Brian Rudman: Time to make foreign-owned hotels pay with bed tax

Illustration / Peter Bromhead

The hotel industry is aghast at the temerity of Auckland Mayor Phil Goff in asking it to foot the bill for the $20 million - 30 million in promotional activity the city spends annually on encouraging tourists to come and stay in their establishments.

The hoteliers want you and I continue to pay while they sit back and reap the benefits.

Haven't they heard the old expression "user pays?"

Chamber of Commerce cheer leader Michael Barnett calls it unfair. What is unfair, is that on average, every ratepayer pays $46 a year to fund advertising to help fill the beds and coffers of establishments such as the Singaporean-owned waterfront Hilton and Hong Kong-owned Langham and Grand Millennium Hotels.

It was unfortunate timing for the industry leaders that while they were warning of doom and disaster if forced to pay their own promotional costs, online accommodation website, Hotel.com revealed that thanks to the tourist boom, Auckland hotels had seized the opportunity to boost the average room rate for international tourists over the last 12 months an eye-watering 9 per cent to $197 a night - a $19 jump.

The mayor estimates his proposed targeted accommodation rate would equate to $6 - $10 a night per room. Given this year's extraordinary room rate hike is more than double that, the new levy shouldn't be so hard to absorb - or pass on.

The mayor is also proposing a new industry consultative committee be set up to guide the council's promotional agency ATEED, on how the levy be spent.

This is fair. Indeed, why doesn't Auckland Council go the whole hog and bow out, leaving the whole area of tourist promotion to the government, and the industry that profits from it.

With Aucklanders struggling to find funds for basic problems such as sewerage overflowing into both harbours and creating a serviceable public transport system, diverting rates income on tourist promotion and luxuries such as yet another upgrade of Queens Wharf to please the cruise ship industry, seems a case of misplaced priorities.

In another fund-raising move, Mr Goff is also proposing a targeted rate, aimed at land-bankers and developers, to fund essential infrastructure needed for new housing estates.

We're told this will help ensure that "those who benefit from the infrastructure, including those who get the resulting increase in their land values, help to pay for it, rather than the ratepayers across Auckland."

Illustration / Peter Bromhead

It would mean than when a specific area is identified for housing development, it would then be rated for the cost of the new infrastructure needed to service the whole development.

This, says the budget background documentation, would provide "an incentive for developers to actually release land rather than land bank."

These are rather "baby steps" when it comes to levying those who will benefit most from rezoning and development decisions made by the community as a whole, but they are a start.

With the government steadfastly refusing to allow Auckland Council new funding tools, such as a regional fuel tax, what other avenues are there.

The background report notes that it is "widely recognised that both public investments in infrastructure and population growth lead to unearned wealth creation for land owners," and that these private land owners will not contribute to the infrastructure costs "unless some other tool is also applied."

Unfortunately a betterment tax or targeted rate to rake back these windfall profits, something the Productivity Commission advocated a year or so back, needs a law change, and there are no signs the present government is keen on putting such powers into local government's hands.

In both Hong Kong and Singapore, betterment taxes are levied on properties adjacent to a new passenger transport line, for example, to pay for the project and acknowledge the increase in value this new public utility has delivered to the property owner.

Local authorities had the right to levy such a charge in New Zealand until 1953 when Parliament repealed it. As recently as 2013, Auckland Council officials contemplated a "shared land value uplift" tax which would have creamed off some of this unearned profit into the public purse.

But with such alternative avenues of fund-raising blocked by government, and Aucklanders appetite for further rates rises long gone, the simple move of asking the tourist industry to fund their own promotion, seems more than reasonable.