Municipal Property Rates Bill: deliberations

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MUNICIPAL PROPERTY RATES BILL: DELIBERATIONS

LOCAL GOVERNMENT AND SELECT COMMITTEE
24 February 2004
MUNICIPAL PROPERTY RATES BILL: DELIBERATIONS

Chairperson:
Mr B Mkhalipi (ANC)

Relevant Documents
Municipal Property Rates Bill [B19B-2003]

SUMMARY
The Committee was briefed on the first three chapters of the Bill. The Committee was concerned at the lack of uniformity in rating among municipalities. The Committee noted that although the Bill's main objective was a policy of uniformity in rating, there were many instances where a municipal council levied different rates from the one next door. The Department acknowledged the fact that indeed in some cases neighbouring municipalities could charge different rates but that such occurrences are uncommon where local circumstances are the same. It however explained that the Constitution confers on each municipal the power to levy rates in its own area of jurisdiction but that such rating must be based on the rate policy. The Department assured the Committee that the Bill has tried to make room for some level of uniformity but that the national government cannot prescribe to the municipalities in the matter of rating.

The Bill has put in place clear checks and balances in Clauses 20 to 29 to guard against discrimination and other unfair practices. The Committee also inquired whether there was a clear-cut framework built into the Bill to protect the poor from the crude instrument of property rating. The Department explained that Clause 17 makes provision for the exclusion of properties valued under R15 000. The Committee heard that this figure was arrived at after a hard tussle between the South African Local Government Association and the Department. The South African Local Government Association expressed a legitimate concern that municipalities with mainly low cost housing would be depleted of an entire tax base. It was not easy to strike a balance between these two competing interests.

MINUTES
The Chair introduced the delegation from the Department of Provincial and Local Government: Ms Jackie Manche - Deputy Director General Institutional Reform and Support, Mr Mzilikazi Manyike - Chief Director Municipal Finance Policy, Mr Peter Vaz - Department resident advisor, Dr. Petra Bouwer - Department legal advisor. Mr Ben Dorfling represented the South African Local Government Association (SALGA). The Chair asked the Department to guide the Committee through the Bill.

Chapter by chapter briefing on the Bill: Chapters 1 to 3
Ms Manche noted that Chapter 1 of the Bill deals with definitions. Some of the most contentious terminology such as ' land reform beneficiary', 'local community', 'newly rateable property' ,'owner', 'property' and 'public service infrastructure' had been provided with a detailed definition due to the complexities involved in their practical application.

She continued that in terms of Chapter 2 rates, with certain exceptions, must be imposed on all rateable property within the municipality. The aim is that municipalities should not be selective in targeting properties for rating purposes. This provision obviously ensures transparency, but is also necessary to establish a clear perspective of a municipality's potential revenue capacity in terms of property rates. Where there is a need to alleviate the rates burden, for instance on the poor, the Bill envisages that this should be effected by way of rates exemption, rebates and reductions. All exemptions, rebates and reductions must be in accordance with an open and accessible process and disclosed in the annual budget.

Ms Manche pointed out that Chapter 3 regulates liability for property rates and states the general principle that the owner of a property must pay the rates on the property. Joint owners are jointly and severally liable for rates, but in the case of a sectional title scheme the owner of each sectional title unit must pay the rate on the unit. The body corporate in sectional schemes would no longer be responsible for the collection and payment of rates.

Discussion
Ms J Kgoali (ANC) expressed concern that there were not any built-in mechanisms to ensure that municipalities do not, in their craze to collect rates, overload it on the hapless poor households.

Ms Manche explained that Chapter 9 of the Bill provides for monitoring and implementation mechanisms and that where a municipal authority fails to comply with the requirements of the Bill the MEC for Local Government is empowered to intervene under Section 139 of the Constitution.

Mr PMatthee (NNP) expressed concern that although the Bill has the objective of ensuring uniformity in rating, there were many instances where a municipal council levied different rates from the one next door.

Ms Manche noted that the Constitution confers on each municipal authority the power to levy rates in its own area of jurisdiction but that such rating must be based on the rate policy. She acknowledged the fact that indeed in some cases neighbouring municipalities could charge different rates but that such occurrences are uncommon where local circumstances are the same. She added that the Bill has tried to make room for a certain level of uniformity but that the national government cannot prescribe to the municipalities in the matter of rating. She, however, assured the House that the Bill has put in place clear checks and balances at Clauses 20-29 to guard against discrimination and other unfair practices.

Ms Kgaoli commented that although this is not a Section 76 Bill it is likely that in some areas people would regard it as falling under the national mandate. She pointed to the voluminous Bill and wondered how ordinary people are expected to plough through such a complex maze in order to understand their rights. She added that municipalities use discretion in their operations and by the time one seeks to enforce one's rights at the Constitutional Court, so much would have happened. She insisted that a clear-cut framework must be built into the Bill to protect the poor and the unsophisticated masses.

Ms Manche said that Clause 17 makes provision for the exclusion of properties valued under R15 000. She noted that this figure was arrived at after a hard tussle with SALGA. SALGA expressed a legitimate concern that municipalities that are inhabited by low cost housing would be depleted of an entire tax base. It was not easy to strike a balance between these two competing interests. This is why a further provision had to be built in to empower the Minister in consultation with the National Treasury to review this amount from time to time. She added that the Bill gives the MEC much responsibility in terms of phasing-in, implementation and preparing the valuation roll.

