The Logic of Local Government Finance
The Logic of Local Government Finance
Drawing on a paper he wrote titled 'The Logic of Local Government Finance', Anton Groenewald, Group Head of Regional Operations at the City of Tshwane, delivers one of the most direct and substantive accounts of why South African municipalities are failing - and exactly what it takes to fix them.
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Presented by PhoenixERP from Business Engineering
The Logic of Local Government Finance: Why Most Municipalities Are Failing and What the Ones That Work Have in Common
Guest: Anton Groenewald, Group Head of Regional Operations, City of Tshwane Metropolitan Municipality
Host: Dan Claassen, Managing Director, Future Cities Africa
Topics: Municipal Financial Sustainability - Revenue Collection - Carrying Capacity - Unfunded Mandates - Infrastructure Management - Systems and Technology - Leadership
Anton Groenewald has spent 26 years in local government, including tenures as municipal manager of both Swellendam and Midvaal - two municipalities at opposite ends of the size spectrum that both achieved clean audits and financial sustainability under his watch. Drawing on a paper he wrote titled The Logic of Local Government Finance, this conversation is one of the most direct and substantive accounts of why South African municipalities are failing - and exactly what it takes to fix them.
Key questions and takeaways
Where did the financial logic of local government break down from the outset?
Anton identifies five compounding failures that were present from the beginning but whose consequences took decades to fully materialise.
- The culture of non-payment that existed before 1994 was never resolved. The assumption that democracy would produce willing payment was wrong, and the historic debt of Black local authorities was never fundamentally addressed.
- The full capital and operating cost of extending basic services to low income, informal and no-income communities was severely underestimated - and those costs are permanent, growing, and compounding.
- The displacement of investment: infrastructure spending to service low income communities actively crowded out investment in revenue-generating middle and high income areas, gradually eroding the financial base.
- The scale of financial mismanagement over two decades was not anticipated. No policy framework in the late 1990s could have predicted the depth of the governance failure that followed.
- Every attempt at correction - Back to Basics, the Local Government Turnaround Strategy, successive five-year intervention cycles - produced insignificant improvement. The cracks were papered over rather than repaired, and they have now become structural fractures.
"Those chickens, which are almost the size of ostriches, are now coming home to roost for some of those municipalities."
What is the golden thread - the financial sustainability model - and how many municipalities actually live by it?
Anton's model, grounded in National Treasury Circular 71, defines the non-negotiable thresholds for municipal viability.
- Revenue collection must be at or above 95% annually. Municipal surpluses run at 5 to 8% at best - meaning if a municipality collects 100 million rand and spends 88 million, the 7 million surplus funds the following year's repairs, capital leverage and growth. Drop below 95% collection and the model collapses.
- Repairs and maintenance must be funded above 8% of budget. Assets that are not maintained consume more resources over time and ultimately fail to generate the revenue they were built to produce.
- Staff costs must not exceed 35% of total expenditure. Municipalities with staff at 50 to 60% - many in non-service-delivery functions - are structurally compromised.
- Water losses must be below 15% and electricity losses below 10%. Municipalities losing 40% of purchased water - and collecting payment on only 30 of every 100 litres purchased - are in an unrecoverable spiral.
- Only 40 to 50 municipalities consistently meet these thresholds. They are the same institutions the Auditor-General identifies year after year. The rest are not living by this model.
"If you do not do this consistently, you are going to find yourself cash-strapped, dysfunctional, distressed, and in some cases bankrupt. That accounts for almost 150 to 180 municipalities in the country at the moment."
How many low income and informal households can a municipality carry before it erodes its own survival?
This is what Anton calls the elephant in the room - a calculation that National Treasury knows but has never made explicit in policy because of its political implications.
- A middle income household can sustainably subsidise one to three low income or no-income households. A high income household can carry three to five. If less than 40% of a municipality's property owners are middle or high income, and low income and informal households exceed 50% of the population, the sustainability ratios break down.
- Fewer than 5% of households receiving the full subsidised services basket (six kiloliters of water, 50 units of electricity, free refuse collection, no property rates - approximately R800 to R1,000 per month) ever graduate to paying status. They remain a permanent cost.
