Gauteng municipalities are facing a serious financial crisis, forcing residents to bear the costs. The National Treasury has temporarily suspended funding for a significant portion of the Johannesburg City Council's funds, compelling the municipality to revise its financial strategy amid growing service delivery challenges.
The National Treasury's decision to withhold part of the equitable share of funds from several Gauteng municipalities, including Johannesburg, Emfuleni, Lesedi, Sedibeng District Municipality, Maropeng Town, and Rand West Town, was a predictable outcome of years of financial inefficiency, weak governance, and persistent disregard for the findings of the Auditor-General (AG).
The Auditor-General's consolidated annual report for 2024/25 on local government audits, combined with the National Treasury's Municipal Financial Management Act Compliance Report for 2024/25, presents a deeply alarming picture of local government in Gauteng. Although some municipalities have improved their audit results, the overall trend indicates a worsening financial condition.
The towns of Ekurhuleni, Tshwane, and the Emfuleni Municipality received a qualified audit opinion. Only one out of eleven Gauteng municipalities was rated as being in good financial health. Six municipalities were classified as financially concerning, and four as financially distressed.
Most alarming are the findings regarding unfunded budgets. Nine Gauteng municipalities adopted budgets they could not realistically fund, amounting to R164.8 billion in unplanned expenditure. Furthermore, six of these municipalities incurred unauthorized expenditures totaling R8.4 billion due to lack of funding.
An unfunded budget is not merely an accounting issue; it means the municipality has committed to spending money whose collection is unlikely. Inevitable consequences include unpaid suppliers, infrastructure deterioration, service delays, and rising debt, ultimately leading to reduced quality of services for residents through unreliable water and electricity supply, damaged roads, and diminished municipal capacity.
The financial difficulties do not stop there. By year-end, Gauteng municipalities and organizations were required to pay Eskom R13.79 billion, and another R5 billion to water boards. It is worrying that 16 audited entities reported a cumulative deficit of R6.92 billion, with seven Gauteng municipalities having deficits. Even more concerning is that these municipalities failed to adjust their budgets during the adjustment process despite guidance and intervention from the National Treasury.
Moreover, the National Treasury's Municipal Financial Management Act Compliance Report identifies unauthorized, irregular, fruitless, and wasteful expenditure as one of the clearest signs of weakness in financial management, internal control, and law enforcement in local government. Despite many municipalities improving their ability to detect and record such expenditures, they continue to fail at the most crucial aspect: investigating cases, recovering public funds, ensuring accountability, and addressing the root causes of financial misconduct.
This gap between detection and consequence management remains a structural weakness undermining financial discipline and accountability. Beyond financial losses, the near-total absence of accountability is most alarming. The Auditor-General has once again found widespread failures in investigating and dealing with unauthorized, irregular, fruitless, and wasteful expenditure. Material findings regarding consequence management persist, confirming what the Auditor-General rightly calls a 'culture of impunity.'
Indeed, when financial irregularities are not investigated and officials are not held responsible, poor governance becomes institutionalized rather than corrected. The figures illustrate this failure. Gauteng municipalities closed the financial year with irregular expenditure of R32.96 billion, unauthorized expenditure of R12.63 billion, and fruitless and wasteful expenditure of R3.17 billion. Under the Lesufi administration, R45.92 billion in irregular expenditure accumulated. While R19.57 billion in irregular expenditure was written off, only R479 million has been recovered or is in the process of recovery.
Similarly, R9.82 billion in unauthorized expenditure was written off, alongside over R6 billion in fruitless and wasteful expenditure. Unfortunately, the amount recovered to date remains minimal. Writing off billions without substantive investigations or recoveries does not restore public trust. This raises fundamental questions about whether municipalities view financial misconduct as a management failure or merely as another administrative exercise.
Johannesburg serves as a prime example of how these governance failures lead to declining service quality. The Auditor-General identified systemic issues such as poor revenue collection, infrastructure decay, weak preventative controls, and unreliable performance reporting. Despite repeated intervention, the city incurred R2.38 billion in unauthorized expenditure, continuing to struggle to meet key service delivery targets.
Against this backdrop, claims that Johannesburg is not facing a financial crisis are unfounded and cannot be sustained. The application of Section 216 of the Constitution is not taken lightly. The National Treasury's decision to suspend part of the equitable share reflects a serious breakdown in financial management and compliance with the Municipal Financial Management Act.
