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Purpose of the presentation Background on the need for amending the Act Consultative processes undertaken Substantive revisions made to the version of the Bill which was

published for public comment and critical provisions of the current version

Strategic nature of the Bill

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The purpose of the presentation is to brief the Portfolio Committee on critical provisions of the Municipal Property Rates Amendment Bill which seeks to address the problems that have been experienced in the implementation of the Municipal Property Rates Act, 2004 (“the Act”) since its commencement in the quest of promoting effective and efficient implementation of the Act.

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The Municipal Property Rates Act, 2004 (“the Act”) commenced on 2 July 2005

The main objects of the Municipal Property Rates Act are to:

Regulate the power of a municipality to impose rates on property;Exclude certain properties from rating in the national interest;Make provision for municipalities to implement a uniform, transparent and

fair rating system.

The first implementation phase indicated that the original objectives of the Act are sound and laid the foundation for equity, fairness and transparency in the property rating system.

It was also observed in the first phase that certain implementation challenges warrant a review of the Act to address these implementation challenges and to simplify and strengthen aspects of the Act.

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The Municipal Property Rates Amendment Bill which is informed by implementation practice since the Act’s commencement seeks to: provide for regulatory clarity and certainty (as there were a number of

interpretation issues that arose);provide for more effective monitoring and reporting by municipalities

and provinces on critical areas of the implementation of the Act in order to strengthen national monitoring, compliance and support;

exclude certain types of public service infrastructure (PSI) from rating in the national interest in recognition of their developmental role;

include game farms in the definition of agricultural property; extend the period of validity for valuation rolls from 4 years to 5 years;

andeffect technical amendments aimed at simplifying the Act.

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The Amendment Bill was approved by the Cabinet in April 2011 for publication for public comments.

Over 7000 public submissions were received:• all public submissions were considered and the Bill was revised to

take these into account • the bulk of the public submissions were of a technical nature,

resulting in revisions to the Bill which are largely technical• certain of the public submissions resulted in revisions to the Bill

that changed policy positions (2 policy positions were revised and these will be outlined later).

The Bill was approved by Cabinet on 12 June 2013 for submission to Parliament.

The Bill was certified as legally sound and constitutional by the Office of Chief State Law Adviser.

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The Bill went through extensive consultation which began with public hearings in all 9 provinces in 2010 at which various stakeholders were in attendance. These included:

• farmers and agricultural unions, individual ratepayers, ratepayers’ associations, community based organisations, business and mining representatives, state owned enterprises, municipalities, municipal practitioners (finance practitioners and valuers) and representatives of traditional communities.

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In addition to the public hearings, the following parties were consulted:

• National Treasury, Departments of Transport, Agriculture, Education, Water and Environmental Affairs, Public Enterprises, Energy, Minerals, Public Works, state owned enterprises, the Civil Aviation Authority, South African Local Government Association (SALGA), Institute of Municipal Finance Officers (IMFO), various municipalities, the provincial departments responsible for local government and the National House of Traditional Leaders.

• The Financial and Fiscal Commission (FFC) was consulted prior to the first submission of the Bill to the Cabinet in terms of section 229 of the Constitution.

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Revisions to the Bill that should be noted are the following:

The removal of the proposed provisions to exclude aspects of the market value of property owned by recipients of the older persons’ grant and the disability.They are removed because the state is moving towards universal

access to the older persons’ grant for all pensioners regardless of income (as outlined in the Minister of Finance’s 2013/14 Budget Speech the “means test” for the older persons’ grant is to be phased out by 2016).- Retention of the proposal would unfairly benefit wealthy

pensioners after 2016.In practice, in one way or another, municipalities either exempt or

grant significant rebates to property owners who are poor through their property rates policies and their indigent policies.

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Revisions to the Bill that should be noted are the following (continued):

The proposed approach to property categorisation is softened without compromising the original objectives of strengthening regulatory oversight and compliance.

• This is done to allow for a degree of municipal discretion in determining certain property categories that are unique to a municipal area.

* The next 5 slides provide rationale for key provisions of the Bill (the rest of the Bill consists of legal and technical amendments which are effected to make the Act simpler to implement).

