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 on local government because, as the Budget Review noted, “continued financial deterioration and instability in municipalities have adverse consequences for people’s lives”.
“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.”
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“These measures include centralising the functions of government’s human resource, payroll and administration system, conducting employee verification through identification systems, and requiring provincial treasuries and premiers’ offices to approve the filling of all posts against verified recruitment plans and available funding.
“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 the Development 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.
In terms of the division of nationally raised revenue, national departments will receive R951.7bn in 2026/27, R939.9bn the following year and R987.9bn in 2028/29, while the respective figures for provinces are R810.5bn, R845.9bn and R872.4bn, and local government R182.3bn, R189.3bn and R19.3bn.
Over the next three years provinces are allocated an additional R32.3bn, of which R9.9bn supports employee compensation pressures in education, with the remaining R21.3bn for health sector compensation and the employment of doctors and to make up shortfalls in goods and services expenditure.
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