PATIENCE MBAVA | Treasury’s clamp on cash will hit poor the hardest

Ask the average person about the Financial and Fiscal Commission (FFC) and they’ll likely be unaware of it.

Yet for 30 years it has acted in their best interests, ensuring that all South Africans have their constitutional rights, including health care, housing, water and social security, protected. These resources are constitutionally mandated to be provided by our democratic government, a promise that is made to all South African citizens.

To this end, South Africa has a system of managing and allocating financial resources among national, provincial and local governments. The FFC is tasked with ensuring this intergovernmental fiscal system is stable and that the three tiers of government are allocated sufficient financial resources to fulfil their functions.

Each sphere of government is guaranteed its equitable share from national collected revenue without any preconditions.

Each year, the laws governing this equitable division of revenue are processed through parliament’s legislative oversight and in terms of the constitution. Such laws cannot be passed unless the FFC has been consulted and its recommendations considered.

The local government equitable share is the cornerstone of South Africa’s intergovernmental fiscal relations system. As a constitutionally provided unconditional allocation, it enables municipalities to provide basic services and fulfil their developmental responsibilities, particularly where local revenue-raising capacity is constrained.

The executive’s failure to consult and the resultant unilateral action risks the rise of intergovernmental disputes, even litigation

For many rural and fiscally distressed municipalities, the equitable share constitutes a significant proportion of operating revenue and is critical to maintaining essential municipal functions and service delivery. Therefore safeguarding the integrity of the equitable division of revenue is at the core of the FFC’s mandate.

The move by the national executive to stop the payment of this grant and impose conditions on the release of an unconditional and constitutionally mandated equitable share came as a surprise. This is especially so given that many stakeholders were party to the passing of the Division of Revenue Act mandating payments on specific dates in July 2026, December 2026 and March 2027. There was a logical expectation for consultation when the agreed-upon policy was suddenly being changed at implementation.

The executive claimed it took this decision due to persistent municipal financial mismanagement, noncompliance and the failure of municipal officials to discharge their duties in line with legislation. To address these deficiencies, approximately R13.5bn of the July 2026 local government equitable share due to 69 municipalities across the provinces was suspended.

The challenges and failures of local government are well documented, and the auditor-general’s successive reports have painted a picture of deteriorating municipalities and flagrant disregard of laws and regulations.

We do not doubt the frustration over persistent failures by many municipalities to comply with the Municipal Finance Management Act and other laws that govern their finances. Given these challenges, the executive invoked section 216 of the constitution and suspended funding pending performance on certain imposed conditions.

Key to intergovernmental relations and co-operative governance with regard to the sharing of fiscal resources are consultation and negotiations. The executive’s failure to consult and the resultant unilateral action risks the rise of intergovernmental disputes, even litigation.

Given that the executive has invoked section 216 of the constitution in the stoppage of funding to municipalities, the FFC has called on parliament to exercise its mandate and discharge its duties as required by the legislation.

Our assessment is that the affected municipalities are, by definition, those least able to absorb a cash-flow shock from their own revenue

A joint sitting of key finance committees has resolved to seek a legal opinion to clarify the legalities of the process taken as well as the roles and responsibilities of key players in local government.

The FFC’s analysis indicates that the fiscal consequences are material and fall on residents rather than on errant officials.

The suspended allocations fund water, electricity, sanitation, refuse removal and community services in 69 municipalities, and the equitable share is weighted towards the indigent household component, the poorest of the poor.

Our assessment is that the affected municipalities are, by definition, those least able to absorb a cash-flow shock from their own revenue.

The November local government elections have focused attention on municipal challenges and service delivery failures. We have to decisively address failing municipalities and demand accountability from errant officials and public office bearers.

We must also recognise that municipalities are not homogenous. They have different socioeconomic environments and different capacities and capabilities. Some have cash reserves, some have none and depend entirely on the equitable share cash transfers. Some are rural and distressed, and some are big metros with decent sources of income over and above their equitable share. Therefore, corrective measures should adopt differentiated approaches for fiscal oversight and support, recognising the significant diversity in municipalities.

Blunt, uniform enforcement measures may have disproportionate consequences for municipalities with structurally weak own-revenue bases and high dependence on intergovernmental transfers.

• Mbava is chair of the Financial and Fiscal Commission