By Lehlohonolo Lehana.
National Treasury has defended its decision to temporarily withhold the local government equitable share transfers to dozens of South African municipalities.
On Tuesday, 7 July, Treasury said it was in the process of temporarily withholding the July 2026 local government equitable share transfers to 69 selected municipalities across the country.
The list includes big names such as the City of Johannesburg, Buffalo City, Nelson Mandela Bay, Mangaung and Matjhabeng, as well as district and local municipalities from every province in a national roll call of municipal dysfunction.
Treasury says the withholding of funds is aimed at instilling fiscal discipline, ensuring that public money is properly managed, and forcing municipalities to deal with unauthorised, irregular, fruitless and wasteful expenditure, known in government shorthand as UIFWE. It also wants municipal officials and office bearers to be held accountable where the law requires it.
It insists the move is corrective rather than punitive. The withholding is meant to be short term, Treasury says it does not expect an impact on service delivery.
Deputy Director-General (DDG) for Intergovernmental Relations at the department, Ogalaletseng Gaarekwe, explained that portions of the share are released once municipalities submit signed payment plans with their creditors.
“This time last year, we had withheld for 75 [municipalities], but I can assure [you] that by early August, we had already released the money for everyone. So, it depends on how fast the municipalities sort out the payment plans and send us those payment plans.”
“Once the portions are released, they pay [creditors]. Once they have done that, we release the whole amount. We are not expecting it to impact service delivery because… the majority of the funding at local government level is raised from own revenue,” Gaarekwe said at the briefing held in Pretoria.
The portion withheld amounts to some R13.5 billion from this year’s total R100 billion equity share.
The DDG was quick to emphasise that withholding funds is not punitive but corrective and also preventative, as non-compliance could lead to unintended real-world consequences.
“In our view, we are correcting the behaviour in municipalities. We need to get into the habit of paying our creditors. There are instances where pension fund monies are taken from salaries, but they are not paid over. So, if something happened… families are not able to claim because the municipality did not pay.”
“We are trying to make sure that people do not get used to not paying,” Gaarekwe explained.
The affected municipalities were given notice ahead of the withholding of funds and were also encouraged to furnish reasons to the department why funds should not be withheld.
“The first set of letters were sent to municipalities on the 22nd of June and the 23rd. At that time, we wrote to 99 municipalities [and] 30 responded in a way that we have not withheld their money.”
“This… is a last resort and we do not want to do it all the time. We are expecting that behaviour will change and we don’t have to do it again.”
“We are really serious about compliance legislation so it’s important that municipalities…all three spheres of government comply with the legislation that we have, “Gaarekwe said.
Chief Director of Local Government Budget Analysis at Treasury, Jan Hattingh, highlighted that continued non-payment by municipalities has a ripple effect that eventually leads to hamstrung service delivery.
“As a result of this action, jointly with the Department of Water and Sanitation, two water boards that were on the brink of being closed… are still operational. If a water board cannot proceed and provide services, the impact of that is much more negative, and that means communities cannot get water.”
“There’s certainly a linkage [to the Auditor General South Africa’s 2024/25 Consolidated General Report on Local Government Audit Outcomes] but what we are trying to solve is when the Auditor General’s report is released, it’s after the event. What we have observed is that many councils adopt a budget that is not funded.”
“So, part of our work and support… is to help them to table a funded budget and help them to deal with the planning problems upfront. If you don’t plan well and you overspend your budget, that portion is regarded as unauthorised expenditure,” Hattingh explained.
He added that the work National Treasury has been doing to guide municipalities has been extensive.
“We have even developed a framework for them to deal with consequence management. Ultimately, the councils make the final decisions, and therefore, they make the final choices.”
Meanwhile the South African Local Government Association (SALGA) spokesperson, Motalatale Modiba, said while they acknowledged that measures were being taken to promote ‘sound financial managament’ in local governments, it was important to note that local government sector continues to face structural and systemic fiscal challenges that require urgent support and reform.
“Any withholding of equitable share must balance compliance objectives with the impact on service delivery and municipal financial sustainability,” said Modiba.
He added that it was important to distinguish genuine governance failures from deeper structural challenges.
Modiba said National Treasury initially indicated that it would withhold equitable share transfers for 99 non-compliant municipalities, but that the reduction to 69 municipalities shows the value of proactive engagement and the ‘willingness of municipalities to act when given clear requirements and support.”