TRANSPORT FUNDING
SPEECH BY MR MAC MAHARAJ, MINISTER OF TRANSPORT, ADDRESSING THE CAPE CHAMBER
OF COMMERCE AND INDUSTRY, 27 JUNE 1996. CAPE TOWN.
Chairperson, ladies and gentlemen
Thank you for affording me the opportunity of addressing you on the issue of
transport funding, which is a matter of concern to all of us, as we begin to
restructure the economy of the country.
My speech today will consider the constitutional framework for the
performance of transport functions, the transport infrastructure needs, some
critical transport issues, will establish the criteria for funding
strategies, discuss the most important funding mechanisms available to us,
and will end off with certain conclusions and a possible way forward.
I believe that transport is an important catalyst in South Africa's economic
and social growth. In fact, the Cabinet has recognised transport as one of
the five main areas for social development. Ever since the Interim
Constitution was published in 1994, my Department has been involved in the
process of applying the constitutional principles in practice. In January
1995, we reached agreement with the nine Provinces regarding a division of
transport functions between national and provincial government tiers.
This was followed by a process of assigning certain transport powers to the
Provinces, in particular dealing with the thorny issues of public transport,
roads, road traffic regulation and road transportation.
In terms of the 1996 Constitution, the individual responsibility for
national and provincial roads lies at the corresponding levels, whereas
public transport (also called transit) is a concurrent functional area of
provincial legislative competence. Seaports are a national function; so are
international and national airports, while other airports are the
responsibility of national and provincial levels. Subject to national and
provincial legislation, local governments will assume responsibility for
municipal transport and municipal airports. This subdivision of functions
will naturally have its effect on funding procedures and mechanisms.
The funding for airport and seaport infrastructure is negotiated by the
Airports Company and Portnet, respectively, on the international money
market, and does not require State funding.
In broad terms, this means that the national Department of Transport will
require funds to build and maintain national roads (including toll roads),
the provincial Departments of Transport (or Public Works) will need funds
for provincial roads and transit infrastructure, and local governments
(especially metropolitan governments) will need funds for urban transport
infrastructure and services.
Each level of government is entitled to an equitable share of revenue raised
nationally. Provincial and local governments may also receive other
allocations from national revenue, with or without conditions.
Provincial governments may impose taxes, levies or duties (but not income
tax, VAT, GST, rates on property or customs duties), and flat-rate
surcharges on tax bases of any national tax, levy or duty (but not corporate
income tax, VAT, rates on property or customs duties). This gives them a few
options for generating funds for transport infrastructure, in terms of new
legislation envisaged, once the Financial and Fiscal Commission's
recommendations have been considered.
Local governments may impose rates on property and excise tax, and taxes,
levies or duties (but not income tax, VAT, GST, surcharge or customs duty).
As you are aware, road transport is the dominant means of transport in the
country and the investment in roads accounts for a major part of the capital
stock of the government. The replacement cost of the rural road network is
estimated to be in excess of R130 billion. Every day about 140 million
vehicle-kilometres are travelled on the network at an estimated user cost of
R70 million per annum. More than 50% of the surfaced network has been in
operation for longer than its 20-year design life. During the period from
1940 to 1993, the number of commercial vehicles increased at an annual
growth rate of 7%, and the freight tonnage by road increased at a rate of 8%
per annum.
As mentioned in my Budget Speech on 12 June 1996, if we do not spend enough
on our roads to maintain what we have, rebuilding it later will cost us a
lot more. We cannot afford to make that mistake. Road traffic has grown
continuously over the last 30 years, yet the budget for roads today is less
in real terms than it was 30 years ago. The budget allocation is only enough
to cover 60% of urgent maintenance needs, so the condition of our roads is
deteriorating fast. And there is no provision for any new capacity.
