19 February 2004
Since the December 2000 elections, a fundamentally new system of local government has begun to come into effect. Municipalities now have a much greater service delivery and developmental role. To fulfill this role they have to have adequate revenue. The local government financial system is therefore being reviewed.
There are many aspects of this review. The recent adoption of the Municipal Finance Management Act is part of the process of shaping a new local government financial system. The Property Rates Bill is another crucial aspect. Local government currently raises over 90% of its own revenue. In fact, about 20% of this comes from property rates.
Of course having revenue is not all. It's how you manage and spend it that's crucial. The more productive and efficient municipalities are in managing their revenue, the more their case for increased revenue is strengthened. It is in terms of the need for both more revenue and its better management that the Portfolio Committee approached the Property Rates Bill.
It is certainly the most technically challenging Bill the Portfolio Committee has had to deal with since 1994. To process the Bill effectively, the Portfolio Committee, as we explained in our report published in yesterday's ATC, held extensive public hearings, workshops and briefing sessions, and established several sub-committees to facilitate the ongoing participation of key stakeholders, especially from the public.
The Portfolio Committee deliberated on the Bill for about 320 hours. About half of this involved the active participation of a range of stakeholders, including representatives of SALGA, public entities, agriculture, religious, welfare and charitable organizations, independent schools, municipal valuers and others. The Bill is an outcome of protracted negotiations with a range of key stakeholders. From the response we have so far received, we believe there is significant consensus on the core aspects of the bill. Certainly, the major differences that surfaced at the first public hearings have largely faded.
At present, municipalities use very different rates systems based on the pre-1994 provincial ordinances. With our new system of co-operative governance and in particular our intergovernmental fiscal relations system, the need for a certain level of uniformity has become necessary. A national framework within which municipalities shape their own rates policies is the answer. And this is what the Property Rates Bill provides.
The Constitution gives municipalities the power to levy rates on property. But it allows Parliament to regulate this power. So we have provided for a national framework without undermining the constitutional power of municipalities. We constantly engaged with SALGA over this and are pleased to report that they fully endorse the approach in the Bill.
In terms of the Constitution, municipalities may extend the levying of rates to categories of owners and properties that have until now been partially or fully excluded from paying rates. Examples of this would include the properties of public entities, farmers and others in rural areas, religious, welfare and charitable organizations, independent schools and conservation bodies. Stakeholders from these and other sectors made strenuous representations to the Portfolio Committee for the retention and even extension of these benefits. Some of them presented formidable arguments.
The Portfolio Committee's response was to find a balance between the need for municipalities to have adequate revenue to fulfill their constitutionally-mandated responsibilities and the need to avoid levying rates in a way that debilitates categories of property owners. The Portfolio Committee also sought to strike a balance between recognizing the valuable developmental goals served by certain categories of owners for example, public entities and welfare organizations, and the need to ensure that it is national and provincial government, not local government, that bears the major cost of the role served by these agencies.
The Committee sought too to find a balance between the need for a coherent national framework for property rates that will foster national macro-economic balances and the need for municipalities to shape their own rates policies through consultation with key local stakeholders. So it is, that while municipalities have considerable latitude to decide on rates according to local circumstances, there are provisions in the Bill for the national government to sensitively intervene should a municipality's decisions on rates undermine national economic policies. The Constitution allows for this.
Examples of this include the right of the Minster of Provincial and Local Government, in consultation with the Minister of Finance, to limit the percentage of rates increases. This could apply to all or to specific categories of properties. Moreover, any sector of the economy could, after consulting with municipalities and SALGA, approach the Minister to cap rates increases if they can prove that their rates bills are entirely unreasonable. The onus is on them to make an irrefutable case.
Municipalities may also not rate non-residential properties unduly highly compared to residential properties. Nor can they unreasonably discriminate between categories of non-residential properties. In consultation with the Minister of Finance, the Minister of Provincial and Local government can prescribe ratios in this regard, if necessary.
The Minister can also provide guidelines for municipalities to levy rates in a way that does not undermine national economic policies. He may also provide a national framework consistent with the Bill on rates exemptions, rebates and reductions.
Of course, all these interventions have to be done after consultation with SALGA. And while the Property Rates Bill provides a coherent national framework, many of the concrete decisions on rates can only be made at municipal level. The Committee feels it is important therefore that stakeholders are active in their municipalities and contribute to shaping their rates policies. Engaging with parliament to shape the content of the Bill or rushing to the Minister for relief cannot be substitute for engaging with the municipalities.
The Committee gave considerable attention to what should be the basis for valuation. Among the options explored were a land-valuation only, land and improvements at variable rates, land and improvements at a uniform rate, and annual rental value. The department was asked to undertake further empirical studies regarding these options. These options were also discussed with a wide range of stakeholders and academic and other technical experts, both South African and others. The inputs by the Department and the vast majority of those consulted supported the basis for valuation as being the market value of land and improvements at a uniform rate. The majority in the Portfolio Committee agreed with this. In any case, this is the trend internationally.
Instead of providing for blanket exclusions from rates for categories of owners or properties, the Portfolio Committee strengthened provisions in the Bill dealing with:
a) the phasing-in of rates; b) the requirements for municipalities to consider, in their rates policies, the effects of rates on categories of owners and properties; c) negotiations between categories of owners and properties and the municipalities and SALGA; and d) consultation between the Minister and SALGA on the effects of rates on categories of owners and properties.
