Water, Wages, and Warning Shots: Treasury Gets Tough on Defaulting Municipalities

39 local governments could lose their July 2025 funding and it’s about more than just money

South Africa’s local government finances are in crisis, and Finance Minister Enoch Godongwana has just fired a warning shot that’s impossible to ignore.

In a bold move, Godongwana has written to Cooperative Governance Minister Velenkosini Hlabisa, informing him of his intention to withhold grants and equitable share transfers to 39 municipalities across six provinces. The reason? Persistent failure to settle billions in debt to water boards, pension funds, SARS, and other state institutions.

And this time, the Treasury is not just threatening, it’s setting strict conditions that could reshape how these municipalities do business.

Mountains of Debt: Water Boards on the Brink

At the heart of the crisis lies a staggering number: R18 billion. That’s how much 18 defaulting municipalities owe to water boards like Rand Water, Lepelle Northern Water, Magalies Water, and Vaal Central.

The worst offender? Matjhabeng Local Municipality in the Free State, which alone owes R8.13 billion to Vaal Central.

It’s not just about water. Municipalities also owe:

• R820 million to pension funds

• R197.5 million to SARS

• R68.4 million to the Auditor-General

• And hundreds of millions more to medical aid schemes

In short, some local governments have become serial defaulters, holding back on essential payments while continuing to operate as if nothing is wrong.

Godongwana’s Plan: No Pay, No Payout

Invoking Section 216(2) of the Constitution, the finance minister intends to stop the July 7, 2025 tranche of the equitable share, the funding that helps municipalities provide basic services.

The plan is strategic and tough:

1. First release: Will only be made if municipalities pay their current water accounts and provide proof of payment.

2. Second release: Will follow only after arrears are paid, also with proof submitted.

3. Non-compliance: If proof isn’t submitted or if there’s no action, the full equitable share may be withheld for the rest of the 2025/26 financial year.

Godongwana has also warned that municipalities operating with unfunded budgets, spending more than they can afford, face the same consequences.

Pensions and Pay Deductions: Workers Left in the Lurch

Some of the most troubling revelations involve deductions from municipal workers’ salaries that never make it to their intended destination — like pension funds and medical aid schemes.

Two Free State municipalities, Kopanong and Mafube, owe R330 million and R253.4 million, respectively, in unpaid pension contributions. This is money that should have been invested in the long-term futures of workers but was simply not passed on.

The South African Local Government Bargaining Council has since advised unions like SAMWU and IMATU to apply for compliance orders, ensuring that worker benefits are no longer neglected.

Local Impact: What Happens When the Money Stops?

The risk here isn’t just financial, it’s deeply human. If grants are withheld, service delivery could grind to a halt in affected municipalities. Think dry taps, unpaid workers, broken infrastructure, and increasing unrest in already fragile communities.

But Treasury argues the opposite: Enabling a culture of non-payment ultimately punishes the public more, especially when local governments siphon off money meant for basic services and workers’ futures.

Can This Shock Bring Real Change?

This may be the most aggressive stance Treasury has taken against non-compliant municipalities in years. And many say it’s long overdue.

For years, residents in places like Matjhabeng, Mafube, and Kopanong have lived with water cuts, garbage pile-ups, and collapsing local administration, all while officials failed to pay the bills.

Now, with conditions tied to every rand and Parliament on standby to back Treasury’s moves, local governments are under pressure to change or face financial isolation.

{Source: IOL}

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