A zero-percent rates increase to households would have benefited everyone, and the economy

On Tuesday 27 May 2014, StatsSA confirmed that real gross domestic product (GDP) at market prices decreased by 0.6% during the first quarter of 2014, the first quarterly decline since the second quarter of 2009.

Last week, the MPC announced that year-on-year inflation rate, as measured by the consumer price index (CPI) for all urban areas measured 6,0 per cent and 6,1 per cent in March and April 2014 respectively, up from 5,9 per cent in February.  This is higher than its own forecast inflation target range of 3-6% and higher than Bureau of Economic Research (BER’s) forecast.

The MPC continued: “Despite a more favourable global growth environment, the domestic economic growth outlook has deteriorated markedly. Both the mining and manufacturing sectors appear to have contracted in the first quarter, with electricity supply constraints adding to the weak outlook – revising economic growth down from 2,6% at the previous meeting to 2,1%.

In terms of consumers (our rate payers), the MPC said: “Food and non-alcoholic beverage price inflation accelerated significantly, measuring 7,0 per cent and 7,8 per cent in the past two months, compared with a recent low of 3,5 per cent in December.  The categories of food, housing utilities and transport together accounted for 3,7 percentage points of the inflation outcome in April.”  These are the very basics that directly affect economic activity.

“Higher food prices also drove the headline producer price inflation for final manufactured goods to 8,2% in March, compared with 7,7%, and stated that this is indicative of further upside pressures on CPI inflation in the near term. Consumption expenditure by households is expected to remain constrained in the face of continued weakness in credit extension, rising inflation and high consumer indebtedness,” said the MPC.

Not only are consumers under increasing pressure in this declining economic growth environment, but the MPC confirms that the unemployment rate remained elevated at 25,2 % in the first quarter of 2014.

Initially, the DA-run City’s draft budget confirms these increasing pressures on ratepayers by planning for consumer debtors to rise by R200 million (in 2014/15), R500 million (in 2015/16) and R700 million (in 2016/17).  Thus, the City is preparing to bill more, receive less and write off the balance.

Yet, the draft budget, first tabled in council in Feb 2014 (well before these recent announcements), remained unresponsive to the MPC’s latest concerns and outlook, and Tuesdays StatsSA announcement regarding the decline of the real GDP.  In so doing, the budget adopted on Wednesday in council ignored the downward economic trends and increasing pressures on ratepayers, and instead unsympathetically adopted increases for consumers (our ratepayers) on basic services.   This is contrary to the DA-run City’s assertion that it is a caring city.

The ACDP supports the Medium Term Budget Policy Statement (MTBPS) calls for municipalities to cut costs – but we are disappointed to note however that councils agenda for Thursday 29 May approved funding to 3 events, one of which wanted R100,000 for a cocktail reception – whilst the MTBPS requires that no state funding be used for alcohol.  The DA-run City is ignoring the MTBPS

The DA-run City’s draft budget is largely unresponsive to these significant consumer (ratepayer) pressures, therefore not credible as it asserts:

Their so-called “conservative approach” to projecting expected revenues and cash receipts” (v1, pg49) incredibly projects the same collection rates as previous years for rates and electricity, yet contradicts this repeatedly by “projecting negative service growth over the next three years due to energy saving plans and increasing tariffs which is reducing consumption.”  Electricity revenue contribution to total revenue is set to decline across the medium term, confirming the above, yet the draft budget, also incredibly, anticipates an increase in sales.

Under the telling heading “Impact of tariff increases on households”, electricity increases are set at 9,9%, well over the NERSA guideline for increases set at 7,39% and contrary to their own statements.

The budget projects a 2% increase in refuse collection revenue and 3,4% increase in revenue from its rental housing stock, which they anticipate is set to rise by a further 4% in the medium term. Yet how are our ratepayers expected to finance these increases?

MFMA Circular 70 echoes the MPC’s views and the ACDP has consistently raised concerns since 2008 that CT is becoming an unaffordable city to live and grow economically in.  Now is not the time to be raising the costs of basic services to households, but to be sustaining them at 2013/14 levels for 2014/15 at least.  The ACDP therefore echoes its previous calls that there should be zero % increases in household rates, water, electricity, sewerage and refuse removal, and the hire of council facilities to users.

