Rising tariffs cannot fix Joburg's finances

Share current article via Email Share current article via Facebook Share current article via Twitter Share current article via LinkedIn The cost of municipal services is growing far more quickly than Johannesburg's economy. That is not a sustainable model of municipal government. Over the past decade the Joburg economy has grown by about 1% a year. Employment has performed even worse. In 2015-25 the city's working-age population increased by more than 750,000 people, while the number of employed people rose by only about 30,000. Municipal spending has not stagnated though. Between 2014/15 and 2024/25, Johannesburg's revenues increased 6.8% a year but its expenditure increased by more than 7.5% a year. The result is a widening gap between the size of the municipal machine and the economic base that has to sustain it. Divided by the number of people who are employed across Johannesburg's economy, the city's annual revenues increased by more than 3% a year since 2018, rising from R33,000 to about R41,000 per employed person. In other words, Johannesburg's residents are paying more and more for services at a time when the quality and reliability of municipal services are deteriorating. There is a basic economic constraint here. Ultimately, the metro's expenditure must be financed by the incomes generated by households and businesses, so the costs of municipal services cannot grow faster than residents' incomes forever. At present rates the city's costs will double every 20 years or so. In that time Johannesburg's economy, and therefore the income of its residents, will grow only 20%. When a municipality's costs grow faster than the size of its tax base, four things can happen: the city can extract an ever larger share of the incomes of the people and businesses that pay; it can become more dependent on national transfers; it can borrow more; or it can postpone paying some of its own bills. Johannesburg has done all four. The first of these strategies is becoming increasingly dangerous. On July 1 electricity tariffs rose 8.6%, water by 12.5%, sanitation by 11% and refuse charges by 6.2%. This is on top of years of higher-than-inflation increases on municipal services. There is a basic economic constraint here. Ultimately, the metro's expenditure must be financed by the incomes generated by households and businesses, so the costs of municipal services cannot grow faster than residents' incomes forever. There may be defensible reasons for individual increases. Bulk electricity and water costs rise, infrastructure must be maintained and employees must be paid. But taken together, sustained and continuous increases impose an ever greater burden on those households and firms that remain inside the formal payment system. It is clear from the enormous rise in unpaid bills that this strategy has reached its limits: in the latest audited figures, the increase in outstanding debt was equivalent to roughly one rand in every six the city billed for rates and services. The relationship between what Johannesburg charges and what its customers can or will pay is breaking down. And it is not the first sign of this either: by June 2025 unpaid bills owed to the city had risen to nearly R72bn from about R15bn a decade earlier. This creates a vicious cycle. As more and more bills go unpaid, the city has to recover more money from the shrinking number of businesses and households that can and do pay what they owe, so tariffs rise more. This means more households come under financial pressure and businesses face higher operating costs. Some customers simply stop paying. Others find ways to reduce their dependence on municipal services. The result is that revenue collections deteriorate further. The city has less cash to maintain infrastructure. Services worsen. Residents become still less willing to pay for them. The cycle deepens. Electricity illustrates the problem particularly clearly. For many years selling electricity was one of Johannesburg's most important sources of income. It bought electricity in bulk, sold it to customers and earned a margin that supported municipal finances. That model is weakening because the amount of electricity City Power buys and sells has declined substantially as slow economic growth bites and customers with the means find alternative sources of power. Inevitably, the more unreliable and expensive municipal electricity becomes, the stronger the incentive for customers to find alternatives, with the city losing the customers it most needs: those who consume large amounts of electricity and have the capacity to pay their accounts. As a result, the fixed costs of maintaining the electricity network have to be recovered from a smaller and financially weaker customer base. That creates pressure for still higher tariffs, making departure from the system even more attractive. This is not simply an electricity problem. It is a municipal finance problem. And it points to a wider danger: Johannesburg's management seems to think that the formal economy is an inexhaustible source of additional revenue. It is not. Businesses and households respond to costs. They change where they invest, what services they buy and, ultimately, where they choose to live. Like it or not, a city competes for taxpayers and investment. Expensive cities with bad services will find themselves in deepening crisis. If the response to failing services is to continually raise the charges imposed on those same businesses, Johannesburg risks destroying the economic base on which its finances depend. That is why the solution to the city's financial crisis cannot simply be 'improve revenue collection', important though better collection undoubtedly is. Nor can it simply be higher tariffs. Johannesburg needs to confront the other side of the equation: the cost of government itself. Employee-related expenditure has increased rapidly, rising from about R8.6bn in 2014/15 to more than R20bn a decade later. Since 2020 average remuneration has increased by more than 10% a year. Spending on contracted services has risen even faster. At the same time, infrastructure investment has collapsed. In inflation-adjusted terms capital expenditure is now roughly half what it was a decade ago. In per capita terms, the decline is close to 70%. This is the wrong approach. A city whose economy is stagnating should be doing everything possible to make investment and employment easier. Instead, Johannesburg is spending more and more on running the municipality while spending less and less on the infrastructure that makes economic activity possible and which is its core responsibility. Financial recovery therefore requires more than balancing a budget. It requires a rebalancing of the relationship between the city and the economy it governs. Johannesburg must collect far more of what it bills, but it must also restrain the growth of its own costs while raising the level of spending on infrastructure and improving the quality of that spending. Above all though, Johannesburg needs economic growth. That is the only way the city can sustainably support the costs of better services, higher investment and a larger municipal revenue base. A stagnant Johannesburg cannot indefinitely finance a municipality whose costs rise faster than the incomes of its residents and businesses. Johannesburg cannot tax its way back to prosperity. It has to govern its way there. • Bernstein is executive director of the Centre for Development & Enterprise (CDE). This article is based on Joburg's Broken Budget, the second report in a new CDE series: Johannesburg Matters: Fixing South Africa's Growth Engine. Business Day