Right of reply: Cape Town’s quiet revolution is one of hope for all - Geordin Hill-Lewis

Key topics

• Cape Town defends fixed charges as vital for infrastructure stability

• City's budget promotes fairness through progressive property-based tariffs

• Cape Town rewards lower utility use and offers relief to middle-income homes

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By Geordin Hill-Lewis* 

“Municipal Marxism” is, I must admit, an entirely new and most amusing characterisation of our project to make Cape Town the city of hope in South Africa. [Jim Tait, BizNews, Cape Town’s Budget isn’t a reform – It’s a quiet revolution, BizNews 2 May]

It reminded me of Marx’s (Groucho, not Karl) quip that ‘humour is reason gone mad’. No serious person could describe Cape Town’s success under the Democratic Alliance as an experiment in socialism. 

We’ve seen actual municipal Marxism in towns and cities around South Africa. Bankruptcy, infrastructure collapse, kleptocracy, exploding roads, dysfunctional services, water networks breaking down, kilometres with no streetlights or traffic lights, aversion to excellence – all the hallmarks of socialism everywhere - and sadly these things have become the norm in South African cities outside of Cape Town. 

It’s sad to see how South Africans have become inured to this failure. They’ve almost come to expect it. There is far too little analysis of why it happens and how to fix it. 

Cape Town is trying to build the diametric opposite of that, both practically and philosophically. And I’d argue we’re achieving some considerable measure of success, despite immense challenges. 

By focusing on those core functions that make cities work – functional infrastructure, integrity in the stewardship of public funds, basic services, higher standards - we have attracted much more investment, the lowest unemployment of any city in the country, a complete bifurcation in property values compared to other cities, and of course many more residents for our growing city. 

We are able to do so at the lowest cost to the public of any city in the country. Far from the high tax command-and-control dystopia Tait describes, Cape Town is factually the lowest municipal tax environment in South Africa, even when adjusting for higher property values. That is not opinion, we’ve published the data to prove it. 

He also frames the inclusion of fixed charges based on property values in our proposed budget as an act of “coercion”, stating that people who go off-grid by installing solar and boreholes are being “punished” as “using less no longer saves you money”. Let’s unpack these claims and show why they are wrong.

Stable, successful cities need some fixed revenue

Firstly, Cape Town would not have a working electricity or water service to speak of if the City only charged people for consumption, and not for a contribution to the costs of building and maintaining the network of infrastructure that make those services possible. 

Municipal infrastructure can’t be checked into and out-of like a guest at a hotel, as he suggests. Many costs are fixed in nature – pipelines, trucks, chemicals, cables, staff to service it all. These costs remain no matter how much people consume, and so fixed costs must be met with a portion of fixed revenue. 

Unlike a hotel, which is paid for only by the people who choose to check in, municipal infrastructure must be there always and for everyone, and must always work. So its costs must be borne by the whole city, not only those people who use it.

This is a well-established principle in infrastructure finance the world over, and there is a broad literature on it. 

In fact globally, cities are increasingly collecting more and more of their revenue (some, like in the case of Sydney, by far the majority of their revenue) from fixed charges. In Cape Town, consumption charges will still make up by far the largest portion of revenue, and only a relatively small portion will be fixed. So the incentive and choice to decide your own consumption pattern remains. 

Cape Town’s introduction of a comparatively small degree of fixed charges is one of the reasons we just received a credit ratings upgrade, which will help unlock more cost-effective borrowing for infrastructure in future, in turn ensuring a long-term saving for ratepayers.

Lower consumption is rewarded

It is also simply not true that people are punished for using less in Cape Town – exactly the opposite is the case.

We are the first city to introduce a ‘Cash for Power’ programme, paying Capetonians for as much of their excess solar power as they are able to sell to us in exchange for municipal bill credits and cash.

And uniquely among SA’s cities, Capetonians will pay less to consume electricity from July than they do currently, thanks to our electricity price relief measures limiting Eskom’s nationwide 11,32% to just 2% in Cape Town. The City has also discontinued the decades-long practice of embedding a 10% cost in electricity purchases to fund services like city-wide cleaning.

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Lower consumption is rewarded by the first 600 units of electricity consumed being cheaper, as well as the first 10.5KL of water consumed. Sanitation consumption charges are also lower this year.

Overall, the key take-away point is this: consumption charges would be far higher without fixed charges, and our City’s long-term stability would be far more at risk, with no stable revenue to enable infrastructure investment.

Linking fixed charges to property value

Municipal charges based on property values are absolutely commonplace around the world, just like inclining income tax brackets. 

The alternative is a flat charge for everyone – where a property owner of a R1m property pays the same as a property owner of a R20m property or a R100m property. But this is clearly regressive – it disproportionately impacts poorer households, who end up spending a much larger portion of their income on the charge. 

If a flat charge of R500 is charged, and one household earns R20 000 while the other earns R100 000 a month, this charge represents 2,5% and 0,5% of their monthly income respectively. 

This means the impact on the lower-income household is actually five times higher than on the higher income household! Is that what Tait is defending? 

This is not “fair” or “flat” – it is called regressive taxation, and we oppose it for the same reason the DA recently opposed the VAT hike, because it hits the poor hardest. We reject regressive taxation, and we support the principle of progressive taxation, while also levying it at the lowest rate of all the metros. 

This does not mean that lower income households make no contribution. That is also false. In truth, everyone contributes. Hundreds of thousands of households between R500 000 – R1.5m make meaningful contributions within their means. 

All households – whether low-income or affluent – also pay 15 cents in every rand of rates towards free and basic services to indigent households.

Nevertheless, we certainly do take the point raised by many that not everyone living in homes between R3m – R7m is wealthy or cash-flush.

For these reasons, the City has now proposed amendments to the budget to widen the rates relief net and meaningfully lower the tariff increases for homeowners especially in the R3m to R7m band, including:

• Expanding property rates relief by extending the ‘first R450 000 rates-free’ benefit beyond the current R5m cut-off to all homes under R7m in value

• Raising pensioner rebate qualifying criteria higher than the current R22 000 monthly income all the way to R27 000 monthly income

• Reducing the City-Wide Cleaning tariff for properties from R1,5m to R7,5m

Building a City of Hope

Tait suggests we’re engaging in coercive wealth redistribution with wealthier residents getting nothing in return. 

The fact is that when a city works well, everyone benefits. 

Every resident will benefit from our R40 billion infrastructure budget over the next three years. When services work better, when infrastructure is sound, when public transport is carrying more people, when the value of their properties are rising, when the poor have a better standard of living, everyone in our society benefits mutually. 

That’s the only way we’ll build a prosperous South Africa. And that’s the only quiet revolution Cape Town is leading. 

*Geordin Hill-Lewis is the Mayor of Cape Town.