Thursday, 4th May, 2017

Last week’s commentary in the NZ Herald from Auckland councillor Desley Simpson showed that even his supporters are searching for alternatives to Mayor Goff’s ill-advised targeted rate on commercial accommodation.

It is clear that the Mayor was poorly advised in the beginning. Originally calling it a visitor levy or bed tax, Mayor Goff insisted that it would be paid by visitors to Auckland.

None of which was even close to accurate.

In reality, it is a significant sum - $28 million – to be added to the rates burden of the owners of 330 properties across Auckland from which some form of commercial accommodation is provided. They are facing average rates increases of 150% - with some increases over 300%. The operators running the actual accommodation services are typically separate businesses. Where this significant new cost ends up falling will vary from case to case. However, one thing is certain: no customer will see it on his or her room bill.

The money is to go to a broad range of existing services provided by Auckland Tourism Events and Economic Development, ATEED, which are currently funded from general rates. This includes tourism promotion, community events like the Lantern Festival, support for music and sport events enjoyed by Aucklanders and visitors alike, the Convention Bureau, and running the i-SITES.

Commercial accommodation – hotels, motels, hostels, holiday parks – does benefit from some of these ATEED activities. Nevertheless, the facts are indisputable – of the total tourism spend each year in Auckland, just 9% goes on commercial accommodation.

When ATEED is able to grow the Auckland visitor economy, the commercial accommodation sector gets 9% of the benefit – and yet it is being asked to pay 100% of the cost.

Cr Simpson made a strong case for the value that ATEED delivers for all of Auckland and all Aucklanders, and went on to raise the prospect of greater user pays for ATEED in the future – who, including ATEED themselves, would argue with that. But tellingly, at no point did she even mention the planned targeted rate – despite being handpicked by the Mayor to guide this proposed rate through.

The Mayor’s office has a big problem on its hands. It knows that if this comes to a vote at the Council table, there is a good chance it will face an embarrassing defeat. Councillors have been given the facts and they get how unfair the proposal is. It is time to think again.
Even if the Council is able to cobble together some sort of patched up compromise that fell over the line, the legality of the resulting rate will be seriously in question.

The Council’s proposed targeted rate on accommodation providers also puts it at odds with what the Government is trying to achieve at a national level. The Government is looking to increase its investment in tourism, but is not interested in funding it through a bed tax. They worry about New Zealand being seen as an expensive destination.

Similarly, the Government accepts that New Zealand needs an additional 9700 hotel rooms by 2025 and has been working with the industry to attempt to attract more hotel investment to Auckland. The proposed rate will have the opposite effect. It will put existing investment at risk, and act as a disincentive to new investors.

We know this, because that’s what investors are saying – unusually, in public. Alongside that though, it’s basic economics: if you make the cost of doing business in one place more expensive, investors will take their money somewhere else..

Council officials have been sharpening their pencils over the last few months. They should be able to present a 2017/18 budget that will allow the Mayor to fulfil his election promise of a general rate rise of no more than 2.5%, without having to transfer this crippling rates burden onto 330 properties.

This targeted rate process has become a mess, based on a flawed proposal that was not well researched or thought through. It is a distraction that neither Auckland nor New Zealand can afford, and we need to put it behind us.

Plan B is quite simple. Let ATEED get on with its work this year, funded in the same way it has always been. At the same time start a proper discussion with the tourism industry and Auckland’s wider business community about how ATEED might best be supported in the future. Together we can come up with something that is workable, fair, in the interests of all Aucklanders, and will stimulate economic growth.