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Money management is critical if dysfunctional local government is to be fixed

Money management is critical if dysfunctional local government is to be fixed
Stephen Grootes
By Stephen Grootes
13 Jan 2025
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Many councils in South Africa are a mess – they do not provide proper services, they are in debt to Eskom and their residents suffer from a lack of water and electricity as a result.

President Cyril Ramaphosa’s promise that the ANC will prioritise “fixing local government” this year, and confirmation from the Cogta minister that its funding model will change, suggest that momentum may be building for improvements in councils.

However, any change to how this sector is funded will start a major debate among our elites. It seems unlikely that decision-makers will have the appetite for the trade-offs that will have to ensue.

Many will ask whether giving councils more money is wise when so many waste so much of it already. In the end, it may all be about electioneering rather than working towards substantive change.

On Saturday, while delivering the ANC’s January 8 Address, Ramaphosa said about local government that “we find the most important area of government, local government, has not been functioning as well as it should”.

This demonstrates his mastery of understatement.

Many councils are a mess – they do not provide proper services, they are in debt to Eskom and their residents suffer from a lack of water and electricity as a result.

Funding review confirmed


Ramaphosa was speaking after Cogta Minister, the IFP’s Velenkosini Hlabisa, confirmed in an answer to a written parliamentary question from the EFF that the current funding model for municipalities was under review.

Currently, local government receives 9.6% of what is called the equitable share of national revenue received by the government.

Of course, municipalities also have the power to source revenue by providing paid-for services to residents and by having the power to levy rates on properties.

Despite that, it is clear that many councils do not have enough money to provide the services they are supposed to.

Many smaller, rural councils rely heavily on their national grant because many of their residents are unemployed. This means these councils cannot charge them for services and thus they do not have a big enough revenue base to render them sustainable.

And then there are the needs of local councils.

Many municipalities, including metros, can no longer provide reliable water supplies to their residents because they have not conducted proper maintenance over many years.

Metros are also now trying to provide services to people who have moved from rural areas to cities. Because of a massive shortage of low-cost accommodation, many of these people are forced to live in informal settlements that also require services.

Overwhelming case


All of this means that the case for councils to receive more money is surely overwhelming.

But increasing local government’s portion of the equitable share would require cuts elsewhere. And it seems difficult to see where spending could be cut.

Many of the national departments need more money, too.

The Department of Justice needs more money for more courts, the Department of Defence needs more money for the cash-strapped SANDF, and many other departments are still dealing with the austerity measures imposed after the Covid-19 pandemic.

It would also seem impossible to take money from the provinces. They have to pay for hospitals and schools and it would be politically toxic to reduce their budgets further.

Provinces also have very few ways to raise revenue, being limited to measures like car licence discs (which serve no other rational purpose) and the licensing of gambling (which may explain the explosion of betting sites operating in South Africa).

Also, giving councils more money will lead to more questions about how they spend the money they already have.

Many councils have a long history of misusing money, whether it be the almost typical scandal of a small-town mayor receiving a massive car, or the City of Joburg’s decision that the best way to improve service delivery is to give council officials VIP protection, or the incredible corruption in eThekwini.

In the case of Mogale City, for example, the national government has confirmed giving the council R300-million because it could not afford the maintenance of its sewerage works.

Despite receiving the money, there has been no improvement in the services it provides and sewage is still being pumped directly into local rivers.

Eskom and water board debt


At the same time, if councils were to receive more funds, there may be a long and fairly disorderly queue of people who would want some of that money. This is because council debt to Eskom is now more than R109-billion, while councils owe water boards more than R20-billion.

This debt is having a crippling effect on Eskom, and may well prevent its proper unbundling into three parts (this is because if the distribution arm of Eskom were made independent, it would immediately fail to be a going concern because councils are not paying for the services they receive).

Eskom and water boards might well argue that if councils were to get more money, they should receive it first. This is because the non-payment by these councils is an existential threat to them and because many councils have shown they cannot be trusted to pay Eskom with the money that residents have paid to them for electricity.

This may well be the starting point of another debate, which is whether councils that have shown they can manage their finances should receive more money than those who have shown they cannot.

To put it another way, if a council has consistently misused its money, why should it receive more money from the national government?

Of course, the answer to this is that this money should not be about councils, but about the people who live in them. And that they cannot be punished because of the way those councils have behaved.

Despite that, some will argue that councils with a long track record of unqualified audits should get more money.

This will then devolve into an argument about the DA’s governance in the Western Cape. The DA will argue that many councils where it governs have shown they can manage their finances properly.

This factor alone will probably prevent the ANC from allowing this discussion to move ahead in any way.

What is clear is that local government may well now be the focus of many of our political parties – in particular the ANC.

But it is the ANC that many voters might well hold responsible for the current situation in so many councils.

It seems unlikely that it can improve the living conditions of many people before the forthcoming local elections – no matter how much money is thrown at the problem. DM

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