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Use of property rates policies and by-laws as a tool for development Jaap de Visser [email protected] Developmental use of property rates Property rates as tax to – generate revenue, balance LG budget; but also influence behaviour (densification, property speculation)? redistribute resources? Using property rates as an instrument to: pursue local economic development; provide access to opportunities. Context: ‘developmental local government’ in distress ANC government: “developmental state” infrastructure-led growth social welfare schemes ‘Developmental local government” = constitutional objective of local government Given content to in 1998 White Paper, legislation and policy 18 May 2011: 3rd LG election 2009: local government is ‘in distress’ (violent) community protests ratepayers’ associations withholding rates in organised fashion Challenges: capability to implement developmental mandate lack of ‘professionalism’ financial stress: billions of debt owed to municipalities, high dependency on grants etc. Constitutional framework for property rates property rates traditionally a critical revenue source for local government constitutionally protected revenue source E.g. six biggest cities 2005/2006 budget: 20% of revenue 2001/2002 - 2004/2005: growth 21% Constitutional Court in Robertson: original power Supreme Court of Appeal in CDA Boerdery: no approval for setting rate National framework: Municipal Property Rates Act, implemented in 2009 Rating of land + improvement Professional valuation based on market value Policy/decision making: Municipal Property Rates Policy Municipal By-law Annual setting of rate (cents in the rand) Debt collection policy Instruments Statutory exemptions E.g. first R 15 000 of value may not be rated Places of worship etc. Differential rating Different categories of property different rate Municipality determines category (location, ownership, use) Instruments Reductions (reduction of property value) Exemptions Rebates (reduction of rates liability) Discounts Special rating areas Municipality may exempt categories Municipality identifies geographical area for higher service levels in return for extra levies Credit Control and debt collection policy: special provision for indigent etc. Regulatory context Tight financial regulation Municipalities must disclose revenue foregone as result of rebates etc. Practice: preliminary findings Most popular: widen the general residential exemption Policy innovation with rebates Little or no administration costs Evidence suggests redistributive effect Context: payment rate is low in any event rebate for “business that makes substantial contribution to job creation” Rebate for “farmer who pays farm worker a reasonable salary” Rebate for “farmer who provides basic services to farm workers” Slow uptake Successful use of special rating area but only for levying additional rates (CBDs) – other types of use? Challenges Is property rates adequate mechanism for redistribution / economic development? National Treasury’s ‘Urban Development Zones’ via national income / company taxation How important is property rates in economic/household decision making? General municipal tax/service fee burden: 12% of household income Capability question: inadequate use of two critical instruments: municipal policy and municipal by-law Inadequate data inhibits evidence-based policy making E.g. payment rates at lower incomes critical IGR system: very little (provincial) support for municipalities in developing property rates policies In summary Constitutional/policy context encourages Careful interest on part of municipalities Legal framework is brand new, preoccupation with transitional issues for now Limits (public finance argument) must be defined and acknowledged Context: serious capability problems outside of cities