By Linda O’Reilly, Partner, Brookfields Lawyers
Auckland Council has voted to introduce a targeted rate on commercial accommodation providers in the 2017 / 2018 financial year. Generally referred to in the media as a bed tax, the new rate has been hotly debated, with the tourism sector in Auckland taking particular offence.
The new rate will raise $13.45 million to fund 50 percent of Auckland Tourism, Events and Economic Development’s budgeted expenditure on visitor attraction and major events.
This amount, which would otherwise come from general ratepayer funding, will be re-directed to fund transport infrastructure projects, specifically mass transit to the airport and other airport access improvement projects.
It is not for me to comment on the merits of the new rate. But the media coverage reflects a lack of understanding of the mechanisms of rating.
To be fair, this has not been helped by councillors seeking to illustrate the issue by suggesting it amounts to $3 to $6 per bed per night for hotels, and $1 to $3 for motels.
The new rate is not a bed tax, because the Local Government (Rating) Act 2002 (LGRA) does not allow local authorities to set a bed tax, or indeed a targeted rate based on bed numbers.
What the LGRA does, is to give local authorities a very flexible tool to set a targeted rate to fund specified activities, provided it has identified those activities as being funded in that manner in its funding impact statement.
Auckland Council has chosen to set a targeted rate to partially fund expenditure on visitor attractions and major events. A targeted rate may apply to all rateable land, or to one or more categories of rateable land.
The Auckland Council targeted accommodation rate applies to six separate categories of land.
Three describe the use to which the land is put: hotels and serviced apartments; motels, lodges and motel-like accommodation in campgrounds; and other accommodation providers such as backpackers, campgrounds and hostels.
The other three are based on location zones that might broadly be described as: CBD / inner suburbs; suburban; and outer suburbs and rural.
A targeted rate may be set on a uniform basis for all rateable land in respect of which the rate is set (ie, everyone pays the same rate in dollars), or differentially for different categories of rateable land.
The Auckland Council rate will be set differentially based on type and use, so that in fact the rate is greatest for CBD / inner suburb hotels, less for motels, and reduces to nothing for accommodation in the outer suburbs and rural locations.
The calculation of liability for a targeted rate, which determines whether or not a property is liable for the rate and how much must be paid, must utilise only a factor listed in Schedule 3 of the LGRA. There are a range of factors, but bed numbers is not one of them.
The targeted accommodation rate will be calculated on the basis of the capital value of the property. It will be a rate in the dollars calculated across the relevant rating basis (commercial accommodation providers) to obtain the specified sum.
So there is no bed tax as such. But the LGRA provides very wide scope for the imposition of a range of rates to fund specified activities, and considerable flexibility as to the categorisation of land liable for a targeted rate.
Some wider questions remain to be determined. These include whether the council’s approach is detrimental or advantageous to tourism in Auckland, and whether the government should risk killing the golden goose that is increasing tourism by passing laws that allow for further funding from the sector to address its adverse effects.
This article was first published in the July 2017 issue of NZ Local Government Magazine.