Over the past 50 years, South Africa has changed from a rural to an urban
society, and by the year 2000 approximately 80 % of our population will live
in cities. By that time, Gauteng will account for half of South Africa's
Gross Domestic Product. According to the World Bank, the reality of such
concentrations is clear: without properly functioning cities, the ability to
sustain an overall economic recovery will be jeopardised. Designing a
comprehensive transport funding strategy is therefore an important national
priority.
Let us look at some of the challenges that face us today.
Only a small percentage of families have access to a private car, and
therefore the majority of our population have to rely on transit for
commuting to work and for access to other opportunities. In addition, past
spatial development policies have resulted in the poorest people living the
furthest from places of employment.
Owing to the bias in metropolitan areas towards infrastructure for, and
incentives based on, the private car, this mode of transport has in a sense
been heavily subsidised. Of course, the majority of transit services operate
on the road network, especially since the advent of the minibus taxi, which
is estimated to carry roughly half of all daily commuters. In the past,
improvements to public transport infrastructure were neglected and service
levels dropped. Instead, the main expenditure on transit within urban areas
has been on operating subsidies, which were aimed at making commuting over
long distances more affordable.
These trends should now be reversed, if we hope to save our cities from
stagnation and environmental degradation. It is most important that the
funding strategies we apply should begin to reflect our commitment to the
goal of making our cities livable.
As far as transport infrastructure needs are concerned, we need to consider
the following:
- South Africa's national and provincial road network is in danger of
collapse as a result of severe financial restrictions during the past
decade, leading to totally inadequate maintenance of the network.
Allocations for roads in general have averaged R3 200 million per annum
in real terms over the past four years, as against the need of R7 900
million per annum. Toll roads were introduced in the mid-eighties in
order to enable heavily-trafficked national roads to be developed on a
self-financing basis.
- To eliminate the current backlog over the next ten years, the estimated
annual funding requirements for proposed national and provincial roads
is R2 400 million and R5 500 million, respectively. This is based on an
ultimate national and provincial road network of 20 000 km and 340 000
kilometres, respectively.
- The backlog in urban transit infrastructure is of the same order.
Although the Urban Transport Fund was established in 1978, for the
purpose of financing transit projects from three tiers of government,
funding levels never came near to adequately addressing the real needs.
Instead, the major portion of the Department of Transport's budget was
appropriated for funding the deficit on bus and rail commuter transport
services, at a time when transit ridership was declining by about 5%
per annum.
- To eliminate the backlog over the next ten years, the estimated annual
transit infrastructure needs in metropolitan areas are of the order of
R3,3 billion, and in all urban areas the needs amount to about R5,8
billion. These figures do not include the rural transit needs, which
are currently undefined.
I also wish to highlight a number of critical transport issues that demand
our attention:
- The replacement value of South Africa's transport infrastructure runs
into hundreds of billions of Rand, and strategies are required to
maintain and improve our road and rail networks, airports and ports.
- Treasury funds are not adequate to cover the cost of providing
infrastructure and services; therefore the private sector must be
brought into the picture.
- The lack of mobility and accessibility of millions of people must be
addressed.
- Most people do not have access to a private car for commuting and
depend on transit as their lifeline to opportunities.
- Spatial distortions resulting from apartheid and low densities must be
reversed, by concentrating development at nodes and along transport
corridors. The continued subsidisation of long distance commuting is no
longer sustainable. These funds should rather be redirected to
investments in transit infrastructure.
- Unrestrained car usage and subsidised parking should be contained by
means of traffic demand management techniques.
- The increased use of transit should be actively encouraged by means of
strong incentives that deter the use of private transport in
metropolitan areas, and our transport funding strategies should reflect
this.
In terms of the Constitution, there is now greater clarity on the role of
each government tier in financing and providing transport infrastructure.
The responsibility for some functions is being assigned to provincial and
local governments. I am confident that metropolitan governments will in time
be competent to plan, build and operate transit systems, under the watchful
eye of the Province concerned. Existing laws are being amended, and new
legislation at national and provincial level is envisaged, which will ensure
more adequate delivery of much-needed roads and transit infrastructure.
