Finance Minister Enoch Godongwana warned that diverting funds away from core trading services such as water and electricity risks long-term system failures.
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Finance Minister Enoch Godongwana has delivered a blunt warning to municipalities, saying failures in fiscal discipline and infrastructure reinvestment are deepening service delivery breakdowns.
Tabling the 2026 Budget on Wednesday afternoon, Godongwana said municipalities must return to the “foundational principle of fiscal integrity”, where revenue collected for a specific service is first used to sustain and maintain that service.
Godongwana warned that diverting funds away from core trading services such as water and electricity risks long-term system failures. He added that municipalities that do not practice fiscal integrity contribute to growing maintenance backlogs and deteriorating infrastructure.
“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 said.
Godongwana singled out Johannesburg’s water finances as a stark example.
The city generates R11.9 billion in water revenue, yet only R1.3 billion is allocated to Joburg Water for capital expenditure.
“This has contributed to the massive backlog of R64 billion that is needed to fix water supply problems in the city,” Godongwana said.
To address the problem, government has allocated R27.7 billion over the medium term for a new performance-linked reform targeting metro trading services. The funding will support improvements in electricity, water, sanitation, and solid waste management.
Treasury said the reform is designed to better align revenue collection with reinvestment into the same services. The programme goes beyond a traditional grant structure and introduces operational and financial management reforms.
Treasury said the mechanism is intended to strengthen accountability, governance, and long-term infrastructure investment.
“Under the new system, failure to meet reform and operational targets will result in budgets being reduced,” said Godongwana.
Qualifying municipalities, including the City of Johannesburg and eThekwini, have begun implementing council-approved improvement plans aimed at ring-fencing revenue and boosting reinvestment in essential services.
Government is also reshaping the Municipal Infrastructure Grant to tackle persistent underspending, misuse of funds, and capacity constraints in non-metropolitan municipalities.
National Treasury said the changes are designed to protect residents from ongoing municipal dysfunction that has undermined infrastructure delivery and basic services.
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