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Municipalities Can Increase Revenue Without Increasing Tariffs


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The financial crisis that rocked the world in the late 2000s is considered by many economists to be the worst financial crisis since the Great Depression in the 1930s. The Credit Crunch and resulting recession has had long reaching effects on the private and public sector with increased regulations, austerity measures and economic bail outs.

South Africa did not escape unscathed and entered into recession in May 2009 for the first time in 17 years. Stifling economic growth prompted the government to act by drafting the Framework for South Africa’s response to the international economic crisis (South African Government Information, 2009). The framework focused on maintaining high levels of public sector infrastructure investment and encouraged private sector investment while putting social and economic stimuli packages in place.

The economy has recovered to some extent with the latest GDP figures showing positive growth and the JSE posting strong gains by reaching its previous highs. Economists are wary of the recovery for a number of reasons with special mention being given to the escalating taxes, tariffs and rates being charged by local government.

As a result of the impact of the increasing cost of service delivery and declining disposable incomes of consumers, municipalities are looking for creative and more effective ways to increase income and reduce costs. The way forward is firstly to ensure that all land parcels under their jurisdiction are being properly billed for rates and services, and secondly that the cost of improving billing and enhancing revenue doesn't negatively affect municipal net cashflows.

Electricity tariffs have on average increase by 25% per year for the past three years. The increase in utility costs has meant that for industrial users it is now more expensive to operate in Nelson Mandela Bay municipality than in France or Germany. Eskom and local governments have placed the blame on the rising tariffs with rising demand. This is in spite of the fact that the national government has transferred R56-billion into municipal accounts for infrastructure of which only R45-billion was spent by local municipalities.

The National Treasury is encouraging local municipalities to charge developers for the infrastructure required for new developments, as well as the upgrade or alteration of existing properties. In light of this Cape Town’s deputy mayor Ian Neilson said that the City has reviewed its policy on development charges in order to achieve “uniformity within the local government sphere”.

Higher property rates are of great concern for taxpayers and authorities concerned with stimulating economic growth. The Municipal Property Rates Amendment Bill earlier on in the year resulted in proposals which could see rates on investment properties double. Municipalities don't have to raise rates to increase revenue. A simpler approach for municipalities to follow is to improve cashflows by applying the Smart Metro clean data, compliance and revenue enhancement methodology.

Redefine properties which is one of South Africa’s largest property groups has slated local councils who are not able to function properly. The Johannesburg company has taken a firm stance against councils that are not performing by releasing a statement this month saying that it will no longer invest in areas being poorly managed. Municipalities are being put under increased pressure by the private sector to manage their finances in an accountable manner.

According to Paul de Chalain, Head of Tax PwC Southern Africa, “Governments have it in their control to develop tax systems that foster business investment and make the private sector an engine for a return to economic growth and prosperity”. Chalian also says "Reducing rates and making compliance less burdensome helps companies focus on making their business grow”. SA can play an important role in this, especially as multi-national companies expand their operations into Africa by having tax systems that encourage these investments.

In face of Paul de Chalain’s sentiments; there are movements a foot in Nelson Mandela Bay to impose a tax on businesses with turnover in excess of R1-million. This has been touted by local government officials as a means to provide infrastructure for one of the country’s poorest provinces. However, all this does is create incentives for business to hold out on expansions and instead seek to outsource parts of the business to keep turnover low.

There is concern that In KwaZulu-Natal, the eThekwini municipality’s proposed legislation to charge infrastructure costs to property developers will stunt growth within the region. We have already seen reduced growth in the region for the past two decades. In 1993, 1 300 plans were processed in a month by eThekwini municipality. In October 2011 this number had fallen to 205 plans a month, of which less than 10 were not residential. By cross-checking and verifying municipal data to outside sources and ensuring all land parcels are properly billed, income can be increased and the costs to consumers and business can be kept to a minimum, fuelling economic growth and broadening the tax base.

The bottom line is that local government can use other means of increasing revenue instead raising taxes and tariffs. Smart Metro has a proven track record in finding new revenue streams. By exposing un-billed and under-billed customers, Smart Metro helps enhance municipal revenue streams and make municipal management look good and putting them in a position whereby they can keep tariff increases to the minimum.

By ensuring that billing databases are clean and up-to-date, municipalities can move beyond compliance to performance.

Date Posted: 2011-12-07
Posted By: SmartMetro
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