South Africa is addressing critical questions of intergovernmental fiscal relations as it undertakes the process of abolishing apartheid and rede- fining its system of governance. In the process, fundamental changes are being implemented in the structure of government: the constitution has been radically redesigned; new tiers of government are being created; decentralization has been initiated; electoral accountability has been extended to all irrespective of race; and, finally, the rapid delivery of basic public goods for the non-white community has commenced.

This chapter discusses how the intergovernmental fiscal system is being radically altered to support these fundamental changes. In particular, it focuses on the restructuring of the provinces and the metropolitan areas of South Africa. The success and sustainability of the reform of the intergovernmental system will depend critically on the coordination of the change process for these two tiers of government. The first section of this chapter sets the stage by describing how apartheid laws influenced the intergovernmental fiscal system in South Africa. The following section of this chapter provides a discussion of how the new provinces have been constituted. A third section focuses on the structure of urban governance for the large cities of South Africa. In a final section, there is analysis of some of the tensions inherent in the changes being undertaken.

Initial conditions: the consequences of apartheid

South Africa's policies of racial separation created dualism in intergovernmental fiscal relations, as in social and economic life.