Treasury defends withholding of funds from 69 municipalities as 'corrective measure'
National Treasury says its decision to withhold billions in equitable share transfers from 69 municipalities is aimed at correcting financial mismanagement and enforcing compliance — not punishing communities.
Officials provided further details during a question-and-answer session following the announcement that R13.5 billion in July 2026 transfers would be withheld from non-compliant municipalities, on Wednesday.
Treasury officials stressed that the intervention is intended to change behaviour at the municipal level, particularly around the failure to pay creditors and manage finances responsibly.
READ: National Treasury withholds July funds from 70 municipalities over financial failures
Head of Intergovernmental Relations Ogalaletseng Gaarekwe said the move targets systemic issues, such as where municipalities had failed to meet basic obligations like paying pension funds, Eskom and water boards.
She warned that such failures have serious consequences for workers and communities.
"We are correcting the behaviour in municipalities… we need to get into a habit of paying our creditors. Imagine where pension fund contributions are deducted from employees but not paid over — that means families cannot claim if something happens."
Gaarekwe confirmed that 99 municipalities were initially flagged, but only 69 had funds withheld after failing to meet Treasury’s requirements.
READ MORE: Municipal financial stressors are mostly driven by structural challenges: SALGA
INTERVENTION ALREADY SHOWING RESULTS
Deputy Director-General Jan Hattingh said the intervention has already helped stabilise critical services, including preventing the collapse of water boards.
"Two water boards that were on the brink of being closed… this process has helped and facilitated that those two water boards are still operational. If they had closed, communities would not have had access to water."
Hattingh said the move forms part of broader efforts to address poor financial planning, particularly the adoption of unfunded budgets.
"What it means in practice is there’s not sufficient cash to back the expenditure side of the budget… and that leads to unauthorised expenditure."
ACCOUNTABILITY LIES WITH MUNICIPALITIES
Treasury officials made it clear that responsibility for consequence management does not lie with them, but with municipal councils and oversight structures.
They said disciplinary action against officials responsible for financial misconduct must be implemented at the local level.
Director for the Municipal Finance Management Act Khensani Makaneta said, while systems exist, they were not consistently applied.
"Matters of irregular or wasteful expenditure must go through disciplinary boards, which then recommend action… but consequence management in most municipalities is still not happening."
She added that although some progress has been made, many municipalities still fail to act decisively against wrongdoing.
SUPPORT MEASURES IN PLACE
Treasury also emphasised that the withholding of funds was not the first step, but part of a broader process that includes ongoing support and engagement with municipalities.
Makaneta said capacity-building initiatives, financial recovery plans and technical assistance are provided to help municipalities improve compliance.
“We’ve been conducting training and roadshows with councillors and officials to show how to prevent and deal with irregular expenditure… because this intervention is not a long-term solution.”
Gaarekwe added that programmes such as the Municipal Debt Relief Programme and revenue management support are helping municipalities improve their financial position.
NO EXPECTED IMPACT ON SERVICE DELIVERY
Despite concerns, Treasury insists the intervention would not significantly affect service delivery.
Gaarekwe said municipalities generate the bulk of their own revenue, and that national transfers make up a smaller portion of their budgets.
She added that the withheld funds represent only part of the equitable share allocation and could be released once municipalities meet the required conditions.
A LAST-RESORT MEASURE
Treasury described the move as a constitutional measure of last resort, aimed at enforcing compliance with financial legislation.
Officials expressed hope that the intervention will lead to lasting improvements in municipal governance and reduce the need for similar action in future.
“We are really serious about compliance… the message is that municipalities must adhere to the law so that we don’t have to take this step again.”
