1. Parliament of the Republic of South Africa
Portfolio Committee for Provincial and Local Government
Overview of deliberations on the Municipal Property Rates Bill
5 August 2003

2. Purpose of this presentation
To provide the Committee with an overview of deliberations on the Property Rates Bill during the period April to June 2003
To summarize the status of the debate on key policy issues
To assist in preparing the agenda going forward

3. Overview of process to date
7&8 April 2003 Public work shop at Benoni
end April workshop report outlining specific input as well as key policy and conceptual issues
13 May -23 May: Public Hearings and consideration of submissions
27 & 30 May ODA briefing on conceptual issues

4. Overview of process to date
3- 10 June clause -by -clause briefings by Department
10 June ODA briefing on public service infrastructure
11 June- 17 June ODA briefing on Conservation land, and Exclusions, Exemptions, Reductions and Rebates

5. Debate on key policy issues
Issue: Why property rates, what do rates pay for?
Conclusion: rates is a means to distribute the cost of general local government activities or community services among rate payers in accordance with their ability to pay,measured by the (market) value of property

6. Debate on key policy issues...
Issue: What do rates pay for ?: services that generally provide benefits that accrue across and area and not only to specific users or sub-groups

7. Debate on key policy issues...
Issue: What should this Bill aim to achieve?
Conclusion: Legitimacy, Uniformity, a Common Rates base, a Common Valuation Cycle, Horizontal and Vertical equity, Efficiency, Enforceability,Openness, Monitoring of Standards, a Simple and Transparent Appeals process, Relief from extraordinary rates burdens, Redistribution amongst individuals and localities

8. Debate on key policy issues...
Issue: Basis of valuation and rating
What to value….land, land and improvements, rental yield ?
What to rate… the land value, the land and improvement at the same rate or the land and improvement at different rates

9. Debate on key policy issues…what to value, what to rate?
Key considerations in this debate
Which option will provide us with a complete understanding of municipal revenue potential?
Which option will result in the optimal utilization of the municipal rates base?
Which option will allow most flexibility in terms of redistribution ?
Which option brings the most transparency?
Which option makes the most political and administrative sense?

10. Debate on key policy issues...
Issue: Valuation and Rating of public service infrastructure
Current draft of the Bill 5(2) (a) disallows rates in respect of public service infrastructure and Defines public service infrastructure as national, provincial and other public roads, water or sewerage pipes, ducts or conduits,dams and water supply reservoirs forming part of a water or sewerage scheme
power stations, power sub stations or power lines forming part of an electricity scheme

11. Debate on key policy issues...
Public service infrastructure ….
Pipelines for gas and liquid fuels forming part of …..
Railway lines forming part of …..
Telecommunication towers or lines forming part of …..
Runways or aprons at national and provincial airports
Waterways at harbours to and from which goods and services move …
Rights of way, easements and servitude's in connection with infrastructure mentioned in (a) to (h)

12. Debate on key policy issues...
Key comments by Telkom , Eskom, Transnet ….high probability that the Bill will have a negative impact on costs….current definition of public service infrastructure excludes substantial part of the country’s “public infrastructure”
Department recently had discussions with the major public enterprises …Committee needs to be updated on these
Key consideration what to exclude what to leave for local discretion

13. Debate on key policy issues
Some reminders from earlier discussions…
differentiate between profit -motivated property management in the public sector and socially responsible property management
bear in mind that public assets are often limited by restricted rights
valuation criteria must be relevant and reliable
conventional valuation practices may have limited relevance
many good practices exist

14. Debate on key policy issues
Issue:Valuation and Rating of Conservation land
15(2) (e) excludes any state owned land declared as a national or provincial protected area, apart from any part from such area used for commercial or business purposes
conservation bodies raised three fundamental issues, (1)definition of protected area, (2) private land earmarked for conservation purposes,(3) effect of rates of conservation

15. Debate on key policy issues...
The Committee responded by raising a number of questions…
provide and indication of the areas earmarked for incorporation as protected land
provide indication of rates sacrifice
provide indication of who will bear the brunt
Conservation bodies have now prepared further input and will be presenting this to the Committee on 5 Aug

16. Debate on key policy issues...
Issue: Exclusions, Exemptions, Reductions and Rebates….what are these, how should they be dealt with in the Bill?
Exclusion…excluded from valuation and rating by legislation
Exemption…municipality values but decides to exempt from rates
Reduction…property is valued and rated, but rates are reduced
Rebate …a % discount is granted by the municipality

17. Debate on key policy issues...
Some reminders from earlier discussions…
All of these result in (1) reduction of total realizable municipal revenue , and (2) a distortion of the local revenue base
there is a need to be clear on the impact of these on the inter-governmental fiscal dispensation
there is a need to be clear on what sphere of government should decide on / exercise discretion over what
arguments in favour of a national framework needs to be balanced with arguments in favour of local discretion

18. Debate on key policy issues...
Issue: Welfare and Charitable organisation vs Public Benefit Organisations
Conclusion: definition of PBO in Income Tax Act to broad to be applied in the context of the Property Rates Bill
Introduction of concept of PBO would potentially have unintended limiting consequences for LG revenues
Rebates etc by municipalities should be used to address this category of properties
Position put forward by Independent Schools and Religious bodies need to be considered in this context

19. Other issues to be addressed going forward
Valuation and rating of agricultural properties
The interface between the Property Rates Bill and the Communal Land Rights Bill
The interface with the White paper on the role of Traditional Leaders
This Bill in the context of the suite of local government (reform) legislation