Local Government: Municipal Property Rates Amendment Bill [B33-2013]: deliberations

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Cooperative Governance and Traditional Affairs

05 February 2014
Chairperson: Ms D Nhlengethwa (ANC)
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Meeting Summary

Special attention was given to the substitution of section 8 of the Act entitled Differential Rates. The Department saw the amendment as crucial, despite the criticism it had provoked at the public hearings that this clause would encroach on the autonomy of local government, since discretion to determine categories of rateable property would be compromised.

The Department of Cooperative Governance and parliamentary law adviser argued that there was a need for uniformity and standardisation of property categories across all municipalities in the interests of transparency. Currently the discretionary powers of municipalities were too broad, and national government could not see what municipalities were doing. Categories had to be clear and unambiguous. Stakeholders had argued that the narrowing down of categories was too stringent. The Department was willing to loosen this up and make allowance for the creation of additional categories by municipalities.

In spite of assurances that municipal autonomy would not be encroached upon, there were some Members who were not persuaded.

Other sections discussed were the amendment to sections 9, 19 and 20. Section 9 dealt with multiple use of properties. The Department stated that sections 19 and 20 were activated by the amendment to section 8. Section 19 dealt with ministerial power to determine ratios.

The Committee read through all 37 clauses of the Bill with no other substantive matters being raised. The Committee resolved to vote on the Bill on 12 February.


Meeting report

Local Government: Municipal Property Rates Amendment Bill [B33-2013]: deliberations

Clause 6, amending Section 8 of Act 6 of 2004: Differential Rates

Ms Veronica Mafoko, Senior Manager: Municipal Finance Policy, Department of Cooperative Government and Traditional Affairs (COGTA), noted that policy imperatives had led to revision of section 8 of the Act. It was revised because the Act as currently drafted allowed municipalities wide discretion to determine property categories. Sometimes additional categories were determined, with subsets related to business and commerce. Sometimes differences between categories were small, there was no single rate for business. There was a lack of transparency and clarity about rates policies. National government could not see what municipalities did. Property owners were not clear either. Municipalities had to use clear and unambiguous categories. They would not be stopped from granting rebates. But compliance had to be monitored, to assist with parliamentary oversight. Geographical location had been removed. The criteria were use, or permitted use, or a combination of both. Municipalities had to determine a certain set of general categories everywhere. Categories were standardised. Categories not relevant to an area did not have to be included. Cape Town had no mining activity, for instance.

Categories had been narrowed down. There were stakeholders who felt that this was too stringent, and the Department was willing to allow an opening up. Municipalities could still determine additional categories. Discretion was allowed, as long as section 8(2) was not circumvented. Nuance of circumstance would be allowed for. Section 8(3) was not something else disguised as industry or agriculture. Municipalities were saying that there were legal challenges when they determined vacant land. There had been an appeal to the Department, and vacant land was provided for in section 8(2), even if that land was owned by industry. Section 8(2)(j) allowed municipalities to initiate a process to add a category. The process could be demand driven. Categorisation was driven by use. When it was driven by ownership, a civilian who owned a residential property could be on a different rate to a residential property owned by the State. That had led to inequity.

Section 8(2) (f) and (h) prescribed about Public Service Purpose and Public Benefit Organisation property. The State gave clinics, police stations, courts and the like, that had to be rateable, but recognised as a property category. They were not classified as business. The stipulations did not refer to all State property. There was an element of ownership to Public Benefit Organisations. Despite what municipalities had submitted, discretion was provided for in section 8(3).

Ms Harriet Mekwa, Parliamentary Senior Law Adviser, added that the intended purpose of the Bill was to ensure accountability. Monitoring for government had to be clear and precise. Section 8 created uniformity, but the constitutional rights of municipalities were not encroached upon. Section 8(2) used to include a “may” and a “must”. “May” was removed. According to section 229 of the Constitution, the Rates Act regulated the power of municipalities to determine categories. The principle introduced was that of broad managing rather than direct authorisation. Section 8 spelled out the powers and functions of municipalities. Municipalities had a right to administer. Municipal powers were appreciated, but national government had to be able to regulate. Section 8 was not intended to regulate prescriptively. Powers of municipalities to rate were not prejudiced, but matters had to be in line with national economic policy. There had to be proper management and legal certainty. It was not a blanket approach. Section 8 had to ensure that municipalities complied within their constitutional mandate.

Ms Vuyo Ndah, COGTA Executive Manager: Legal Division, pointed to a court case where a municipal manager had been appointed without the required bachelors degree. The court had distinguished between individual rights and the public interest. Local government maintained that qualifications should not be prescribed. Imbabazane municipality also wanted to appoint a person not properly qualified. The court decision was that the MEC could declare the appointment null and void. Local government needed regulation. It was not in the interests of good governance to appoint unqualified people.

Ms Daksha Kassan, Parliamentary Legal Adviser, noted that broad management of property rates regulation belonged to the national government. There had to be limits to setting the framework. There were prescriptions against impeding municipal powers. Section 8 promoted uniformity and transparency. Categories fell within the national capacity to regulate.

Mr Mzilikazi Manyike, COGTA Deputy Director General: Governance and Intergovernmental Relations, added that section 19 was related to section 8. There were stakeholders who had service level agreements with municipalities, and received rebates. Section 19 prohibited residential property developers from receiving such rebates. The Portfolio Committee could make that prohibition clear. The prohibition could not be included in section 8. There was the danger of privatisation in areas where service level agreements were entered into. There would be transitional arrangements to get out of service level agreements.

Mr P Smith (IFP) referred to “may” and “must” in section 8. He had no problem with the fact that ratios were not clear. The Department had a passion for uniformity. He asked why it was allowed that rates in Durban were twice as high as in Johannesburg.

