GAUTENG – Sustainable municipal revenue management is a fundamental requirement for local governments to execute their service delivery mandates. However, the 2024–2025 Consolidated General Report on Local Government Audit Outcomes reveals critical vulnerabilities in this domain. Auditor-General Tsakani Maluleke explicitly highlighted weak fiscal discipline, deteriorating internal controls, and persistent revenue management failures across municipalities nationwide.
Providing expert analysis on these findings, fiscal policy specialist and founder of Eoza Consultancy, Thando Ngozo, and economist Bongani Mahlangu, detailed the structural and systemic barriers crippling local government finances.
A primary challenge is the stark disparity in revenue generation capacity between different types of municipalities. Metropolitan areas benefit from a high concentration of businesses and households with the financial means to pay for rendered services, establishing a strong revenue base. Conversely, rural local municipalities lack this commercial density, and their residents frequently struggle to afford basic living standards, let alone municipal services, severely limiting local revenue generation.
According to Mahlangu, municipalities typically rely on three broad revenue sources:
1. Service Charges: Fees for reticulation services such as water, electricity, and waste management, often administered at a premium.
2. Taxes and Levies: Including property rates, municipal fines, licenses, and permits.
3. Transfers and External Funds: Comprising borrowing, donations, and direct or indirect transfers from the national treasury, including conditional and unconditional grants.
Total transfers to municipalities amount to approximately 180 billion rand. These funds are distributed via specific formulas, meaning allocations are not equal. Furthermore, conditional grants are strictly subject to a municipality’s ability to spend the funds; unspent allocations are returned to the national treasury and reallocated to municipalities that demonstrate the capacity to utilize them effectively.
Revenue collection is further complicated by macroeconomic conditions, such as local employment rates and broader economic downturns, alongside deep-seated compliance culture issues. Collection rates vary drastically, with some municipalities recovering only 70% of owed revenues, while others exceed 90%.
Beyond external compliance, internal municipal failures significantly exacerbate revenue loss. Ngozo and Mahlangu pointed to unmaintained water reticulation infrastructure, noting that approximately 50% of distributed water is lost within the system itself. Additional internal weaknesses include faulty meter boxes, inadequate systems for tracking resource usage, and frequent billing disputes. These systemic flaws prevent municipalities from accurately billing liable parties. Furthermore, many municipalities are failing to contribute to their own local economic growth as mandated by Section 152 of the Constitution, which inherently restricts their ability to expand their revenue base.
When addressing whether the statutory framework requires reform to empower municipalities, Ngozo clarified that local governments already possess sufficient legal authority to generate revenue through service charges and property rates. The core debate, therefore, centers on whether the national transfer formula accurately accounts for the actual costing of services rendered.
This misalignment frequently results in unfunded mandates. For example, municipalities are often required to extend services to informal settlements, but the costs associated with these expansions are not adequately factored into initial budget formulations. Until these structural, infrastructural, and formulaic challenges are addressed, persistent revenue management failures will continue to undermine municipal service delivery.
