National Treasury will begin releasing the remaining withheld July 2026 Local Government Equitable Share allocations from 31 July, saying the decision is intended to safeguard basic service delivery rather than signal that municipalities have complied with financial management laws.
Finance Minister Enoch Godongwana announced the decision on Tuesday following a comprehensive assessment of municipalities whose allocations had been temporarily withheld under Section 216(2) of the Constitution and the Municipal Finance Management Act (MFMA).
He stressed that the release should not be interpreted as a clean bill of health for the affected municipalities.
“The release is therefore not based on a finding of compliance,” Godongwana said.
Instead, Treasury said it had opted to release the remaining allocations after withholding them for close to 30 days to avoid worsening the delivery of basic municipal services, particularly those relied upon by poor households.
“The equitable share is an important source of funding for basic services,” Godongwana said.
“National Treasury must therefore balance its constitutional responsibility to enforce financial management requirements with the need to avoid communities carrying the immediate consequences of failures by municipal institutions and officials.”
He described the move as a conditional release aimed at protecting service delivery while requiring municipalities to address serious weaknesses identified during the enforcement process.
The decision follows Treasury’s move earlier this month to temporarily freeze funding to 69 municipalities across South Africa by withholding their July 2026 equitable share allocations in an effort to enforce fiscal discipline and address widespread non-compliance with the MFMA.
The Free State was the hardest-hit province, with 16 municipalities affected. The South African Municipal Workers’ Union (SAMWU) later confirmed that six of those municipalities failed to pay employees their salaries by the scheduled 24 July payday, raising concerns that the withholding of funds had begun affecting workers and service delivery.
Addressing those concerns, Godongwana said the salary crisis in some municipalities could not be attributed solely to Treasury’s intervention.
“You must understand that in some municipalities, even if we didn’t take this action, they would still have a challenge,” he said.
He pointed to the Free State, saying one municipality’s bank account had been attached after a pension fund successfully obtained a court order over unpaid contributions.
Godongwana singled out Masilonyana Local Municipality, saying that while other municipalities had entered into payment arrangements with pension funds, Masilonyana had failed to do so.
He revealed that municipalities collectively owed pension funds about R1.7 billion by the end of February, with approximately R1 billion of that debt originating from municipalities in the Free State.
“So we need to think carefully when we talk about the Free State,” he said, noting that 16 of the province’s 21 municipalities had been affected by the withholding process.
Despite releasing the funds, Godongwana painted a bleak picture of municipal financial governance, saying Treasury’s assessment exposed problems extending far beyond unauthorised, irregular, fruitless and wasteful expenditure (UIFWE).
He said the assessment revealed persistent weaknesses in budgeting, cash-flow management, financial oversight, accountability and consequence management, raising questions about whether municipal budgets accurately reflected their financial position.
“Of particular concern is the apparent disconnect between some municipal budget assumptions and the actual financial position revealed during the withholding process,” he said.
Treasury also identified serious governance failures, including delays in investigating financial misconduct, weak disciplinary processes, failures to institute consequence management and inadequate oversight by municipal councils and municipal public accounts committees.
Godongwana warned that Treasury would in future place greater emphasis not only on officials responsible for irregular expenditure but also on those responsible for investigating misconduct and ensuring accountability.
Since the enforcement process began, 20 municipalities have received their full equitable share allocations, while the remaining 49 municipalities will receive their outstanding allocations from 31 July. Of those, 21 had already received partial allocations while 28 had not received any funding during the withholding period.
Treasury has nevertheless warned that municipalities remain under strict compliance measures.
Affected municipalities will be required to submit quarterly progress reports from 30 September, demonstrate measurable progress in processing UIFWE matters by the end of October and show meaningful implementation of disciplinary and consequence management processes by the end of November.
Godongwana warned that municipalities failing to make sufficient progress could again face the withholding of equitable share allocations in December and March next year.
Cooperative Governance and Traditional Affairs Minister Velenkosini Hlabisa said the temporary withholding of funds had emphasised the need for municipalities to comply with financial management legislation and improve governance.
He said municipalities had a legal obligation to respond to official correspondence, manage public funds responsibly and honour their financial commitments, including payments to Eskom, water boards, pension funds and medical schemes.
Hlabisa also argued that accountability should extend beyond municipalities, saying national and provincial government departments that owed municipalities billions of rand should also be compelled to settle their debts to improve municipal cash flow and service delivery.
With local government elections approaching, Hlabisa urged current municipal councils to avoid leaving incoming administrations with deteriorating finances by continuing the practice of adopting unfunded budgets.
“ A simple message to all our municipalities would be when communication letters are sent, municipalities must respond,” he said.
“And we are going to work together to ensure
that we provide support where it is necessary, because the truth is, we are at the tail end of the term of these councils. And we shouldn’t allow a situation that will collapse them before the 4th of November.”
“The new councils, when they take over after November, there will be little time before they receive the second equitable share, and the current council will need to take full responsibility in responding accordingly in every communication that will be directed to them, and we want to urge our municipalities.”
He described unfunded budgets as misleading because they committed municipalities to spending money they did not have.
“A municipality that adopts an unfunded budget is committing lies to the public because you say I’m going to spend the money I don’t have,” he said.
“No municipality passes an unfunded budget. [Cogta and Treasury are going to] ensure that you spend and you plan according to the money you have; that would be number one.”
“Number two, compliance. When money has been given to a municipality, the municipality must pay water boards, must pay Sars. They must pay Eskom, must pay everybody that a municipality owes so that they do not experience such a similar situation.”
“The government departments and provincial government must pay municipalities. The whole value chain must be made to move so that we don’t experience this again.”
The ANC backed Treasury’s intervention, saying municipalities had repeatedly failed to address long-standing financial weaknesses despite repeated warnings.
During a media briefing on Tuesday, ANC head of policy and research Phoebe Potgieter-Gqubule said municipalities had been expected to meet basic financial management requirements, including adopting funded budgets, dealing decisively with unauthorised, irregular, fruitless and wasteful expenditure, and paying creditors such as Eskom, water boards and small businesses.
“The withholding of the equitable grant was because municipalities didn’t do that,” she said.
Potgieter-Gqubule said municipalities had not been expected to immediately produce fully funded budgets but had instead been asked to submit credible plans to address their financial shortcomings.
“They were told, give us a plan. And they didn’t do that,” she said.
She said Treasury’s intervention had been supported by the ANC’s local government intervention team following repeated concerns raised by the Auditor-General and ongoing engagements with municipalities.
“At the end of the day, municipalities must comply. We can’t have year after year the Auditor-General raising these issues and our municipalities don’t comply,” she said.
ANC secretary-general Fikile Mbalula also defended the intervention, saying public funds should never be stolen or wasted, while insisting financial discipline had to be exercised within the constitutional framework governing the division of nationally raised revenue.
He said there were encouraging signs that municipalities were beginning to improve, pointing to the latest Auditor-General outcomes showing a reduction in adverse audit findings.
Mbalula noted that municipalities including Richmond, Msinga and uMvoti in KwaZulu-Natal had achieved clean audits for the first time in years, while 18 municipalities across KwaZulu-Natal, Mpumalanga and the North West had improved their audit outcomes.
He also highlighted eThekwini’s improving financial position, saying the metro was collecting 93 cents for every rand billed.
“These are not yet victories to be celebrated, but they are proof that disciplined, competent and capable hands can bring municipalities back to health,” Mbalula said.
