Mayor Phil Goff is likely to lose the vote at council for one of his signature policies: the “bed tax that isn’t a bed tax”, otherwise known as the targeted accommodation rate he wants to charge hotels and motels. It will be embarrassing for him and, far worse, it’ll put a $30 million hole in his budget.
We’ve counted the heads and right now Goff doesn’t have the numbers. It’s the first big test of his programme and he’s very likely to fail. This is no small thing. In six years as mayor, Goff’s predecessor Len Brown lost only one major vote on policy.
And on top of that, there’s a question over whether the proposed rate is even legal. How did this happen?
Phil Goff is a decisive mayor. He makes bold policy decisions and then he makes emphatic speeches about why he’s right. There’s a good side to this: we need a mayor determined to get things done and it’s good that he’s shaking up the established order. Goff quite likes to cut up a bit of rough.
But shaking things up and getting things done aren’t the same thing. Goff might sound big and bold but he’s not shown a lot of skill at persuasion – with other councillors, or with interest groups or citizens.
His big problem is that there isn’t enough money to pay even for the existing work of council, let alone all the new projects it’s keen to undertake. He’s committed to a 2.5 percent ceiling on rates rises, which will not solve the problem. Cuts, and/or new revenue streams, are desperately needed.
Which is where the bed tax comes in. It’s not actually a bed tax, because the council can’t raise taxes. It is, instead, a “targeted rate”.
Goff must have thought it was a godsend. A charge on visitors to the city to pay for the council-funded promotions and events that help bring them here, that won’t really impact locals and can be collected efficiently. But he wasn’t counting on the fury of the hotel industry.
The rate will be targeted to the commercial accommodation sector, including hotels, motels, backpacker hostels and holiday parks. It will amount to $6-$10 per occupied bed per night and Goff says the providers can pass it on to their customers. On current projections the rate would raise an estimated $27.8 million, to be used, instead of general rates, to fund the promotional work done for the city by ATEED, the council’s economic development agency.
The tourism industry – most of it – opposes the targeted rate and is actively fighting it. The government doesn’t like it, although it says it won’t stop it. At least half the councillors oppose it.
And, as suggested earlier, it may be illegal.
This is because targeted rates can be struck where those who pay receive most of the benefit from the money raised. For example, there’s a targeted rate on businesses in the CBD that funds various projects to enhance the CBD.
But the money from the targeted accommodation rate will be used to benefit the entire tourism sector, and locals too. Hotels and motels take less than 10 percent of all tourist dollars spent in Auckland. The restaurants, tourist attractions, shops and others who take the remaining 90 percent are not being asked to pay – even though they will, collectively, gain most of the benefit. On the face of it, that looks like it might be illegal.
If the council does vote for the rate it will almost certainly be tested in court.
But the council is very unlikely to vote for it, at least in its current form. While some councillors have not publicly declared their hand, privately they’re more forthcoming. They’re “very worried”, “iffy” and “not at all confident”. Translation: if Goff doesn’t change the proposal they’ll vote against it.
Goff’s been summoning individual councillors to his office to try to persuade them to support him, but it doesn’t seem to be working.
What’s going on here? This is a budget issue. If it was Parliament, the government would fall. But the council doesn’t operate like the government. Goff has no caucus whose support he can rely on. Like Len Brown before him, he’s cobbled together an ad hoc coalition of councillors in the broad middle of the spectrum. While few who are truly on the left or right offer consistent support, most of those in the middle do. He’s made sure of it with a kitchen cabinet of eight that includes three members of the National Party.
However, that inner circle does not include the former deputy mayor, Penny Hulse, despite her being an experienced leader and a centre-leftist. Hulse has no reason to be loyal to Goff, but there are several centrist councillors who are probably quite loyal to her, and some of them were overlooked by Goff for senior roles too. Hulse has made it plain she is unhappy about the targeted rate.
The second factor is that the opposition to Goff’s proposal is well organised and some of their arguments – though not all – are compelling.
Goff says he’s asking hoteliers to pay the levy because it’s fair: they, not all ratepayers, are the ones who benefit when visitors come to town. But as Tourism Industry Aotearoa’s head, Chris Roberts, points out, of all the money visitors spend in Auckland, only 9.3 percent of it goes on commercial accommodation.