The DA-led City’s Integrated Development Plan (IDP) speaks of “An Inclusive, opportunity City” yet the mounting pressures on consumers (rate payers), confirmed by MPC, BER, StatsSA and most economists, are having the effect of excluding and strangling hundreds of thousands of struggling households from entering and broadening their economic opportunities in Cape Town, as the DA-led City now expects them to pay even more for the same service from reduced household budgets.  This is particularly the case for the 35,7% of city households with poverty line income of R3500pm or less.

This is having the effect of excluding them from the City’s growth and development because of their economic status, rather than including them. It denies them the opportunity to realise their own social, economic and family dreams.  The DA-led City is not behaving like a caring City.

According to the City’s Customer Satisfaction Survey, creating jobs is the highest priority for customers, yet the private sector will find this extremely difficult given the significant tariff increases to business, at higher than CPI levels.

The DA-led City is rightly prioritising densification – yet is penalising sectional title residential properties by setting the second level tariff for water usage higher than that for single residential properties, and the same for all sewerage tariff levels (except level 1).

In its draft budget presented to council, the DA-led City replied to ratepayers who complained, that “further modelling is being done on the updated transactions in the current financial year (2013/14) to ascertain whether the projected income and expenditure for the ensuring year would support reviewing the total household income parameters when the budget is tabled to council in May 2014.” That undertaking lapsed yesterday, but no mention was made at all, either written or during the 5 hour debate, that this has modelling been done, what the results were and what the City’s response is.  This can only mean that the original reply was a disguised rejection of the ratepayers concerns.

Operating Grants and Transfers from national government are a further concern to the ACDP.  National government is reducing the public transport network operations grant by R55 million and the EPWP grant is reducing by half, down by R20 million.  Provincial government is increasing its provincial library services by 50% – this is to be applauded, but we are concerned that health vaccine grants are reduced in 2014/15 financial year, meaning less available for these needed vaccines.

The ACDP welcomes the increase of 11% of operational repairs and maintenance budget.  This is an important step towards preserving our existing infrastructural investments for the use of future generations.  However, we are concerned that Capital expenditure on new infrastructure is set to decrease for roads infrastructure (in 2014/15) and electricity (for the next 3 years).  The DA-led City confirms that 36,000 households will remain below the already very low ‘minimum service level for access to electricity’ for the next three years, reducing only marginally by some 2,000 households over the next 3 years.

More concerning, is that capital expenditure on the renewal of existing assets are set to decrease by R47m in 2014/15 and more than halve in the outer two years.

It is misleading and unacceptable for the DA-led City to say that there are no refuse services backlogs and that no areas enjoy refuse removal less than once per week – that may be the target, but there are several areas across the City where refuse is left to pile up for more than a week, where communities are having to create their own refuse dumps and disposing of rubbish in various illegal ways, including clogging the storm water system, precisely because the City’s refuse removal in many poorer areas and informal settlements is unreliable, insufficient, and less than once per week.  This poses numerous health and safety hazards to these ratepayers, especially children in particular, and causes the City to spend millions every autumn to clean the storm water system –amidst great fanfare and backpatting.

Given that Cape Town is a tourism and events capital of SA, SADC and even Africa, it is deeply concerning that in the Budgeted Financial Performance table (dealing with revenue and expenditure by vote), the City is budgeting for a decrease in revenue from Tourism, Events and Marketing (from R90 million to R24 million) and budgeting for a decrease in expenditure on Tourism, Events and Marketing, from R571 million to R482 million, and R533 million in the outer years – never reaching the same level of expenditure as 2013/14.  What does this say about the DA’s commitment to job creation through tourism, to securing and growing our beautiful City as a tourism destination and what does it say about their level of confidence in Cape Town as a resilient, world class city?

The ACDP is disappointed but not surprised that the DA ignored all of these concerns.

