State allocates R21.8bn to boost local government services

The National Treasury has allocated an additional R21.8bn over the next three years to the local government equitable share, while a new funding model for the country’s 257 municipalities is expected to be finalised by year’s end.

The additional funding, announced by finance minister Enoch Godongwana in Wednesday’s medium-term budget policy statement, will help cover the higher bulk costs of providing free basic water and sanitation, electricity and solid waste management.

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The new municipal funding model is expected to provide a practical framework for addressing the balance between operational spending and long-term investment. Its final recommendations will help determine how national transfers and municipal revenue can better support sustainable finances and the delivery of essential services.

“We are allocating an additional R21.8bn to the local government equitable share to cover the higher bulk costs of free basic water, sanitation, electricity and refuse removal,” Godongwana said.

“We are increasing the general fuel levy allocation by R13.4bn, restoring the metros’ share to 23% over the medium term. We are also adding R20.5bn to the provincial equitable share to help provinces meet the higher costs in health and education.”

The additional funding runs in parallel with a review of how municipalities are financed as the Treasury seeks to address weaknesses in local government budgeting, revenue collection and spending priorities.

Read: Government targets R38bn in savings for vital programmes

The review has found that most municipalities have sufficient funding for day-to-day operations but spend too much on running costs, leaving inadequate provision for long-term infrastructure investment and maintenance. The Treasury expects its final report to recommend a practical funding model by end-2026.

The proposed changes come as many municipalities struggle to provide reliable basic services despite receiving transfers from the national government and collecting revenue from residents and businesses.

“The issue can no longer be only about resources. It must also be about results,” Godongwana said.

“Every rand transferred to municipalities must translate into visible improvements in people’s daily lives.”

Under the medium-term division of revenue, local government will receive 10% of available noninterest spending, while national departments will receive 47.4% and provinces 42.6%.

The funding increase is accompanied by measures intended to improve municipal revenue collection and financial management.

Treasury is adding R3.5bn over the medium-term expenditure framework period to expand the rollout of smart meters, on top of R2bn previously allocated. The technology is intended to improve revenue collection, with the Treasury citing progress in municipalities including Sol Plaatje, Kannaland and Bela Bela.

Municipalities are also being incentivised to reinvest revenue from water, electricity and waste services into the infrastructure that supports those services. Godongwana said local authorities needed to manage more effectively what they charge residents for basic services.

The government is also seeking to enforce payment discipline among municipalities. In June, the Treasury suspended the next equitable share transfer to 69 municipalities that had persistently failed to pay all creditors. By end-July, 37 had concluded council-approved repayment plans, and R4.2bn had been paid to creditors.

Separately, the Treasury is proposing changes to the Municipal Finance Management Act, the first comprehensive modernisation of the legislation in 23 years. The proposed amendments would require municipalities to demonstrate that their budgets are genuinely funded, strengthen revenue collection and clarify accountability.

The changes would also enhance the Treasury’s oversight powers and introduce stronger mechanisms to investigate financial misconduct, recover losses and intervene earlier when municipalities experience financial distress.

The funding review comes against a broader backdrop of questions about whether government transfers are translating into functioning infrastructure. A Treasury review of infrastructure grants found that, though most funds were spent, projects were often delayed, left incomplete or failed to deliver their intended benefits.

Between 2017/18 and 2023/24, the national government transferred R887bn through infrastructure conditional grants to provinces and municipalities. The Treasury said the grant system would be reformed to strengthen planning, accountability and oversight.