At current rates of increase, property rates will become a deterrent to relocation from other parts of the country to this small, university city.
At current rates of increase, property rates will become a deterrent to relocation from other parts of the country to this small, university city.
When the Makana budget is tabled, it probably will include rises in property rates above the expected inflation rate for the coming year.
If property rates rise by 9% from July 1, as has been proposed, the increase over the last three years in property rates in Grahamstown will be almost 30%.
That is the effect of rate increases of 9% every municipal financial year for three years.
Yet the annual average consumer inflation price over the last two years has been moderate, around the 6% level or below.
The rationale for above inflation rate increases cannot simply be the need to redistribute wealth from the rich to the poor.
That is what progressive tax is for, after all.
Income tax is progressive, in that the more you earn the more you pay.
Whether it is sufficiently progressive is another issue entirely.
In Grahamstown, homeowners are not necessarily rich.
In some cases, the house they live in and own is their only form of wealth.
The National Treasury has, as I have pointed out in the pages of Grocott’s Mail in the past, tried to crack the whip on rate rises.
Municipal circular no 72 from the Treasury reads: "National Treasury has observed that municipalities unjustifiably approve property rate and service charge tariff increases far above the 6.0% upper boundary of the inflation target …
"For this reason municipalities must justify and substantiate in their budget documentation (budget narrative) all increases in excess of the 6.0% upper boundary of the South African Reserve Bank's inflation target."
Otherwise, warns the Treasury, it will simply set upper limits of tariff increases for property rates and service charges and municipalities will have to live with those limits.
Property rates are also progressive, in that as property rises in value it attracts more tax.
The property tax is levied on a simple scale.
According to the new draft Makana budget, for every rand your house is valued at, you as a homeowner will pay 0,004274 cents to Makana.
And the rates bill as a percentage of all the charges on a typical Makana Municipality statement for a house valued around R700 000 in a middle-class Grahamstown suburb is not that high: around 14% or R271.
Yet that is because on this statement, electricity accounts for 64% of the total monthly bill of almost R2 000.
The cost of water and sewage together make up another 20% of this illustrative monthly municipal bill.
In the coming financial year, starting 1 July, the proposed increase in all other charges, including electricity, is 8,5%, again above the expected inflation rate.
In the case of water, higher charges should be rewarded with reliable supply.
Reliable electricity generation is in the hands of Eskom as well as the hands of the municipality, which is responsible for local distribution.
A glance at the sources of revenue shows that electricity is by far the biggest earner of revenue for Makana at more than a third of operating revenue.
Some of this money does flow out to Eskom as bulk costs and some is spent on distribution and admin.
The 2014 Budget tables published in May show that Makana expects a surplus of R41-million on the difference between electricity revenue and spending.
Higher rates and service charges come at a bad time.
South Africa’s economic growth rate is expected to be low this year, and government finances are under pressure.
A large number of breadwinners in Grahamstown are dependent one way or another on government, which is trying to put a lid on high salary increases.
Municipal salaries are to increase by just under 7%.
The university has settled on a 6,5% increase for academics and 7,5% for support staff.
What could be done? A big part of the problem, recognised by the municipality, is that the municipality only collects 75c out of every rand owed.
This should be closer to 95c.
One part of this is improving services so that residents have no excuse to bilk the municipality.
But the municipality also recognises it needs to jack up the billing system.
Grocott’s Mail has pointed out that too often meters are not read and the charges simply based on an average of previous usage.
This cannot accurately reflect what homeowners should be paying and is unfair to those who have reduced electricity and water usage.
This is a bigger problem, for the moment, than the above-inflation rates rise.
As residents we should put pressure on the municipal officials to ensure that everyone is paying their fair share, based on what they actually use.
