Division of Revenue Bill, Appropriation Bill & Eskom Debt Relief Amendment Bill: SALGA & FFC Input

Meeting report

Chairperson's opening remarks

The Chairperson welcomed participants in the meeting, and reminded Members that on 26 March, the Committee had received a briefing from National Treasury on the proposed 2025 budget bills, which included the Division of Revenue Bill, the Appropriations Bill, and the Eskom Debt Relief Amendment Bill. She said the meeting was for consultative engagement with the Financial and Fiscal Commission (FFC) and the South African Local Government Association (SALGA), to obtain their insights before the Committee began deliberating and before public hearings commenced.

The Chairperson said that the FFC’s focus would be across all three budget-related Bills, while SALGA would primarily address issues relating to the Division of Revenue Bill, in line with its role under Section 214(2) of the Constitution. After the deliberations, time permitting, the Committee would also consider and adopt outstanding minutes.

After recording apologies, the Chairperson then addressed a letter received from the FFC that had been circulated in the meeting. She said that the matter raised in the letter would be addressed in consultation with the Chairpersons of the other finance committees, as the process regarding the Division of Revenue Bill was still ongoing in the National Assembly. She reassured the Commission that the letter had been received and the matter would be attended to in due course.

Financial and Fiscal Commission (FFC) briefing

Mr Chen-Wei Tseng, Head of Research: FFC, said the Commission had identified a provincial allocation error in the 2025 Division of Revenue Bill, affecting the North West and Northern Cape. He noted limited consultation by National Treasury, incomplete supporting documents, and unclear information, which had prevented the FFC from flagging the issue earlier. He warned that if not corrected, the error could have constitutional implications. The Commission called for the amendment of the Bill before it was passed.

On the Appropriations Bill, the FFC noted changes from the National Macro-Organisation of Government process. Four new departments had been created, and the Department of Public Enterprises would close at the end of March 2025. The 2025 Appropriations Bill totaled R1.23 trillion, a 4.7% increase from 2024. The Social Development vote received the largest share (25.2%), followed by Cooperative Governance (11.2%). Other key votes included Basic Education (4.3% increase), Health (1.7%), and Higher Education (0.2%). Concerns were raised about a reduction in workbook funding and ongoing challenges at the National Student Financial Aid Scheme (NSFAS). The Commission also flagged concerns about increasing debt-service costs, which continued to crowd out allocations for service delivery. It noted that budget pressures and declining real increases in provincial equitable shares risked undermining frontline services.

The FFC highlighted issues with the Public Sector Pension and Related Payments Bill, particularly relating to transparency, rising contingent liabilities from state-owned entities (SOEs), and risks to fiscal sustainability. Eskom, Transnet, and independent power producers (IPPs) accounted for 53.8% of government’s guarantee exposure. The Commission warned that additional allocations outside of the equitable share formula undermined fiscal transparency. It called for a return to formula-based budgeting, and urged Treasury to consult properly under the Intergovernmental Fiscal Relations Act.

The FFC supported performance-based grants, but stressed the need for better data systems to support implementation, particularly for the National Health Insurance (NHI) scheme. It reiterated concerns about insufficient infrastructure funding, underperforming SOEs, and the need for cost containment, including reforming the public sector wage bill.

Dr Patience Mbava, Chairperson: FFC, concluded by warning that rising debt service costs, coupled with shrinking real allocations, were placing serious strain on service delivery. She urged Parliament to interrogate unexplained budget adjustments and to safeguard the credibility of the fiscal framework.

see attached for full presentation

South African Local Government Association (SALGA) briefing

Councillor Selina Moumakwe, Deputy Chairperson: Municipal Finance and Fiscal Policy Working Group, SALGA, opened the submission by noting that South Africa’s economic growth remained weak compared to its BRICS and G20 partners, negatively impacting municipalities. SALGA urged the government, especially National Treasury, to adopt international best practices in its macro and microeconomic strategies. She criticised the Treasury’s continued adherence to stagnant policies, despite only 1.3% growth over the past decade. Of the R2.5 billion set aside for infrastructure in 2024/25, only R171 million had been allocated to municipalities. SALGA also flagged the impact of rising bulk electricity and water costs, and warned that municipalities were being forced to borrow to cover operating costs. SALGA rejected the use of outdated data in calculating the equitable share, and called for a fiscal framework review that reflected the President’s State of the Nation Address (SONA) commitments.

