Tough approach in pipeline for local government in Budget Review

The national government plans to toughen up its management of provincial governments and municipalities. The Budget Review notes that significant weaknesses in provincial and municipal operations and financial management persist despite two decades of reform interventions. It said the national government is employing the powers granted it by the constitution to stabilise the system.

“A combination of targeted investment in revenue infrastructure, performance-based grant reforms and long-term financial planning support is intended to effect significant improvements in municipal self-reliance and fiscal sustainability,” the Treasury said in the Budget Review. Provinces were rationalising public entities by reviewing mandates, governance arrangements and financial sustainability to identify duplication and non-performance. “The 2026 budget marks a fundamental shift in the subnational fiscal architecture.

For over a decade, intergovernmental financing flows have masked provincial and municipal performance weaknesses,” the Treasury said. “With 63% (162) [of] municipalities in financial distress in 2023/24 and provinces struggling to balance compensation costs and service delivery outputs, this approach has reached its limits. National government is now moving from oversight to active structural intervention.” The structural intervention will be focused onlocal governmentbecause, as the Budget Review noted, “continued financial deterioration and instability in municipalities have adverse consequences for people’s lives”.

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“At municipal level, this shift involves changes to legislation, governance arrangements and technological innovation. In provinces, government is enforcing strict headcount controls and compensation discipline.” “Together these reforms move the system towards a more capable, disciplined and performance-orientated model of subnational governance.” To protect infrastructure investment from municipal dysfunction, a general clause will be introduced in the 2026 Division of Revenue Bill that will enable the National Treasury to redirect infrastructure grants from local municipalities that have been incapable of implementation to theDevelopment Bank of Southern Africa, the Municipal Infrastructure Support Agent or capable district municipalities. The budget allocates more than half of nationally raised revenue to provinces and municipalities.

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