New rooftop solar tax breaks come with a huge catch

 ·13 Mar 2023

The government’s new solar tax incentive could strip local municipalities of their paying customers, adding to the already unsustainable costs of the power crisis by eroding their most important revenue source.

This puts local municipalities’ revenues under extreme pressure, and will leave everyone else tied to the grid – who can’t afford to move to solar – dealing with fallout, including higher prices.

This was the warning to parliament from the South African Local Government Association (Salga) during a briefing with the standing committee on appropriations on Friday (10 March) regarding the allocations to local government in the national budget in February.

Salga, which represents local municipalities, said that their revenue from the sale of electricity is overburdened with the damage associated with persistent load shedding, and the move of reliable taxpayers off the grid would comprise municipalities’ ability to deliver services.

According to Salga specialist in municipal infrastructure finance James Matsie, the R15,000 tax incentive for rooftop solar installations will only benefit the middle class – high energy consumers who can afford to install backup utilities.

These consumers represent a significant portion of reliable taxpayers who contribute to the majority of cities’ electricity revenue and subsidise the poor and those unable to pay for electricity, said Salga.

This is a double-edged sword, as their move off the grid would dramatically reduce revenue while increasing municipalities’ need to cross-subsidise the poor, who are left with above-inflation tariff increases, added Salga.

Matsie said that the speed at which consumers are moving off the grid is unsustainable for municipalities as they already experience a loss in revenue due to added expenditure on damaged infrastructure, vandalism, and theft as a result of prolonged load shedding.

“Cities incur a loss of income due to unserved energy whereby the overall average direct loss ranges from between R3 million to R6 million per stage of load-shedding per day,” said Matsie.

According to Salga, the losses are a result of and include the following:

  • Damage to electricity distribution networks and cable faults due to frequent switching – costing around R150,000 to R250,000 per day of load shedding;
  • Restoring power after damage or theft and vandalism – costing between R60,000 and R80,000 per day;
  • Medium voltage switchgear failures – costing between R50,000 and R150,000 per day; and
  • Damage to water supply networks and wastewater treatment works which need repairs.

While the 2023/4 Budget outlined the fiscal risks at national and provincial levels, the government failed to provide a plan to address these risks – including the impact on critical infrastructure – which municipalities are constitutionally responsible for upholding but is damaged by load-shedding, said Matsie.

“Salga suggests that the medium-term budget surplus be used to allocate more money to local government,” he added.

Although the allocation to local government increased by R14 billion, it needs a greater share of nationally raised revenue than the 11% allocated, as it is expected to be responsible for about 46% of the constitutional functions of the three spheres of government.

The association noted that there is a clear disequilibrium in the allocation of resources versus the allocation of functions, and the new solar tax incentive presents added risk to municipal revenue.

“Salga is working on developing the ideal allocation of nationally raised revenue to local government, which will then be submitted to the government and the National Treasury,” said Salga.

Read: South Africa needs its new ministers: Ramaphosa

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