When National Treasury stopped July’s equitable share transfer to 69 municipalities, the immediate focus was on what those municipalities owe. The Financial and Fiscal Commission (FFC), however, told Parliament last week that looking only at municipal debt misses a much bigger problem.
Dr Patience Nombeko Mbava (pictured), the chairperson of the Commission, described local government as “a system that has stopped paying itself”.
Municipalities are failing to pay Eskom. Businesses are failing to pay municipalities. National and provincial departments are failing to pay municipalities. Municipalities are failing to pay suppliers. Across the system, the 30-day payment rule has become the exception rather than the norm.
“The discipline that is supposed to keep this system solvent has gone unenforced for over a decade,” Mbava told MPs. “So, the withholding then comes on top of an environment where there is failure to collect and to pay.”
While Parliament had convened to consider Treasury’s decision to stop the equitable share transfer, the Commission argued the real story was not simply about what municipalities owe, but about a payment system that has gradually stopped working.
If municipalities owe so much, why are they also owed even more?
The Commission’s analysis found that households, businesses, and government departments collectively owe the 69 municipalities affected by Treasury’s decision R217.9 billion. By comparison, they owe creditors R97.4bn, largely to Eskom and the water boards.
On paper, that leaves municipalities with assets exceeding their liabilities by more than R120bn.
But Mbava cautioned Parliament against taking comfort from those figures.
“The asset is an illusion, and the liability is real.”
Nearly 90% of the money owed to municipalities is older than 90 days, while R133.8bn has already been impaired as bad debt in the current financial year. Municipalities’ own auditors have effectively accepted that much of the money is unlikely to be recovered.
What sits on the other side of the ledger is far less forgiving.
Much of it is owed to Eskom and the water boards for bulk electricity and water. Those debts do not quietly remain on a balance sheet.
“Eskom and the water boards do not impair,” Mbava told MPs. “They disconnect.”
It’s not only households that aren’t paying
Households account for the biggest share of municipal debt, owing the 69 municipalities R158.3bn.
The Commission acknowledged that much of this reflects genuine financial hardship. But it also warned Parliament against treating the entire debt problem as one of poverty.
“The collection failure is broad-based. It is not simply a poverty story.”
Commercial businesses owe municipalities another R46.4bn.
Government departments and other organs of state owe R11.6bn.
Together, those two groups account for almost R58bn.
According to the Commission, a significant portion of the debt is not owed by people who cannot pay. It is owed by organisations that, in many cases, have the means to do so.
The money that’s sitting on the table
Not all debt is equally difficult to collect.
Unlike indigent households, she said, commercial businesses are debtors that municipalities know, can locate, and already have legal powers to act against.
“These are debtors who are traceable. These are debtors who are solvent. These are debtors who can be disconnected if there is a will under the legislation.”
Yet R30.6bn of commercial debt has been outstanding for more than a year.
Mbava described it as the “low-hanging fruit” of municipal revenue collection. Credit-control measures, disconnections, and legal recovery are already available under existing legislation, she said. The fact that so much debt has remained unpaid suggests those tools are simply not being used.
“Every rand a municipality fails to collect from a paying business is a rand that they need from the equitable share to cover the gap.”
Then there’s another debtor: the state.
If commercial debt was one surprise in the Commission’s analysis, government debt was another.
National and provincial departments, together with other organs of state, owe the affected municipalities R11.6bn.
Only 4.4% of that debt is paid within 30 days.
Almost 90% is older than 90 days, while R8.3bn has been outstanding for more than a year.
“The state does not pay the state,” Mbava said.
She pointed out that National Treasury sanctioned municipalities for failing to meet their obligations, while national and provincial departments themselves were in breach of Treasury’s own 30-day payment instruction.
“The enforcement then is asymmetric,” she said. “If the 30-day rule is worth enforcing against struggling municipalities, it must be worth enforcing against all national departments.”
Municipalities aren’t paying either
Section 65 of the Municipal Finance Management Act requires municipalities to pay their creditors within 30 days. The Commission’s analysis found that only about 10% of what municipalities owe is paid within that period. The remaining 90% is already in breach of the Act.
Municipalities owe about R42.9bn to Eskom and R17.5bn to the water boards. Together, those two creditors account for roughly three-quarters of municipalities’ aged debt.
“It’s fundamentally about the arrears to Eskom and the water boards,” she told MPs. “It should be addressed correctly as such.”
The centre will not hold
The Commission accepted that many municipalities face structural constraints, including weak local economies, unfunded mandates, and limited own-revenue bases. But Mbava argued those factors cannot explain the scale or persistence of the deterioration.
Instead, she returned to what she described as the decisive factor: recurring financial management failure.
The FCC pointed to municipalities that exceeded approved operating budgets by between 300% and 1 245%, alongside unauthorised and irregular expenditure and R133.8bn impaired as bad debt in a single year.
“No adjustment to the formula itself can absorb a municipality spending 12 times more than it’s supposed to on its allocation,” Mbava said. “The binding constraint here is financial stewardship.”
Parliament has been here before
Mbava reminded MPs that the Commission had appeared before Parliament on almost exactly the same issue in 2015.
The committees at the time raised concerns about the consultation process and the stopping of the equitable share. Eleven years later, Parliament was debating many of the same questions again.
In the years between, government introduced one intervention after another. There were Eskom disconnection campaigns, intergovernmental task teams, the repeated withholding of conditional grants, debt-relief frameworks, Treasury circulars, and the Eskom municipal debt-relief programme.
The debt continued to grow.
“Instrument after instrument,” Mbava said, “the arrears did not shrink; they compounded.”
One solution won’t work for every municipality
After more than a decade of failed interventions, the Commission argued that the blanket response of withholding municipalities’ July equitable share allocations was unlikely to solve the problem.
Its analysis found enormous differences between the 69 municipalities. Some have no cash reserves at all. Others have enough cash to fund operations for almost 10 years. Some generate almost no own revenue and rely almost entirely on transfers from national government. Others raise more than four times as much revenue themselves as they receive in transfers.
“These 69 municipalities are not homogeneous,” Mbava said. “The same blunt instrument was applied to an insolvent municipality, and the same blunt instrument was also applied to another municipality which has 10 years’ worth of cash. That cannot be right.”
Instead, it proposed three broad categories:
- Municipalities with weak revenue bases and structural constraints should receive targeted institutional support.
- Municipalities where governance failures are driving the crisis should face progressively stronger enforcement and consequence management.
- Those experiencing a combination of both should receive support tied to clear milestones before fiscal sanctions are considered.
But support, Mbava emphasised, should not come at the expense of accountability.
“The officials who are responsible for non-compliance and financial mismanagement must be held accountable.”
She said consequence management should include investigations, the recovery of losses, and public reporting.
“The public must know that these officials are being held accountable.”
At the same time, she argued that the equitable share should continue to protect the 3.7 million indigent households who rely on it for free basic services.
“We need to make sure that we hold the people who are responsible, not the communities that should be receiving these services.”
the rest of the money is either stolen or mismanaged