Municipalities must return to the foundational principle of fiscal integrity in which revenue collected for a specified function must first sustain that function before any cross-subsidisation can occur, Finance Minister Enoch Godongwana said in his 2026 budget speech on Wednesday.
He cited as an example, the City of Johannesburg, which collects R11.9 billion in water revenue, yet only R1.3 billion is allocated to Johannesburg Water for capital expenditure.
This, Godongwana said, has contributed to a massive R64 billion backlog needed to fix 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 will deteriorate and critical infrastructure systems will eventually collapse,” he warned.
To correct the trajectory, R27.7 billion has been allocated over the medium term for a “performance-linked reform” for metro trading services in electricity, water, sanitation and solid waste.
Godongwana signalled this as the first step toward matching revenue collection with reinvestment in the same service.
“The reform, however, goes beyond the performance-based grant structure,” he said. “It entrenches operational and financial management reform. Under the new system, failure to meet reform and operational targets will result in budgets being reduced.”
The minister said that this would strengthen accountability and governance, enabling long-term infrastructure investment and “supporting the sustainable turnaround of these essential services”.
Qualifying municipalities, including eThekwini and Johannesburg, have begun implementing council-approved improvement plans to ring-fence revenue and reinvest it in water and electricity.
Godongwana said that the government is also reforming the municipal infrastructure grant to address persistent underspending, misuse of funds and capacity constraints that hinder service delivery in non-metropolitan municipalities.
A split delivery model has been introduced where municipalities with proven capacity will continue to receive funding directly; where there are serious capacity or governance failures, delivery will shift to an indirect model, involving capable district municipalities and accredited implementing agencies.
“The intention is to protect citizens from persistent municipal dysfunctions that have long undermined effective service delivery,” Godongwana said.
The minister added that in water, investments are directed towards high-impact bulk water augmentation schemes, refurbishment of ageing infrastructure and the completion of strategic projects that support economic nodes, agriculture and household supply.
Minister warns that municipalities must reinvest collected revenue in essential services, citing Johannesburg’s water backlog of R64 billion
