Book Chapter - 'Confronting Territorial Inequality among South African Municipalities: Challenges to the Fiscal Equalisation System'

South Africa’s intergovernmental fiscal system was designed to address the deeply entrenched spatial and racial inequalities produced by apartheid, primarily through equitable financial transfers from national to subnational governments. This chapter critically examines whether these fiscal transfers, particularly the Local Government Equitable Share (LGES) and the Municipal Infrastructure Grant (MIG), have fulfilled their redistributive function by ensuring access to basic services for the poor.

It traces the historical evolution of these funding mechanisms, highlighting their design features and their intended role in promoting horizontal and vertical equity among municipalities. While national policy frameworks and grant formulas are generally well-structured to allocate greater resources to poorer municipalities, significant gaps remain in their implementation. Many municipalities lack the capacity or political will to use these funds effectively for pro-poor service delivery, resulting in a large number of indigent households remaining underserved despite national subsidies. The chapter concludes that while technical refinements to transfer formulas and increased funding are necessary, they will be insufficient without stronger accountability mechanisms, improved local governance, and better coordination across government spheres to ensure the realisation of socio-economic rights and the reduction of poverty and inequality.

The book ‘Fiscal Federalism and Equalisation Transfers: Balancing Regional Autonomy and Solidarity’ was published by Brill.

This chapter can be accessed here.