The government is reviewing the local government funding model as the sector continues to buckle under the weight of widespread misconduct and entrenched corruption, leading to billions lost in fruitless, wasteful and unauthorised expenditure.
These inefficiencies are eroding hard-won progress in the energy sector and raise serious concerns about the financial sustainability of SA’s water boards.
Despite this, municipalities, which often rely on direct transfers from the national government to fund their budgets, have returned R18bn to the fiscus over the past five years.
Key reforms envisaged to the funding model include updating the local government equitable share formula to better support low-income households and reflect the different costs faced by municipalities.
The issues faced by local government have already attracted the attention of Operation Vulindlela, a joint initiative of the National Treasury and President Cyril Ramaphosa’s office, which was set up in 2020 to reinvigorate the economy.
The second phase of Vulindlela, which was approved by the cabinet in March, includes reform of the local government sector.
Stabilising municipalities was also highlighted as a priority in Ramaphosa’s state of the nation address in February.
According to the review of the 1998 white paper on local government, released for public comment by co-operative governance & traditional affairs minister Velenkosini Hlabisa on Friday, 57 of SA’s 257 municipalities are in crisis while 165 are in financial distress.
The review is intended to produce a revised white paper by March 2026.
Earlier reviews
According to the review, fixing local government “will require a comprehensive approach over a sustained period of time, including a possible refinement of the local government mandate, improved revenue collection, enhanced governance and fiscal discipline, restoration of public confidence in local government and citizen behaviour change”.
Previous reviews of the local government funding model have not yet been implemented, according to the document.
A 2019 review of the funding model “proposed addressing the escalating debt owed to municipalities and their creditors, such as Eskom and water boards”.
Municipalities owe Eskom about R107bn in unpaid electricity bills, and water boards about R23bn.
It recommended a “thorough review of the financing model for local government and tackling the duplication of financial regulatory functions to streamline oversight and improve fiscal health”.
Challenges within local government go beyond funding, including poor leadership and governance, mismanagement of public funds and corruption.
Rising unpaid bills
The review of the local government funding model should, according to the discussion document, take various issues into account, understanding why local revenue has declined, especially as rising unpaid bills have made it harder to collect money owed.
Spending has been increasing faster than income, while service delivery has been getting worse.
There are also persistent problems with financial management and internal controls.
The overall cost of running local government, including the number of councils, councillors, staff and government layers needs to be reviewed, the document said.
The review should also take into consideration where additional revenue will come from given the fiscal challenges and competing infrastructure and service delivery priorities in sectors such as health, education and social development.
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