Ms Lerato Phasha, Portfolio Head: Municipal Finance, Fiscal Policy and Revenue Enhancement, reinforced SALGA’s constitutional mandate to be consulted on the Division of Revenue. She said that poor economic growth, which excluded local government in its strategies, was the root cause of budget constraints. SALGA called for a joint economic growth plan across all spheres, and recommended benchmarking against BRICS partners. She expressed concern about declining grants, increased municipal costs, and ongoing use of old data. She outlined SALGA’s support programmes, including capacity-building, project finance readiness, and fraud detection tools like PulseCheck. She criticised the lack of meaningful consultation with Treasury, and urged Parliament to intervene. In closing, she called for integrated planning, reduced duplication, and urgent funding reforms to support municipalities.

see attached for full presentation

Discussion

The Chairperson thanked Cllr Moumakwe and Ms Phasha for their presentations, and noted the seriousness of the concerns raised by SALGA. She said the Committee had correctly concluded that there was a need to invite National Treasury to all Committee meetings going forward, to enable Treasury to respond to issues in real-time. She remarked that it often became difficult for Members to engage objectively with stakeholders when National Treasury was not present, especially where conflicting views existed between the parties. The absence of Treasury sometimes led to defensiveness in discussions, which could be avoided by including all parties. She confirmed that National Treasury should be invited to all meetings with stakeholders from the following week.

Ms S Ndhlovu (ANC, Limpopo) posed three questions to the FFC. First, she asked what the FFC’s view was on the sustainability of the provincial budget allocations, given the increase from R627.44 billion to R633 billion, and the increase in conditional grants from R137 billion to R139 billion, especially considering rising service delivery demands. Second, she asked what impact the increase in early childhood development (ECD) allocations by R2.3 billion in 2025 would have, given that the Basic Education Laws Amendment (BELA) Act lacked the necessary funding and systems to support the function. She asked how this should be addressed. Third, regarding the Eskom Debt Relief Amendment Bill, she asked what specific measures could be implemented to ensure improved transparency and oversight of fiscal decisions.

Turning to SALGA, she acknowledged the breakdown in consultation between SALGA and National Treasury, and agreed with the Chairperson that there was a clear need to have Treasury present in all meetings. She said similar issues had arisen in the Finance Committee, where contradictory claims had been made about consultation. She asked how many municipalities were currently affiliated with SALGA, noting that some municipalities were reportedly not members. She supported SALGA's concerns regarding the outdated data used in equitable share calculations, referring to previous controversies where officials had made remarks suggesting certain budgets were reserved for documented South Africans, which raised issues, given the presence of undocumented individuals in some rural areas who still made use of public services. She encouraged SALGA to continue raising these matters. She asked what role it played in ensuring that grants were effectively utilised, and whether it was currently advocating for any additional grants.

Mr J Britz (DA, Eastern Cape) introduced himself as an alderman with decades of experience in local government, having served before SALGA was even formed. He raised concerns that SALGA's presentation listed only six service delivery challenges, while there were many more. He highlighted major issues, including failing water and sewage infrastructure, as experienced in his Eastern Cape constituency, Tsitsikama, where communities had no access to water despite the region being water-rich. He pointed to collapsed municipalities that could not maintain infrastructure, and noted widespread incapacity in financial management. He referred to reports from last year’s Provincial Week visits, where the National Council of Provinces (NCOP) had seen numerous abandoned capital projects. He expressed disappointment that these basic issues had not been sufficiently addressed by SALGA.

He said that municipalities paid over R800 million annually to SALGA, and questioned what value for money they were receiving, particularly in terms of basic municipal support. While SALGA’s capacity-building programmes were excellent, he believed they fell short in helping municipalities with essential delivery. He asked SALGA what it was doing to address infrastructure problems, and whether it would consider reducing its membership fees to relieve municipalities under financial strain.

