Waning rates base

2013-10-11 00:00

THE city of Durban has no plan in place to grow its dwindling tax base, instead the residents who currently are in a position to pay, could bear the brunt of rate increases.

Durban Chamber of Commerce and Industry CEO Andrew Layman and Professor Bonke Dumisa from the School of Business at the University of KwaZulu-Natal yesterday both said they were concerned that the minority that was currently paying rates, is facing an increasing burden since there is no apparent plan to widen the rates base.

Layman said the situation is caused by the high rate of poverty and unemployment. He said the income tax payment is subject to the same disparity. “People have accepted paying for those who are unable to pay for services; however, I think there may in future be objections to cross-subsidisation. But it is necessary in South Africa at present.”

Layman said as the economy grows, more people will be in a position to pay their share. “The eThekwini municipality has one of the best records for debt recovery, but across the country non-payment is a huge problem. Business is seen to be a cash cow. Businesses do not vote, and if they are successful, they make profits which are often thought to be disposable for the public good.”

At the moment the city’s rates base is between 11-13% of the population, and not increasing, according to the 2013/2014 Integrated Development Plan for the city. The high levels of cross-subsidisation have been unsustainable to the ratepayers and businesses over the years, says the report.

Economist Vuledzani Ndou, from Economists.co.za, said yesterday that when municipalities face consumer debt, it either gets written off or it is carried over to those paying in the form of higher rates. She said if the situation is not addressed, the municipality may end up being forced to cut back on capital expenditure. Ndou said the issue could cause a slowdown in development, which translates into service delivery problems.

“Without proper infrastructural developments which are catered for by capital expenditure, the economy struggles to grow.”

Dumisa warned that unless the city authorities developed a concrete plan to increase the revenue base, debt will probably only be serviced by increasing the rates of the few payers.

The city’s economic development and job creation strategy report recently reveal that municipal finances were under pressure and local government was unable to carry the full cost of bulk infrastructure needed for development opportunities.

City spokesperson Thabo Mofokeng said the situation would be reversed by their economic development and job creation strategy. He said the strategy seeks to ease the burden on those paying rates. “This is an unfortunate situation caused by the apartheid legacy. Having so many people not paying services is an attempt to assist the poor to reverse poverty.”

He said they also have plans to increase the municipal rates base by attracting more investors.

Dumisa said the current situation in the city was not sustainable. “There is no clear prescription to deal with the situation. However, Durban is not the only municipality facing such challenges,” he said.

The recent report released by the city cited that 45% of households in the municipal area contribute towards rates out of 956 713 households in the population of 3,44 million.

Dumisa said even job creation won’t be an immediate solution to the situation facing the city. He said more than 60% of those employed in the city are paid around R120 000 a year.

“Having so few people paying for services would have a negative impact on delivery. The structural challenges perpetuate prejudice significantly. We know that out of the South African population of 50 million, only five percent pay tax,” he said.

He said Durban was also among the SA metros struggling to collect the “collectables” from their residents. “Government threatens businesses with legal action and auctioning their businesses if they do not pay for services including rates and taxes. But it is always sad if the municipality auctions a family home for non-payment of municipal rates.”

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