Mr Manyike pointed out that the Department was already working with municipalities to educate stakeholders on the implications of the Bill. This interaction includes briefings to councillors in order to prepare them for the implementation phase.

Mr Vaz said that the Department appreciates the density of the Bill and that is why it has put in place a comprehensive communication strategy to educate people in the provinces and within municipalities.

Mr Dorfling (SALGA) pointed out that the current rating ordinances had many imbalances, which the Bill is trying to minimise. He added that the rating scheme for most neighbouring councils is basically the same. He, however, clarified that on the matter of rating properties it is impossible to have a uniform rate where property use and location determines its value; hence a differential rate. He assured the Committee that distortions in rating is one of the issues that would be addressed during the implementation period.

Mr Matthee asked why the MEC is empowered to step in and interfere with municipal rating function and under what circumstances this eventuality would materialise.

Mr Vaz clarified that it is the Minister and not the MEC who is empowered to step in and regulate council affairs when matters are going awry. The clause enumerates the reasons and circumstances when this should materialise. He added that Clause 19(1)(b) provides for some limitations on the types of rates municipalities are forbidden to levy.

The Chair asked whether the R15 000 threshold for the low-income earners is an exclusion or an exemption.

Mr Vaz clarified that the R15 000 was an exclusion and not an exemption.

Ms Kgaoli was pleased that the Bill incorporates an element of community participation, noting that the demonstrations that have been happening recently are due to a lack of community participation in council programmes.

Ms Ngondo (ANC) pointed out that many municipalities fail to fulfil their mandates and wondered whether there are any built-in mechanisms to ensure that councils perform according to the letter of the law.

The Chair said that concerns around poor performance should be left to the Committee's oversight function where they would be addressed more vigorously.

Mr Dorfling offered that indeed the Municipal Finance Management Act (MFMA) was in place to guide municipalities that have weak systems. All municipalities are expected to fully implement the MFMA.

Ms Ngondo referred to Clause 5 and wondered whether a review should not be conducted more frequently than once a year.

Ms Manche replied that the Clause only provides for the rates to be looked at every year in order to form a basis for future changes. The council is free to effect necessary changes at any time during the financial year.

The Chair referred to the exemptions for charitable purposes and questioned the rationale of exempting recreational activities such as sports clubs that make millions of rands in profits.

Mr Mzilikazi pointed out that municipalities have the discretion to grant specific exemptions but that this should be done in consultation with members of the community. He clarified that exemptions that are granted for charitable purposes are different from the relief granted to public service infrastructure (PSI) and the R15 000 exclusion. Municipalities have no discretion in respect of the latter category.

The Chair referred to Clause (16)(3)(b) and noted that the term "must" in reference to the intervention by the Minister leaves the National Council of Provinces (NCOP) in an awkward position.

Mr Mzilikazi said that it is the only "must" in the entire Bill and that it is a constitutional issue, which has to happen where national interests are at stake.

The Chair referred to the provisions that deal with the rating of the PSI properties and wondered whether the exemptions granted refer to the owner of the PSI or the public utility facility.

Mr Vaz explained that the way PSI has been defined in the Bill connotes a publicly controlled infrastructure.
Ms Manche added that the Bill focuses on an infrastructure that delivers public utility services as opposed to a private business entity.

The Chair wondered what happens when a municipality rents out its facility to a private person for private use.

Ms Manche said that where the municipality is the owner then no rates would be levied, but when the facility changes ownership and ends up in private hands, rates would be imposed.

Ms Ngondo said that Clause 18 defeats the very essence of the R15 000 relief that is granted to poor households. She proposed that the national government subsidize cash-strapped councils instead of demanding rates from people who cannot afford to pay.

Mr Dorfling was emphatic that if this protection is not built into the Bill there is a real danger that many rural municipalities would collapse. He pointed out that the National Treasury never guarantees to bail out cash-strapped municipalities.

Ms Ngondo wondered why an appropriate provision should not be built into the Act to bind the national government to subsidise municipalities that depend largely on rates from owners of low-priced property.

Mr Vaz said that this route was initially pursued but the Department was informed that from a legal point of view it is not constitutionally permissible for the national government to so bail out poor municipalities.

Mr Manyike explained that the Minister is able to intervene in such cases through the inter-governmental fiscal structures.

Ms Ngondo asked whether the import of Clause 22 is that where the community objects, no rates would be levied.

Mr Mzilikazi clarified that the Clause refers to additional rates, which are meant to bring a specific service to a particular area at the request of the inhabitants of that locality.

Mr Dorfling explained that such additional rates are funds for the provision of a special service or a specific infrastructure for a particular area.

The Chair wanted to know whether these additional rates are for a limited period of time or are meant to be a permanent feature.

Mr Dorfling replied that the Municipality would explain to the community how such project funds were sourced and that the community would be charged until the total amount is fully repaid.

Ms Ngondo saw a thin line between the municipal developmental obligation and the so-called special projects.

Mr Dorfling assured the Committee that the extra charge is not meant to reinforce existing inefficiencies but rather to grant some special improvement.

Ms Ngondo wanted to know when one should designate an area as a "special improvement area".

Mr Vaz gave the example of the ongoing inner city regeneration program in Johannesburg metropolis.

Ms Ngondo said these are the types of programmes that call for extensive community participation to ensure that people are not charged for services for which they have already paid.

Mr Vaz said that Clause 49 deals with the question of public education and that many municipalities have come up with creative methods to reach out to the communities.

The meeting was adjourned.

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