Property Rates Bill: conceptual issues

Meeting report

PROVINCIAL AND LOCAL GOVERNMENT PORTFOLIO COMMITTEE
3 June 2003
PROPERTY RATES BILL: CONCEPTUAL ISSUES; DEPUTY MINISTER ON DEPARTMENTS OBJECTIVES

Chairperson: Mr Y Carrim (ANC)

Documents handed out:
Local Government Property Rates Bill (B19-2003)
Conceptual Issues on the Property Rates Bill: presentation by Organisation Development Africa

SUMMARY
Organisation Development Africa continued its presentation on the conceptual issues of the Bil.

The Deputy Minister, Ms N Botha, spoke to the Committee on the department's budget with a view to the National Assembly debate on the budget on 12 June.

MINUTES
Organisation Development Africa (ODA) Presentation (continued)
Mr Nico McLachlan (ODA) continued with his presentation begun on 30 May on Property Rates Bill: briefing on conceptual issues and outlined the Issues and Options for the Rating Process. There are three kinds of rating options that can be used in the rating process: site rating, flat rating and composite rating (see document).

S229 of the Constitution clearly sets out the municipal powers with regard to fiscal matters.

The Chair asked what would compel politicians to choose one of these options - what was the basis for their reaching such a decision?

Mr McLachlan differentiated between the flat rating [land-and-improvements - both at same rate] and site rating by stating that the commercial and industrial properties percentage increases with flat rating and decreases with site rating. Consequently the residential properties percentage would definitely have to increase if there was a site rating system. Undoubtedly no government would allow for such a situation to occur.

Ms J Manche (Deputy Director: DPLG) said that what this simply means is that a system which does not take into account the improved value of its properties will end up with the residential property owners paying more than the commercial property owners. Definitely no one would like such a situation.

The Chair agreed that a suitable system is indeed the one which does not penalize residential properties owners.

Mr P Smith (IFP) contended that whichever system is used, the principle that residential property owners should not be penalized can be achieved.

Mr A Grobler (DA) noted that he did not question the case study conducted in Cape Town, however it is important that the department should also undertake research on the rates system applied in other provinces.

Mr McLachlan acknowledged the importance of looking at property rates of other cities. However, it should be borne in mind that the reason why ODA had focused on Cape Town was due to the interesting nature of its system and nothing more.

Ms Manche said that indeed the department would undertake such research. However she emphasised the unique characteristic of the Cape Town rating system and said that it should be noted that its system has been in operation for more than 20 years.

Mr B Solo (ANC) noted the importance of mobility in the rating system and said that Africans are characteristically non-mobile, owing largely to apartheid legislation such as the Group Areas Act.

Mr B Nobunga (ANC) agreed. He noted that African cultural upbringing should be taken into account since they do not improve their properties with the intent of selling them but to create a permanent home for themselves and their children. Therefore the issue of cost recovery for improvements effected on the property does not necessarily apply in their case. He warned that people would be prevented from improving their homes since this would mean higher rates.

Ms Zohra Ebrahim (ODA) said that although Africans normally do not sell their properties, the value of improvements they had effected to their properties would be retained and thus would be taken into consideration when they decide to sell those properties.

Mr Nobunga reiterated his argument and asked members to clearly note that Africans, by their very nature, do not sell their properties since theirs are family homes and therefore the issue of recovery is irrelevant to their case.

Rev A Goosen (ANC) said that it is important that the Committee guard against creating the wrong impression to the ordinary people interpreting the Bill that the Government is penalising those who want to improve their lives.

Mr Peter Vaz (DPLG law advisor) noted that the basis of the property rate is not to unduly penalise residential property owners. Its object is to ensure that municipal councils are able to generate revenue funds for their municipalities. Therefore the councils would have to devise means as to how they generate revenue without imposing exorbitant rates on their residential property owners.

Rev Goosen asked for a guarantee in the case of the flat rating option, that municipalities would indeed impose lower rates on residential properties owners who effect improvements on their residential properties.

Ms Manche explained that the language used in the Bill by the department is the one based on "rates base". This simply means that the municipality should first establish the base at which the rate would be levied before determining the value of the property. There seemed to be a difference of meaning in the terminology employed by the department in the Bill to that used by ODA in its document. In terms of the Bill there can only be two kinds of bases, namely the land-only base or the land-and-improvement base. If a rating is land-and-improvement then it can either be one based on uniform rating or variable rating. She then mentioned four basic methods of valuation namely a market value, annual value, depreciated replacement cost of building and use value.