The role of national legislation is to provide an enabling framework,
whereas provincial legislation will provide measures for delivery.
Let us now assess the criteria required to achieve an appropriate funding
strategy for transport. I believe the development of such a funding strategy
depends on a number of these criteria:
- The strategy should be appropriate and affordable: in metropolitan
areas, the provision of transit is generally accepted as the most
cost-effective alternative to private transport.
- It should be legally possible: the necessary laws and institutions to
provide the infrastructure should be in place.
- It should be implementable and sustainable: the need for adequate funds
and stable funding sources needs to be emphasised.
- It should be logical and reasonable: the community asked to contribute
should be convinced that the funding mechanisms and channels are
acceptable.
The funding strategy for transport should be based on achieving economic and
social goals and objectives. Among the social objectives are the following:
- Emphasising the importance of transport as a catalyst for economic
development and urban restructuring.
- Reconstruction and development. The large scale implementation of
infrastructure can create many thousands of jobs, encourage human
resource development and boost the economy.
- Promoting access to work and other opportunities, such as education,
health, services, shopping and recreation.
Economic considerations include the following:
- Maintaining and improving road and transit infrastructure.
- Providing links between farm and market, or more broadly between
producer and consumer.
- The user should pay proportionally for services and the use of
infrastructure.
- We need to improve the efficient functioning of our cities.
- We should minimise the unit cost by increasing efficiency through the
application of business principles.
- We must involve the private sector in financing infrastructure.
Other important considerations are the following:
- Each mode of transport should be evaluated in terms of its total cost
to society, including the space requirements (right-of-way, parking and
garaging), accident costs and environmental costs, besides the usual
capital and operational costs. Apart from its low passenger-carrying
capacity, the private car occupies vast areas of road and parking space
in cities, and adds significantly to noise and air pollution. Moreover,
the annual cost to the country of 10 000 road casualties, a staggering
R9 billion, is not sustainable.
- In the interests of safety, efficiency, spatial economy and
cost-effectiveness, strong incentives should be employed to promote the
provision and use of transit. To achieve this goal, various funding
mechanisms may be used.
At this point, I suggest we consider the pros and cons of these funding
mechanisms and their acceptability:
- State funding
In the past, the government was expected to provide practically all the
sources of funding for satisfying the needs of the country. However,
there is a growing realisation that State funding cannot hope to carry
the full burden, and that other significant avenues should be explored.
The principle of users paying for the use of infrastructure and
services is the key to the solution.
- Fuel levy
Part of the fuel price is known as the fuel levy. This is a levy on the
sale of liquid fuel and a way of recovering costs for the use of the
road. The price of fuel fluctuates according to international economic
conditions, but the proceeds of the levy approximate R9 billion. There
are strong indications that motorists are willing to pay a higher fuel
price, provided they are assured that their contributions will actually
be spent on a better road system in an accountable and transparent
manner. However, the current proceeds of the tax on fuel are only
partly returned to the transport sector. Approximately R3,2 billion of
the R9 billion is currently allocated for national and provincial
roads..
The fuel levy is simple to administer, provides a reliable flow of
funds, and is acceptable to the public. An increase of 1c in the price
of fuel yields roughly R150 million.
- Road tolls
On heavily-trafficked freeways, the cost of providing and maintaining
these facilities may be recovered by imposing tolls on motorists and
vehicle operators. The size of toll varies according to the class of
vehicle. Despite the steady increase in toll fees to allow for
inflation, toll roads have experienced traffic growth rates in excess
of 10% over the past two years. The current gross toll income is of the
order of R300 million per annum, which services loans of R2,25 billion
and redeems them over 30 years.
The cost to the motorist on the N3 between Johannesburg and Durban is
equal to 8 cents per kilometre, while a heavy truck operator will pay
up to 31 cents per kilometre, involving direct payment for using the
road, while saving time and operating costs and reaping safety
benefits.