- As middle and high income households respond to unreliable services by installing solar panels, boreholes and grey water systems, they reduce their municipal consumption - further eroding the revenue base that subsidises everyone else.
- This calculation should be an explicit input into every municipality's financial sustainability planning. It currently is not.
"If your carrying capacity is exceeded, there is very little opportunity for you to turn around and come back."
Is it time for municipalities to hand back their unfunded mandates?
Anton argues that unfunded mandates are partly self-inflicted - and that COGTA has failed to provide the regulatory direction that would prevent municipalities from misinterpreting their own powers and functions.
- Municipalities have actively expanded into functions they were never intended to prioritise - growing LED departments with economists and planners while neglecting core business regulation: checking certificates of acceptability, ensuring food safety compliance, verifying building certificates. The core mandate has been sacrificed for the more visible, politically attractive function.
- The same pattern repeats in health: municipalities with clinics appoint doctors and nurses rather than environmental health inspectors, whose job it is to test water, check factories and enforce compliance - the actual constitutional health mandate at local level.
- COGTA has issued no regulation, circular or directive defining what municipalities should actually do within their existing powers - leaving interpretation wide open and allowing misallocation to go unchallenged for decades.
- Anton's principle: do the core mandate correctly and effectively first. Only then should expanded functions be considered. The unfunded mandate debate is partly a red herring because the funded mandate is itself being misused.
"It boggles the mind that it is 2026 and COGTA has not seen fit to make a ruling that says: if you cannot meet your basic core mandate, what are you doing with an unfunded mandate?"
What role do integrated financial management systems play in enabling a municipality to actually live by the model?
Anton identifies five interconnected systems that form the institutional backbone of any financially sustainable municipality.
- A financial management system, like PhoenixERP, that tracks revenue, expenditure and deviations accurately and generates the Section 71 and Section 52 reports required by law. This is the foundation.
- A property valuation system linked to GIS and zoning data. Revenue accuracy and completeness - knowing who owes what, and whether the amount is correct - depend on this link being live and current. General valuation rolls must be updated every five years, and the system must support this process.
- A technical asset management system covering all moveable and fixed assets - plant, vehicles, pumps, road surfaces - with condition assessments, useful life calculations and scheduled maintenance. Without this, the 8% repairs and maintenance threshold cannot be tracked, and assets quietly deteriorate until they fail.
- A plant maintenance and pavement management system linked to the financial asset register and GIS. This closes the loop between what an asset is worth, where it is, and what it costs to maintain.
- Revenue protection tools that identify and reduce non-technical losses (theft, vandalism, bypassed meters) for both water and electricity. These losses are a direct drain on the sustainability model and must be actively managed.
"Far too many municipalities look at ICT and systems as an irritation, as a compliance mechanism. Look at it as a risk mitigation strategy."
If the blueprint is this clear, what is actually preventing municipalities from following it?
Anton's answer is unambiguous: it is a leadership problem, not a systems problem.
- The AG's March 2026 report found only 53% of municipalities had competent senior managers - defined as the municipal manager, CFO, head of engineering, head of planning and head of procurement. The correlation between the 47% who do not meet the standard and the municipalities that are failing is direct and provable.
- Weak political leadership appoints weak municipal management. Weak management produces weak performance. Professionalization will not solve this if the people appointed lack moral fibre and ethical calibre. Qualifications alone cannot substitute for a genuine vocation to serve.
- Eighteen people in South Africa carry direct responsibility for this: the MECs of provincial treasury and provincial COGTA in each province. Every senior municipal appointment requires MEC endorsement. Every Section 71 report, mid-year report and annual report carries the red flags needed to trigger intervention. The mechanisms to act - Sections 135 to 148 of the MFMA - exist and are largely unused.
- Midvaal and Swellendam proved that it can be done at any scale. Both achieved clean audits, collected above 95% of revenue, maintained infrastructure and operated within budget. The only difference between those municipalities and the ones that are failing is consistent, committed, uninterrupted application of the basics.
"We have squandered such a fantastic opportunity. It is going to take the next five to ten years to change things - but maybe it will happen sooner if there is just the collective will, the collective commitment, and the desire to make that change possible."
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