The National Treasury has warned municipalities to keep their tariff increases conservative or have an upper limit forced upon them, but they don’t seem to listen.
The increased municipal tariffs for property rates, electricity, water, sanitation and refuse removal take effect on July 1. Increases above inflation are planned in most of the metropolitan municipalities. These will make municipal services less affordable for already over-burdened consumers.
National Treasury in December advised municipalities that tariff increases should not exceed the guideline of 6%, except in the case of electricity, where the National Energy Regulator (Nersa) set a guideline of 7.39% based on the 8.06% increase in bulk sales tariffs granted to Eskom last year.
Moneyweb has compared the proposed average tariffs for property rates, water, electricity, sanitation and refuse removal of the eight metropolitan municipalities and most are way above the guidelines (See table below). These tariffs are contained in draft budgets that have been published for comment and have to be approved by each municipal counsel before the end of June. Nersa also has to approve new electricity tariffs.
In March Treasury said in a circular to all municipalities that it “has observed that municipalities unjustifiably approve property rate and service charge increases far above the 6% upper boundary of the inflation target”. They are instructed to “justify and substantiate” such increases in their budget documentation.
Treasury then threatened: “If municipalities continue to act in this manner the National Treasury will have no other option but to set upper limits on tariff increases for property rates and service charges to which municipalities will have to conform.”
Nevertheless, more than half the tariffs Moneyweb extracted from the metros’ draft budgets did indeed exceed the guidelines. All the metro’s increased their water tariffs by more than 6%. Cape Town proposed the lowest average increase of 8% and Buffalo City (14.95%), Nelson Mandela Bay (12%), Mangaung (11.45% residential and 15.22% non-residential) and Tshwane (10%) are all into double figures.
Notably Buffalo City decreased its tariffs for sanitation and refuse removal slightly.
Leon Claassen, analyst of Ratings Africa, told Moneyweb that the agency has been concerned that the rate at which municipal cost are increasing is unsustainable and that it is becoming unaffordable for the average household.
He said higher administered prices are putting pressure on disposable income and economic growth. This may be exacerbated by rising interest rates.
Ratings Afrika has developed an affordability index that takes into account among other things the average household income in that municipality as opposed to the national average, average municipal cost per household and the municipality’s debt per household. The result is expressed as a number out of 100.
Claassen said the index has shown a downward trend since 2009, even though bigger cities like Johannesburg, Tshwane and Cape Town are buffered by their higher average income per household.
The results in smaller municipalities are much lower than in the metros’ and also show a weakening trend, he said.
Affordability of municipal services: Ratings Afrika (out of 100)