Mr Smith referred to privately owned towns like mining towns. Such towns had subsidised rates. He asked if they would be dispensed with. Yet differential residential rates were not allowed.

Mr Smith referred to section 8(1). 600 000 hectares of State trust land in KZN had been removed because it was protected.

Mr Smith noted that ownership as the driver was said to be avoided. Yet there were three categories in the amended section based on ownership, the same as in the current Act. Property rates were a wealth tax. It had been pointed out during deliberations that there was no link between services rendered and rates. People thought that they were paying for services in rates. He was not yet convinced about “may” and “must” in section 8. There had to be empirical proof of alleged lack of transparency. The relative autonomy of municipalities was being diminished.

Ms Mafoko responded that there had to be property categories based on ownership. With Public Service Purpose and Public Benefit Organisation properties, ownership had to come in. There were properties that were owned by the State but provided services. Ownership distinguished public from private schools.

Mr J Steenhuizen (DA) said that he was battling to see what the problem was. Accountability lay with the municipalities, as they were passing the rates policy. Citizens could vote councils out if they were dissatisfied. In the Blom court ruling, the court accepted the right of municipalities to determine categories. Boxing in of municipalities infringed on their rights. Appeal mechanisms to the MEC could work better. Municipalities were not homogenous. A step backwards was being taken regarding autonomy.

Ms Mekwa said that in terms of section 19, municipalities could not levy differently on residential property. There was uncertainty about municipal categories. Uniformity was desired, without removing discretion. The amendments were not too prescriptive. The aim was to make management more effective. Service level agreements with developers had shown wrongful application of section 19. There was a misinterpretation about privately owned towns.

Mr Steenhuizen said that uniformity of rate randage could have a negative effect. The Durban Point area was developed by a development company and had lower rates. He asked who would be the arbiter of whether the categories were appropriate.

Mr Smith said that he found it bizarre and noted that in the existing Act, residential property was not different. Privately owned towns were provided for in the Act. He could not see what the problem was.

Ms Mafoko replied that there was a concern about gated communities. They were not actually towns but rather communities who had decided to live behind gates. Municipalities encouraged development around the edge of towns, but often the communities chose to be far away. Services had to be arranged for, which was paid to the body corporate. Some approached municipalities under the guise of mining towns and got 50% off. But they were residential properties. Property rates were indeed a wealth tax and there was no reason why they paid 50% less. Property rates were not for services. Abuse resulted in abuse of section 19.

Mr Smith said that a memo could be sent to municipalities when there was abuse.

Ms Mafoko replied that that had been done. They had checked how municipalities applied rates to gated communities. Municipalities were not to be coerced into arrangements. Tshwane had inherited many gated communities. The City had nullified some arrangements, and others not. Section 8 did not deal with gated communities.

Ms W Nelson (ANC) said that the onus came back to municipalities. People chose how they wanted to live. Municipalities had to have guidelines for property levies. Municipalities did not have a leeway to allow rebates.

Ms Ndah replied that in the ruling on the Blom case the court had stated that the City of Tswane could add the category of non-permitted use.

Ms Mafoko added that section 9 allowed multiple uses. The valuer could assign different uses in a town. Municipalities prepared valuation rolls. A mine paid a rate, but there could be different rates in a town based on use.

Mr Smith suggested that it had to be said upfront that property rates were a wealth tax.

Ms Mafoko replied that it might be necessary to delete section 4, as it perpetuated the link of rates to service. With regard to State trust and protected land and formal and informal settlements, municipalities had been engaged. Uniformity was not the key driver. Rates could not be prescribed. The Act regulated municipal power to levy rates. Municipalities were too much able to do what they liked. It was in the national interest to regulate. Section 19 empowered the Minister to determine rate ratios between residential and others. As section 8 was open ended, municipalities could run away from a category, and call it something else. It would not do to have a toothless Act that could not regulate the power of municipalities to levy rates. It was a wealth tax, with macro economic implications. Municipalities could still charge excessive rates. It could not be said that the Act was being implemented if it could not be seen. Rates policy had to be in line with the Municipal Property Rates Act. The driver was not uniformity. Ratepayers did not understand their rates.

Mr Manyike added that there was local, provincial and national tax. Durban high tax which Mr Smith had referred to, was a local matter. Section 20 allowed for differentiation. But without section 8, sections 19 and 20 could not be activated.

Mr Smith said that rates could be undercut. He asked if municipalities "running away" was a widespread occurrence. The Department was saying that rate levying could not be monitored. He asked if that was really a problem.

Mr Smith asked about section 8 consequences for municipal finance, and for the end user. Municipalities had four residential categories. The poor would be paying more.

Mr Steenhuizen asked if it happened that the Minister would say one thing about agricultural property, and the municipality another. With reference to section 3, he asked who determined what was appropriate.

The Chairperson suggested that the other clauses be read through and considered.

Mr Steenhuizen said that clause by clause reading was supposed to happen the following week, seeing that the Department had made some changes.

The Chairperson said that the research section could see to that.

Mr Steenhuizen asked when the Bill was supposed to reach the National Assembly.

The Chairperson replied that committee deliberations could not go beyond the following week ending 14 February.

Ms Kassan added that it was a 75 Bill, and did not need to go to the provinces for provincial mandates when it was sent to the National Council of Provinces.

Clause by clause reading of the Bill
The Committee agreed that the Bill's clauses should be read through.

All 37 clauses were read through by Mr Manyike, but there was no voting on them. Members did not make substantial comments on any of these clauses, as the issues that had emerged at public hearings had already been dealt with in previous meetings.

Ms Mafoko, on the part of the Department, said that the Portfolio Committee had to take a position on section 8.

It was resolved that voting on the Bill would take place on Wednesday 12 February 2014.

The Chairperson adjourned the meeting.



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