AIDC accuses Treasury of punishing the poor by withholding municipal funding

The Alternative Information and Development Centre (AIDC) has sharply criticised the National National Treasury’s decision to withhold billions of rands in funding from dozens of municipalities, arguing that the move unfairly punishes poor households while failing to address the root causes of South Africa’s local government financial crisis.

IOL previously reported that Treasury had temporarily withheld the July 2026 equitable share transfers to 69 municipalities to enforce fiscal discipline, address financial mismanagement and strengthen accountability among municipal officials and office-bearers.

Treasury cited persistent and serious non-compliance with the Municipal Finance Management Act, with approximately R13.5 billion of the R110 billion allocated for the 2026/27 financial year initially affected. While some municipalities have since had their funding restored after meeting Treasury’s conditions, others continue to have their allocations withheld.

In a statement issued on Tuesday, the organisation said Treasury’s decision to temporarily withhold July 2026 Local Government Equitable Share (LGES) transfers from the 69 municipalities was a “false solution” to municipal financial distress, insisting that the country’s funding model for municipalities is fundamentally flawed.

According to the AIDC, although corruption, poor governance and financial mismanagement exist in many municipalities, these issues are only part of a much larger structural problem. The organisation argues that local government has been forced to operate under an unsustainable financing model that assumes municipalities can generate around 90% of their own revenue through property rates and service charges based on a full cost recovery system.

The organisation said the model has failed wherever it has been implemented at scale, leading to rising municipal debt, deteriorating infrastructure, increasing service disconnections and widening inequalities between wealthier and poorer municipalities. It argued that expecting municipalities to rely primarily on residents’ ability to pay for services is unrealistic in a country marked by high unemployment and deep poverty.

The AIDC warned that withholding equitable share funding would have immediate consequences for vulnerable households that depend on municipalities to provide free basic services, including water and electricity. It said the intervention risks depriving many residents of essential services while doing little to resolve municipalities’ long-term financial instability.

While acknowledging that these governance failures are genuine concerns, the AIDC argued that many municipalities with clean governance records still struggle financially simply because they lack sufficient revenue.

The organisation noted that the number of households receiving free basic services has declined significantly over recent years, falling from 3.6 million in 2016 to 2.8 million by 2023. It also claimed there is a major gap between the number of households Treasury budgets for under free basic electricity programmes and those who actually receive assistance.

The AIDC also disputed Treasury’s position that municipalities’ growing debt to Eskom is primarily the result of poor financial discipline. Instead, it argued that municipal debt reflects the inability of many households and businesses to afford rapidly increasing electricity and water tariffs. According to the organisation, municipalities now retain a far smaller share of tariff revenue than they previously did, with most income flowing directly to bulk suppliers such as Eskom and water boards.

It warned that penalising municipalities for unpaid Eskom accounts without addressing widespread poverty and affordability would only deepen energy poverty and lead to more service disconnections, particularly as government moves towards further reforms in the electricity sector.

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The organisation further pointed to evidence presented to Parliament by the Financial and Fiscal Commission (FFC), which revealed that while the 69 affected municipalities collectively owe approximately R97.4 billion to creditors, they are themselves owed around R217.9 billion by households, businesses and other organs of state. According to the AIDC, this demonstrates that municipalities are not simply debtors but are also significant unpaid creditors.

The AIDC also questioned the legality of Treasury’s decision to withhold the equitable share. It cited comments made by FFC chairperson Dr Patience Nombeko Mbava, who reportedly described the intervention as a “blunt instrument” that fails to distinguish between municipalities facing different financial challenges.

Mbava further argued that unconditional equitable share allocations can only lawfully be stopped by Parliament rather than by the executive alone, raising concerns about whether Treasury’s actions are consistent with both the Constitution and the Division of Revenue Act.

The AIDC concluded that the local government crisis cannot be solved through austerity measures or withholding municipal funding. Instead, it argued that the country requires a publicly financed and publicly delivered model for essential services that guarantees universal access to water, electricity and sanitation while addressing the deep structural inequalities that continue to undermine municipalities’ financial sustainability.