A CRITICAL REVIEW OF THE LOCAL GOVERNMENT FISCAL FRAMEWORK

The report argues that South African municipalities are in a state of financial distress because the fiscal framework designed in the 1998 White Paper overestimated the ability of local governments to fund their operating expenditures through property rates and service charges. While the framework assumed 73% of operating costs could be covered by own revenue, the authors estimate the actual figure is likely less than 50%. This gap forces tariff increases that erode the 'social wage'—the state's strategy of providing affordable basic services to reduce poverty. The paper notes that good governance alone cannot solve this structural deficit, as even municipalities with clean audits often end the year in deficit. It further highlights that Eskom's direct supply of electricity to many households removes a key credit control tool for municipalities, hindering the collection of rates and taxes. The authors conclude that the system is fundamentally unsound and requires a complete redesign based on empirical data regarding service costs and household affordability.

• The 1998 White Paper on Local Government assumed that property rates and service charges would fund 73% of all local government operating expenditure requirements, but actual aggregate funding is likely less than 50%.
• Municipal financial distress is a structural issue rather than solely a result of poor management; the Auditor-General of South Africa found that 79% of municipalities had a financial health status that was 'either concerning or requiring urgent intervention' in the 2018/19 financial year.
• The 'social wage'—the provision of affordable basic services to poor households—is being eroded because the fiscal framework requires constant tariff increases to fill funding gaps, which deepens poverty and inequality.
• The direct retail supply of electricity by Eskom to over 50% of households undermines municipal revenue collection by removing the ability to use electricity disconnection as a credit control measure for rates and taxes.
• Municipal debt has risen significantly, reaching R181.3 billion by March 2020, with 70% of this debt owed by households.
• There is a critical underfunding of infrastructure maintenance, with an estimated annual gap of approximately R14 billion between required and actual spending.
• The proliferation of conditional grants and an excessive regulatory burden have diverted scarce municipal resources away from direct service delivery toward administrative compliance.
• The envisioned 'vibrant' municipal debt markets and alternative funding partnerships have failed to materialize at scale, particularly for smaller and poorer municipalities.

APA

LEDGER, T., & RAMPEDI, M. (2020). A CRITICAL REVIEW OF THE LOCAL GOVERNMENT FISCAL FRAMEWORK. Public Affairs Research Institute. https://pari.org.za/wp-content/uploads/2020/08/20200826_EndOfTheRoad_LedgerRampedi_Report-1.pdf

Chicago

LEDGER, TRACY, and MAHLATSE RAMPEDI. A CRITICAL REVIEW OF THE LOCAL GOVERNMENT FISCAL FRAMEWORK. Public Affairs Research Institute, 2020. https://pari.org.za/wp-content/uploads/2020/08/20200826_EndOfTheRoad_LedgerRampedi_Report-1.pdf.

Wikipedia

{{cite report |last1=LEDGER |first1=TRACY |last2=RAMPEDI |first2=MAHLATSE |title=A CRITICAL REVIEW OF THE LOCAL GOVERNMENT FISCAL FRAMEWORK |publisher=Public Affairs Research Institute |date=August 2020 |url=https://pari.org.za/wp-content/uploads/2020/08/20200826_EndOfTheRoad_LedgerRampedi_Report-1.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{ledger2020critical, author = {LEDGER, TRACY and RAMPEDI, MAHLATSE}, title = {{A CRITICAL REVIEW OF THE LOCAL GOVERNMENT FISCAL FRAMEWORK}}, institution = {Public Affairs Research Institute}, year = {2020}, month = aug, url = {https://pari.org.za/wp-content/uploads/2020/08/20200826_EndOfTheRoad_LedgerRampedi_Report-1.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }