Hospitality Business Magazine

Auckland targeted rate validity questioned

Hospitality New Zealand is questioning the validity of the Auckland Council’s proposed targeted rate on commercial accommodation, suggesting it does not meet the core criteria required under the Local Government Act 2002 or the Council’s own Revenue and Financing Policy.

“In the targeted rate proposal document, prepared by the Council, it has identified that for a targeted rate to be introduced there are three core considerations that must be taken into account.” says Rachael Shadbolt, GM Accommodation for Hospitality New Zealand.  “We do not feel that the Council has met these criteria and, as a result, the targeted rate should be shelved”.

The three criteria as set out in the proposal document are:

  • Connection between who would pay the rate and who is receiving benefits from the services to be funded.
  • Impact of the rate for those paying it, affordability.
  • Administrative practicality, administrative costs and legality.

“The affordability factor is our greatest concern as the addition of these targeted rates, on top of current general rates, represents 150% to 300% increases in rates for our Auckland accommodation members.  For a hotel, this could be in the realms of $900,000 off the bottom line.  For motels, which are often husband and wife teams, this is the difference between taking a wage from the business or not.”

“One of our motel members is facing a 290% increase in their rates, a reduction in income of $27,000 per annum and, alarmingly, an estimated reduction in business value of around $100,000.  That doesn’t sound very affordable, does it?”

“The connection between who is paying the rate and who is receiving the benefits is also questionable.  Auckland commercial accommodation providers enjoy only 10% of the Auckland visitor spend.  The other 90% is spread across food and beverage, passenger transport, cultural, recreational and gambling, tourism and retail.  Also, it does not take into account accommodation providers like AirBnB, Bookabach, etc, who benefit from the visitor economy but are not included in the targeted rate”.

A question has been raised by operators on the outskirts of Auckland, who are also being targeted, about the benefits ATEED delivers to them.  The money raised from the targeted rate would be put towards funding ATEED’s $27.8 million visitor promotion activity.

Carol Murphy from BK’s Counties Motor Lodge says, “Being in Pukekohe, half the time we don’t even feature on Auckland maps or area information, we pay tolls to ring Auckland and no longer have a bus service.  How can they say that we benefit from the promotion ATEED does, when we are barely considered part of Auckland?”

Ms Shadbolt said, “The final factor is administrative practicality, costs and legality and that has highlighted all sorts of issues.  The biggest is actually nailing down who owns the building and who pays the rates”.

The targeted rate is based on the capital value(CV) of the building and has no direct link to the visitor the rate is suggested to be targeting.

“For motels, most of which are leased, the rates burden generally falls to the motelier”, she said.  “In hotels, the properties can be owned or leased in a number of ways.  There is a good chance some of these lease agreements mean the building or apartment owner is the rate payer, not the hotel or apartment hotel.  Effectively the Council is targeting the building owner or the property investor.  In this case, there is no connection between the rate payer and the visitor, so they have no way of passing on the targeted rate”.

The Council has asserted that it assumes the targeted rate will be passed on to the visitor.

“Again, the administrative practicality of passing the rate on comes into question.  Many operators have contracted rates which means the room rates are set for a certain length of time and the targeted rate cannot be passed on to those clients. Additionally, just adding $6 onto a rate isn’t generally entered into lightly as it can have an impact on the market, particularly for price sensitive sectors like backpackers where they will walk the length of Queens Street to save a dollar on room rate”.

“Advice from the Commerce Commission has been that hotels and other accommodation providers must not discuss whether or not they put the targeted rate onto the guests’ bill because that could be in breach of the Commerce Act.  So, we have the Council saying just add it on and the Commerce Commission saying tread carefully.”

“We believe the targeted rate hasn’t been well thought through, it doesn’t meet the core criteria set out by Local Government or the Council and it needs to be shelved.  The preference is for a national discussion about a visitor levy or tax and we would support Auckland Council in getting those national discussions on the table as quickly as possible.” she said.