Joburg mayor and chairperson of the South African Cities Network Parks Tau on Wednesday suggested a business tax to strengthen the finances of South African cities in the face of changing conditions that threaten the current financial model.
Tau spoke at the release of the 2015 State of Cities Finances Report, that gives an in depth analysis of trends in the financial situations and management of nine South African urban municipalities. These are Johannesburg, Cape Town, Tshwane, Ekurhuleni, Mangaung, eThekwini, Nelson Mandela Bay, Buffalo City and Msunduzi (Pietermaritzburg).
These cities have a combined population of 22 million people, which is 40% of the country’s total population. Between 2009/10 and 2013/14 they have spent a combined R117 billion on capital projects.
Tau said ever since the Regional Services Council (RSC) levies were scrapped several years ago, the question remained how to replace it. Some was recycled to cities from the fuel levy.
He said against this background South Africans should discuss the possibility of a business tax at municipal level.
This should not be an extra burden on taxpayers, because that would be unaffordable. It should rather be a shift of revenue with provincial and national spheres of government making sacrifices in favour of municipalities, he said.
Tau said municipalities are not confined to delivering services, including water, electricity, sanitation, refuse removal and collecting property tax. They are also civic bodies that are in fact called community government in some Latin American countries.
Municipalities are also trading entities that buy bulk services and sell them to the public as retailers, expecting a fair return. Local government is currently designed with cross-subsidisation in mind. Surpluses generated on trading services have to be used to fund other services that don’t generate income, he said. “But we must strike a balance.”
To meet this objective cities must be run in line with well-considered commercial principles, he said. They raise finance on the capital market and list some of their instruments on the JSE. For that purpose they are being rated by international credit rating agencies that understand municipal finances well, because they have to determine whether the cities will be able to repay their debt.
He said sometimes municipalities take decisions that are not based on commercial considerations, depending on what is critical in their community.
He said the report identifies the issues the bigger municipalities are grappling with and how they manage fairly complex issues.
As a country and as humanity the focus is increasingly on long-term sustainability, he said. The environment is changing and it remains to be seen what the implications are for the long-term financing of municipalities, he said.
Municipalities should however not wait until the transition is upon them, but rather plan ahead to meet the challenges.
It is against this background that South Africans should start discussing the future of their cities and how to ensure their sustainability and ability to overcome challenges to their long-term survival.
A business tax may supplement revenue that is increasingly under threat from for example a transition to renewable energy, he said.
Asked whether taxpayers won’t resist such a tax on the basis of perceived inefficient spending by cities, he said the report in fact shows that spending has become more efficient over time.
Some of the recommendations in the report include:
- Spend funds more efficiently;
- Optimize existing revenue sources;
- Explore the possibility f additional taxes and charges;
- Lobby for an increase in equitable share from the national fiscus;
- Explore innovating financing options like municipal bonds to fund infrastructure;
- Lobby to have a stronger voice in government, especially with regard to the division of revenue.