Can Johannesburg fix its books before the doom loop wins?

Johannesburg is not merely short of cash. The country’s largest, most important city has built an entire system of government on the pretence that money it bills but cannot collect is, nonetheless, money it can spend. That pretence has a name: fiscal fiction.

The mechanism is simple to describe and devastating in practice. The City sends out invoices, books them as revenue, builds a budget on the assumption that the money is coming, and then spends as though the cash were already in the bank.

Increasingly, it isn’t.

Shortfall

In the last three years for which audited financials are available, Johannesburg booked R218-billion in revenue but collected only R205-billion in cash – a R13-billion shortfall. Strip out R17-billion in borrowings in that time, and cash receipts were R30-billion less than revenues.

You cannot resurface a road, fix a substation or pay Eskom with an invoice a household has not paid. Accounting revenue is not cash, and Johannesburg has been behaving as though the difference does not matter.

In fact, it matters enormously, and the numbers show why. 

Gross unpaid bills owed to the City have exploded from around R15-billion in 2014/15 to almost R72-billion, a rate of growth of 17% a year, compounding, for 10 straight years. By 2024/25, one rand in every six billed was simply not being paid.

This is not ordinary municipal arrears. It is a structural collapse in governance and responsible budgeting.

That collapse feeds a fiscal downward spiral, a doom loop. As more customers default, the City raises tariffs on those still paying, which pushes more households and firms toward default or exit, which forces further tariff increases on a shrinking compliant base. 

And this is happening in an economy that is barely growing. Johannesburg’s real   economic growth (ie discounting inflation) has averaged around 1% a year for more than a decade, while City revenue has grown at 6.8% a year and spending at 7.6% – both outpacing inflation of 4.8%. 

The working-age population has grown by more than 750,000 in a decade; the number of people with jobs has grown by just 30,000. Relative to the shrinking pool of people who actually have income, the cost of running Johannesburg has risen by 3% a year in real terms since 2017/18, from roughly R33,000 to R41,000 per employed person. A city cannot indefinitely raise the price of a deteriorating service to a stagnant tax base and expect the arrangement to hold.

Utilities doom loop

Nowhere is the doom loop clearer than in utilities. Electricity’s share of City revenue has fallen from 34% to 28% over the past decade. This is not because Johannesburg is selling power more cheaply, but because the customers who can leave the grid – the reliable, high-volume payers the City most needs – are doing exactly that, investing in solar and alternatives as reliability worsens and prices rise. That leaves a smaller, weaker base to fund a network through higher rates, that then becomes even harder to sustain. 

Water is worse: unpaid water bills have grown at 20% a year, faster than electricity arrears which grew at 17% a year, in a city where dry taps, burst pipes and failing reservoirs are already daily occurrences. A failing water system is an existential threat to Johannesburg.

Meanwhile the City has got its spending priorities backwards. Employee costs rose more than 9% a year over the past decade, and now account for 40% of cash collected from customers, up from a third in 2014/15. Average remuneration has climbed by more than 10% a year since 2020. A new wage curve agreement with SAMWU will reportedly cost the City more than R10-billion over three years – a staggering figure against an existing wage bill – with no honest account yet of what will be cut to fund it. 

Spending on contracted services (security, maintenance activity, water tanker deliveries and so on) has grown even faster than aggregate employee spending, at more than 10% a year. This is in a city with a long history of procurement corruption, so residents are entitled to ask where this money is going. If the City is paying more for staff and more for contractors, why are the substations failing and the potholes multiplying?

Future funding the present

The answer is that infrastructure has been sacrificed to pay for everything else. Inflation-adjusted capital investment has fallen by roughly half over the past decade; in per capita terms, by 70%. This is not a city failing to build for the future. It is a city consuming the future to fund the present.

And, when even that is not enough, the City has resorted to its least sustainable option of all: turning suppliers into involuntary lenders. Outstanding debts to suppliers have more than doubled since 2014/15, to more than R28-billion, much of it owed to Eskom and Rand Water. 

This has implications way beyond Johannesburg: when a metro as large as Johannesburg falls behind on payments to national utilities, the strain radiates to institutions that are themselves fragile, and ultimately into the national economy. Tellingly, the Agence Française de Développement declined to extend a loan to the City this year, citing governance concerns – a signal that formal lenders are losing patience even as suppliers are forced to become lenders of last resort.

What makes all of this more alarming is that the City’s own budgets cannot be trusted to describe it honestly.

Near the end of 2024/25, the City’s adjustment budget projected a R2.2-billion surplus; twelve months later, pre-audit figures showed a R1.9-billion deficit – a R4.1-billion swing for a year that was already nearly over when the rosier number was published. 

The latest budget compounds the credibility problem: it projects payments growing at under 2% a year, far slower than has been the case in recent years, while simultaneously projecting trade payables falling by 40%. Salaries, bulk electricity and water costs are all rising. There is no honest arithmetic that reconciles these numbers. 

What Joburg actually needs

There is no painless exit from this crisis. Johannesburg must collect far more of what it bills. It must protect genuinely indigent households without tolerating non-payment as a general culture. It must also restrain personnel and contractor costs without hollowing out capacity. And it must redirect spending toward the infrastructure it has been quietly liquidating for a decade. 

External financial support will almost certainly be needed. But a bailout that leaves the current political economy intact would reinforce all the perverse political incentives that have helped get us to this point in the first place. Any assistance from national or provincial government must come with hard, enforceable conditions: credible budgeting, real collection plans, ring-fenced infrastructure spending and independent scrutiny of major contracts.

Johannesburg does not need another speech promising a turnaround. It needs a reckoning with arithmetic it has spent a decade avoiding. The November local government elections are critically important – an opportunity for residents to demand exactly that. DM

Ann Bernstein is executive director of the Centre for Development and Enterprise. This article is based on ‘Joburg’s Broken Budget’, the second report in Johannesburg Matters: Fixing South Africa’s growth engine, a new CDE series.