The Democratic Alliance (DA) in Gauteng has consistently warned that repeated audit findings, deteriorating financial control, and a lack of consequence management would ultimately lead to this outcome. The latest Auditor-General's report confirms these warnings. Nevertheless, recommendations continue to gather dust, and their implementation remains painfully slow.
Now the evidence is undeniable. The question is no longer whether Gauteng municipalities have a financial problem; the question is who will be held accountable for it. Every rand lost due to financial misconduct is a rand taken away from road repairs, maintenance of water and electricity infrastructure, waste collection, and the provision of basic services that taxpayers deserve. Structures alone do not ensure accountability; political will is required.
Until consequence management becomes the norm rather than the exception, municipalities will continue to move from one financial crisis to the next, and it will be the residents who continue to pay for it through increased tariffs, deteriorating infrastructure, and disruptions in public services.
The escalating water crisis in South Africa is attributed not so much to a lack of infrastructure, but rather to weak governance, inefficient financial management, and the inability of municipalities to generate revenue.
Shirley Robinson, head of DNA Economics' practice on climate and public economics, emphasized that financing municipal water infrastructure is primarily an issue of municipal finance. She shared these thoughts during the webinar 'Beyond Infrastructure: Financing South Africa's Water Future,' which gathered experts to shift the discussion focus from infrastructure deficit to financial capacity.
The webinar was moderated by Dr. Ochiocheoya Omiunu, a research fellow at the British Academy, and participants included the South African Institute of International Affairs (SAIIA), DNA Economics, GreenCape, and the Infrastructure Finance and Implementation Support Agency (IFISA). Robinson explained that discussions about financing always begin with how the necessary investment will be executed, but they must start with an assessment of the municipality's ability to sustain long-term infrastructure investments.
She clarified that the country's water supply system consists of several interconnected components. The national government is responsible for strategic water infrastructure, including dams and main pumping schemes, which are designed and operated by water boards. Municipalities, on the other hand, are responsible for the infrastructure that directly provides water and sanitation services to end consumers.
According to Robinson, each part of the water sector has its own institutional duties, risk profiles, and financing. She stated that financing municipal water infrastructure is fundamentally a municipal finance problem, but more deeply, it is a systemic problem. In her words, funding failures rarely occur due to a lack of capital; they arise because the institutional conditions necessary to absorb, manage, and maintain these investments have not been created.
The expert noted that the success or failure of projects depends not on isolated factors, but on the functioning of planning, budgeting, revenue collection, procurement, asset management, and governance systems. When these systems operate effectively, finances can flow; otherwise, a market failure occurs, and even well-designed projects face difficulties attracting funding.
Robinson added that the main obstacle to financing municipal water infrastructure is not the availability of capital, but the financial health and institutional capacity of the municipality or sponsor to plan, finance, procure, operate, maintain, and upgrade this infrastructure over the next twenty to thirty years.
She also drew attention to the National Treasury's recent decision to temporarily suspend 'Fair Share' transfers for July for 69 municipalities, which serves as a reminder of the direct link between municipal financial management, institutional trust, service delivery, and willingness to invest. This creates a paradox: despite the acute need for significant investment to restore aging assets, reduce water losses, expand services, and increase climate resilience, many municipalities are simultaneously experiencing decline, revenue collection problems, growing debt obligations, weak liquidity, outdated infrastructure, and limited fiscal capacity. Paradoxically, municipalities with the greatest infrastructure needs are often the least able to attract funding.
Robinson stressed that a project's attractiveness for financing is a characteristic of the environment in which the investment takes place, not an inherent characteristic of the financial instrument itself. She noted that building financially sustainable institutions, reliable management systems, and well-prepared projects begins long before a municipality approaches a lender.
Raldo Kruger, a technical specialist at GreenCape for green finance and the water sector, added that any discussion of municipal creditworthiness must begin with an analysis of the current state of investments and highlighting historical underfunding of infrastructure and the huge need to accelerate investment, especially in the context of increasing climate resilience. He reported that municipalities lose about 35% of the water entering the system due to leaks and losses, which in 2019 was equivalent to a loss of about 10 billion rand in revenue for municipalities across the country.
