PRETORIA, Gauteng — As the National Treasury withholds municipal funding from 69 local authorities, a fierce debate has ignited over the financial survival of South Africa’s cities and towns. While the central government insists the move is designed to enforce fiscal discipline and improve governance without harming basic services, the South African Local Government Association (SALGA) warns that the intervention ignores severe structural mismatches threatening the very service delivery it aims to protect.
The affected municipalities, which include the City of Johannesburg, have been given strict conditions to meet before the July equitable share transfers are released. However, SALGA’s portfolio head for municipal finance and fiscal policy, Lerato Phasha, argues that treating the symptoms without curing the underlying financial disease will inevitably lead to systemic collapse.
The Immediate Threat to Basic Services
Addressing public concerns over whether toilets will flush and lights will stay on in the coming weeks, Phasha clarified the mechanics of the equitable share. This specific allocation is formula-driven to subsidize water, electricity, and basic services for indigent households who cannot afford to pay.
When these funds are delayed, municipalities are left unable to pay bulk providers like Eskom and water boards, or cover the salaries of workers delivering these services. Phasha noted that late payments trigger interest charges on billed accounts. “Over time, it will have an impact in terms of service delivery if it’s continued in this manner,” she explained.
While SALGA welcomes any measures that promote financial sustainability and tackle issues like unfunded budgets, unauthorised, irregular, fruitless and wasteful (UIFW) expenditure, and the nonpayment of creditors, Phasha emphasized that a holistic review of local government funding is overdue.
The R480 Billion Government Debt Black Hole
One of the most glaring structural hurdles is the massive debt owed to municipalities by other spheres of government. Phasha revealed that municipalities are currently owed approximately R480 billion, yet they are only recovering about 10% of these outstanding amounts.
Because municipal revenues have failed to keep pace with soaring expenditures—and the cost of living has drastically outstripped consumer incomes—this unpaid debt cripples local budgets.
Phasha pointed out that National Treasury already has the legal empowerment to withhold the equitable share from defaulting provincial governments and state-owned companies that owe municipalities. Although the minister has previously issued notices to this effect, Phasha noted they have not been effectively enforced. She argued that successfully executing this could recover 17% of the total debt, which would go a long way in clearing current arrears with Eskom, water boards, and other critical creditors.
Outdated Poverty Formulas and Shrinking Revenues
The financial strain is further compounded by an outdated equitable share formula. The current model relies on 2011 data, which accounted for 11 million poor households. Phasha highlighted that the 2022 census data regarding poor households has not yet been integrated into the formula.
Given the severe economic downturn between 2011 and 2026—characterized by widespread job losses, rising unemployment, and business closures—the actual number of indigent households relying on municipal subsidies is significantly higher than what is currently funded.
The Eskom Tariff Trap and Financial Year Mismatches
Municipal revenues are also being severely eroded by a systemic mismatch in bulk electricity pricing. Phasha noted that Eskom’s tariffs have skyrocketed by more than 400% since 2008. However, the National Energy Regulator of South Africa (NERSA) has consistently approved lower tariff increases for municipalities than those granted to Eskom, creating a massive shortfall that local authorities cannot legally pass on to consumers.
Adding to this financial trap is a misalignment of financial years. Eskom implements its tariff hikes in April. Consequently, municipalities are forced to absorb these increased bulk costs during April, May, and June before they are legally permitted to implement their own tariff adjustments for consumers at the start of their new financial year.
Distribution Losses, “No-Go” Zones, and Strict Credit Control
Beyond bulk pricing, municipalities are bleeding revenue through high distribution losses. Phasha explained that electricity is lost to technical faults, theft, unmetered properties, and broken meters. Furthermore, she highlighted the existence of “no-go areas”—such as those encountered by the City of Johannesburg—where municipal staff cannot safely enter to implement credit control or remove illegal connections. Resolving these spatial and security challenges requires urgent interministerial intervention.
Despite these systemic hurdles, Phasha maintained that municipalities must also tighten their internal controls and foster a strict culture of payment. She stressed that credit control must be aggressively enforced on residents and businesses that have the ability to pay. Notably, she pointed out that many government officials have municipal accounts in arrears for over 90 days, insisting that the principle of strict debt collection must be applied to all state employees without exception.
To mitigate the crisis, SALGA is rolling out a consumer education program to explain the severe implications of non-payment, which ultimately forces Eskom to restrict bulk supply and plunge entire communities into darkness.
“We really need a holistic intervention in terms of addressing this problem,” Phasha concluded, emphasizing that any solution must protect law-abiding ratepayers from becoming collateral damage in the ongoing local government financial crisis.