Why not make restaurants and retailers pay a visitor levy too? Why not put a levy on every ticket to Waiheke or the Sky Tower or Kelly Tarltons? Goff says many of their customers are locals and that wouldn’t be fair. They’re both right, which doesn’t really help Goff.
Roberts also points out that the rate won’t even catch all visitors, because “hundreds of thousands” stay with friends or family, or rent privately. This rate won’t catch them. Goff doesn’t have a good answer to that.
Roberts questions why it’s wrong that all Aucklanders should pay for ATEED’s promotional work. He says we all benefit, especially from its economic development work and because we attend the events it supports, from the Rugby World Cup to the Lantern Festival. Goff doesn’t have a good answer to that either.
The hotel industry says Goff’s plan may stop new hotels from being built. Terry Ngan, director of operations with CP Group (the largest hotel owner and developer in the country), says four major new hotels are currently planned for the city and the hundreds of extra rooms they will provide are now at risk.
Goff says nonsense. To date, he’s been right. No projects have been cancelled. Will that change if the levy is adopted? There’s no way of testing it, but the claim seems spurious. All over the world governments are levying tourists and yet, somehow, the hotels survive.
Roberts says the levy amounts to an average rates increase of 150 percent and it’s wrong to assume it will be passed on to customers, because the accommodation sector is too competitive for that to happen with all costs.
Goff says that’s nonsense too. He believes hotels raise their tariffs quite often and quotes as evidence room rates hiked by $300 for Adele fans, up to $370 a night during the World Masters Games in April and up to $400 for the Lions rugby tour starting in June.
Roberts says those are spot rates. What a few hotels do with some rooms at peak times is not relevant to most rooms and most accommodation providers. The targeted rate, he says, will be particularly hard on smaller motels, backpackers and holiday parks: some of them could go out of business. That’s a key issue for councillors.
It’s also the area where the proposal is most likely to be changed.
Watch for a revised proposal, excluding motels, backpackers and the like. If the focus goes on hotels it will be an easier sell politically, but that raises a new problem: it wouldn’t raise as much money. A skinny version of the rate might not be worth the fuss.
And even if it does become a narrowly focused hotel tax (although legally it can’t be called that), other problems remain. One is that the rate would be levied on owners. Hotel ownership is often complex: the Heritage Hotel on Hobson St, for example, has a complicated set of strata titles held by small investors.
Goff’s position boils down to this. Overseas, a visitor tax is not uncommon and often it’s collected through hotels and motels, who can in turn collect it from their customers through their tariffs. Visitors are the right people to pay this tax, so let’s get on and do it.
The tourism industry, in summary, argues there are too many unintended consequences. The new rate will raise the cost of doing business for accommodation providers by so much it will undermine the viability of many them. There are fairer ways of striking a levy on visitors, so why not do that?
Goff is playing a long game. Yes, he wants the targeted rate in his next budget. If he gets it, that will free up money for other projects, especially in the transport sector where there is a major funding shortfall. Goff is keen to open up new revenue streams, and so he should be.
But his strategic goal is to force central government to give the council more support: more flexibility in raising money and more powers to address a range of pressing issues. They’re at a standoff right now. Goff wanted a regional fuel tax but the government scotched it – without coming up with any alternatives for funding the transport shortfall.
Goff has proposed this local version of a visitor levy, but the better solution would be for the government to establish a visitor tax and allocate the revenue to local councils. The government says: no new taxes.
And on the housing front, prime minister Bill English and others in his cabinet blame the Auckland Council for not moving fast enough, whereas it’s argued by many, including all the opposition parties, that the government should be doing much more.
This pushing and shoving is going to continue well into election year. It’s quite possible the government, rather than enabling the council as Goff wants, will produce an “Auckland package” of its own. That might involve it assuming more powers to direct or override the council. And that’s scary. In an already complicated election year, Auckland is set to become a big and very contentious issue.
But first, Goff has to get his targeted rate adopted. If he fails at that, as is likely, he will be on the back foot – and he’ll have that $30 million hole in his budget to worry about too.
The Spinoff Auckland is sponsored by Heart of the City, the business association dedicated to the growth of downtown Auckland as a vibrant centre for entertainment, retail, hospitality and business.