Big changes for municipalities in South Africa after 23 years
Finance Minister Enoch Godongwana announced an update to the Municipal Finance Management Act (MFMA) for the first time in 23 years.
This comes as the minister gave his Medium Term Budget Policy Statement (MTBPS), addressing widespread local governance issues and financial mismanagement within municipalities.
“The financial and operational performance of many municipalities remains weak. This is untenable. It affects the delivery of basic services. It undermines economic activity. And it erodes public confidence,” said Godongwana.
The MFMA is the primary law regulating how local municipalities manage public funds, prepare annual budgets, generate revenue, and settle debts.
The minister announced that municipalities will be legally obligated to demonstrate that their budgets are genuinely funded rather than relying on unfunded projections.
Previously, many municipalities approved budgets backed by uncontrollable debts or inflated income projections, which led to large water and electricity bills that remained unpaid.
The minister said that the National Treasury will take stronger control over municipal executive salaries and chief financial officers’ (CFO) salaries.
Municipal salary increases will now require formal concurrence from the Minister of Finance, and National and Provincial Treasuries will play a direct role in appointing CFOs.
The minister said that municipal authorities should collect outstanding revenues and ensure budget allocations for free basic services for poor households.
“Municipalities must also better manage what they charge residents for basic services. Our review of municipal funding has found that most municipalities have enough money for day-to-day operations, but they spend too much on running costs.”
The minister announced enhanced methods to investigate financial misconduct in municipalities and directly recover lost or wasted funds.
He said the MFMA will provide a clearer legal framework for the National Treasury to intervene earlier and implement structured financial recovery plans when a municipality enters financial distress.
Billions of rands allocated to fixing failing municipalities
The minister announced that local governments will get 10% of national spending over the medium term, which marks a significant milestone for local service delivery.
“The increase in funding goes a long way towards addressing fiscal pressures in the local sphere. The issue can no longer be only about resources. It must also be about results,” he said.
“The priority now is to improve financial management, strengthen administration and eliminate waste. Every rand transferred to municipalities must translate into visible improvements in people’s daily lives.”
Additionally, R21.8 billion has been set aside for local governments to help cover rising costs of services such as water, electricity, sanitation, and waste removal, while also supporting low-income households.
R13.4 billion from the general fuel levy will be allocated to metropolitan municipalities, bringing their share back to 23% over the medium term.
Under the Medium-Term Expenditure Framework (MTEF), R3.5 billion will be allocated to roll out smart meters in municipalities to help improve revenue collection and billing accuracy.
Starting in 2027/28, two water grants and one municipal disaster grant will be combined to ensure future grants are based on reliable project plans.
Godongwana said that communities should have reliable water, functioning sanitation, well-maintained roads and safe, well-lit public spaces.
“With local elections approaching, citizens will judge municipalities by their performance and the quality of services they receive,” he said.
He said that the responsibility now rests with the municipalities to demonstrate that public resources are being used effectively and in the service of the people.
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