really think so. I think it stands as testament again to how independent and focused the Treasury is, which is a good thing for South Africa.”

Billions wasted

Treasury’s charge sheet is grim. It says municipalities have incurred R24.12bn in fruitless and wasteful expenditure since 2021/22, R145.21bn in irregular expenditure over the same period, including R40.14bn in 2024/25 alone, and R118.13bn in unauthorised expenditure. Budget credibility has deteriorated, with 116 municipalities, or 45%, adopting unfunded budgets in 2024/25.

By the end of 2024/25, municipalities also owed R3.4bn in interest to Eskom and R1.21bn to water boards.

Treasury has warned that municipal non-compliance is threatening the financial sustainability of bulk suppliers and statutory bodies, including the auditor-general, the South African Revenue Service and the Financial Sector Conduct Authority.

Hattingh says the decision matters for fiscal credibility, even if it would not produce a dramatic market reaction.

For Joburg, the stakes are particularly large. Gauteng remains South Africa’s biggest provincial economy, contributing 33.2% of national GDP in 2024, according to Stats SA. Joburg itself is commonly described by the city as contributing about 15% to national GDP, making municipal dysfunction there a national economic issue rather than merely a local irritation.

“All these municipalities – if they don’t function, it really puts paid to all the talk of economic growth and job creation,” Hattingh says. “If they don’t provide services, if they waste the revenue they get from businesses and households, then it’s very difficult for business to operate in South Africa.”

Where to from here?

Treasury’s broader policy direction has been visible for some time. The 2026 Budget Review said 63% of municipalities were in financial distress in 2023/24 and that government was moving from oversight to “active structural intervention”. It also warned that infrastructure grants could be redirected away from municipalities that had proved incapable of implementing projects, towards bodies such as the Development Bank of Southern Africa, the Municipal Infrastructure Support Agent or capable district municipalities.

Treasury is tightening conditional grants, which are made in support of infrastructure, and trying to stop infrastructure money from disappearing into broken municipal machinery.

The harder question is whether withholding funds changes behaviour.

“It’s one thing to withhold funding, but how does that change the conditions that gave rise to these issues in the first place,” Hattingh asks. “The irregular reporting, the wasteful expenditure, the stuff that the auditor-general always highlights with so many municipalities, not least the City of Joburg.”

The next test will be how affected municipalities respond: whether they treat the move as a warning shot or as another intergovernmental fight to be managed politically.

“Now it’s going to be very interesting to see how the City of Joburg reacts to this,” Hattingh says. “Do they take it on board and try to improve some of the issues Treasury has highlighted? Or do they double down and say: ‘Come and do your worst’?”

For now, Treasury has done something rare in South African governance: it has attached a consequence to failure. 

The full list of municipalities and the Treasury press release is available here.

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