Joburg proposes above-inflation tariff increases

Residents of the City of Johannesburg will see a substantial increase in the cost of municipal services from 1 July if the draft medium-term budget tabled in council last week is anything to go by.

With exception of property rates, the tariffs for all main services increase by a rate equal to or more than that of inflation, which is currently at 7%.

The increase in property rates of 5.3% however comes on the back of a new general valuation roll that is, in total, valued at 12% more.

(The city has  extended the 31 March deadline for objections to the new valuation roll to 5 May.)

In addition, the draft budget contains a proposal to decrease the discount on the rebate for residential property from R350 000 to R300 000.

This, according to Ben Espach, director for valuations at Rates Watch, may result in a considerably higher effective increase for individual property owners.

“According to the draft budget the projected increase in the city’s revenue from property rates is 15.8%. Although the increase in the tariff [5.3%] is below the CPI [consumer price index], the effect of the new valuation roll was not considered when the new tariffs were determined.

“The property rates tariffs should have been based on an inflation-related increase in the revenue from property rates,” he adds, saying that would most likely have resulted in a decrease in the tariffs.

Impact on pensioners

“There is good and bad news for pensioners,” says Espach.

“The good news is that all pensioners will now qualify for the rebate, but it is limited to the first R1 500 000 of the value [of the property].

“The previous threshold was R2 500 000 and properties valued higher did not qualify for a rebate at all.”

All pensioners older than 70 will not pay rates on the first R2 000 000 of the value of their property.

The downside, says Espach, is that some of the pensioners who paid no rates before will be paying rates from July 2023.

“It is not entirely clear if there will still be a means test for pensioners 60 to 69 years of age to qualify for the relief.”

Pensioner rebates – some clarity

Ward Councillor Tim Truluck notes that the way pensioner rebates will be applied from July can be difficult to understand.

While stressing that this is still an “emerging issue” Truluck has simplified several key points:

* The over 70s rebate is not income-based and anyone over the age of 70 can apply (they will get R2 million off their property value, so if their property is valued at below R2 million, they will not pay any rates, and if it is over R2 million they will pay rates on the amount over R2 million);

* The rebates for those aged 60 to 69 are income-related and applicants will need to provide proof of income (the zero rating is capped at R1.5 million);

* The new rebates should be viewed as zero-rating a portion of the property valuation that will reduce the monthly rates bill;

* Pensioners will pay about R75 a month for every R100 000 by which their property exceeds the rebate threshold;

* If the property is jointly owned, the age of the oldest owner will determine which rebate is applied;

* Property owners who receive a pensioner rebate seem set to see the R300 000 residential rebate off their valuation fall away; and

* Pensioners on the Expanded Social Package (ESP) will need to apply for a pensioner rebate separately to their ESP application.

Pensioner rebate examples

Truluck says a pensioner in their 70s whose property is valued at R2.5 million will pay rates on the R500 000 by which their property value exceeds the R2 million threshold. “This means you will pay R378.17 a month in rates.”

Those aged 60 to 69 whose income is under R11 904 a month will qualify for a 100% rebate up to R1.5 million of their property valuation. The owner of a R2.5 million house will therefore pay rates on R1 million (R756.33 a month, according to Truluck).

Proposed tariff increases

City of Joburg – proposed average increases
Rates	5.3%
Water	9.3%
Sewerage	9.3%
Refuse removal	7%
Electricity	18.65% *

* Pending finalisation of the Nersa tariff guideline

Source: CoJ 2023/24 – 2025/26 Draft Medium-Term Budget Book

In motivating the new tariffs, the city says the grants received from national and provincial government are declining, forcing it to find its own sources of funding.

In addition, there are some structural changes that further impact municipal revenue. “Furthermore, with innovations and technological developments, the traditional notion of utilities as ultimate monopolies that can generate excessive revenue is eroding,” it says.

This seems to be a reference to residents who install solar panels and at least partly generate their own electricity rather than buying their full supply from municipal distributor City Power.

The city acknowledges that the operating and capital budgets are based on surpluses from trading services – primarily water and electricity – and complemented by revenue from property tax and grant funding.

Balancing act

In deciding the level of increases, the city says it considers the affordability of services, the competitiveness of the city, and investments made in infrastructure to enable it to deliver services.

“Tariffs for these services are informed by increases in bulk purchases rather than inflation. The city further seeks to facilitate development initiatives within its boundaries and remains mindful of the basis of its tariff adjustments, its obligations to its citizen, requirements of the regulatory framework and the prevailing economic climate.”

The city states that National Treasury tariffs are affordable as excessive tariffs would result in increased non-payment and the collapse of the revenue base, but also encourages cost-reflective tariffs for water and sanitation, electricity and refuse removal.

Increase tariffs – or cut costs

Ratings Afrika analyst Leon Claassen confirms that the operating grants municipalities get from government are shrinking. He says load shedding also eats into municipal revenue from electricity sales “and in a municipality like Joburg corruption also takes its toll”.

He says the options available to municipalities are to increase tariffs or cut costs.

“It is difficult for municipalities to cut costs. Salaries are determined through central bargaining and all they can do is to freeze new appointments.” That however won’t provide substantial savings.

“They will have to start from scratch with their budgets and consider each expense – it is a necessity or a nice to have. That is a huge exercise.”

Claassen says there is no doubt that municipal finances are under severe pressure and there is less money available for service delivery, which will negatively impact on residents.