Velenkosini Hlabisa Urges Municipalities to End Unfunded Budgets

Hlabisa said municipalities should no longer approve budgets that cannot be financed, describing unfunded budgets as one of the main reasons many local governments fall into financial distress.

Cooperative Governance and Traditional Affairs Minister Velenkosini Hlabisa has called on municipalities across South Africa to stop adopting unfunded budgets, warning that the practice weakens financial stability, disrupts service delivery and places unnecessary pressure on newly elected councils.

Speaking alongside Finance Minister Enoch Godongwana at a media briefing in Pretoria, Hlabisa stressed that municipalities must prepare budgets based only on revenue they can realistically generate. The briefing followed National Treasury's decision to temporarily withhold municipal equitable share transfers to several municipalities over financial management concerns.

Budget Within Available Revenue

Hlabisa said municipalities should no longer approve budgets that cannot be financed, describing unfunded budgets as one of the main reasons many local governments fall into financial distress.

He noted that the current local government term is nearing its end ahead of the Municipal Elections in November 2026, making it important for councils to leave their successors with stable finances instead of mounting debt and unpaid obligations.

The Minister explained that when municipalities spend beyond their means, they often struggle to pay employees, creditors and essential service providers, creating wider financial problems that ultimately affect residents.

Paying Creditors and Strengthening Compliance

Hlabisa urged municipalities to settle outstanding payments to organisations such as Eskom, water boards and the South African Revenue Service (SARS) as soon as funds become available. He also called on government departments and provincial administrations to pay municipalities on time so that the entire financial system functions more effectively.

He said the government would continue working closely with the South African Local Government Association (SALGA), organised labour and other stakeholders to identify municipalities experiencing financial difficulties and provide support before stronger intervention becomes necessary.

The focus, he added, is on improving compliance and preventing financial problems from escalating into full-scale crises.

Progress in Financial Reporting

The Minister welcomed improvements in municipal financial reporting, revealing that only one municipality failed to submit its annual financial statements last year after the sector consistently achieved a 98% submission rate. He said the government is working towards full compliance by the 31 August 2026 reporting deadline, stressing that every municipality must meet its legal obligations.

Using a household budget as an example, Hlabisa said municipalities should only plan spending based on the income they actually receive. He noted that while some councils prioritise paying salaries, they often delay statutory payments to Eskom, SARS and water boards, deepening their financial difficulties.

Shared Responsibility for Better Services

Hlabisa also appealed to residents, businesses and government institutions to pay municipal rates and service charges, saying municipalities cannot provide reliable services without sufficient revenue.

He acknowledged that local government faces a range of interconnected challenges but expressed confidence that stronger financial discipline, improved compliance and greater cooperation between all stakeholders will help restore municipal stability and improve service delivery.

The media briefing followed National Treasury's announcement on 7 July 2026 that it had temporarily withheld the July 2026 Municipal Equitable Share allocations to 69 municipalities across all nine provinces because of persistent non-compliance with the Municipal Finance Management Act (MFMA) and related regulations.