Among the more challenging issues the Portfolio Committee had to deal with was the valuation and rating of public service infrastructure and agricultural property. We have, we believe, struck a very fair and reasonable compromise. Mbongeni Ngubeni will deal with this.
The Committee stresses that the Bill does not prescribe that property rates must be levied in traditional authority areas. Each municipality must decide for itself on this. But it will be difficult to levy property rates in communal areas unless property is registered in the name of an individual or community. Even where there is individual ownership, the property has to be first valued. The owner is not in any case liable for rates unless the property exceeds R15 000 in value. Land reform beneficiaries are excluded from rates for 10 years. Thereafter, municipalities have to phase their rates in over three years. With the MEC's approval this can be extended to six years. For most municipalities, the cost of valuation and administration of rates will exceed any revenue derived from these properties. The Portfolio Committee does not believe that the levying of property rates in traditional authority areas is on the agenda for a long time to come.
With the new valuation rolls determined in terms of this Bill, the owner of each unit living in a sectional title scheme will pay rates directly to the municipality. The body corporate of the scheme will thereafter not be responsible for paying the rates as is the case now. This will make it easier for people wanting to sell their individual units to get rates clearance certificates from municipalities. This decision has been very widely welcomed. The benefits of this will be experienced by sectional title unit owners at different times over the next four years depending on when their municipalities do their new valuation rolls in terms of this bill.
The general principle in the bill is that municipalities should value and rate all properties within their jurisdiction. This contributes to the White Paper on Local Government's objective of broadening the rates base so that municipalities have adequate revenue to meet their constitutional objectives. It is also important that municipalities have as full a sense as possible of the value of properties within their jurisdiction. This is in the interests of transparency and will also give the municipalities a more accurate sense of the revenue that is being foregone. This would also be of value in negotiations around money to be allocated by national to local government. In certain instances, however, municipalities are not obliged to value or rate properties. These include:
a) those which are fully excluded from rates and which it does not make sense to value - such as the Prince Edward Islands and mineral rights; b) those for which it is difficult to establish a value - for example, because of past discriminatory laws and practices; c) municipal properties; and d) public service infrastructure owned by municipal entities.
As set out in clause 3 (2) g), municipalities are required in their rates policies to take into account the effect of rates on public benefit organisations (PBOs) registered in terms of the Income Tax Act, if they own property. However the Portfolio Committee recognises that there are many legitimate PBOs that are not registered. Hence in clause 8 q) provision is made for the properties of PBOs generally, whether registered or not, to be recognised as a category. In terms of this latter provision, municipalities should consider the effects of rates policies on the unregistered PBOs, should they provide adequate evidence of their public benefit activities.
While an explicit provision to this effect was not included in the Bill, the Portfolio Committee believes that municipalities should in their rates policies take into account the effect of rates on promoting the conservation of threatened ecosystems and the sound management of natural resources.
As the range and extent of properties to be valued in terms of this Bill have been significantly increased, questions have been raised about the capacity of property valuers in this country. Moreover, with advances in technology, there are constant changes in valuation techniques and methods. The Portfolio Committee believes that the Department of Provincial and Local Government and SALGA should inquire further into these questions and facilitate greater awareness among municipalities about these issues, and should take appropriate steps to facilitate the development of the requisite capacity of valuers. The Ministry and SALGA should as soon as possible provide guidelines on valuation for municipal valuers, especially in regard to the valuation of public service infrastructure.
The Bill specifically excludes properties in part or whole from being subjected to property rates. For example, the first R15 000 of all residential properties and 30% of the value of public service infrastructure are excluded from rates. Land reform beneficiaries are also excluded from rates for a ten-year period, and thereafter their rates have to be phased in over three years. This represents revenue foregone by municipalities. The Portfolio Committee believes that the national government should, over time, consider this when deciding on the allocation of money to local government from the national fiscus.
The Bill represents a significant shift from the current property rates regime. The Portfolio Committee urges DPLG and SALGA to embark on a massive public education programme on the content and implications of this Bill. Many municipalities do not have the capacity to implement this Bill. DPLG and SALGA will have to give considerable attention to this. The Portfolio Committee would like the Department to give a report on its progress in this regard by the end of this year.
Ultimately, decisions about levying rates resides with municipalities. This Bill will bring into effect a new property rates system. As with much else of the new local government system, the new property rates system has to be phased in appropriately through consultation with a range of stakeholders. The Portfolio Committee has sought to strike a series of balances between the needs of municipalities and a range of key stakeholders. We have also provided for the phasing in of aspects of the new property rates system. Municipalities are urged to exercise their power to levy rates both in the spirit and letter of the law. DPLG and SALGA have a crucial role to play in this regard - and we urge them to do so. Members of our Portfolio Committee and MPs generally can also play a role - and we must do so.
The Portfolio Committee expresses appreciation for the manner in which a range of stakeholders interacted with us in finalising the Bill. The Committee also expresses its sincere appreciation to Ms Jackie Manche, Mr Mizilikazi Manyike, Dr Peter Vaz, Mr Gerrit Grove, Mr Joe Dube and Dr Petra Bouwer of DPLG, and Mr Ben Dorfling and Ms Shiva Makotoko of SALGA for the considerable work they did in processing the bill through their interaction with the Committee and many stakeholders. The Committee also acknowledges the assistance of Mr Nico McLachlan and Ms Zora Ebrahim of Organisation Development Africa. Our thanks, as usual, to our outstanding Committee secretary, Mr Llewellyn Brown.