South African municipalities spend R611.4 billion between them each year. Where that money comes from differs so sharply between municipalities that it explains most of the variation in how they perform.
Property rates
A tax on the value of property within the municipality, levied at a rate the council sets each year in its budget. Rates are the most dependable revenue a municipality has, because they do not depend on consumption and are secured against the property itself.
The catch is that rates income depends entirely on the property base. A municipality of high-value suburbs raises substantial rates. One covering former homeland areas, where much land is held communally and property values are low, raises very little regardless of how well it is run.
Service charges
Payments for electricity, water, sanitation and refuse removal. For many municipalities the largest single item is electricity: they buy in bulk from Eskom and resell to households and businesses, and the margin cross-subsidises other services.
This is also where things go wrong. If a municipality cannot collect what it bills, it still owes Eskom and the water boards for the bulk supply. Unpaid service charges are the most common route into a municipal debt spiral.
Transfers from national government
Two main kinds. The equitable share is an unconditional transfer, calculated by formula and weighted heavily towards the number of poor households a municipality serves. Conditional grants are earmarked for specific purposes, most importantly infrastructure.
For municipalities with a weak property base, transfers are the largest source of revenue and sometimes the overwhelming majority of it. That makes them dependent on decisions taken nationally, with little room to respond when local costs rise.
Other own revenue
Fines, licences, permits, building plan fees, rentals and interest earned on investments. Individually small, but meaningful in aggregate for larger municipalities.
Why the mix decides the outcome
A municipality funded mainly by rates and service charges controls its own income and can plan several years ahead. One funded mainly by transfers is administering someone else’s budget. When you see a small rural municipality with weak finances, the explanation is usually structural rather than simply a matter of competence.
Every profile on this site breaks revenue down by source across five years, so you can see the mix for yourself.
Common questions
Why do municipalities sell electricity?
Municipalities were historically given electricity distribution as a function, and the surplus on resale funds other services. Where Eskom supplies households directly, the municipality loses that margin, which materially changes its finances.
What is the equitable share?
A constitutionally required transfer of nationally raised revenue to local government, allocated by formula and weighted towards poor households. It is unconditional, meaning the council decides how to spend it.
Can a municipality set its own rates?
Yes, within the Municipal Property Rates Act. The council adopts a rates policy and sets the rate in the rand annually as part of the budget, subject to public participation and certain national limits.
Figures on this page come from National Treasury, Statistics South Africa and the Auditor-General, as set out in the sources and methodology. Read the methodology