SALGA RESPONDS TO NATIONAL TREASURY’S TEMPORARY WITHHOLDING OF JULY 2026 EQUITABLE SHARE TRANSFERS TO SELECTED MUNICIPALITIES

The South African Local Government Association (SALGA) has noted National Treasury’s announcement regarding the temporary withholding of the July 2026 Local Government Equitable Share transfers to selected municipalities in terms of Section 216(2) of the Constitution and Section 38 of the Municipal Finance Management Act (MFMA).

While SALGA acknowledges measures being taken to promote sound financial management and accountability across all spheres of government to strengthen governance, financial discipline, and public confidence, it must be pointed out that the 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. It is also important to distinguish genuine governance failures from deeper structural challenges.

National Treasury had initially indicated its intention to withhold equitable share transfers for 99 non-compliant municipalities. The subsequent reduction of municipalities identified for possible withholding to 69 shows the value of proactive engagement and the willingness of municipalities to act when given clear requirements and support.

While non-compliance cannot be condoned, many municipalities face severe fiscal and economic pressures that weaken financial sustainability and service delivery. These realities must be addressed to resolve recurring financial distress.

SALGA is concerned that Treasury cited among several reasons, non-payment of pension fund contributions, UIF and PAYE deductions already withheld from workers’ salaries. These funds do not belong to municipalities and must never be used for other purposes. Such conduct undermines employee rights, public trust, and exposes municipalities to financial and legal risk. Municipalities must pay statutory deductions on time and enforce accountability where failures occur.

SALGA maintains zero tolerance for financial misconduct, persistent non-compliance and failures in consequence management. Councils, accounting officers and oversight structures must investigate irregular expenditure, hold responsible individuals accountable and recover losses as required by law.

Municipal financial distress is also driven by structural factors beyond administrative failures, including declining revenue collection, weak local economies, rising service demands, higher bulk electricity and water costs, ageing infrastructure, distribution losses and growing poverty.

Municipal consumer debt now exceeds R480 billion as at 31 March 2026, with government entities and the public among the biggest contributors. This weakens municipalities’ ability to meet obligations to Eskom, water boards, pension funds, SARS and other creditors.

Municipal sustainability depends on payment for services. Reliable services are not possible when residents, businesses, government departments and other consumers fail to pay municipal accounts.

SALGA calls on all consumers, including organs of state, to settle municipal debts and urges municipalities to strengthen revenue collection, credit control and billing accuracy. Financial sustainability requires shared commitment from municipalities, consumers and all spheres of government.

SALGA is also concerned that municipal financial challenges are worsened by weaknesses in the local government funding framework, including the gap between municipal responsibilities and available resources.

This is aggravated by recurring pressures such as the mismatch between Eskom’s tariff cycle and municipal financial years, which forces municipalities to absorb higher bulk electricity costs before recovering them through approved tariffs.

SALGA has consistently maintained that enforcement alone will not resolve municipal financial distress. Sustainable solutions must address municipal debt, unfunded mandates, fiscal imbalances, infrastructure backlogs and revenue constraints, especially in rural and economically vulnerable communities.

SALGA welcomes Treasury’s indication that the withholding process is corrective, not punitive, and that allocations can be released once conditions are met. SALGA will continue supporting affected municipalities to improve recovery plans, governance, compliance, expenditure controls and financial sustainability.

SALGA believes this situation reinforces the urgency of long-term reforms through the review of the White Paper on Local Government and related fiscal reform processes, to build a more sustainable, resilient and developmental local government system.

SALGA remains committed to working with National Treasury, the Auditor-General, COGTA, provincial governments and municipalities to implement immediate corrective measures and long-term structural reforms. The shared goal is financially sustainable municipalities, stronger accountability, restored public trust and quality services for all communities.