16 January 2018

South Africa: Why the Drought Levy Tabled By Cape Town's Mayor Is Unfair


Day Zero: the dreaded day when Cape Town's taps are expected to run dry has been moved forward to 22 April. That is, unless residents reduce usage even further and the long awaited alternative sources, like desalination plants, come on stream.

These saving grace projects are running behind schedule, although drilling on the Cape Flats Aquifer has at last started. These essential projects are expensive and someone has to foot the bill. Enter the proposal tabled by Mayor Patricia De Lille for a drought levy.

The levy is being proposed because the dramatic drop in water usage has meant a large shortfall in projected revenue. The city's estimated water budget deficit ballooned to R1.7bn for the 2017 - 2018 financial year, based on consumption figures for October 2017.

To offset this shortfall, the Mayor has proposed an additional, temporary fix in the form of a drought levy. If given the go ahead by the country's Finance Minister Malusi Gigaba, the levy would come into force on 1 February. It's expected to raise one billion rand annually for the four years it's proposed to run.

The other hurdle the levy has to clear is that it needs to be approved by Cape Town's City Council. Internal politics in the Democratic Alliance, South Africa's main opposition party that also governs Cape Town and the Western Cape Province, might scupper it. The Democratic Alliance executive has done an about-turn on its own proposal and called on its councillors to vote against it.

Whatever the outcome, I believe that the levy is a bad idea. The main reasons are that it will be punitive (contrary to the mayor's claim that it won't be) because it will penalise people who have made an effort to save water. It will also punish those who have invested in installing water saving measures in their homes.

The workings of the levy

The proposed levy would be based on property values and calculated at between 10% and 11% of the rates portion of the municipal account. The charge would affect owners of properties valued at more than R400 000, and business properties valued at more than R50 000.

On the face of it, the monthly charge doesn't seem excessive. After all, the city does need extra major water infrastructure, as well as ongoing funding for basic services like sanitation. But the drought levy is unfair because it's based on property values and not on water use. After all, a person in a R2m home may use less water than a person residing in a R400 000 home - yet has to fork out more for the drought levy. So, instead of serving as a consumption charge like normal rates, the drought levy is in fact a punitive tax - something that is severe and people will struggle to pay.

To add insult to injury, many Capetonians have incurred huge costs by installing water efficient devices, grey water solutions and rainwater harvesting tanks - all at their own expense. No tax savings or rebates were offered by the city. These water saving items could also increase the value of the property, possibly making the levy higher. Rather than a drought levy, would it not be more sensible to increase the cost of water and penalise high consumers?

Alternatively, the city could redirect funds from its overall R44 billion budget to cover the shortfall.

The complications

Cape Town is in a difficult position. The city was declared a local disaster area in March 2017 with the aim of invoking emergency procurement procedures and obtaining emergency funding. But the national government has dragged its feet.

The Department of Water and Sanitation has been accused of neglecting its constitutional duties by flouting the principles of cooperative governance. Helen Zille, premier of the Western Cape, has also stated that the department has no money for capital infrastructure because of irregular, fruitless and wasteful expenditure.

Another challenge facing the city is that the levy might in fact be illegal because it could be in contravention of the Municipal Fiscal Powers and Functions as set out in the Constitution. The local government might have overstepped its legislative authority by fulfilling a national obligation - imposing a levy - which should rest with the Department of Water and Sanitation.

However, none of these reasons give the city the right to pass the buck to already overburdened taxpayers. As the blame game continues to rage, the Democratic Alliance's executive has instructed its city councillors to vote against the levy when it comes under consideration at the next council meeting at the end of January. Their reason? The levy would "create an undue burden on ratepayers".

Now is not the time to penalise property owners for investing in alternative water technologies and for heeding the city's call to save water. The drought levy could break the trust between the public and local government, and ultimately result in a rates boycott. Whether this crisis is due to climate change, poor planning, bad politics or a combination thereof, a drought levy may well be the straw that breaks the thirsty camel's back.

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