Finance minister to withhold grants from municipalities over unpaid billions

Finance Minister Enoch Godongwana has informed his Cooperative Governance and Traditional Affairs counterpart, Velenkosini Hlabisa, that he intends to withhold millions of rand in grants to several municipalities due to their persistent failure to settle billions in debt.

The 39 municipalities are in the Free State, Gauteng, Mpumalanga, Northern Cape, North West, and Limpopo.

According to Godongwana, 18 defaulting municipalities owe the highest amounts to the four water boards facing imminent bankruptcy.

In total, the 18 municipalities owe Vaal Central, Magalies Water, Lepelle Northern Water, and Rand Water nearly R18 billion.

Matjhabeng Local Municipality in the Free State owes Vaal Central over R8.13bn.

Kopanong and Mafube local municipalities, both in the Free State, were R330 million and R253.4m, respectively, in arrears for pension fund contributions.

Rand Water, Vaal Central, Lepelle Northern, and Magalies Water have been advised to enforce their credit control policies to also attach the bank accounts of defaulting municipalities to ensure a change in their behaviour.

Godongwana said pension funds were also owed about R820 million by 18 municipalities, while the Auditor-General South Africa’s (AGSA’s) debt stands at R68.4m across six municipalities.

He told Hlabisa on June 30 that SARS’ outstanding debt was R197.5m across eight municipalities.

“This letter serves as a consultative mechanism with you in terms of section 38(2)(c) of the Municipal Finance Management Act (MFMA) with regard to the intention of the National Treasury to invoke section 216(2) of the Constitution by stopping the transfer of the July 7, 2025 tranche of the equitable share and all the grants to be transferred to the 39 municipalities,” stated Godongwana.

The Constitution provides that the National Treasury must enforce compliance with the established measures and may stop the transfer of funds to an organ of state if that organ of state commits a serious or persistent material breach of those measures.

Additionally, the MFMA requires the National Treasury to consult the Cabinet member responsible for the national department making the transfer.

Godongwana cited persistent failure by the 39 municipalities to pay water boards and/or third parties like pension funds, medical aids, SARS, and the AGSA, and/or adopting unfunded budgets for the invocation of the Constitution.

Stringent conditions have been set for each of the municipalities, including forcing them to provide proof that it has fully paid the outstanding amounts owed to the respective water boards, or else the local government's equitable share of that municipality will be stopped and will only be released to the municipality in portions with conditions.

“The conditions describe that the first amount of the withheld equitable share is to be released and strictly used to pay the water boards' current accounts and provide evidence to the National Treasury in the form of a proof of payment.

“Should this condition be met, then the second amount of the equitable share will be released and strictly used to honour any arrears owed in terms of a valid repayment arrangement with the water board and provide evidence to the National Treasury in the form of a proof of payment,” the finance minister warned.

Godongwana said if the conditions are met, then the July 2025 tranche of the equitable share will be released under specified conditions until such time that all outstanding water board debt has been resolved.

The National Treasury has also indicated that if both conditions are not met or municipalities fail to submit the evidence that SARS, pension funds, and other relevant statutory third parties have been paid, it will approach Parliament to endorse that its decision to stop the transfer of all the equitable share due to the municipality over the remainder of the 2025/26 financial year (June 30, 2026) for the municipality’s persistent failure.

Godongwana said a similar approach will be followed for the municipalities that persist with unfunded budgets.

“All 39 municipalities will be required to provide evidence that SARS, pension, and other staff benefits deducted from salaries of municipal officials have been paid over to the appropriate institution within the prescribed period,” he added.

The SA Local Government Bargaining Council has advised the SA Municipal Workers Union and the Independent Municipal and Allied Trade Union to apply for compliance orders against municipalities failing to pay over medical aid scheme contributions when they become due and payable.

loyiso.sidimba@inl.co.za