Business Day News By Tara Roos, Parliamentary Correspondent.
Years of irregular, fruitless and unauthorised spending prompt unprecedented intervention
Miyelani Holeni, Group Chief Advisor at Ntiyiso, said the decision represented one of the strongest fiscal interventions available to the National Treasury under Section 216(2) of the Constitution and Section 38 of the Municipal Finance Management Act (MFMA).
“While the Treasury has previously withheld transfers from individual municipalities, applying the intervention simultaneously to 69 municipalities across all nine provinces reflects a much firmer approach to enforcing financial discipline.”
He cautioned, however, that the timing could create unintended consequences for smaller municipalities that rely heavily on the equitable share because they have limited own-revenue bases.
The intervention follows years of deteriorating municipal finances documented by both the National Treasury and the Auditor-General.
Holeni said the Treasury’s escalation reflected the fact that years of technical support, guidance and training had failed to reverse systemic governance failures.
“South Africa’s intergovernmental system is designed around support before sanction. The Treasury generally provides guidance, technical support, training and opportunities for municipalities to correct deficiencies before resorting to withholding funds.”
He added that the scale of irregular, unauthorised and fruitless expenditure, together with the growing number of unfunded budgets, had demonstrated the need for stronger compliance capacity through dedicated functions that ensure adherence to legislation and Treasury circulars.
According to the Treasury, municipalities have accumulated R145.21 billion in irregular expenditure since the 2021/22 financial year, including R40.14 billion in 2024/25 alone. Over the same period, municipalities incurred R24.12 billion in fruitless and wasteful expenditure and R118.13 billion in unauthorised expenditure.
Holeni said he would avoid describing the affected municipalities simply as the country’s “worst-performing” municipalities, arguing that the Treasury’s intervention was based on specific legislative compliance failures rather than an overall assessment of municipal performance.
“Inclusion therefore reflects failure to meet the Treasury’s prescribed compliance requirements rather than serving as an overall municipal performance ranking.”
Holeni also questioned the Treasury’s assessment that the temporary withholding of funds would not affect service delivery.
“The Treasury’s intention is clearly a ‘carrot and stick’ approach. They are now resorting to the stick as the municipalities are displaying behaviour that is repeating past offences.”
He said the impact on residents could remain limited if municipalities responded quickly, but warned that many of the affected municipalities already faced liquidity constraints and significant debt to Eskom, water boards and other statutory creditors.
Finally, Holeni emphasised that withholding transfers could encourage immediate behavioural change but would not resolve the structural weaknesses affecting local government.
“Previous interventions suggest that withholding transfers can produce immediate behavioural change. However, withholding funding alone does not resolve structural governance failures. Long-term improvement depends on credible funded budgets, stronger revenue collection, accurate billing, effective oversight, consequence management and stronger financial leadership.”