He expressed appreciation to the FFC for its objective and professional work. He said Slide 9 of the presentation had captured the government’s political philosophy, but growing debt and rising debt service costs required a rebalance between ideology and fiscal reality. He asked how the disparities between social welfare spending and economic sectors could be addressed. He also raised concern about unspent allocations at the provincial level, citing examples of clinics without medicine despite budgeted funds. He asked what advice the FFC could offer on resolving underspending by provinces.

Ms A Siwisa (EFF, Northern Cape) thanked the FFC for their informative presentation, and commented that the Appropriations Committee was privileged to sit across both finance and appropriations, giving it insight into both processes. She said Parliament could not afford to risk being taken to court due to negligence on National Treasury’s part. She referred to the issue of incorrect allocations between North West and the Northern Cape, saying the explanation given by Treasury -- a simple “oops” -- was unacceptable. If public hearings proceeded without correcting the error, Parliament could be legally exposed.

She raised concern about the allocation to agriculture, noting that reducing funding would lead to higher food imports and weaken food sovereignty. It was unacceptable that basic vegetables like tomatoes, onions and green peppers were being imported when they could easily be grown locally.

Regarding the ECD allocation, she expressed concern that the Department of Basic Education (DBE) had admitted that it did not know how many ECD centres existed. She asked how the ECD budget would be impacted if more centres were later discovered. She also criticised the proposed student loan scheme, noting that loans without guaranteed employment would lead to youth being blacklisted for defaults, further entrenching inequality.

Turning to SALGA, she asked what role SALGA was playing in the township economies, particularly in preventing municipal officials from exploiting registration processes. She reiterated that if local government failed, nothing at the provincial or national level would succeed.

Mr P Mabilo (ANC, Northern Cape), began by acknowledging the economic growth and revenue collection challenges raised during the engagement. He welcomed the recommendation by SALGA to benchmark South Africa’s economic and fiscal approaches against the BRICS and G20 countries.

Addressing the FFC, he referred to the first slide of its presentation, and commented on the poor performance of departments that were key to development. He cited the Department of Mineral Resources and Energy, which showed a negative 66 value. He said he was uncertain whether the blue indicator on the slide represented under-expenditure or underperformance. He added that either way, a negative figure was concerning. He also pointed out that the Department of Public Works and Infrastructure had seen no increase in allocations for the current year, showing a negative 3.6% compared to the previous year. He continued with Water and Sanitation, which had a negative 4.2%, while Transport -- which he described as the backbone of economic growth -- had a negative 1.6%.

He asked the FFC whether the current allocations, when considered in the context of last year’s performance, effectively addressed the country’s economic growth and revenue collection challenges. South Africa was struggling to reach even a 2% growth rate, while BRICS countries were averaging 3% to 4%, as referenced by SALGA. He raised concerns about provincial allocations and the data underpinning them. He said the FFC had confirmed that the current data limitations made it impossible to apply the existing formula with certainty, and if a Member were to ask why a particular province -- such as North West or Gauteng -- had received more or less, there would be no proper explanation. He argued that this was due to inaccurate data used in the formula.

Turning to SALGA, he said he shared the sentiments of the previous speaker, especially given his own 20-year service in local government. He expressed appreciation that SALGA was aware of the persistent underspending in municipalities, which the Auditor-General (AG) had repeatedly flagged. He acknowledged the conditional grants and other transfers made to municipalities, but noted that many failed to spend the funds. He welcomed SALGA’s acknowledgement of the skills deficit in municipalities and the interventions underway. He referred to SALGA’s earlier call for benchmarking exercises, and asked whether the same could be done at the municipal level. He suggested that South African municipalities could learn from similar cities in other BRICS countries.

He emphasised the importance of functional municipalities to enable economic growth, saying that investing in dysfunctional municipalities amounted to “ploughing from an unfertile source.” He asked if SALGA had considered initiating a benchmarking programme to understand how other cities financed infrastructure, attracted skills and generated revenue, particularly without relying on grants that often constituted more than 50% of a municipal budget.

