Lacking Resources?

by Oct 25, 2010All Articles

By Dick Forslund

A recent report to South African Cities Network shows how much of incomes households pay in property rates water and electricity supply, and solid waste and sanitation. Low income households pay 10 to 20 percentage points more of their total incomes to their ‘municipality account’.i Islandla Institute and PDG did not have data for the ‘Very Poor’.

graph for dick


Local government is responsible for providing basic services, irrespective if a household pays for them via rates, bills or prepaid meters. These payments are strongly ‘regressive’: The less income a household has, the less money they have to pay for basic services and city development.

The wealthiest households pay more in rates (i.e. for city development in general), and consumes 4 to 5 times more water and electricity than the ‘Poor’ category in the graph. Moving to the right in the graph, consumption increases,   however, this increase is not shown. 

An Alternative

Mainstream research holds that a household shouldn’t pay more than 10-15% of their income for basic services.iii The green triangle suggests the space for radical redistribution accordingly.

The report indicates that electricity comprises 45-60% of the cost for basics for four of the household groups in the graph. The ‘High’ income households (here with over R24 227 in monthly income) pay around 25% of their basic expenditure for electricity.iv

A drastic increase in property rates combined with larger rebates − protecting workers, the lower middle class and small firms − would change the picture. The means tested 50 kWh free electricity per month could simultaneously be raised to 300 kWh, as demanded after the Eskom price hike.

A Cape Town case

R25 billion in property rates are collected today by 283 municipalities.v R4.2 billion of them are in the Cape Town Half that sum comes from residential property only.

Different rates and rebate systems are in play. The monthly rate, in a simple rebate example, for a house valued at R1 million is over 60% higher in Tshwane than in Cape Town: R576 instead of R353.vii

Cape Town has a R200 000 rebate on the value of residential property and different means tested rebates, for senior citizens and others. These rebates cost 23% of the gross revenue. To double, both the residential rates and the cost of rebates (to 46%) would increase the city’s budget by R824 million, increasing the city budget with close to 5%.viii The ‘average’ home owner whose house values R1 million would then pay R475 per month.

There exists no pure ‘scientific’ solution to inequality. The question is what is wished for by the majority and what it can achieve. The South Africa private security sector employs around 400 000 people, one of the largest in the world.ix Around 1% of the population is employed in guarding private property. The state police force employs 140 000.x The numbers highlight the policy choice to protect private property rather than radically redistribute resources. 

Dick Forslund is an economist and researcher at AIDC

(i) This differs a lot from SRA to SRA. An standard of 15% in additional rates can be calculated from a 2009 City Council list in my possession. Zeekoevlei Peninsula SRA with only 123 households adds 46% to the standard rates.
(ii) PDG & Islandla Institute (Oct 2009), ”Municipal rates policies and the urban poor”, South African Cities Network.
(iii) Ibid.
(iv) This is roughly estimated from the pillar graphs in the PDG/Islandla Institute report.
(v) National Treasury, ”Local Government Budgets and Expenditure Report”, 2008.
(vi) Cape Town City Council,
(vii) The information on different rebate systems in play as well as rate levels are available on the home pages of the 5 Metro Municipalities.
(viii) Budget work table provided to me from Cape Town City Council Financial Department. According to the 2004 Municipal Property Rates Act, the gross revenues from rates before rebates must be accounted for by municipalities. In this example, the cent to the rand 2010 (0.0053) is just doubled as is the sum of stated rebates. Technically, there are a variety of options. What is politically possible and preferred is open for contestation and change. To double the rate to the Rand (to 0.0106) while simultaneously triple the R200 000 rebate to R600 000 would have an exactly neutral effect on rates for property of R1 million. It would lower the rates below R1million and increase the rate above property values of R1mn of property value. As the distribution of property values is not known, the effect on rates revenues in such an example is not clear.
(ix) According to PSIRA annual report (Private Security Industry Regulatory Authority) gives the number 375 000 for March 2009, which is extrapolated 1.5 year forward. The number has grown with 20-30 000 every year the last ten years, and at an increasing rate the last 2 years. Administrative personal employed in circa 6400 security firms (PSIRA, annual report 2009) is not taken into account here. Julie Berg (2007), “The accountability of South Africa’s private security industry”, Open Society Foundation, gives the statistics back to the 1990’s. The whole population estimated to 48 million.
(x) Interview in August 2010 with Prof. John Cartwright at the Institute for Criminology, University of Cape Town.

Read the response by the Democratic Alliance (interview with Amandla)

More articles from Amandla on SRAs “Cape Town – the Mother City of Inequality

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