How municipalities make money from property owners in South Africa

South Africa’s 257 municipalities are tasked with ensuring that communities across the country receive a variety of services, including sewerage & sanitation, water, electricity and refuse removal.

Data published by Statistics South Africa shows that local government receives the bulk of its money from two main sources.

  • First, from national and provincial government who transfer money to municipalities on a regular basis – referred to as grants and subsidies or transfers.
  • Secondly, from homeowners, businesses and industries who pay service charges and property rates.

The chart below shows municipal income over time, broken down into grants and subsides (blue), service charges & property rates (orange) and other income (grey).

“At first, this might seem to indicate that municipalities are in a good financial position, that they are able to generate the bulk of revenue themselves.

“However, as with all complex systems, there is some detail that needs to be unpacked. The local government landscape is dominated by eight large metropolitan municipalities who, as a group, contribute about 60% to total municipal income,” Stats SA said.

As urban centres, these cities are able to generate the bulk of their income from service charges and property rates.

Due to their collective size, they have a large influence on the trend reflected in national aggregates.

“The much smaller, rural municipalities are typically more dependent on grants and subsidies than they are on other income sources,” it said.

Peaks and troughs 

Stats SA said that the ‘peaks and troughs’ on the graph represent seasonal patterns in municipal income.

The biggest source of income in the service charges and property rates category is sales of electricity, which contributes about a quarter of total municipal income.

When sales of electricity rises and falls, it has a noticeable effect on total income, it said.

“Many municipalities act as intermediaries in the South African electricity sector: they buy power from Eskom and resell it to consumers.

“Electricity demand is seasonal, rising in winter and mellowing out over the summer months. Municipalities typically see a peak in sales of electricity in the quarter ending September.”

“Not only does the colder weather play a role in this quarter, but municipalities also implement annual tariff increases in July each year.”

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How municipalities make money from property owners in South Africa