He returned to the issue of bulk purchases, which SALGA said accounted for 20% of municipal expenditure. He questioned whether SALGA had considered this figure holistically, including how much municipalities owed to creditors such as water boards and Eskom, and how much of their losses were due to waste, theft, or inefficiency -- such as unaccounted water. He asked whether these critical services ultimately helped municipalities raise revenue, or if they were adding to their financial burdens.

Lastly, he echoed a previous speaker’s concern regarding the township economy, and noted SALGA’s efforts to secure alternative funding. He asked whether there was a measurable percentage of progress regarding these efforts, particularly in terms of lessening dependence on National Treasury.

Mr P Swart (DA, Western Cape) asked to submit most of his questions in writing due to time constraints. However, he used his speaking time to express serious concern that the FFC's recommendations were being continuously overlooked. This was not the first time he had heard such concerns, and the matter needed urgent intervention. He called for the Committee to engage directly with National Treasury and request a formal report on how FFC recommendations were being integrated -- or ignored. He said that when Treasury claimed consultation had occurred, stakeholders said otherwise.

He thanked SALGA for its presentation, and said Members should not blame SALGA for issues beyond its mandate. He reminded them that SALGA had a mandate to influence, not enforce, and that municipalities needed to proactively seek assistance from SALGA. He shared his own experience of taking his municipal officials to SALGA offices for support. He stressed that many of the issues raised --particularly around the underperformance of SOEs and provinces -- were most severe at the local level. He said that protests and public unrest began in municipalities, and that urgent intervention was needed in the local government sphere.

Ms S Nxumalo (ANC, Mpumalanga) addressed SALGA regarding the rising frequency of extreme weather events, and asked whether the 2025 budget provided sufficient funds for municipalities to respond to climate-related disasters. She asked what role SALGA played in ensuring municipalities accessed and utilised disaster relief funds effectively.

She welcomed the FFC’s guidance on debt service costs. She asked whether it had raised concerns with National Treasury regarding the lowered 2025 medium term expenditure framework (MTEF) allocations due to updates to the equitable share formula. Lastly, she asked how provinces would manage wage bill pressures in 2025 without compromising frontline service delivery over the MTEF period.

Responses

FFC

Dr Mbava thanked the Chairperson and Members for their comments, and affirmed that the FFC was committed to rigorous, evidence-based research. She assured Members that all information shared by the Commission was interrogated and grounded in data, not assumption. Regarding the "break rate" and funds returned to the fiscus, she said this referred to conditional grants that many municipalities could not implement due to complexity and capacity constraints. As a result, funds were returned unspent, ultimately disadvantaging residents. She stressed the need to review these conditional grants for simplicity and practical applicability, and invited Commissioners and the Head of Research to provide further input.

Commissioner Trevor Fowler responded to the questions raised by Mr Britz. He acknowledged the value in the Member’s point regarding the urgent need to address sewerage and water challenges. He commented that this was indeed becoming an increasingly critical issue that must be resolved.

With respect to National Treasury’s adherence to established rules and procedures, he said that the FFC had in the past made recommendations and kept track of which questions had been responded to. While there had been efforts to engage with National Treasury on such matters, the responses provided were often not specific or complete. Treasury did not always see it as its responsibility to provide detailed answers to the FFC’s queries.

Commissioner Fowler said that this was precisely why the FFC raised such matters with Parliament, because the FFC was accountable to Parliament, and it believed Members of Parliament were best placed to pursue those unanswered questions on its behalf. In conclusion, he expressed agreement with the FFC Chairperson, and reiterated the Commission’s commitment to bringing as much valuable information as possible to Members. He welcomed the appreciation expressed by Members for the FFC’s contribution.

An FFC representative noted that most of the key issues had already been covered, particularly with respect to conditional grant performance. She reiterated that underperformance on conditional grants was a challenge common across all three spheres of government.

She acknowledged the Committee's observations on under-expenditure over the years, and emphasised the importance of applying a more tailored approach to understanding the underlying variables. As the FFC’s recommendations were research-based, she would not go into detail on specific responses, but agreed that the issue warranted deeper investigation.

