Parliament grills Treasury over R13.5bn municipal funding freeze as 27 councils get money back

Four parliamentary committees scrutinised National Treasury's withholding of R13.5bn in equitable share funding from 69 municipalities on Friday, hearing that 27 councils had their money released on Thursday and 22 more would be paid next week.

The Portfolio Committee on Cooperative Governance and Traditional Affairs (Cogta), the Standing Committees on Finance and Appropriations, and the Standing Committee on Public Accounts (Scopa) met jointly on a virtual platform. 

They received briefings from Treasury, the Department of Cooperative Governance, the Financial and Fiscal Commission (FFC) and the SA Local Government Association (Salga).

Treasury announced earlier this month that it was withholding the July equitable share tranche, about R13.5bn of the R110bn allocated to local government this year, from 69 municipalities across all nine provinces over persistent financial mismanagement, unfunded budgets and unpaid debts to Eskom, water boards and other creditors.

The number of affected municipalities was cut from 99 to 69 after councils made representations.

Treasury director-general Duncan Pieterse told MPs that of the 27 municipalities paid on Thursday, 10 received the full withheld amount, totalling R1.7bn, after meeting all of Treasury's conditions.

The other 17 received a portion totalling R2.9bn, strictly to pay creditors including Eskom, water boards, the SA Revenue Service and pension funds. They must also submit proof of payment before the balance is released.

With 22 more municipalities due to be paid next week, 20 remain without their funds, and Treasury said money would be released weekly as councils complied.

Pieterse said the intervention followed years of support that had failed to change municipal behaviour.

Since 2021/22, municipalities had racked up R24.12bn in fruitless and wasteful expenditure, R145.21bn in irregular expenditure, R40.14bn of it in 2024/25 alone, and R118.13bn in unauthorised expenditure.

By year-end, they owed Eskom R3.40bn in interest and water boards R1.21bn, while 116 municipalities, nearly half the country's councils, had adopted unfunded budgets in 2024/25.

Finance minister Enoch Godongwana told the committees the freeze was a last resort and that Parliament had been informed at every stage, with the first letters to presiding officers sent on June 19.

"Withholding or stopping is the last resort. It is a painful exercise we do not want to do," he said.

"Assuming that all of us were doing all of those oversight functions, it would obviate the need for Treasury to make the necessary intervention."

He said Treasury and Cogta had agreed on a differentiated approach for councils in genuine distress.

"In our meeting last week with Cogta, one of the things we agreed upon is that our teams must begin to isolate those municipalities that are really in distress, and how we are going to work together to support those municipalities," he said.

Cogta minister Velenkosini Hlabisa said his department shared Treasury's view that municipal financial delinquency had to end.

"We have a common view on matters like municipalities adopting an unfunded budget, because this is committing lies in public, knowing you do not have the money but you say you are going to do this," he said.

"We have a common view that this behaviour should be stopped in municipalities."

His department nonetheless raised concerns about how the freeze was executed, saying it had no time to brief the minister or MECs before implementation, and that the seven days municipalities were given to make representations, ending only eight days before the legislated July 8 transfer date, was inadequate.

It proposed a five-step process for any future freeze, including formal consultation with Cogta as required by the Municipal Finance Management Act (MFMA), at least 14 working days' notice, and partial or phased withholding rather than complete suspension where lesser measures would work.

The FFC, whose call for parliamentary scrutiny prompted the meeting, argued the equitable share was an unconditional allocation approved by Parliament, and that stopping it triggered safeguards under section 39 of the MFMA, including parliamentary approval of the decision within 30 days, an Auditor-General report on each affected municipality, and a hearing for every affected council.

It urged Parliament to discharge that role rather than let the period lapse.

The commission warned that 3.7 million indigent households in the affected municipalities relied on the equitable share for free basic water, electricity, sanitation and refuse removal, and that 15 of the 69 had zero months' cash coverage, with a combined deficit of R4.65bn.

It said the 69 municipalities were owed R217.9bn by their customers, more than double the R97.4bn they owed their creditors, with government departments and entities accounting for R11.6bn of the debt and paying only 4.4% of it within 30 days.

"Enforcement is asymmetric: the smallest sphere faces the hardest instrument," the commission said in its presentation.

Treasury told MPs it was moving against state debtors too, with final notice letters going to national departments before their funds were withheld, and second letters drafted to provinces demanding outstanding documents and reasonable payment terms.

Salga told MPs the crisis had structural roots that enforcement alone would not fix, including water and electricity distribution losses above 50%, collection rates below 50% in rural municipalities, bulk tariff increases that municipalities could not recover from consumers, and the legacy of the 1998 amalgamation that merged viable councils with failing ones.

Scopa chairperson Songezo Zibi said a year of joint oversight visits had exposed the depth of the failure.

"A pattern has emerged where the local authorities do not appear to take their responsibilities seriously. When you ask a reason why, the explanations are not good enough," he said.

"What we have seen is a breakdown in the system. The municipal public accounts committees are hardly functional."

He said provincial Cogta and public accounts committees were equally ineffective, and placed responsibility at the door of MECs.

Standing Committee on Appropriations Chairperson Musi Maimane said the episode demanded a standing protocol between the executive and the legislature.

"The people of this country are not represented in any other format except in Parliament, by the elected people," he said.

"It is going to be crucial that we establish, as a way forward when such action takes place, what is the protocol that must exist."

Committee Chairperson Dr Zweli Mkhize said the crisis had been years in the making, tracing it to the Auditor-General's May 2025 consolidated local government report, which flagged poor audit outcomes, weak consequence management and failing political and administrative leadership at municipalities.

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