SA’s transition from apartheid in 1994 stands as a monumental stride towards democracy. Key to that success has been the stability of the intergovernmental fiscal process — a system of managing and allocating financial resources among national, provincial and local governments. Through the overarching constitutional principles of co-operative government and intergovernmental relations, the system has demonstrated resilience for the past 30 years.
The recent national and provincial election outcomes demonstrate that three decades later the populace appears poised to challenge the status quo of majority dominance. The 2016 and 2021 local government elections resulted in a number of hung municipalities. This effectively ushered in the first instances of coalition politics in SA.
The country has now, firmly, entered a new era of coalition in national government. This is demonstrated by the inability of the governing party for the first time in 30 years to achieve a decisive victory nationally and to govern the provinces of Gauteng, KwaZulu-Natal and Northern Cape.
Against the backdrop of a proportional representation electoral system, resulting in an outcome where there is no majority party, the complex dynamics of intergovernmental fiscal relations and public sector productivity must be considered.
The intergovernmental fiscal process is predictable and legislated, and assumes consensus and majority rule in managing and allocating financial resources among the different spheres of government, so the financial sustenance of government will continue to be secured through nationally raised revenue, managed within the framework of the intergovernmental fiscal relations system in the division of revenue, as mandated by the constitution.
From the perspective of the independent constitutional institution, the Financial & Fiscal Commission, a critical question arises: how will the emergence of a coalition government affect the efficacy of the intergovernmental fiscal relations system?
However, as the commission’s research shows, the challenge with the intergovernmental fiscal relations system was never in the budget or the money but in the value of spend and implementation.
At present the process aims to ensure the equitable distribution of resources, promote co-operative governance, and enable each sphere of government to fulfil its constitutional obligations and provide services to the public effectively. National government proposes revenue and expenditure, including spending priorities, in consultation with subnational governments. The annual division of revenue aims to cut the cake equitably to enable the constitutional obligations of each sphere of government.
Most national transfers to subnational spheres of government are formula-based and unconditional as equitable shares, aligned to basic functions of water and electricity for local government, and social services of education and health for provinces. In this process, provinces and municipalities receive their equitable shares and the provincial legislatures and municipal councils approve the spending priorities.
However, as the commission’s research shows, the challenge with the intergovernmental fiscal relations system was never in the budget or the money but in the value of spend and implementation.
Research conducted by the commission suggests that although the system’s structural integrity regarding allocations might remain stable, the real concern lies in the execution of these funds. Though there may not be significant implications on the face value of allocations with the 2024 election results of a coalition government on the intergovernmental fiscal relations system, there may be a significant effect in terms of implementation and public sector productivity. This is the theme for the commission’s 2025/26 annual submission for the division of revenue.
Productivity
As the Nobel prize-winning economist Paul Krugman once said: “Productivity isn’t only one thing, but in the long run, it is almost everything.” Productivity is the efficiency with which a given organisation transforms inputs into outputs. In the context of the public sector, efficiency may be understood as how well the state can transform allocated budgets into public value as goods and services, such as policing, defence, healthcare, education and transport infrastructure.
In the context of coalition politics defined by divergent ideological perspectives on policy positions, revenue allocation might be challenged and alternate fiscal choices proposed, leading to allocative inefficiencies, poor service delivery and misaligned policy outcomes.
There is no doubt that coalition politics has an effect on all three spheres of government. The former ruling party had established an allocation pattern that prioritised social protection and is moving swiftly towards universal healthcare. The formation of a coalition government can disrupt this spending priority, bringing to the fore instability and uncertainty.
At a provincial level, diverging policy priorities among provincial government coalition parties can lead to inconsistencies or delays in the implementation of provincial programmes and service delivery initiatives.
Budget deadlocks
In recent years, at municipalities where no party obtained a majority of seats, South Africans have witnessed budget deadlocks, with coalition parties in a municipal council disagreeing on the use of fiscal transfers, leading to protracted negotiations, and delayed implementation of municipal budgets and spending on specific programmes. In short, dismal service delivery.
The proposed “coalition bill” — the Local Government: Municipal Structures Amendment Bill — seeks to address the shortcomings of coalition government within municipalities.
Coalition parties bring different economic philosophies, priorities and spending preferences, making it difficult to reach a consensus on the overall fiscal stance and budget allocations.
What is clear is that a coherent national coalition framework that guides the formation of coalition governments and protects the stability of the intergovernmental fiscal relations system is critical. It is equally imperative that whichever coalition may be formed, it prioritises the reform and strengthening of public sector productivity to foster a more efficient, equitable and prosperous future for all South Africans.
• Dr Mbava chairs the Financial & Fiscal Commission.
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