Kruger defined creditworthiness as the confidence of capital providers that their investments are safe and that they will be able to earn a return. He pointed out that key factors depend on management, revenue management, and expenditure management, all three pillars resting on good governance, leadership, and future planning. Without creditworthiness, municipalities will face serious difficulties in stimulating economic growth through infrastructure investment.
The National Treasury has temporarily suspended the transfer of the fair share for July 2026 to 69 municipalities across all nine provinces. This measure aims to ensure financial discipline, eliminate instances of improper financial management, and enhance accountability among municipal officials and officers.
The decision was made after municipalities systematically and seriously failed to comply with the Municipal Finance Management Act (MFMA) and related provisions, despite repeated support, guidance, and engagement from the Treasury. In a statement on Tuesday, the Treasury noted that the temporary withholding of funds is intended to instill financial discipline, guarantee proper management of public money, resolve the issue of unauthorized, irregular, fruitless, and wasteful expenditure (UIFWE), and hold officials accountable where legally prescribed.
The municipalities affected by this decision are located in all nine provinces. The Treasury emphasized that the affected municipalities were provided with sufficient written notification and an opportunity to justify why their funds should not be frozen. They were also given a platform to submit written explanations.
The temporary withholding is implemented in accordance with Section 216(2) of the Constitution, combined with Section 38 of the Local Government: Municipal Finance Management Act 56 of 2003. The Treasury stressed that this measure is corrective, not punitive, and does not foresee an impact on service delivery, as the withholding is temporary.
The Treasury reported that despite extensive assistance provided to municipalities through MFMA circulars, individual meetings, and training sessions, many continued to fail to meet financial management requirements. These violations include adopting budgets without funding, inability to address UIFWE issues, and failure to meet established financial obligations.
The Treasury warned that non-compliance with legislation constitutes not only a dereliction of fiduciary duties by municipal political and administrative leadership but also threatens the financial stability of major suppliers, including water boards and Eskom. Furthermore, non-payment to third parties hinders the effective operation of state bodies such as the Auditor-General of South Africa (AGSA), the South African Revenue Service (SARS), and the Financial Sector Conduct Authority (FSCA).
It was noted that some municipalities failed to comply with the requirements of Section 32 of the MFMA regarding the handling of UIFWE cases. This section obliges municipal councils to recover UIFWE from responsible persons unless the council committee determines after an investigation that the expenditure is irrecoverable and it will be written off. The responsible body is the Municipal Public Accounts Committee (MPAC).
The Treasury stated that some municipalities did not conduct proper UIFWE investigations, failed to determine responsibility, did not recover losses where appropriate, and did not implement corrective measures. This means that MPACs are functioning inefficiently. It was also pointed out that some municipalities failed to demonstrate the implementation of consequence management measures, including disciplinary action, investigations, recovery processes, and referral to the police when required, which is an obligation under Chapter 15 of the MFMA and the Municipal Rules on Procedures for Financial Misconduct and Criminal Proceedings 2014.
The results of the AGSA's Consolidated Audit Report on Local Government for 2024/25 largely confirmed the Treasury's findings regarding persistent weaknesses in municipal financial management. According to the Treasury, since 2021/22, municipalities have incurred losses amounting to R24.12 billion in fruitless and wasteful expenditure. From 2021 to 2022, municipalities and their structures suffered R145.21 billion in irregular expenditure, including R40.14 billion in 2024 and 2025 alone. Since 2021 to 2022, municipalities have disclosed R118.13 billion in unauthorized expenditure, with R63.43 billion (54%) relating to non-cash budget items.
The Treasury added that budget reliability continues to decline: in 2024 and 2025, 116 municipalities (45%) adopted unfunded budgets, compared to 113 municipalities (44%) in the previous adjusted budget. By the end of the 2024 and 2025 financial year, municipalities were required to pay R3.40 billion in Eskom interest and R1.21 billion in water board interest. Additionally, payment delays extended to third-party deductions, with 48 municipalities (20%) having overdue third-party deductions for more than one month. The Treasury concluded that this once again demonstrates a persistent refusal to adhere to the legal framework, including the Local Government: Municipal Finance Management Act 2003 (Act No. 56 of 2003).
Fund transfers will resume once the affected municipalities meet the necessary conditions and provide proof of implementing compliance measures.
