Staff-related costs could cripple municipalities

MUNICIPALITIES are spending beyond their means, with mounting affordability pressures and operating deficits in the 2025/26 financial year driven largely by rising "employee-related costs",  according to the National Treasury. 

The National Treasury recently published the operating and capital budgets of municipalities as adopted by their respective councils for the 2025/26 Medium Term Revenue Expenditure Framework (MTREF). 

The aggregated budgeted revenue for 2025/26 is R675.8 billion. It is expected to increase to R712.6 billion in 2026/27, and R753.5 billion in 2027/28. While the total municipal expenditure in 2025/26 is estimated to be R698.0 billion, increasing to R728.3 billion in 2026/27 and R764 billion in 2027/28.  

“It is notable that municipalities will realise operating deficits on the operating budgets in the 2025/26 financial year as the total operating expenditure increases at a higher rate than the revenue projections. This is an indication that municipalities are spending beyond their means and a first sign of financial challenges.  

“The main cost drivers are employee-related costs and bulk purchases, representing 27.0 per cent and 35.0 per cent of the operating expenditure respectively.  Municipalities are experiencing multiple impacts of the high electricity and water tariff increases; lower sales levels owing to changes in consumption patterns and increased bad debt as a result of affordability pressures," said Treasury. 

The National Treasury further explained that budget trends showed that municipalities do not always realise the surpluses they budget for, as such surpluses are derived from overstating their revenue budget projections. 

“Municipalities apply ‘accrual’ accounting which means that the operating statement of financial performance represents the intended billings and other revenue rather than actual revenue collections (cash in the bank).  The actual cash collected is dependent on the effective management of the municipal revenue value chain and implementation of the credit control and debt collection processes.” 

Trade union federation, Congress of South African Trade Unions (Cosatu), said the state of local government was a matter of great concern to them and workers. 

“On almost any indicator, local government is deteriorating with many municipal workers and pension funds left unpaid in more than a dozen municipalities and local services deteriorating in more. This has caused unbelievable hardship and caused many companies to close and retrench. The salary bill is not the issue.

"The challenge has been corrupt politicians, incompetent or unqualified management, lack of investment in infrastructure and underfunded municipalities. At the heart of much of these are uncollected municipal tariffs and rates needed to fund their activities. These are what need to be tackled,” said Cosatu parliamentary coordinator, Matthew Parks. 

He said together with its affiliate, the South African Municipal Workers' Union (Samwu) Samwu, they were engaging with the department of Co-operative Governance and Traditional Affairs (CoGTA) and the South African Local Government Association (Salga) on a package of interventions to turn local government around.

Samwu provincial spokesperson, Hlanathi Gagayi said: “The blame on staff costs is sometimes seen at the level of lower staff members but senior management of municipalities should take responsibility there too, as they continue to approve top-heavy structures.

"How much senior officials take home as a salary should not affect lower earners in the municipality or cause the minister to punish everyone in the sector. It appears that there might be a push to retain certain people, but the fact that some senior municipal officials may earn even more than ministers is maybe something that needs sensitive attention on the side of affordability.” 

Cape Times