Central-Local Financial Relations in South Africa

The Republic of South Africa Constitution of 1996 vested local government with substantial powers. It uplifted local government from a subordinate level of government to a significant sphere within its own right with constitutionally entrenched functions, powers and finance. In a general overview of the South African local government reforms, it was suggested that the results of this decentralisation experiment are at best mixed, with increasing centralisation measures being undertaken by the national government (Cameron, 2001). This article focuses specifically on local government finance, which is undoubtedly the weak link in the new local government system. Prior to 1994, most local governments were elected by and served a small - predominantly white - base. There has been the transition to municipalities with many poor residents without any concomitant increase in the tax base. The first part of this article looks at a framework for decentralisation. It traces the evolution of local government finance in South Africa from the days of segregation and apartheid up to the current democratic era. The article examines the current local government finance system, with a focus on two different views in this regard. The one argument is that local government is inherently inefficient and poor financial management is the primary reason for financial problems. The other view is that the tax base of local government is too small for it to fulfil its constitutional service provision and development functions. An analysis is then undertaken of two recent local government financing controversies, namely, the local government boundary demarcation process and the Department of Finance-driven constitutional amendment