Soos geplaas in die media deur ons lid van die Jaar, Mike Schussler
Municipal revenue increases are starting to hurt the economy.
For the first time in the history South Africa municipalities combined revenue has surpassed 50 billion Rand's from their own residents in one quarter. R51.8 billion was the income from residents alone in the third quarter of 2010 this is out of total income of R58.5 billion(this includes central governments grants and payments to municipalities.)
Putting this revenue in context the central government collected around R154 billion in the third quarter in total revenue.
While total revenue both from municipalities and from central government is not only made up of taxes the effect is that it is government money and helps to determine the size of government. Total Revenue from both spheres of government add up to R206 billion in the Third quarter. (Provincial governments collect only about R6 to R8 billion a year).
Putting this in context is the fact that municipal revenue has gone from just under 17% of the total to well over 25% of total government revenue over the two year period. Another year of increases such as the most recent two years and municipalities will form the biggest single tax (if municipalities are seen as one tax and not a heck of a lot of new service charges – which if fact they are)
The increase in municipal revenue from the residents and businesses of municipalities amounts to 72.2% over the last two years. Including central government funding the rise in municipal revenue for the same period was only 36.6%. This however reflects a decline in central government grants and transfers to the municipalities and the local governments had to scramble to get more money from their residents.
As a measure of how things change in that same time period nominal GDP increased with 13.3%. This means that municipality own revenue as a percentage of GDP have gone from 5.1% to 7.8% in a matter of two years.
The rise in municipal own revenue has been so big on the residents of these municipalities in the country have seen swift decreases in money available for other spending. Municipalities have been finding new charges such as dustbin rental, Network charges and demand side management charges. Service fees for pet licensees etc. are also finding big increases as local governments search for ways to increase revenue. Services such as water, sewerage, sanitation and waste al attract charge today while before only water and lights as well as property rates were taken into account.
Moreover citizens today have to pay for use of sport fields and libraries. Even Community centres charge for their use by communities such as ballet, yoga and the like. Some halls are now rented out for thousands of Rand instead of hundred with a deposit. In many municipalities even while services are not delivered accounts are charged. (This one hears is across all types of municipalities and provinces)
In the last two years interest rate cuts amounted to 650 basis points for the residents of South Africa but the effect of the municipal revenue increases has been an increase of 337 basis points (as a minimum) over the last two years. This means that barely 313 basis point decline is the actual effect that interest rates would have had on South Africans. More than half of the interest rate cuts are negated by these huge increases in service charges.
Residents are struggling to pay. Already we are seen huge increases in the amount that debt that municipalities have stop the latest municipal figures indicate that that debt has risen 19.7% to R46.8 billion. Municipal debt even after write-offs makes up 40% of all outstanding household debt in South Africa at the moment. That is bigger than Bank debt! Is this a revenue revolt? Perhaps it is too early to tell.
The bad debts do not take into account that billions have been written off already. These are not good signs but signs of the strain on local governments who have to deliver the bulk services to the population who are too poor to pay for everything. This taxes the middle and the rich even more. This leads to resentment on all sides and is not going to solve itself quickly.
But I believe that taxing evermore is not the solution in SA at all. The solution must require a lowering of costs and establishing a way for business to feel good and comfortable about creating jobs.
Table 1: Percentage change over the last two years.
Category % change
Revenue from Residents 72.2
Total Revenue (includes central government transfers) 36.6
GDP (nominal) 13.3
Source: National Treasury; StatsSA and economists.co.za
Residential revenue as percentage of GDP