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PROBLEM STATEMENT:

PROPOSED AMENDMENT TO REMEDY THE PROBLEM

KEY CONSIDERATIONS

The rating of certain public service infrastructure (PSI) such as roads, railways, airport aprons and runways, dams and breakwaters may compromise the economic and developmental objectives of the country.

Amend the Act to exclude roads, railways, airport aprons and runways, dams and breakwaters from rating in the national interest

The exclusions are phased out over three years.

(The valuation and rating of other PSI will be retained as provided for in the Act because their exclusion would result in an unfair advantage to the state owned entities in sectors that include private operators, e.g. energy and telecommunications sectors).

Only about 71 municipalities reported that they have valued and are rating PSI. The PSI revenues constitute less than 1 percent of estimated aggregate property rates revenue for 2010/11.

This amendment does not exclude all PSI from rating; only those PSI that from a developmental and macroeconomic perspective should be justifiably excluded. Also, in these sectors the state is the main player.

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PROBLEM STATEMENT:

PROPOSED AMENDMENT TO REMEDY THE PROBLEM

KEY CONSIDERATIONS

The regulation of the power of a municipality to levy property rates is undermined because the Act allows municipalities wide ranging discretion to determine property categories.

(this provision was revised following consideration of public submissions)Strengthen regulatory provisions by tightening property categorisation to a predetermined list of property categories, limiting the scope for municipalities to undermine national regulation, while also allowing for a degree of municipal discretion to determine unique property categories.

These provisions are in the interests of promoting macroeconomic stability because they can limit excessive rates on the property of key economic sectors of the country.

In the absence of these proposed amendments, effective monitoring, and transparency in property rating will not be achieved.

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PROBLEM STATEMENT:

PROPOSED AMENDMENT TO REMEDY THE PROBLEM

KEY CONSIDERATIONS

The Act does not contain sufficient monitoring and reporting provisions to enable effective national and provincial monitoring, and support required.

Strengthen national and provincial monitoring and support by adding specific reporting provisions to the Act for provincial departments responsible for local government and municipalities and strengthen the provincial departments of local governments’ monitoring responsibilities in relation to municipalities’ implementation of the Act.

The absence of the necessary monitoring and reporting mechanisms in the Act increases the risk of non detection of municipal failure to implement key provisions of the Act, resulting in such failures being discovered at a stage when it is too late to rescue the situation.

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PROBLEM STATEMENT:

PROPOSED AMENDMENT TO REMEDY THE PROBLEM

KEY CONSIDERATIONS

It is not feasible or cost effective for certain municipalities to undertake general valuations every four years.

Amend the Act to allow for the period of validity of a municipal valuation roll to be extended from four to five years and to allow the MEC to extend it by a further 2 years based on valid reasons particularly where there is provincial intervention in a municipality.

This does not prevent any municipality if it so chooses, to prepare a new general valuation roll within 4 years or less.

This proposed amendment is key from a financial viability perspective for those municipalities that require a longer period to realise a return on the investment in their valuation roll.

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PROBLEM STATEMENT:

PROPOSED AMENDMENT TO REMEDY THE PROBLEM

KEY CONSIDERATIONS

The definition of agricultural property is not as fair and equitable as it should be.

Provide for the inclusion of game farming in the definition of agricultural property.

These properties have the same characteristics and they satisfy the conditions required to be considered as agricultural property; they therefore should be given the same treatment as other agricultural properties.

The inequitable and unfair treatment of game farms will be eliminated.

This amendment does not result in those portions of game farms that are used for the hospitality of guests being considered agricultural property.

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The provisions of this Bill, amongst others:• strengthen national regulation of rating to ensure that the macroeconomy is not

compromised by irresponsible rating;• strengthen accountability at all spheres of government through more effective

monitoring and reporting requirements;• Thus, providing for early detection of possible municipal failures in order to provide the requisite support

timeously.• deepen transparency in respect of property valuation and rating that will improve the

trust of property owners particularly the growing middle class whose rates represent an important source of municipal funding.

THANK YOU