I also tabled the following proposal to amend the capital budget – that R181m earmarked to be spent on a building a new Head Office for the department of Water and Sanitation, be cancelled and alternative premises sought to rent, and that the R181m reserved for that expensive and unnecessary Capex project be allocated to the following:

  • Upgrades to City clinics identified by City Health – an additional R20 million (to R55m)
  • Fire vehicles replacement – an additional R6 million (to R15m)
  • Traffic services vehicles – an additional R5 million (to R22m)
  • Traffic services equipment – an additional R2 million
  • Law enforcement and security services  vehicles – an additional R6 million (to R15m)
  • Law enforcement equipment – an additional R2 million                             –
  • Metro Police services replacement of vehicles – an additional R2 million  (to R5m)
  • Construction of new ECD centres – an additional R20 million (to R42m)
  • Upgrade to City Hall – an additional R8 million (to R20m)
  • Upgrade of Good Hope Centre – an additional R10 million (to R15m)
  • Informal settlements sanitation installation – an additional R60 million (to R120m)
  • Hartleyvale stadium – additional R10 million
  • Capex investment in renewable energy products – an additional R10 million
  • Housing projects and upgrades Identified by the Human Settlements Department – an additional R20 million

The DA rejected this proposal too, claiming (falsely) that it was not legally compliant, yet the same funding source for the new head office would have been used to fund all of these more important and urgent capital items.

This all contradicts the DA’s claims that it is pro-poor, for when given the opportunity to increase its spending on building more ECD centres, on upgrading more clinics, on purchasing more new fire trucks and upgrading the unacceptable sanitation conditions in informal settlements around our city, it chooses instead to build a new and completely unnecessary head office for the water and sanitation department officials – when they could have been renting a building from the department of public works for a nominal amount, if not for free.

A one or two year holiday of no increases to household rates accounts would have benefitted everyone rich and poor, especially those who are cash-strapped already, which includes many if not most households.  It would free up cash for economic activity and grow the rates base – benefiting everyone ultimately.  To fund this, the City simply needs to do more with the same income, forcing efficiency and working smarter. Instead, everyone in Cape Town now has to pay more. City ratepayers deserve better!

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3 thoughts on “A zero-percent rates increase to households would have benefited everyone, and the economy

  1. Mostly a good post with good points.

    However, I kindly have to disagree with this:

    “Capex investment in renewable energy products – an additional R10 million…”

    Unfortunately, there is no such thing as “renewable” energy. The term contradicts the 2nd Law of Thermodynamics (one of THE surest laws of nature), which implies that energy simply becomes more and more useless to do useful work, as it is processed — and there is nothing we can do about it. There are NO exceptions. I also want to say that these “alternative” energies are not the face of the future in the sense that we are going to run entire economies off them. I am not saying that they have no place at all (for some household purposes, they can maybe work), but if we are in anyway realistic, people must first understand that they have been sold a political verbal fraud with the term “renewable” energy (which give too much hope), and second, that these technologies are not nearly as efficient as they think, or even as efficient as the current thermal power stations (coal and nuclear) that we have. (Hydro is much more efficient, but is actually quite dangerous, physically, though I support it in general). Wind is in my opinion a complete waste or farce, literally being “politically correct power” (it generates a lot of so called useless VAR’s, which cannot be used, they can be really bad for the national electricity grid, kill unacceptable amounts of bats and birds), and utterly expensive. And R10 m. would not nearly be enough for wind. People think because they “see” certain countries with such technologies, that these technologies work. But the unseen face is a host of engineering problems (and wastage, since coal fired power plants cannot just be switched on and off like a car) which the general public is understandably unaware of. And I cannot help to feel that coal is unnecessarily criminalized in the public arena, especially overseas. We must keep in mind that it is a concentrated form of solar energy which God gave us. And… we have fantastic technologies with which real pollutants are removed. The newer power stations Medupi and Kusile should have more of these scrubbers. (If only they can get completed!). But even the older ones remove 99.98% of the so called “fly ash”. Eskom is in trouble for several reasons, but it is not due to lack of coal.

    In any case, you post wasn’t about energy, and I promise, the above thoughts were shared here in friendliness, not hostility.

    People who think utopia will reign under DA governance are unfortunately in a fond delusion.

    Kindest regards,

    E. van Niekerk

  2. Wow, this article is fastidious, my younger sister is analyzing these kinds of things, thus I am going to convey her. agadbddadecb

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