KEVIN ALLAN | Treasury’s toughest battle is not with municipalities — it’s with the system that protects them

The National Treasury’s decision to release the remaining July equitable share allocations to 69 financially distressed municipalities has been widely interpreted as a retreat.

And indeed, faced with growing concern over unpaid salaries, interrupted services and mounting political pressure, the Treasury did step back from its most dramatic financial intervention in years. But focusing on whether it “blinked” misses the far more important story.

The episode exposed something that has long frustrated attempts to reform local government in South Africa: meaningful accountability inevitably collides with a powerful network of institutional interests, each with legitimate concerns of its own but collectively capable of frustrating almost any attempt to impose consequences for persistent municipal failure.

That may be the greatest obstacle to municipal reform.

The Treasury’s intervention was exceptional but hardly impulsive. It temporarily withheld about R13.5bn in equitable share transfers after concluding that 69 municipalities had committed serious or persistent breaches of the Municipal Finance Management Act.

These were not municipalities that had suddenly encountered financial difficulty. Many had adopted unfunded budgets, failed to pay creditors, accumulated unsustainable debt or withheld statutory deductions belonging to pension funds and the South African Revenue Service despite years of warnings, technical support, financial recovery plans and repeated engagement.

The intervention has marked an important shift in the Treasury’s approach. For years it had relied largely on persuasion, technical assistance and incentives. The withholding of equitable share transfers signalled that persistent noncompliance would, at last, carry meaningful consequences. The reaction was immediate.

Municipalities argued that withholding the grants would undermine service delivery and leave them unable to meet their obligations. Johannesburg, for example, warned that the withholding of about R3.6bn would impair its ability to provide services, despite repeated Treasury warnings that the city’s budget was unfunded and its revenue assumptions were not credible.

Organised labour warned that workers and their families would bear the consequences of failures for which they were not responsible. The South African Local Government Association (Salga) questioned whether enforcement alone could solve municipal financial distress and renewed its call for greater fiscal support to local government.

The Financial & Fiscal Commission (FFC) challenged aspects of the Treasury’s legal approach, while parliament focused largely on protecting communities and ensuring that the intervention complied with constitutional requirements.

None of these responses was unreasonable. Municipalities exist to provide services. Labour exists to protect workers. Salga exists to represent municipalities. Parliament exists to scrutinise executive action. The FFC exists to safeguard the integrity of South Africa’s intergovernmental fiscal system.

Each institution responded according to its statutory mandate. Collectively, though, they created enormous pressure on the Treasury to moderate its intervention. That is the deeper lesson.

South Africa’s municipal accountability problem is no longer simply one of weak legislation or insufficient oversight. It is increasingly one of institutional incentives. Almost every organisation connected to local government has compelling reasons to resist measures that impose immediate costs on municipalities.

Municipalities want funding restored. Workers want salaries protected. Salga advocates for local government. Provincial governments seek stability within their municipalities. Parliament naturally focuses on preventing service delivery failures. The Treasury, by contrast, represents only one interest: protecting the integrity and sustainability of the public finances. In institutional terms it often stands remarkably alone.

This helps explain why municipal reform has proved so difficult despite an abundance of legislation, oversight mechanisms and financial recovery initiatives. Financial discipline is rarely opposed in principle. Almost everyone agrees that municipalities should adopt funded budgets, pay their creditors, transfer pension deductions and comply with financial legislation. Resistance emerges when those principles are translated into consequences.

The debate quickly shifts from the misconduct that justified intervention to the discomfort created by the intervention itself. The conversation becomes about unpaid salaries rather than why municipalities could no longer pay them. It becomes about interrupted services rather than years of financial deterioration that made those interruptions inevitable. It becomes about the Treasury’s powers rather than municipal governance failures.

The same pattern has often characterised section 139 provincial interventions, where debates frequently become dominated by the legality or politics of intervention rather than the governance failures that made intervention necessary in the first place.

The result is a familiar cycle. Municipalities receive warnings. The Treasury provides technical assistance. Financial recovery plans are developed. New support programmes are introduced. Deadlines are extended. Political pressure intensifies. Eventually the immediate crisis is resolved while the underlying governance failures remain largely unchanged.

The response to the Treasury’s intervention also raises an uncomfortable question. Many critics argued that withholding the equitable share was too severe. Some questioned its legality. Others warned of unintended consequences for workers and poor communities. Those concerns deserve serious consideration. The Treasury itself acknowledged them by releasing the remaining allocations once the risks to communities became clear.

But what credible alternative has been proposed? The Treasury has already spent years pursuing less coercive approaches. It has provided technical assistance, facilitated financial recovery plans and introduced the Eskom municipal debt relief programme, offering municipalities an unprecedented opportunity to reduce historic debt in exchange for improved financial discipline.

The majority of municipalities nevertheless continued adopting unfunded budgets, accumulating new debt and ignoring basic financial obligations. If repeated warnings, technical support and financial incentives fail to change behaviour, what mechanism remains?

Ultimately, the answer cannot simply be to restore funding and hope for different outcomes. The Treasury was right to release the remaining equitable share allocations. Workers, suppliers and poor communities should not become collateral damage in the struggle to reform municipal finances. But releasing the money cannot become another chapter in South Africa’s long history of postponing accountability.

The financial recovery conditions attached to the release must now be enforced rigorously. Municipalities that fail to honour their commitments should face meaningful consequences, directed as far as possible at the officials and political office-bearers responsible for persistent financial misconduct rather than at the communities they serve.

One of the defining weaknesses of municipal governance has been that those responsible for decisions leading to financial crisis have too often escaped meaningful personal accountability, while the consequences have fallen instead on workers, suppliers and the residents who depend on municipal services.

The events of the past month have demonstrated that municipal reform is no longer primarily a technical challenge. South Africa already has financial legislation, oversight institutions and recovery mechanisms. The real challenge is whether the country is prepared to withstand the inevitable institutional and political resistance that accompanies meaningful accountability.

Without that resolve, even the best-designed reforms will continue to encounter the same fate: strong initial action, determined institutional pushback and, eventually, another opportunity lost.

• Allan, a former special adviser to a local government minister, is MD of data and intelligence organisation Municipal IQ.