On the issue of debt servicing costs and infrastructure allocations, she said that these elements remained critical, and that the allocations toward infrastructure and the social package were disproportionately small. This was especially concerning when considering what was needed to stimulate economic recovery. She pointed out the large gap in the budget allocation when viewed as a percentage of the total budget, and highlighted the need for greater emphasis on improving infrastructure funding.

She also stressed ongoing concerns regarding data integrity and the consistent challenges around data add-ons generated by systems like Data Safety. These issues were longstanding and must now be urgently addressed to improve coordination and alignment among data centres on which government decision-making continues to rely.

Mr Tseng responded to the question on the sustainability of the 2025 provincial allocations, and unequivocally stated that the current fiscal framework was not sustainable. While provinces faced escalating spending pressures, the equitable share allocations continued to fall short. He said that the nominal increases in the budget failed to match the real increases in costs, particularly in frontline service delivery.

He expressed strong concern at the ECD function shift to the Department of Basic Education. He argued that DBE was not institutionally nor financially prepared to take on the function. He cautioned that the mandate had not been properly costed, and that developmental losses from missed early education years were often irreversible, with long-term consequences for human capital development.

Regarding the Eskom Debt Relief Bill, Mr Tseng explained that government had initially committed to transferring R70 billion in the form of equity, and only R40 billion as direct charges. However, in the 2025 Budget, government had opted to transfer the entire amount via direct charges -- effectively increasing cash outflows and bypassing any equity-linked conditionalities. This, he noted, undermined transparency and raised serious fiscal credibility concerns.

On the issue of NSFAS student debt, he said that high levels of youth unemployment were resulting in students taking on debt they were unable to repay. Many were defaulting on credit before entering the job market. He emphasised the importance of creating an integrated pipeline from education to employment, to avoid youth falling into long-term debt traps and to ensure that state investments in education were yielding socio-economic returns.

Turning to allocation anomalies, Mr Tseng acknowledged that poor data -- such as inaccuracies in the 2022 Census -- was a concern, but emphasised that a more critical issue was Treasury's deviation from the equitable share formula. He said that additional allocations were being made arbitrarily, with no clear justification, creating confusion around why provinces like the North West or Northern Cape received the amounts they did. This deviation from formula-based allocations compromised transparency.

He reiterated the FFC's recommendation that Stats SA urgently undertake a rapid population survey to verify and potentially recalibrate the census data. If significant disparities were found between the survey and the Census 2022 figures, the survey results should be used to correct and inform future allocations. He warned that failure to do so would perpetuate inequities, and delay service delivery improvements.

Responding to a question on whether the FFC had raised these issues with National Treasury, Mr Tseng confirmed that such engagement would normally have taken place through consultations under Section 10 of the Intergovernmental Fiscal Relations Act (IGFRA). However, Treasury had not followed the correct consultation procedures, effectively sidelining the FFC. This lack of proper engagement resulted in avoidable errors, such as the misallocation between provinces, not being corrected before bills were tabled in Parliament.

Mr Tseng said that the current approach to budgeting for frontline services -- relying primarily on inflation-adjusted top-ups -- was insufficient. He argued that government needed to move away from this stopgap method and instead undertake proper costing of services. He warned that without this shift in budgeting methodology, government would continue to fall short of funding the actual cost of delivering basic services.

Cllr Moumakwe assured the Committee that SALGA was indeed providing sufficient support to municipalities. As an example, she referred to a recent conference convened by SALGA which had focused on peer learning and knowledge exchange between municipalities, metros, districts and provinces. She reported that benchmarking exercises had recently been conducted in Gauteng, where municipalities had learned from the successes of Midvaal and the Western Cape, where the Bergrivier Municipality had demonstrated excellence, particularly in asset management.

