Municipal Property Rates Bill: deliberations

Meeting report

PROVINCIAL AND LOCAL GOVERNMENT PORTFOLIO COMMITTEE
2 February 2004
MUNICIPAL PROPERTY RATES BILL: DELIBERATIONS

Chairperson: Mr Y Carim (ANC)

Relevant Documents
Working draft of the Municipal Property Rates Bill (2 February 2004)
Local Government: Property Rates Bill [B19 - 2003 as originally tabled]

SUMMARY
The Chair briefed the Committee on the work that had been done by the subcommittee. A difficult issue had been whether to exclude public service infrastructure from rateable properties when indeed all government departments are paying rates. The argument goes that most public service infrastructure are too poor to afford rate payments. But the counter-argument is that it would be unfair to burden local authorities with the inefficiency of some public service infrastructures. It would be more expedient to make specific provision for the very needy in this sector.

The South African Agriculture Union presented a submission in which it acknowledged that the Committee had been generous in its concessions given to agriculture stakeholders. There were still some areas of concern such as Clause 15(3) and the need to exclude the game industry from the rating regime. It was suggested that it would be prudent to leave the farming community with the option to determine who qualifies as a bona fide farmer.

The South African Local Government Association was opposed to the exclusion of the game industry from the rating regime. It was true that a very small portion of the game industry contributed to the food basket but this did not warrant a blanket exclusion of the entire industry.

The Committee in its response stated that exclusion of the game industry from the rating regime was still undecided. It was generally accepted that Clause 15(3) was unacceptable in its present formulation.

MINUTES
General report-back from the subcommittee dealing with the Property Rates Bill
The Chair welcomed members, the Department and other interested parties to the Committee's 2004 session. He noted that the subcommittee has been meeting since 26 January 2004 to iron out some sticky issues in order to smooth the way for the resumed deliberations on the Bill. The latest working draft of the Bill was tabled before the Committee. It was planned for the Committee to vote on the Bill on 14 February and the debate and voting in the House would take place on 19 February 2004.

The Chair reported that the Committee had at various stages of deliberations on the Bill met with stakeholders for exhaustive consultations. The Committee had done its utmost to reach out and meet the expectations of all stakeholders.

The subcommittee had discussed the vexed question of whether water masses constitute a commodity for valuation. The Committee sought and received a well reasoned legal opinion which clarified that the Constitution would not allow the inclusion of towers while excluding land mass. Consequent upon this opinion, the Department had decided to exclude from rateable properties both land mass and public service infrastructure. The issue as to whether to exclude public service infrastructure from rateable properties, however, remains a political decision.

He noted that the subcommittee had to deal with the difficult question of whether to exclude public service infrastructure from rateable properties when indeed all government departments are paying rates. The argument goes that most public service infrastructures are too poor to afford rate payments. But the counter-argument is that it would be unfair to burden local authorities with the inefficiency in some public service infrastructures. The better option which is more expedient is to make specific provision for those very needy public service infrastructures.

Other issues raised at the subcommittee were whether exclusions should be subjected to valuation. One argument is that such valuation is absolutely necessary for the asset register which would facilitate a report to Parliament on the value of the asset for purposes of ascertaining whether indeed such exclusions are necessary. The opposing argument is that it is the policy of the Department to value a property when it is necessary to levy rates thereon. The other suggestion is to make provision for a national framework to guide the process.

The Chair noted that it would be prudent to furnish the final version of the Bill to key stakeholders not necessarily to open debate thereon but merely to alert them to what the law would look like and invite those with exceptionally serious reservations to raise them. The Report to the House would indicate that the deliberations on the Bill has been the longest the Committee has had to handle with many tortuous hours of deliberations. In spite of all these man-hours expended on the Bill, the Committee would keep the door open until the last minute.

Mr Grobler (DA) complained that he had not had ample time to peruse the new version of the Bill in order to make a useful input.

The Chair said the Committee would adjourn after his report-back on the work of the subcommittee to allow members to scan through the amended version.

Mr Grobler noted that municipalities expend huge amounts of money to maintain Eskom's infrastructure and that it is only fair that they receive some compensation from them.

The Chair said the Department's position is to subject the public service infrastructure to rates but then treat them under a differentiated regime since most are public utility facilities that are hugely subsidised by government. Such bodies are subject to rates internationally and that there is no reason why the same should not happen here. In any case some public service infrastructure is heavily commercialised and hence the need to rate them accordingly. The debate should be reduced to what should be valued and how to rate such properties.

The Chair adjourned the meeting to allow members who were not present in the subcommittee meetings to run through the amended version of the Bill. The meeting reconvened in the afternoon.

Afternoon session:
The Chair welcomed members to the afternoon session. He noted the presence of AgriSA (the South African agriculture union), and pointed out that indeed the agriculture sector of all the stakeholders had received the greatest concessions in this process. However, AgriSA had asked to address the Committee on certain outstanding concerns.

AgriSA (South African Agriculture Union) submission
Mr Johan Pienaar, Director: Economics & Trade: Johan Pienaar, AgriSA, thanked the Committee for the opportunity to make this address. The Committee has been very generous to the agriculture stakeholders which was very much appreciated. There were however still some areas of concern. It was not the wish of farmers to go to court on every other issue when such could be amicably resolved at this stage. Remarks by the Chair that the Bill is not intended to hurt farmers were most appreciated. Indeed, in-depth research had shown that farming was not a lucrative business it was perceived to be. There was therefore the question of affordability of the levied rates.

