Draft budget plea

Francis Clerke,
Somerset West

During March this year, after the lockdown had commenced, the municipality of the City of Cape Town published its draft budget for the 12-month period commencing July 1.

As a result of its timing, it may well become known as its “Covid-19 budget”.

It can be described as a “business-as-usual” budget and includes the following proposals:

Rates tariffs to go up by 4%.

Overall revenue from property rates to increase by 7.13%.

The surplus over the 4% tariff increase is being attributed mainly to the outcome of the General Valuation implemented last year.

As a result, many ratepayers will see their rates go up by more than 4%.

Employee-related costs to increase by 12%, including above inflation increases for all employees and increases averaging 13% for top management.

Already employee- related costs of the City, as a percentage of operating expenses, exceed that of other comparable cities.

It is important to point out that even prior to the lockdown the country was in a serious economic situation, so much so that when the National Treasury announced its budget earlier this year, it saw fit to reduce the income tax burden on taxpayers.

Thus, a taxpayer with a taxable income of R200 000 a year, now pays 12% less income tax.

In addition, National Treasury has proposed a R160.2 billion reduction, over three years, to the wage bill of national and provincial departments, and national public entities.

Clearly the National Treasury believes that now is the time to reduce the tax burden on its taxpayers, not to increase it.

Since the announcement of the national budget, two important events have occurred; the Covid-19 pandemic and the national lockdown; a double downgrade of this country’s credit rating – Moody’s to junk status, and Fitch to one notch below junk, both with a negative outlook.

The result is an economy in an even more dire state of health.

We can expect to see many businesses closing down, and many employees who are lucky enough to keep their jobs, may be faced with reduced remuneration from their employers or, at best zero annual increases.

My plea to the City of Cape Town is to take cognisance of the dire state of the economy and the financial predicament of many of its ratepayers and to adjust its proposed budget accordingly.

This is not a time for a “business-as-usual” budget. Rates should not be increased at all.

The City should look back to the 2016/17 year when its total rates revenue increased by 22% as a result of better than expected general valuation results.

Subsequent annual increases were implemented on top of that excessive increase.

Now is the time to follow the example set by the National Treasury and to go easy on ratepayers.

Thus my plea to the City is to adjust its proposed budget as follows:

Rates tariffs should not be increased at all or should be reduced;

No increases should be given to City employees;

The City should look to reduce its proposed expenditure until the situation in the country has returned to normal.

City of Cape Town office of the executive deputy mayor responds:

The City of Cape Town will be responding to all comments made on the draft budget as part of the public participation process.

Submissions can be made until May 2, and all submissions will have been considered and responded to by the time the final budget proposal goes to council for consideration and adoption. 

This year has been extraordinary.

Apart from having to reprioritise the City’s current budget (2019/20) to fund additional Covid-19 related expenditure and to take into account the negative impact on revenue for the provision of services, the City has also been making some adjustments to the draft budget for 2020/21 to deal with the continued Covid-19 impact on the City’s operations.

To date, no funding for the crisis has been received by the national government, as the government of last resort in this crisis.

The City is therefore doing all that it can to fund immediate needs without placing an enormous additional burden on ratepayers. 

Remember, most of the City’s funding for basic and essential service provision is funded from rates and service income.

This is how the municipal funding model works in South Africa.

So, rates and tariff income goes toward service provision across income groupings.

The City does not make a profit on tariff or rates income.

A total collapse of service delivery, such as electricity, roads, fire services, clinic nurses, refuse workers, water and sanitation services, will thus happen if there is no income from rates and tariffs. 

Two matters (raised in the letter) require correction.

The assertion that the City’s wage bill is higher than other “comparable cities” is not true.

It is not mentioned which cities are referred to. However, the City’s wage bill as a percentage of expenditure is well below South African standards in general.

In addition to this, the City does not outsource services such as electricity and water. Unlike some metros, these services are in-house and not performed by other entities. 

Furthermore, staff salary increases are not 12%.

The 2020/21 financial year is the last year of the three-year salary and wage collective agreement approved in 2018.

In terms of the South African Local Government Bargaining Council agreement, the increases per municipal financial year are to be calculated as follows:

2020/21:  5% CPI for 2020 as projected by January (this year) plus 1.25% and

2021/22 and 2022/23: Projected at 6.5% in the absence of an agreement.

Furthermore, the staff complement growth includes additional allocations for the appointment of 500 law enforcement officers in terms of the Law Enforcement Advancement Programme (LEAP), and service enhancements to redress budget imbalances in various directorates which were identified as part of the strategic management framework review, and big corporate programmes such as broadband infrastructure projects. 

In reference to a 13% increase of City executive directors the facts are; the tabled budget remuneration details reflect staff costs considerations year-on-year.

The 2019/20 position represents a different staff establishment and remuneration arrangements to that of 2021 financial year.

There is no decision on an increase for the City’s senior managers for the 2020/21 financial year.

The City appointed two new executive directors in 2019, and these new appointments have been factored in the proposed 2020/2021 budget, as is required by law.

The adjustment was implemented on July 1 2019, and it is not for the new financial year.

More letters on p8