Finance
With regard to the ongoing crisis of affordability in the province, with municipalities, particularly the City of Cape Town, imposing excessively high tariffs:
(a)
What measures is his Department putting in place to protect citizens from unaffordable municipal tariffs and (b) how is his Department ensuring that municipalities balance revenue generation with the urgent need to safeguard residents already struggling with the rising cost of living in the province?
The Department notes that questions (a) and (b) are closely related and provides the following integrated response.
The Department is acutely aware of the pressures households are facing, and we share the concern about the affordability of municipal tariffs in the current economic climate. While municipal councils carry the legal responsibility for approving tariffs as part of the budget process, DLG, together with PT, actively advocates that tariffs must strike a balance between being cost-reflective (meaning that tariffs must cover the actual cost of providing the service) and being affordable. National Treasury also maintains this position and has developed a cost-reflective tariff tool which provides municipalities with
a structured methodology to set tariffs in a fair, transparent, and evidence-based manner, helping to ensure that consumers pay equitably for services while municipalities can recover the costs of provision. In addition, NT advocates that municipalities should increase tariffs broadly in line with inflation guidelines, and where this is not possible, councils are expected to provide justifiable reasons.
Every year, DLG, PT and DEA&DP assess the tabled budgets of municipalities to review the extent to which they achieve this balance, providing constructive feedback for consideration and inclusion in the final budget. We also promote cost efficiencies to help municipalities manage expenditure and reduce upward pressure on tariffs. In addition, PT provides guidance to municipalities through circulars on budget processes and unpacking revenue and expenditure items that impact tariffs. Provincial Treasury also develops and shares socio-economic intelligence, such as the Municipal Economic Review and Outlook (MERO) and the Socio-Economic Profiles (SEP-LGs), to help municipalities better understand the realities faced by their residents, which informs more responsive budgeting and tariff-setting decisions.
Municipalities across the province, including the City of Cape Town, make use of indigent policies, lifeline tariffs, and cross-subsidisation mechanisms to shield the most vulnerable from tariff increases. These measures are further supported by the unconditional equitable share allocations, which, together with municipal indigent policies, ensure that poor and vulnerable households continue to have access to a basket of basic services. A key focus is on improving public engagement so that all qualifying households are registered as indigents and can access the relief provided. For example, in response to public feedback on its tabled 2025/26 budget, the City of Cape Town increased relief measures to support more residents, demonstrating how engagement and oversight help ensure that final budgets better protect vulnerable households.
It is important to note that municipalities face significant cost pressures largely outside their control, particularly in respect of bulk electricity purchases and compensation of employees, both of which are increasing faster than inflation. Many customers are also partially defecting from the municipal grid through own-generation and energy efficiency measures, reducing consumption-based revenues, while the cost of maintaining, upgrading, and operating electricity and water networks remains constant. At the same time, municipalities are under pressure from shrinking tax bases, driven by persistently low economic growth and high unemployment, which further constrain their ability to generate sufficient revenues. These factors make it challenging for municipalities to moderate tariff increases while maintaining service delivery demands amidst a growing population. Western Cape municipalities generally perform well compared to the rest of the country in managing these competing pressures, demonstrating strong financial management and governance while maintaining services and protecting households wherever possible.
Together with PT, the Department continues to engage municipalities to monitor and manage these pressures, encourage transparent tariff-setting, and safeguard the most vulnerable residents
