National Treasury has defended its decision to withhold equitable share allocations from dozens of financially distressed municipalities, arguing that the intervention is already forcing failing councils to comply with their financial obligations after years of worsening mismanagement.
The decision came under scrutiny on Friday during a joint meeting of Parliament’s Portfolio Committee on Cooperative Governance and Traditional Affairs (Cogta) and the Standing Committees on Finance, Appropriations and Public Accounts, which convened National Treasury, the Department of Cooperative Governance, the South African Local Government Association (SALGA) and provincial Cogta MECs to examine the rationale behind the move.
While there was broad agreement that municipalities must be held accountable for persistent financial failures, concerns were raised over the potential impact of the funding freeze on service delivery and vulnerable communities, with some MPs also rejecting suggestions that Parliament had endorsed Treasury’s intervention.
Treasury told MPs the withholding of equitable share payments to 69 municipalities reflected a fundamental shift in government’s approach to local government.
In its presentation, the department said the 2026 Budget Review marked a move “from passive oversight to active structural intervention” aimed at restoring municipal financial health and improving service delivery.
It pointed to growing unauthorised, irregular, fruitless and wasteful expenditure, persistent non-payment of Eskom, water boards, the South African Revenue Service (SARS), pension funds and the Auditor-General, as well as the adoption of unfunded budgets by dozens of municipalities.
According to Treasury, municipalities have accumulated R145.21 billion in irregular expenditure and R118.13 billion in unauthorised expenditure, while R24.12 billion in fruitless and wasteful expenditure has been incurred since the 2021/22 financial year.
Treasury said the intervention was already yielding results.
Of the 69 municipalities initially affected, 42 have now met Treasury’s conditions for compliance.
Ten municipalities have received the full amount of their withheld equitable share, amounting to R1.7 billion, while another 17 municipalities received R2.9 billion specifically to settle debts owed to Eskom, water boards, SARS, pension funds and the Auditor-General before receiving the balance of their allocations.
The municipalities that received the full amounts are Victor Khanye, AbaQulusi, Umzinyathi District Municipality, Nkomazi, Thembelihle, Randwest City, Buffalo City, Umsobomvu, Port St Johns, and Impendle.
Those that received a portion of their funds and still have to submit proof of payments are Naledi, Tokologo, Nketoana, Phumelele, Thabazimbi, Merafong City, Lesedi, Musina, Modimolle-Mookgopong, Tswaing, Maquassi Hills, Mamusa, Ngaka Modiri Molema District Municipality, Kgetlengrivier, JB Marks, Ditsobotla, and City of Johannesburg.
Treasury said a further 22 municipalities are expected to receive their equitable share during the week of 20 July after meeting the required conditions.
Portfolio Committee on Cogta chairperson Zweli Mkhize who opened the meeting, said Parliament supported Treasury’s tougher approach.
“It’s about time we draw a line; we’re saying the buck stops here. Parliament will no longer allow a culture of impunity,” Mkhize said.
He said municipalities were simply being required to comply with standard financial management obligations.
“What is being asked for is nothing unusual other than the standard financial procedures. We would like municipalities to take responsibility for their lack of compliance and correct the situation.”
But opposition MPs pushed back, arguing that Mkhize could not claim Parliament supported the decision.
EFF MP Omphile Maotwe objected after Mkhize said Parliament supported Treasury’s move.
“You even made the wrong conclusion that we are supporting what National Treasury has done,” Maotwe said.
ANC MP Cameron Dugmore defended Mkhize’s right to continue chairing the meeting, prompting MK Party MP David Skosana to intervene.
“We are not in support of the National Treasury. That must be clear,” Skosana said.
Standing Committee on Finance chairperson Joe Maswanganyi cautioned that withholding funds alone could not resolve the deep-rooted crisis facing local government.
“The stopping of transfers may create pressure for compliance, but it is not by itself a municipal recovery strategy,” Maswanganyi said.
He said municipalities needed clear guidance on what corrective measures were required, what support they would receive and which sphere of government would be responsible for assisting them.
Maswanganyi also warned against shifting the burden of municipal failures onto ordinary residents.
“We should also guard against a situation where the residents of affected municipalities bear the consequences of failures committed by municipalities.”
He noted that the local government equitable share remained critical for funding basic services, particularly for indigent households.
While supporting the need for accountability, Cooperative Governance and Traditional Affairs Minister Velenkosini Hlabisa said his department had initially favoured a broader approach before Treasury invoked Section 216(2) of the Constitution.
Hlabisa said municipalities were often unable to meet their financial obligations because provincial and national departments themselves owed municipalities substantial amounts of money.
“Our view was that you must deal with the whole value chain,” Hlabisa said.
“When the stopping is done to local municipalities, a similar stance should be taken to provincial governments and national departments because they are the ones who render municipalities, in one way or another, unable to pay the people or entities they owe.”
He said Cogta and Treasury met earlier this week and had since agreed on a coordinated approach.
“We are on the same page now,” Hlabisa said.
He added that while municipalities must be held accountable, national and provincial departments should also be compelled to settle outstanding debts owed to municipalities.
Hlabisa further stressed that government should intervene where necessary to prevent financially distressed municipalities from collapsing completely.
“Should there be a challenge in some municipalities, we will need to relax the approach in order to avoid those municipalities eventually reaching a total collapse in terms of services.”
Cogta’s deputy director-general for policy, governance and administration, Dr Kevin Naidoo, warned that although the intervention was intended as a corrective measure, it carried significant risks if not carefully managed.
He said withholding equitable share allocations could create severe cash-flow pressures, affecting municipal operations, procurement, infrastructure maintenance and the implementation of audit recommendations.
“The impact on municipal services could be significant,” Naidoo said.
“Water, sanitation, refuse removal, roads and community facilities may all be affected when municipalities face these shortfalls.”
He said indigent households would be particularly vulnerable because the equitable share funded free basic services.
“Municipalities must prioritise indigent support, improve revenue management and strengthen accountability while Section 216 is implemented, with due regard to vulnerable communities.”
Naidoo also warned that delayed municipal payments would weaken local economies by placing additional strain on suppliers and small businesses dependent on municipal contracts.
He said municipalities should develop credible financial recovery plans, strengthen expenditure controls, improve revenue collection, adopt realistic creditor payment plans and ensure that essential services continued uninterrupted.
“Enforcement must restore compliance while safeguarding essential services and protecting vulnerable communities.”
The Financial and Fiscal Commission (FFC) echoed those concerns.
Commission representative Dr Patience Mbava warned that municipalities operating without financial reserves would immediately struggle to sustain essential services once transfers were suspended.
“The first casualties of a stopped transfer are not salaries or councils,” Mbava said.
“They are chemical purchases for water treatment, prepaid bulk electricity, repairs and maintenance, and indigent subsidies.”
Despite the concerns raised, Treasury maintained that the withholding of equitable share allocations was intended as a temporary constitutional intervention designed to halt further financial deterioration while compelling municipalities to restore fiscal discipline.
The department said equitable share payments would continue to be released as municipalities demonstrated compliance, with Treasury and provincial treasuries working alongside affected municipalities to help them meet the required conditions.
