Local councils bursting at the seams from tourism need to be allowed to put levies on hotel rooms, the Productivity Commission says.

The recommendation is among a laundry list of new funding options and changes floated in a draft of the public research body's review of the finances of local councils.

The Commission found while the current funding model for councils was a solid base, local authorities needed more help from central Government to properly provide infrastructure for rapidly growing centres, cope with tourism, adapt to climate change and pick up the bill for increased responsibilities handed down to them.

Among 30 suggestions it has called on the Government to let smaller councils being flooded with tourists introduce taxes on accommodation.


"The large and rapid increase in tourism is placing considerable pressure on several
types of mixed use infrastructure in popular tourist destinations, such as local roads, parking, public toilets, water and wastewater," the Commission said.

"Tourists are not paying the full cost of the demands they are placing on this infrastructure. The Government should legislate to enable councils in tourist centres to implement an accommodation levy."

With a base of 23,000 ratepayers, Queenstown hosted about 3.3 million visitors last year and has felt the pinch.

Its residents last month overwhelmingly voted to introduce a "bed tax".

LGNZ says the Government needs to help councils with tourism or pull the handbrake. Photo / Jim Eagles
LGNZ says the Government needs to help councils with tourism or pull the handbrake. Photo / Jim Eagles

But the law governing local councils doesn't currently allow them to levy tourists' rooms on a per-night basis and the Queenstown has been in talks with the Government about how it might happen.

"Tourism boom has put huge pressure on ratepayers, who pay for the infrastructure that visitors use, while receiving little direct financial benefit," Local Government New Zealand president David Cull said, welcoming the report.

"This is unsustainable and, practically speaking, either central Government provides a form of funding or it pulls the handbrake on our tourism sector."

Accommodation providers are strongly opposed to a levy and say it's an unfair burden on one part of the industry.


A $35 charge on visitors entering the country came into effect this week and the Commission has proposed some of that money could go to some smaller, tourist-laden councils too.

Other recommendations in the 270-page draft report release on Thursday include:

• Developing a "value capture" funding tool for growing councils

• Letting councils levy road congestion and volumetric wastewater charges

• Consider funding from central Government to councils based on building work put in place

• Developing a national climate-resilience agency with associated funding for local authorities

• Taking further advice on a tax on vacant land

"The failure of high growth councils to supply enough infrastructure to support
housing development has led to some serious social and economic problems," the Commission said.

It also concluded there had been "little or no evidence that rates have generally become less affordable over time".

The Commission will now take submission until August 29 before releasing a final paper in November.

In a statement, a spokesman for Local Government Minister Nanaia Mahuta's office said it would be not appropriate to comment while the process was still on-going.