She echoed the sentiment of a Member who had earlier suggested that municipalities should utilise SALGA more effectively. She emphasised that municipalities should take full advantage of the support and expertise available through SALGA and its partners, such as the Urban Councils Association of South Africa (UCASA). She further stressed the importance of reviewing municipal performance management systems (PMS) from a bottom-up perspective, to improve accountability and performance at all levels. She also raised the issue of bloated municipal structures and misaligned staffing, urging that municipalities conduct proper skills audits to ensure that personnel were deployed where their skills and competencies were most needed. This would help to resolve challenges such as underperformance in local economic development (LED) units that were failing to attract investment or generate revenue. In closing, she called for municipalities to restructure their internal operations to improve efficiency and ultimately enhance service delivery.

Ms Phasha confirmed that all municipalities in South Africa remained affiliated with SALGA, and no withdrawals had occurred. On grant spending, she said the problem was national, and required disaggregation. SALGA’s mini-research revealed that municipalities planned too late -- only during budget formulation -- resulting in project delays. There were supply chain and project implementation challenges, and some municipalities lacked officials who could develop business cases for additional grants. SALGA proposed classifying municipalities by spending performance in order to tailor support.

She said National Treasury's consultation process was often superficial -- documents were not shared ahead of meetings, making meaningful engagement impossible. She called for Parliament’s intervention to resolve deteriorating relations between SALGA and Treasury. On infrastructure, she emphasised that SALGA’s role was to influence, not enforce. Municipalities were still being found non-compliant with water treatment regulations, but 21 such municipalities had recently been allocated R150 million to improve compliance. SALGA supported municipalities with self-assessments and performance monitoring, but municipalities needed to implement the support offered. A core issue remained the lack of skilled engineers. She encouraged municipalities to professionalise finance and infrastructure posts, and to recruit specialists.

On township economies and basic infrastructure, she said SALGA assisted with grant preparation and capacity mapping. It often worked with sector departments like the Department of Water and Sanitation (DWS) and the Department of Electricity and Energy, and with the Municipal Infrastructure Support Agent (MISA).

She acknowledged that membership fees was a longstanding concern and committed to raise the matter with the SALGA national executive committee (NEC). Currently, it offers flexible payment arrangements for financially distressed municipalities. For such municipalities, it had negotiated that they not implement salary increases, as it would worsen their financial positions.

She outlined two township economy programmes. One was to improve the business climate -- cutting red tape for business licensing, and helping municipalities package their investment potential. She used Bela-Bela as an example of a well-located agricultural town that needed to attract agro-processing investment. SALGA also supported municipalities in reforming bylaws to enable, rather than restrict, township businesses. They facilitated dialogues to reduce conflict and improve compliance.

She said SALGA was actively engaged in benchmarking. Officials were currently attending United Cities and Local Governments (UCLG) development sessions in Switzerland, and last year they had benchmarked LED strategies in Egypt. She said South Africa had historically been too grant-dependent, and municipalities now needed to explore borrowing and alternative financing.

On bulk services, she emphasised that municipalities were price takers. SALGA continued raising objections to unaffordable bulk tariffs. In 2024, municipalities -- particularly those in the Free State -- had declared disputes against bulk water tariffs. SALGA's position was often ignored by the DWS and the National Energy Regulator of South Africa (NERSA), which failed to consider end-user affordability. Most metros were now only breaking even on bulk services, and few generated margins. SALGA had a programme to support municipalities in addressing non-revenue water and energy losses. On disaster and climate change funding, funding was insufficient and mainly reactive, focused on post-disaster response, not proactive mitigation.

Chairperson's closing comments

The Chairperson thanked all stakeholders and Members for their participation. She said that the meeting lacked the quorum to adopt or consider any decisions, including minutes, and deferred those to the next sitting. She thanked the FFC for their insightful contribution, stating that the day's discussions had empowered Members ahead of the budget processes. She stressed that the Committee took seriously the issues raised, especially those about errors in proposed legislation and inadequate consultation processes. She reaffirmed her intention to meet with her counterpart in the National Assembly. From her perspective, it appeared the FFC had advised the National Assembly’s Appropriations Committee, but no action had been taken, which was a cause for concern. She gave an assurance that the Select Committee on Appropriations would continue to act lawfully and seek the necessary advice to fulfil its mandate in line with the Money Bills Act.

The meeting was adjourned.