Financial crisis and tax capacity in South Africa’s local government: A review of budgetary failures and structural constraints

Abstract

Background: South African municipalities have been experiencing increased fiscal distress for over the past two decades, with some approaching collapse. Weak budgeting, growing debt, poor revenue collection and underspending on service delivery reduce financial sustainability. Structural inequalities, political interference and weak governance worsen these challenges.
Aim: This article critically reviews financial crisis factors, with a focus on tax capacity, revenue generation and fiscal management.
Method: A systematic literature review of peer-reviewed studies, government reports and grey literature (2000–2025) was conducted. Thematic coding showed recurring patterns, theoretical perspectives and findings related to budgetary performance, fiscal relations and administrative capacity.
Results: The review highlights how administrative inefficiencies, poor oversight and misaligned political incentives drive municipal crises. Despite revenue potential in some municipalities, weak enforcement, corruption and poor asset management limit performance. Capacity gaps in financial planning and auditing deepen instability. Although essential, transfers and the equitable share formula often fail to address inequalities and institutional variation.
Conclusion: Addressing municipal crises requires structural reform, capacity building, accountability and stronger fiscal decentralisation.
Contribution: This study advances debates on municipal finance by providing an integrated, literature-based analysis to guide future research and policy.