Tuesday, 4th April, 2017

The Auckland Chamber of Commerce requests Auckland councillors to vote down the proposal in the draft Annual Budget 207/2018 to fund the city’s tourism promotion through a targeted rate on accommodation providers.

The proposal is a backward step for the city. It fails completely to target those who benefit most from Auckland’s tourism sector, and is more inequitable than council’s current practice of spending $20-$30 million general rates money each year on tourism promotion.

I agree with the Mayor that general ratepayers have shouldered this burden unfairly for some years and that it is time to look for new solutions – those who benefit most should pay their fair share.

But that’s where the Chamber parts company with the Mayor’s proposal of a targeted rate on accommodation providers. The evidence could not be clearer that switching from general rates to a targeted rate based on capital value will result in city hotel and motel rates increasing on average by 150% with some facing hikes of more than 250% - it would be a complete failure of the Mayoral promise to keep Auckland rate increases to 2.5%.

For some businesses it will mean a rate increase of more than $1 million a year, regardless of the number of guests because the rate revenue is based on the hotel or motel’s capital value not its number of guests.

MBIE Regional Tourism data provides clear evidence that accommodation accounted for just 10% or $723 million of Auckland’s $7514 million revenue from tourism last year. It is hugely unfair therefore that it is being asked to pay 100% of the cost.

The MBIE breakdown shows that Auckland’s retail sector generated 30% of the revenue or around $2256 million. Other sectors to benefit included cafes and restaurants 17% ($1259 million); transport 16% ($1239 million) and tourism activities 13% ($1003 million). (See table attached)

On a user-pay benefit prescription, all the above sectors ‘benefit’ significantly and surely should bear a fair share of any council investment in paying for tourism promotion? If the Mayor/ Council are serious about shifting to a user-pay benefit system a promotion regime that collaborates with the whole tourism sector needs to be designed?

I note that if councillors approve a substantial rate increase against the accommodation sector, council is proposing to create a new group including “industry” representatives to provide direction on how the money is spent. It is far from clear whether this group would include just accommodation sector representatives – i.e. those paying 100% of the cost but only receiving 10% of the benefit. Or will the aim be for the other parts of the ‘industry’ to help lift the share of benefits received by the accommodation sector.

Further, unlike councils system of targeted business rates for street areas (BIS) and who have total discretion on what the rate money raised is spent on, this proposal gives no voting rights to the industry representatives. That is clearly a huge flaw – and undemocratic.

Targeting a massive rate increase against just the accommodation sector misses the mark for other reasons:

  • Hotels and hotels are expected to decide for themselves whether to carry the cost of the rate increase or pass it on to their customers. If they do pass it on, that will be hugely unfair on the many guests who are not ‘tourists,’ but visiting for other reasons – business, family. It will quickly become known which hotels/ motels ARE passing on the increased rate to customers, and will be avoided by many potential guests (including tourists) who will seek to stay at establishments that are NOT passing on the increased rate.
  • The capital value of hotels/motel properties will likely increase in future years, but there is no certainty that high guest numbers will be sustained. What the tourism guest rates to hotels-motels will be five years from now is far from clear.
  • Further, a significant number of Auckland tourists are from cruise ships – they do not use Auckland’s accommodation, yet will benefit at no cost from the spend on tourism promotion and which other activities such as retail, tourism activities are not paying for. That is hugely unfair.
  • The value for money that the accommodation rate increase will be expected to pay for shows a big mismatch to any benefits accommodation providers will receive. For example, council’s draft Budget indicates nearly a million dollars will be used to attract international students to Auckland, none of whom will stay in motel or hotel accommodation.
  • Also, a large slice of the $20 - $30 million will help fund visitor information and destination development for the cruise industry, tourism promotion services that accommodation rates will help pay for without any evidence of benefits to the accommodation providers.
  • The proposed rate increase could drive some smaller operators out of business, especially in the motel and holiday park sectors on land with a high capital value, and the number of guests cannot fund the rate increase even if the operators passed it on.

On the other side of the ledger, the proposal ignores completely the hundreds of thousands of visitors to Auckland for tourism and/or to attend a major event and who stay with friends and family, or rent a private house, or use shared accommodation services not registered on the 300 or so ‘businesses’ the rate increase will targeted at.

In summary, the proposal ignores that the benefits of tourism spread across all sectors of the community.

Consultation effort
The Mayor claims in an article in the NZ Herald (10 March) that: “A huge effort has been put into consulting accommodation providers to identify any fishhooks in the plan.”

But my checks indicate a contrary view. I am not aware of any true consultation with the accommodation sector, let alone the tourism industry as a whole. The identity of the 300 properties who might be asked to pay this increased rate is unknown; and from my checks, no business has been directly advised that the proposed rate applies to them.

This raises another flaw with the proposal - businesses are being challenged to provide information on how they will be affected by the proposal when they haven't received any notification that they will be included.

For all the above reasons, it should be obvious to every councillor that this is a flawed proposal.

Evidence showing connection between those who pay the rate and those who benefit
Finally, and significantly, on the evidence set out above the proposal of a targeted rate increase on the accommodation sector fails to show a connection between those who will pay the rate and those who will receive the benefits from the services to be funded, as is required under Auckland Council’s revenue and financing policy and the Local Government Act.

This fact alone should give councillors strong reasons to pause, withdraw the proposal and look at other options – of which there a number, including its own cost structures.

Bluntly, to adopt this proposal would be a mistake.

In going forward, it is important that councillors note that the tourism industry including the accommodation sector has publicly indicated a willingness to work with council to seek a suitable solution, as does the Auckland Chamber of Commerce.

 

For more information contact Michael Barnett, mobile: 0275 631 150.
Michael Barnett, Chief Executive, Auckland Chamber of Commerce.