Withholding of Local Government Equitable Share (LGES) transfers to selected municipalities (with Ministers)

The Select Committee on Finance and the Select Committee on Cooperative Governance and Traditional Affairs (COGTA) held a joint meeting to receive briefings from the National Treasury (NT), the Department of Cooperative Governance and Traditional Affairs (DCoG), the South African Local Government Association (SALGA) and the Financial and Fiscal Commission (FFC) on the decision to withhold portions of the July 2026 Local Government Equitable Share (LGES) allocations in terms of section 216(2) of the Constitution. National Treasury (NT) explained that 69 municipalities were identified for non-compliance, including unfunded budgets, failure to pay creditors such as Eskom, water boards, pension funds and the South African Revenue Service (SARS), and high levels of unauthorised, irregular, fruitless and wasteful expenditure (UIFWE). The intervention resulted in repayment agreements worth more than R4 billion, while all withheld equitable share allocations were released by 31 July 2026 after varying levels of compliance. Treasury stressed that the withholding was intended to improve financial discipline rather than punish municipalities. The Department of Cooperative Governance and Traditional Affairs outlined the phased release of withheld funds, proposed a standardised process for future section 216(2) interventions, and highlighted that national and provincial departments owed municipalities R28.4 billion. It emphasised stronger collaboration between government spheres, improved debt recovery, and enhanced support for financially distressed municipalities. The South African Local Government Association (SALGA) argued that withholding equitable share allocations reduced municipal cash flow, weakened service delivery, and disproportionately affected poor and rural communities. It attributed municipal financial distress to structural challenges, weak revenue bases, growing consumer debt and broader economic conditions, while calling for coordinated intergovernmental support rather than punitive measures. The Financial and Fiscal Commission (FFC) acknowledged the legality of the intervention but argued that Parliament should play a stronger oversight role by reviewing decisions within the constitutional 30-day period. It maintained that withholding alone would not resolve underlying governance and financial challenges and recommended a structured parliamentary process and continued monitoring of municipal compliance. During discussions, concerns centred on the impact of withholding on service delivery, accountability for municipal officials, debts owed by other spheres of government to municipalities, the need for stronger consequence management and Parliament's oversight role. There was broad agreement that municipalities must comply with financial legislation, but that enforcement should be accompanied by greater support, improved governance, strengthened oversight, and collaboration across all spheres of government.