The South African Local Government Association (SALGA) has cautioned that National Treasury’s decision to temporarily withhold July equitable share allocations from dozens of municipalities must not come at the expense of service delivery.
The association argued that municipal financial distress is driven not only by governance failures but also by deep-rooted structural and fiscal challenges.
The warning follows National Treasury’s announcement on Tuesday that it is temporarily withholding the July 2026 Local Government Equitable Share transfers to 69 municipalities across the country in an effort to enforce fiscal discipline, strengthen accountability and ensure the proper management of public funds.
The decision, taken in terms of Section 216(2) of the Constitution and Section 38 of the Municipal Finance Management Act (MFMA), affects municipalities in all nine provinces, including the City of Johannesburg, Buffalo City, Nelson Mandela Bay, Mangaung, Matjhabeng, Emfuleni, Beaufort West and several district and local municipalities.
Treasury said the measure follows “persistent and serious non-compliance” with the MFMA despite years of support through guidance, training, direct engagements and formal communication.
Among the concerns cited were municipalities’ failure to adopt funded budgets, address unauthorised, irregular, fruitless and wasteful expenditure (UIFWE), implement consequence management and meet statutory obligations, including payments to pension funds, SARS, UIF, Eskom and water boards.
The department stressed that the withholding is intended as a corrective rather than punitive measure and said it does not expect any disruption to service delivery because the funds are being withheld only temporarily.
“The municipalities have been given sufficient notice in writing and urged to take measures to change their financial management positions ahead of the withholding of funds,” Treasury said.
Transfers will resume once municipalities meet the required conditions and provide proof of compliance.
Treasury said the latest Auditor-General’s 2024/25 local government audit report reinforces its findings, revealing that municipalities have accumulated R145.21 billion in irregular expenditure since 2021/22, including R40.14 billion during the 2024/25 financial year alone.
The report also found that municipalities incurred R24.12 billion in fruitless and wasteful expenditure, while 116 municipalities adopted unfunded budgets during the 2024/25 financial year.
Meanwhile, municipalities owed R3.40 billion in interest to Eskom and R1.21 billion to water boards, with 48 municipalities also failing to pay over third-party deductions for more than a month.
Responding to the announcement, SALGA said while it supports efforts to strengthen governance, financial discipline and accountability, enforcement measures alone will not resolve the local government sector’s financial crisis.
“Any withholding of equitable share must balance compliance objectives with the impact on service delivery and municipal financial sustainability,” the association said.
“It is also important to distinguish genuine governance failures from deeper structural challenges.”
SALGA noted that Treasury had initially identified 99 municipalities for possible withholding before reducing the number to 69, saying this demonstrated the value of engagement and municipalities’ willingness to respond when given support and clear compliance requirements.
The association also expressed concern over municipalities failing to pay pension fund contributions, UIF and PAYE deductions despite already deducting the money from employees’ salaries.
“These funds do not belong to municipalities and must never be used for other purposes,” SALGA said.
“Such conduct undermines employee rights, public trust, and exposes municipalities to financial and legal risk.”
While maintaining “zero tolerance” for financial misconduct and weak consequence management, SALGA argued that many municipalities continue to face structural pressures beyond administrative failures.
These include declining revenue collection, ageing infrastructure, rising bulk electricity and water costs, weak local economies and growing poverty.
SALGA said municipal consumer debt has now exceeded R480 billion as of 31 March 2026, with government entities and members of the public among the biggest debtors.
It called on all consumers, including organs of state, to settle outstanding municipal accounts while urging municipalities to strengthen billing systems, credit control and revenue collection.
The association further argued that weaknesses in the local government funding model, including unfunded mandates and the mismatch between Eskom’s tariff cycle and municipal financial years, continue to place municipalities under severe financial pressure.
“Sustainable solutions must address municipal debt, unfunded mandates, fiscal imbalances, infrastructure backlogs and revenue constraints, especially in rural and economically vulnerable communities,” SALGA said.
Despite its concerns, the association welcomed Treasury’s assurance that the withholding process is corrective rather than punitive and said it would continue working with affected municipalities to improve governance, financial management and long-term sustainability.