The Chair acknowledged the difference in the terminologies employed and noted that the meaning of a term is based on one's ideological understanding. Since it is the duty of the Committee to understand the meanings of these terms as employed by the department and ODA so that it can be able to adopt the one which can be most easily understood by the public. He asked the department to clarify its understanding of these terms as used by it in the Bill.

Ms Manche stated that the property rate is the means by which the costs of general local government can be distributed. This means that the revenue from rates are to service the whole community and not to benefit an individual. The system of levying property rates is used throughout the world. As to which level of government is vested with such powers, the Constitution clearly states this in those provisions relating to revenue raising instruments by different levels of government. She then addressed the question of why it preferred a uniform rates system throughout the country rather than giving municipalities a choice. She said that, amongst other things, it is the department who has to determine the fiscal capacity of municipalities and ensure the equitable treatment of all citizens. It is important that a national monitoring body be prescribed by the Minister. Above all it would be easier for the public to understand and engage in rates policy consultation processes since the uniform base rate system is the simplest revenue system. As to the reasons why the uniform base is based on land-and-improvement and not on land only, she said it would be easier to assess other improvements than land only. The uniform base rate is also more politically acceptable since a lower nominal rate is needed to generate revenue and every owner would definitely know the size of improvement invested in the property.

Briefing by Deputy Minister of Provincial & Local Government on 2003-2004 Department Budget
The Chair noted that the Committee had invited the Minister of Provincial and Local Government, Mr S Mufamadi, to come and present the Department's Budget Vote. However as the Minister was unable to attend due to governmental engagements, the Deputy Minister, Ms N Botha, would speak on behalf of the Ministry.

Deputy Minister N Botha noted that the content of the Budget which would be presented to the National Assembly on Thursday 12 June 2003, would focus on building a better future for everyone. Thus, amongst the things that the Ministry would be focusing on this year would be investment in fighting against crime, capacity building of municipalities and the women in local government and improving the quality of universities and other tertiary institutions. For these objectives to be attained it is imperative that partnerships at all levels of society should be created through the use of intra and inter-governmental structures. She acknowledged the challenges faced by the Ministry with regard to inter-governmental cooperation and noted that the important issue lies in the support, which the lower levels receive from the higher ones. She said that although the process has been snail-like, however some form of cooperation, within the three levels of government, has been identified, especially with regards to nodes and is definitely on the right path. However she stressed the importance of government telling the people the reasons why the process of eradicating poverty, amongst other things, has been sluggish. She then called on the Committee to visit the nodal areas and noted that their presence, as the leaders, would indeed boost the morale of the people. It would be important for government to develop mechanisms through which its successes and sustainability can be measured.

She continued that the institutions of traditional leaders need to be managed in such a manner that they do not cause conflict or confusion. It is important to differentiate between the issues of government which definitely falls under the government and the role that can be played by traditional leaders. She said that this should not be interpreted as barring the traditional leaders from participating in governmental matters as the department fully encourage those traditional leaders involved in municipal and governmental sectors. She then thanked the Committee for affording the Ministry an opportunity to speak to the Committee.

Discussion
The Chair said that the the issues that had been raised are noted, especially the one with regard to the role of traditional leaders. It was indeed one of the Committee's objectives to visit the nodes, as it understands the importance of such.

Mr Smith asked when would the White Paper be released.

Ms Manche replied that it is still in its preparatory stages. Hopefully it would be made available mid June.

Mr S Mshudulu (ANC) commented on the complexity of IDPs (Integrated Development Plans) as they are very academic in nature and thus difficult to understand for the ordinary man in the street. He proposed that they should be simplified and this could be done by deploying national, provincial and local government officials there who are clear on IDPs. The Ministry should also encourage the general public to get involved in the responsibilities and service delivery processes of the municipality.

Deputy Minister Botha said that the Ministry has noted the concerns raised by the members and as it is engages in capacity development, together with the Department and the President Council, they would look at these issues. The importance of capacity development and IDPs had been raised in Cabinet. She called on Members of Parliament to assist the provincial legislatures and the municipalities in the understanding of IDPs.

The Chair thanked the Deputy Minister for her presentation, the department, ODA and everyone in attendance. The meeting was adjourned.