AgriSA requested that the technical team clarify the terms: exemption, reduction and rebates as applied in Clause 3(3) of the Bill. He said that it was necessary to explicitly exclude the game industry from the rating regime. The term 'bona fide farmer' is extremely difficult to define and no such definition has been provided in the Bill. It would be prudent to leave the farming community with the option to determine who qualifies as a bona fide farmer. There is concern that under Clause 15(3) where the Minister may exempt a sector if the rates "materially and unreasonably prejudice delivery of services", the injury must take place before the Minister takes action which is a situation that is unacceptable. By the time such intervention takes place the damage to the farmer would be enormous. There was concern that in Clause 15(3) the injury must take place before the Minister takes action which portends a very grave situation for the farmer.

Discussion
The Chair was quick to point out that the issue of whether or not to exclude the game industry from the rateable properties remained open for discussion. It was generally accepted that Clause 15(3) is unacceptable in its present formulation. There had so far been no agreement on the clause and it is still outstanding. It is intended that before the Committee take a vote on the Bill, the Department should outline the program of implementation so that people are educated on the elements of the Bill. SALGA should take the initiative to educate municipalities on this dispensation. It was important to ensure that municipalities do not unnecessarily penalise the agricultural community. The Bill as it currently stands was a very balanced piece of legislation but the real challenge lay in its effective implementation.

Mr Dorfling (SALGA) said that his organisation was opposed to the exclusion of the game industry from the rating regime. It was true that a very small portion of the game industry contributes to the food basket but this did not warrant a blanket exclusion of the entire industry. The game industry had not been historically associated with agriculture and there were no compelling reasons to do so at this stage.

Mr Mzilikazi Manyike (Director: Municipal Finance Policy) agreed with SALGA. The initial submission by organised agriculture did not mention the game industry and therefore its mention at this stage was belated and uncalled for. Unlike the game industry, organised agriculture had made the compelling point that the question of food security was very important to the country.

The Chair observed that there were too many absentee game farmers in the country at present.

Mr Grobler (DA) wondered whether there were people who could make an authoritative determination on who qualifies as a bona fide farmer.

The Chair ruled that the issue of the game industry would be included in its report to Parliament to the effect that: the game industry - though not qualifying for exclusion from rates payment - each case should be considered on its own merit.

Mr Dorfling made the point that the bona fide farmer is the one who takes the risk to significantly contribute to the food basket and this excludes the part-time farmer.

The Chair said that it would be more practical for by-laws to expound on the concept of a 'bona fide farmer'. Was there a possibility to make provision for the definition of a "bona fide farmer".

Adv. G Grove (Department legal drafter) noted that the term "bona fide" was a technical one and one which has been successfully employed in legal terminology in many instances. It was therefore not possible to supply it with a succinct definition.

The Chair advised organised agriculture to cultivate a healthy relationship with municipalities in order to avoid confusion and acrimony on issues of interpretation.

Mr Grobler said that it would be discriminatory to exclude a person who engaged in part-time farming but nonetheless contributes significantly to the food basket.

The Chair insisted that the option for one to qualify on the basis of 'bona fide' was far better than to leave the matter open-ended.

Mr Komphela (ANC) clarified that the bona fide farmer is one whose vocation is farming and who engages in this activity as the sole means of livelihood.

Mr Dorfling agreed with Mr Komphela and noted that people who engage in other professions are not covered under this relief.

The Chair expressed reservation on whether the Bill should exclude professional persons who engage in farming on an extensive scale and significantly contribute to the food basket.

Mr Mbongeni (ANC) asked members to be cautious and guard against the temptation to attach one's occupation to the definition of who is the bona fide farmer. It should be sufficient that one's farming activities contribute significantly to the food basket. It would be better for these matters to be explained at the local level.

Adv. Grove offered that Clause 3(2A) outlines what matters municipalities should take into account when determining the question of 'bona fide farmer': the extent of services provided by the municipality in respect of such properties; the contribution of agriculture to the local economy; and the extent to which agriculture assists in meeting the service delivery and development obligations of the municipality.

Mr Grobler agreed with Mr Mbongeni that the activity not the occupation should be the sole determining factor of who is the 'bona fide farmer'.

Mr Dorfling disagreed with this characterisation and noted that the farming activity is found in the definition whilst the clause only refer to one's occupation.

Mr Peter Vaz (DPGL legal advisor) stated that there were established principles on which municipalities grant rates relief to ratepayers.

Adv. Grove explained that Clause 3(2A) only provides the principle whilst Clause 14 outlines the categories of persons entitled to this relief.

Mr Mbongeni cautioned against a move that would discourage people from venturing into farming activities in future.

Mr Grobler agreed with Mr Mbongeni that such a discriminatory exclusion would necessarily prove to be counter-productive to the farming fraternity. It was important to support people who are ready and willing to take risks.

The Chair agreed. It was a question of implementation that bothered him. It was important to keep the legislation slightly flexible in which case the specifics of 'bona fides' should be dropped all the same.

Adv. Grove added that Clause 3(2A) was all about rating policy in agriculture generally.

The Committee then commenced perusal of the Bill clause by clause up to Clause 15. The following clauses were deferred for further consultation and discussion:
Clause 3(2A)
Clause 4(3) would be crossed referenced with the Municipal Finance Management Bill.
Clause 7(2)(a)(ii)(iii)
Clause 8(fB)
Clause 10(1) and (3)

The entire Bill would be subjected to renumbering to bring it in line with the latest amendments.

Meeting adjourned.