- Licence fees
Vehicle licence fees vary depending on the size of the vehicle from R60
for small passenger cars to R10 000 for large trucks. License fees
target vehicle owners, and do not affect the majority of the people,
who do not own cars and therefore rely on transit for commuting and
other trips. In metropolitan areas, imposing a much larger licence fee
on motorists using their cars to enter the city may be necessary, as an
incentive to use transit or to pay for the provision of road and
parking space in the city. By doubling the licence fees of private cars
in metropolitan areas a sum of R1 billion can be raised.
- Employer Levies
In the past, levies were imposed on employers to help pay for their
workers' transport. However, this did not find favour, since the
previous government had instituted apartheid legislation, and was
expected to foot the bill. Now that these restrictive laws have been
repealed, and massive urbanisation is taking place, there may be good
reason to return to employer levies. In fact, employers already pay
similar levies to services councils, in addition to levies on turnover.
In this way an amount of R740 million is produced. It may be more
productive to require employers to provide for their employees'
transport, as this may lead to more efficient services and decrease the
demand for passenger transport subsidies. Such a measure would have the
disadvantage of isolating long distance commuters, or may prompt them
to move closer to places of work.
- Metropolitan levies
The carrying capacity of vehicles per metre width of infrastructure is
such that buses carry 7,5 times and surface rail 45 times the number of
passengers of a motor car. To relieve congestion on roads entering the
city, motorists should be required to pay for the privilege of using
their cars in peak hours. This could be collected at a tollgate, or by
electronic tolling, or the display of a prepaid disk on the windscreen.
In this way car owners are targeted, but only if they add to the
congestion. Transit vehicles should pay lower prices or be exempt, in
order to promote the use of transit.
This mechanism was intended to provide a major portion of the funds for
the Urban Transport Fund, but it was never implemented, since it was
not perceived to be politically acceptable at the time. However, if we
are serious about promoting the use of transit, it may be the way
forward.
- Parking charges
In cities, cars consume an inordinate amount of space, in the form of
prime land, while travelling or parking on-street or in parking
buildings. To promote the use of transit, parking charges can be
increased dramatically so as to more accurately reflect the real cost
of using private transport. Parking charges target only vehicle owners,
while transit users are exempt. In some European cities, where
efficient transit systems exist, parking is specifically rationed as an
incentive for car owners to leave their cars at home. However, if the
alternative of attractive, efficient transit is not provided
simultaneously, there is a real danger of encouraging decentralisation
of the CBD and a flight of business to the suburbs, as in the case of
Johannesburg.
Increased parking charges have the potential of yielding significant
revenues in metropolitan areas. They are simple to collect and are
acceptable to the public, but less so than the fuel levy. In
metropolitan areas, it may be possible to collect R200 million in this
way.
- Value capture
Value capture entails obtaining contributions from private sector
institutions, who may benefit from the development of facilities, such
as intermodal transfer stations. These may be combined with office and
shopping space, which can generate substantial income. Such
public/private partnerships are essential to ensure the provision of
transport infrastructure. Already Intersite, the property development
arm of Transnet, is exploiting this market at rail stations and
harbours.
- Development fees
When large commercial developments, such as shopping centres or office
parks are proposed, the developers may be required to contribute to the
cost of providing improved road and transit infrastructure in the form
of access roads, parking and ranking.
Development levies are a good source of funding, but not consistent. In
metropolitan areas an amount of R50 million may be generated.
- Value Added Tax
VAT is a general tax on the sale of goods and services, which targets
everyone, especially the affluent, who can afford to buy more. This
ensures that everybody contributes towards paying for the use of public
infrastructure and facilities. A significant amount of VAT is generated
from the sales and servicing of vehicles.
The State earns approximately R32,316 billion per annum from VAT. A 1%
increase in VAT would produce over R2 billion in revenue, but in the
present political climate it is not recommended.
