By Thapelo Molefe
Finance Minister Enoch Godongwana has allocated R86.9 billion to municipalities to support the provision of free basic services to 11.2 million households.
Delivering his 2026 Budget Speech in Parliament on Wednesday, Godongwana said the funding forms part of government’s effort to stabilise local government, where communities experience the state most directly.
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“Of the allocated funding to local government, R86.9 billion is to support the provision of free basic services to 11.2 million households,” he said.
The minister acknowledged that many municipalities remain in financial and operational distress, limiting their ability to deliver essential services effectively.
Audit outcomes show that 63% of municipalities are in financial distress, while the proportion of clean audits remains low. Godongwana described this as an “unacceptable reality”.
“A central challenge with municipalities is that they not only differ in capacity, but also in their revenue-raising potential. This demands a more targeted approach to respond to the diverse pressures facing municipalities,” he said.
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To strengthen long-term sustainability, the National Treasury is revitalising support for the development of long-term financial plans. These plans are intended to improve project identification, support sustainable cash flow planning and guide financial decision-making.
They are also expected to address challenges such as unfunded mandates and limited capacity to maintain infrastructure.
Government is also undertaking structural reforms, including a comprehensive review of the local government fiscal framework, aimed at modernising the intergovernmental system and building a more capable and resilient local government sphere.
Godongwana raised concern over the misallocation of revenue within metro trading services, particularly in major cities.
“For instance, Johannesburg’s water revenue is R11.9 billion but only R1.3 billion is allocated to Joburg Water for capital expenditure,” he said.
This imbalance has contributed to a R64 billion backlog needed to address water supply problems in the city.
“If this practice of collecting revenue from basic services while diverting the funds to unrelated functions continues, maintenance backlogs will grow, services deteriorate and critical infrastructure systems eventually collapse,” Godongwana warned.
To address such challenges, R27.7 billion has been allocated over the medium term for a performance-linked reform targeting metro trading services in electricity, water, sanitation and solid waste.
Under the new system, municipalities that fail to meet reform and operational targets will face budget reductions. The reform aims to ring-fence revenue collected for specific services and ensure it is reinvested in maintaining and upgrading infrastructure.
Qualifying municipalities, including eThekwini and the City of Johannesburg, have begun implementing council-approved improvement plans to ring-fence revenue and reinvest in water and electricity services.
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In addition, government is reforming the Municipal Infrastructure Grant to address persistent underspending, misuse of funds and capacity constraints in non-metropolitan municipalities.
A split delivery model will now apply. Municipalities with proven capacity will continue to receive funding directly, while those with serious governance or capacity failures will shift to an indirect delivery model, with capable district municipalities or accredited implementing agencies overseeing infrastructure projects.
Godongwana said the intention is to protect citizens from persistent municipal dysfunction that has long undermined effective service delivery.
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