Auckland accommodation rate plan 'like the Chinese poll tax'

One veteran of the hotel sector says the proposed Auckland City targeted rate on the accommodation sector was a blunt weapon like the Chinese poll tax. And a motelier told councillors it would wipe out his profit for a year.

"This instrument is a bit like the poll tax for my relatives who came from China," said CP Group's director of hotel operations, Terry Ngan, at a council committee hearing today.

Mayor Phil Goff wants to raise $27.8 million to fund tourism and events promotion. He said some hoteliers who were complaining about the impact of the rate were hiking room charges by up to $300 a night for Adele fans coming to Auckland this weekend, up to $370 a night during next month's World Masters Games and up to $400 for the Lions rugby tour this winter.

But Tourism Industry Aotearoa chief executive Chris Roberts told the council's finance and performance committee a sample of just a few rooms was not representative. About 80 per cent of rooms sold for "standard rates" at extremely busy weekends and there was often an exodus from the city immediately after a big event that took the accommodation sector some time to recover from.

The targeted rate has been proposed because local authorities are not able to impose taxes and levies.

There are about 330 accommodation businesses in the council's sights for the new rate, although Goff says there is still scope for adjustment of the plan for "outliers" hit disproportionately by increases which the industry says could be up to 400 per cent.

Accommodation providers say they have been unfairly singled out and there should be a national strategy to pay for tourism infrastructure.

Motel owner Troy Clarry said his Whangaparaoa 14-room motel's rates would rise from $13,600 a year to just under $40,000.

In 2015-16 he made $529,000 from the motel on 65 per cent occupancy and after taking a $52,000 salary for two people net profit before tax was $27,000.

Much of this was reinvested in the business but the new rate would swallow nearly all of this.

At some times during the year his motel would be empty but still paying the rates. About half of his business was long term business for government or travel agencies, with room rates set 18 months in advance and impossible to put up.

There would be a lack of consistency applying rates rises throughout the city and the committee also heard accommodation providers had been warned by the Commerce Commission on the danger of breaking rules covering collusion by discussing pricing as a group.

Clarry said much of the promotion work done by the agency Auckland Tourism, Events and Economic Development (Ateed) was of little benefit to accommodation providers on the fringes of the city, such as his own. He also questioned the more than $22m paid in salaries at Ateed.

Roberts took a swipe at Ateed, saying the return on its forecast investment (with the Government) in the World Masters Games was "piss poor."

Goff said in spite of claims to the contrary, there was still strong interest in building hotels in the city, which is experiencing an unprecedented tourism boom.

Ngan said he knew of four hotel projects which were at risk.

This would affect 600 jobs, and the building industry and hotel suppliers would lose out.

"The council will lose $2 million in rates if the hotels are not built."

Small investors would also be hit by the rate, which the city plans to introduce in July.

CP Group also owned a high number of strata title serviced apartments in conjunction with other local and overseas investors, which were managed by international hotel chains.

These apartment owners would also face a doubling of their rates, which would essentially mean their return on investment would be negligible.

With their apartments already achieving high annual room occupancy of 87 per cent, their average annual room rate would need to increase by at least 20 per cent to recover the rates increase, which was not possible in the current market, or in the foreseeable future.

Many of the 2500 serviced apartment owners had already endured hardship by being sold their high priced apartments through Blue Chip, and the buildings being leaky, Ngan said.

Backpacker Youth and Adventure Tourism Association spokeswoman Darelle Jenkins said lower star properties and budget accommodation which typically operated on a high volume, low margin environment could not bear the burden of increases in the existing central locations which have inherent high property values.

"Some of these operators will have to potentially absorb up to an additional $296,000 per annum passed on from the landlord. This targeted rate will potentially absorb up to 68 per cent of earnings before income tax, depreciation and amortisation."