Treasury to give departments the municipal treatment

National Treasury has started the process of withholding transfers from provincial and national departments who don’t pay their municipal bills.

Treasury officials disclosed at a media briefing on 8 July to explain its temporary withholding of R13.5 billion of equitable share from 69 municipalities, that departments may expect the same treatment if they fail to sort out any disputes they may have on the municipal bills and pay what they owe.

This may have an even bigger impact on departments than on municipalities, since departments derive the biggest portion of their revenue from government transfers, in contrast with municipalities that collectively raise about R750 billion from own sources like consumer tariffs annually.

Government transfers amount to about R110 billion per year to municipalities, according to Treasury officials.

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The wider action against departments comes against the background of the South African Local Government Association (Salga) pointing out that consumer debt to municipalities exceeded R480 billion at March 2026, “with government entities and the public among the biggest contributors”.

Salga said this weakens municipalities’ ability to meet obligations to Eskom, water boards, pension funds, the South African Revenue Service and other creditors.

According to Treasury, it first withheld government transfers from non-compliant municipalities in 2015, with 59 municipalities affected at the time. In December, 75 municipalities were affected.

This time, 99 were initially put on terms, with 30 of them complying before the deadline and thereby retaining their right to payment.

The equitable share is paid in tranches in July, December and March, with the current payment making up about 42% of the total. That means that about a third of the total July payment has been retained.

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No more unfunded budgets – Treasury

The law allows Treasury to withhold the funds for 120 days, but it has never taken more than 30 days to get the required level of compliance to release the funds.

The non-compliance currently cited is the adoption of an unfunded budget, failure to deal with unauthorised, irregular, fruitless and wasteful expenditure identified by the Auditor-General and failure to pay creditors within 30 days.

To get the funds released, municipalities must give an undertaking that they will not adopt unfunded budgets again.

This implies that unfunded budgets adopted in May that took effect on 1 July, must be corrected as soon as an adjustment budget can be adopted. Normally that happens in January on the basis of the mid-year financial report.

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Regarding the City of Joburg’s budget, Treasury chief director for local government budget analysis Jan Hattingh said at the time the budget was adopted, it was funded in Treasury’s view.

The city gave un undertaking to only implement its controversial R10 billion deal with the South African Municipal Workers’ Union for salary increases, if there is money available to do so.

Municipalities must show results

Regarding unauthorised, irregular, fruitless and wasteful expenditure, Treasury has given support to assist municipalities to deal with it by doing the necessary investigations and writing off or recovering the relevant amounts while showing that they act against officials that caused such expenditure.

Municipalities must show what steps are planned and that they are in fact being implemented.

Dealing with non-payment of creditors, Hattingh said the municipalities must agree on payment plans with their creditors to get the first third of the funds released. That must then be used to pay the creditors, which would trigger the release of the balance.

This intervention earlier assisted two water boards, Magalies Water and Vaal Central, to retain their going concern status, Hattingh said.

Treasury deputy director-general for intergovernmental relations Ogalaletseng Gaarekwe said national departments received letters in February, warning them to pay their municipal bills, while similar letters to provincial departments went out in April.

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They have an opportunity to respond and Treasury acts on the basis of their analysis of such responses.

Much of the debt is disputed, but Treasury requires them to sort out such disputes within municipalities within three months, and agreeing on payment plans for the outstanding amounts.

“These payment plans must be realistic,” she added, citing one department that offered to pay outstanding municipal debt of R700 million over seven years. Treasury refused to approve that.