Once again a piece of government legislation looks set to be overwhelmed by unintended consequences, despite having been drawn up with the best intentions.

The department of provincial & local government (DPLG) says the draft rates regulations it has gazetted will benefit the poor, households and farmers. Yet, if implemented, they could spell a bureaucratic disaster.

The Municipal Property Rates Act, promulgated in 2004, aims at making taxing of property owners transparent and fair by, among other things, ensuring properties are consistently valued. Local authorities also read it as an opportunity to add rates as a weapon for urban planning and regeneration.

For instance, Johannesburg wants sectional title property owners to pay a lower rate than the 5c in the rand that single title homeowners will pay when the new rates regime starts in July. This makes sense given that the city provides fewer services to sectional title owners and it also serves its policy of encouraging higher-density housing.

But the proposed regulations will have none of that. They pin municipalities in a wrestler's grip of ratios for prescribed categories of property and cap increases in each category to the annual increase in CPIX inflation.

DPLG director-general Lindiwe Msengana-Ndlela defends the rigidity as necessary because there are 283 municipalities and it would be impossible to come to individual arrangements. "We can re arrange categories and add flexibility, but only as the new rates regime matures," she says. "We are also quite willing to adjust some of the ratios."

Msengana-Ndlela says a joint team from DPLG and national treasury created the regulations by applying four principles:

• 
  To ensure long-term sustainability of local government;
• To enhance the economic value of different sectors, particularly agriculture and private households;
• To protect vulnerable groups and the indigent; and
• "Recognise that property rating is only one component and other revenue sources must be developed." (Rates make up 16%-28% of large cities' income.)

In focusing so much on protecting the poor, farmers and households, the DPLG team seems to have made one crucial bureaucratic error: it didn't check the impact of the new ratios and capping increases limit on municipal budgets.

In its submission to the DPLG, the SA Local Government Association (Salga) warns of a sharp decline in income.

It gives an example of a typical large metro, where residential rates would have to rise by 30% if the metro wants to rake in the same income.

The proposal to drop rates on vacant land by about 88% also irks municipalities because they want to use rates to stop owners sitting on undeveloped land.

More important is that the cap in rates increases hasn't taken into account the new property valuations required by the Rates Act. The property boom has lifted some property prices much more than others. Adjusting for this means some rates will have to rise much more than CPIX or other homeowners will have to subsidise high-value suburbs.

Salga, usually a compliant adjunct to government, says the new rates structure is impossible to apply. "If the draft ratios and the limit in inflationary increases are applied, the effect would be that the rates income of municipalities will be drastically reduced," it says in its submission.

Michael Sutcliffe, eThekwini's municipal manager, doesn't mince his words. "The regulations are a disaster and should be scrapped in their entirety," he says. "I've spoken to a number of other municipalities. They intend applying the Rates Act with the least possible impact on ratepayers. They should be given time to adjust over the next two years before the new rates regulations are finalised."

In its submission research group Municipal IQ describes the proposed regulations as "a very rigid set of boundaries, going against the spirit in which local government was constitutionally entrusted with financial autonomy through its significant revenue raising powers".

It's also difficult to understand how treasury could be party to the regulations in that it will end up having to make a greater contribution to municipal finances. Government has also blundered in setting the rates ratio for government buildings at 25% of the rate homeowners pay. This appears to give it an unfair advantage and does not fit any of the four principles used to justify the new draft rates.

Msengana-Ndlela made it clear that the DPLG was open to discussion on the ratios.