The City of Johannesburg’s annual flight of fancy — budgeting — is under way. Every year the former City of Gold projects great financial performances for the second and third years of its three-year budget cycle.
Such performances always turn out to be a mirage, but this hasn’t stopped city officials and politicians from doing the same thing every year. The city’s projections of cash on hand by the end of a financial year is a good example. This number is important because municipalities use a portion of this cash to fund capital expenditure.
Based on the design of the country’s current fiscal system, municipal budgets are funded from municipal own revenues — sales of electricity, water and other services such as refuse removal — as well as transfers from national and provincial governments (conditional and unconditional grants), and debt. For the latter, municipalities can only borrow for capital expenditure.
Big municipalities such as Johannesburg were meant to rely less on transfers from government because they were deemed to have a substantial base of residents that could afford to pay rates and taxes. They were therefore expected to raise most of the resources they need for operations and capex from rates and taxes, topped up with borrowings (for capex). This would have allowed national government to focus more on assisting small cities and rural areas.
But the big municipalities haven’t performed as expected, largely because they have, mostly for political reasons, failed to collect all monies due to them for rates and taxes. They have also become weak at budgeting. Hence the flights of fancy.
Just look a Johannesburg’s draft 2025/26 budget. The city is projecting that it will end its 2026/27 financial year with cash on hand (or cash equivalents) of more than R17bn, enough to cover the city’s costs for almost 90 days. And for 2027/28 Johannesburg dreams ever bigger — seeing itself sitting pretty with cash at year-end of almost R29bn (142 days’ costs).
Ninety days is the upper end of the benchmark (30-90 days) the city has set for cash it must have on hand, but it hardly ever gets near it. For 2023/24 Johannesburg officials and politicians dreamt of slightly more than 42 days’ cash by the end of the financial year. They achieved just 10 days’ worth. Then they had their sights on more than 57 days’ worth of cash by end-June this year. They have since trimmed that down to 15.7 days.
If the city were to achieve its cash projection it would mean a three-fold jump from the R5.5bn cash the city estimates it will have by end-June 2026. The city’s adjusted cash pile for the current financial year ending June 30 is R2.7bn, meaning the June 2026 projection would be a doubling of the cash on hand. But based on the city’s history, even the 2026 number is a big stretch.
Cash matters because the city, like other municipalities, uses a portion of its cash on hand at the year-end to fund capital expenditure. On that front, Johannesburg should be spending multiples more than it does now to fix its roads, electricity and water networks. But with smaller cash piles Johannesburg’s infrastructure backlogs will rise.
A healthy cash position is also important because it enables a municipality to make payments when they fall due. It also matters far more in the case of a municipality that faces risks that may affect its future revenue collection, which Johannesburg does as its residents increasingly fail to settle their municipal bills.
For the 2025/26 financial year Johannesburg’s projections are that it will be unable to contribute from its cash resources towards capital expenditure (more than R7.255bn). It will fund more than 93% of its capital expenditure budget from national government grants (almost 52%) and loans (more than 42%).
For 2024/25 the city had forecast that its cash resources would fund 26% of its capital expenditure — initially, more than R8bn, but later trimmed down to R7.7bn. Three months before the end of the financial year, the city now says its cash resources will only pay for about 16% of capex.
The National Treasury has for many years been warning municipalities to be realistic in their budgeting. In Treasury speak, municipalities must stop adopting unfunded budgets. Unfunded budgets mean less cash on hand, and therefore little, or no, contribution to capex. And for Johannesburg residents it means worse infrastructure, which means further declines in the city’s revenue collections.
• Sikhakhane, a former spokesperson for the finance minister, National Treasury and SA Reserve Bank, is editor of The Conversation Africa. He writes in his personal capacity.
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