- Provincial Sales Tax
Provincial governments may be allowed to impose a regional surcharge on
general sales tax in their areas of jurisdiction, for the purpose of
generating additional funds to finance the provision of roads and
transit infrastructure. The community at large would be more amenable
to added taxes if they were assured of improvements to the transport
system.
What conclusions can we draw from this discussion? The development of a
funding strategy for transport should be aimed at the achievement of goals
and objectives, and provide the right incentives to users, operators and
developers to change their behaviour in a way that supports our goals. Any
funding strategy for transport should also take into account the following
points:
- National goals and objectives
The government has a responsibility to ensure mobility and
accessibility for all the people, not least for those who are
unemployed and cannot afford cars. A minimum level of service should be
provided to enable the maximum number of people to have access to
opportunities. By concentrating development at specified nodes and
along transport corridors, more people can live within walking or
cycling distance of their jobs or be within easy reach of transit
facilities. Wherever the government develops new institutions, such as
hospitals and technikons, provision should be made at the outset for
access by means of transit.
- Economic/financial realities
Funding strategies should be based on economic and financial realities.
This is the reason for optimising the use of existing transport
infrastructure and increasing efficiencies. In Johannesburg, where they
foresee light rail transit systems on routes with high demand in the
future, an attractive and efficient bus rapid transit system is
planned, which will test commuters' willingness to leave their cars at
home. When future demand justifies it, and they have established a
sufficient clientele, light rail may replace the bus system and provide
increased capacity. Last year, I visited Curitiba in Brazil, where the
city provided a super-efficient bus system for a fraction of the cost
of a light rail transit system.
- Community preferences
For a funding strategy to be successful in the long term, it must have
broad acceptance by those sectors of the community who will pay and
those who benefit. Future transportation visions should be marketed
effectively and be acceptable to the majority.
I would like to conclude by proposing a way forward for transport funding in
South Africa.
At the Road Conference held in Johannesburg at the end of May 1996, I
advocated a return to the dedicated fund from the fuel levy for national
roads. From the sentiments expressed there, it appears that more equitable
funding from this source for national highways, is supported. Recent press
reports on this issue are also very favourable.
Clearly, exchequer funding alone of transport infrastructure will not be
adequate, and the involvement of the private sector is crucial to this
endeavour. We should explore all avenues to encourage joint ventures and
partnerships between the public and private sectors. The establishment of
passenger transport authorities, especially in metropolitan areas, with
appropriate powers and financial sources, will be a major step in this
direction.
In addition, other funding mechanisms, such as licence fees, metropolitan
fees, parking charges, development fees and value capture should be
restructured to provide strong incentives towards achieving national goals
and changing commuter behaviour.
Provincial licence fees should be dedicated for the purpose of providing
provincial transport infrastructure. Metropolitan fees and parking fees
should be dedicated for funding municipal transit infrastructure and
services.
In most cases, the funding mechanisms will not be adequate to cover the
transport needs of the country. Some Provinces do not have adequate
resources to tap for raising the required funds. In such cases, the
Financial and Fiscal Commission should intervene to restore equity between
Provinces by allocating national grants for transport needs. In a way, this
is already happening, as the budgets of the richer Provinces are cut to
supplement the less prosperous.
Now, more than ever before, we need to be innovative in our thinking, we
need to face the challenges with determination, and together we will find
the solutions.
I thank you.
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PROVINCIAL SOURCES OF FUNDING LOCAL SOURCES OF FUNDING
[SECTION 228 OF THE 1996 CONSTITUTION] [SECTION 229 OF THE 1996
CONSTITUTION]
Yes No Yes No
taxes, levies or income tax, VAT, GST, rates on
duties flat-rate rates on property, or property income tax,
surcharges on tax customs duties flat-rate excise tax, VAT, GST,
bases of any surcharges on corporate other taxes, surcharge or
national tax, levy income tax, VAT, rates levies or customs duty
or duty on property or customs duties
duties
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