Finance Minister states municipalities owe R1.7 billion in pension contributions

Finance Minister Enoch Godongwana reported that municipalities have outstanding pension contributions amounting to R1.7 billion, which were withheld from employee salaries but not transferred to pension funds. He cited this practice as one of the main reasons why the National Treasury suspended funding for 69 municipalities.

Suspension of Funds and Reasons

Because the municipalities failed to transfer R1.7 billion to the pension funds, funds designated for basic services and daily operations were temporarily frozen. These municipalities are located across all nine provinces and accumulated a total debt to pension funds by the end of February.

The Treasury explained its intervention by stating that the municipalities had repeatedly ignored financial management legislation despite receiving support and guidance. The decision was made in accordance with Section 216(2) of the Constitution and Section 38 of the Municipal Finance Management Act (MFMA).

Total Amount Withheld

In the current fiscal year, approximately R13.5 billion has been withheld from the total allocation for municipal needs of R110 billion, including about R3.6 billion from the City of Johannesburg.

Speaking at a press briefing in Pretoria on Friday, Godongwana noted that initially, letters regarding non-compliance were sent to over 100 municipalities. However, 69 municipalities ultimately remained that did not provide satisfactory responses to Treasury officials and the Minister himself.

Godongwana emphasized that the government is not prosecuting the municipalities but merely fulfilling a constitutional obligation to protect public funds while ensuring service delivery. He assured that there is no intention to punish the municipalities, but they are obliged to act in accordance with the legislative framework.

Types of Financial Problems

The Minister clarified that the suspension of funding followed extensive consultations and was not an immediate decision. Municipalities facing financial difficulties fall into several categories. These include those that passed budgets without funding when planned expenditures exceeded expected revenues. The second category includes municipalities that do not pay creditors such as Eskom, water boards, and the Auditor-General.

Nevertheless, Godongwana highlighted the issue of unpaid pension contributions as a serious concern. He reiterated that these municipalities owed R1.7 billion to pension funds as of the end of February because they withheld contributions from employees' salaries but did not transfer them to the relevant funds, which creates problems upon an employee's retirement.

Next Steps and Debts

Godongwana stated that the government is working to resolve this issue while continuing to support the municipalities. He reported that some municipalities have provided satisfactory responses, and the remaining 29 are under review. He added that the first recipients of funds will be able to receive money by next Thursday, provided instructions are issued by the Treasury.

Ogalaletseng Gaarekwe, Deputy Director-General of the National Treasury for Intergovernmental Relations, confirmed that the 29 municipalities will receive the delayed funds next week. She specified that eleven of them will receive the full amount, and eighteen will receive partial funds to cover debts to creditors.

Gaarekwe also reported that the Treasury is addressing outstanding debts owed by provinces and national departments to municipalities. According to consolidated data for December, provinces and national departments collectively owe R27.9 billion, of which R14.9 billion is attributed to provinces. The Treasury has sent letters to the provinces to assess their responses, although some disputes remain.

Godongwana added that the Treasury will apply similar measures to provinces and national departments that fail to meet their financial obligations, as Section 216 applies to all state institutions.

iol.co.zaJuly 9, 19:59

National Treasury Suspends Transfers to KwaZulu-Natal Municipalities Due to Governance Issues

The National Treasury has temporarily suspended the transfer of budget allocations between funds for seven municipalities in the KwaZulu-Natal province. This decision was made in response to identified governance issues, drawing attention to the financial status of Johannesburg.

Reasons for Funding Suspension

The municipalities affected by the National Treasury's decision to temporarily withhold the current monthly allocation are facing the need to bring order to their finances due to non-compliance with financial management standards. These local authorities fear that this punitive measure will have a devastating impact on the communities they serve, especially low-income households.

Funds in the form of allocations are distributed from the National Treasury to local government bodies for their discretion, and most often they are directed towards providing free basic services, primarily for poor and needy citizens.

Scope of the Decision and Requirements

Earlier this week, the National Treasury announced its intention to halt allocation transfers to 69 municipalities across all nine provinces. This decision was implemented to ensure proper management of state funds allocated to municipalities, as well as to require the affected municipalities to eliminate unauthorized, irregular, fruitless, and wasteful expenditure (UIFWE).

The Treasury stated that it would reverse its decision provided that the affected municipalities comply with strict recovery conditions.

Situation in KwaZulu-Natal

Among the KwaZulu-Natal municipalities deemed non-compliant with governance and financial compliance requirements were Newcastle, uMzingati District Municipality, Impendle, eMadlangu, Amajuba District Municipality, Abakulusi, and uMkhanyakude District Municipality.

Officials from Impendle Municipality, one of the smallest rural municipalities in central KwaZulu-Natal, anxiously awaited Thursday, hoping to convince the National Treasury to change its decision. The municipality's financial difficulties, which the National Treasury viewed as evidence of improper financial management, were highlighted earlier this year after it failed to pay staff salaries on time.

Mayor Kho Dlamini stated that the municipality would face survival difficulties without funding from allocations. He added: 'This affects us greatly, but discussions are currently underway with the National Treasury, which we believe will lead to an agreement. Impendle Municipality is largely dependent on grants,' emphasizing the critical importance of Treasury funds for Impendle, which has limited revenue sources from fee collection.

Reaction from Municipalities and Authorities

Nhlakhla Jele, a representative of uMkhanyakude District Municipality, reported that the municipality is also actively engaging with the National Treasury on this matter. Jele stated: 'All the issues raised by the National Treasury have been reviewed from our perspective, and we have responded accordingly. We are still negotiating with the National Treasury to clarify their concerns,' stressing the municipality's commitment to resolving any financial discrepancies.

The KwaZulu-Natal Department of Cooperative Governance and Traditional Affairs (Cogta) confirmed that it is assisting the affected municipalities, calling the Treasury's actions an important step toward improving accountability in local government. A member of the Cogta KwaZulu-Natal executive committee, Reverend Thulasizwe Buthelezi, stated that the withholding of funds should serve as a wake-up call for leadership in the affected municipalities.

He clarified that while the fund withholding is a serious measure, Cogta KwaZulu-Natal is already actively working to resolve governance problems in all these municipalities, citing the recent constitutional intervention in Impendle as an example of the department's ongoing efforts to address governance issues.

The Department assured residents that there would be no immediate disruption in the provision of basic services, emphasizing that the fund withholding is intended as a short-term corrective measure. The Department, together with the provincial treasury, plans to deploy specialized finance and management experts to assist the affected municipalities in rectifying the identified shortcomings.

Warning from Local Government Association

The decision to withdraw funding from 69 municipalities prompted the South African Local Government Association (SALGA) to demand a comprehensive analysis of systemic structural problems. Although the funding suspension, which includes the City of Johannesburg, aims to ensure fiscal discipline, SALGA warned that this step could unintentionally disrupt the provision of critical services if underlying financial problems are not resolved.

Lerato Pasha, SALGA's head of municipal finance and fiscal policy portfolio, explained that the allocation distribution is a formula-based grant designed to subsidize poor households that cannot afford basic water, electricity, and municipal services. She noted that withholding these funds could prevent municipalities from paying large suppliers such as Eskom and water boards, or meeting payroll obligations. Pasha warned: 'If this money does not arrive on time, it will affect the timely payment of these services.' She added that interest will accrue on unpaid accounts, which could ultimately impact service delivery if the fund withholding continues.