The National Treasury says the aggregate operating budgets of municipalities spending beyond their means fell into deficit during the 2024/25 financial year.
It published municipal operating and capital budgets adopted by their councils on its website on Wednesday. These give an overview of expected revenue and spending trends over the next three years.
The 2024/25 medium-term revenue and expenditure framework (MTREF) for local government shows aggregated budgeted revenue for 2024/25 is R652.3bn, which is expected to rise to R687.2bn in 2025/26 and R728.7bn in 2026/27. Property rates and service charges represent 68.3% (R1.3-trillion out of R1.8-trillion) of projected operating revenue over the MTREF.
“Failure to collect the projected revenue will result in an increase in the number of municipalities in financial distress as municipalities continue to incur expenditure in line with the budget projections while revenue collection is lower,” the Treasury said in a statement.
“Municipalities will have to implement cost containment measures and spend in line with the revenue collected to ensure financial sustainability. It is notable that aggregate municipalities will realise operating deficits on the operating budgets in the 2024/25 financial year as the total operating expenditure increases at a higher rate than the revenue projections.
“This is an indication that municipalities are living beyond their means and a first sign of financial challenges. However, the situation is projected to improve in the outer years of the 2024/25 MTREF as operating surpluses will be realised.”
Total municipal spending in 2024/25 is estimated at R649.9bn, rising to R682.7bn in 2025/26 and R720.4bn in 2026/27. Total 2024/25 sending is 6.2% higher than the adopted budget for 2023/24.
“It should be noted that the total revenue excludes external loans (borrowing) and internally generated funds used to fund the capital budget. Therefore, the total expenditure is higher than revenue and results in a deficit. However, these funding sources are considered in determining the net surplus/deficit.”
From previous years it was evident that municipalities did not realise budgeted surpluses as some tended to overstate revenue. “The decision to fund infrastructure from borrowing will assist municipalities to be financially sustainable given the pressures on the operating budgets.
However, some municipalities are not able to secure loans due to their poor financial position.” A net deficit of R2.1bn is projected in the 2024/25 financial year after considering revenue from external loans and internally generated funds, an improvement on the deficit of R9.3bn in the 2023/24 adjusted budget that would result in a net surplus of R520.4m in 2025/26 and R4.3bn in 2026/27.
Main cost drivers for municipalities were staff, materials and bulk purchases. “Municipalities are experiencing a twofold impact of the high electricity and water tariff increases; lower sales levels owing to changes in consumption patterns and increased bad debt as a result of affordability pressures.”
Capital spending rose 1.8% to R77.4bn in 2024/25 compared with the original 2023/24 budget. The Treasury said the ratio of capital to total spending was falling over the MTREF period.
Capital spending was 12.4% of 2023/24’s total and projected to ease to 11.9% in 2024/25 and 10% in 2026/27, indicating “less investment in infrastructure which negatively impacts on the objective to invest in infrastructure to ensure economic growth”.
The 2024/25 capital spending budget reflects R47.1bn investment in new infrastructure, 60.8% of the total aggregated capital budget.
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