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Phil Goff’s first rates proposal

Yesterday Mayor Phil Goff released his proposal for rates in Auckland for the 2017/18 financial year, which starts on 1 July 2017. The proposal includes several things related to some of the issues we talk about that I thought I’d cover off. Firstly, though the high-level stuff.

The Mayor is proposing a 2.5% general rates increase to honour his campaign promise on rates. But given how much investment Auckland needs, especially in infrastructure that is simply not enough and so he’s also proposing a couple of new ways to raise revenue, this includes:

  • Raising up to $30 million from a new visitor levy to replace ratepayer funding currently spent on attracting visitors and supporting major events.
  • Introducing a targeted rate for new large-scale developments to pay for major new infrastructure, increase Auckland’s housing supply and discourage land-banking
  • Government support to implement a regional fuel tax to help close the $400m gap in transport infrastructure funding identified by central government and Auckland Council under the Auckland Transport Alignment Project
  • Bidding for a significant share of the Government’s Housing Infrastructure Fund

The infrastructure fund mentioned at the end is the $1 billion contestable fund that can only be used to build infrastructure for greenfield developments and is only open to applications from Auckland, Christchurch, Hamilton, Queenstown and, Tauranga. It was already assumed that Auckland would get the vast bulk of that $1 billion available. While it’s only for greenfield infrastructure, I guess it means it could just free up other council resources that can be used for non-greenfield infrastructure.

The proposed visitor levy is unsurprisingly already being opposed by the tourism industry. The paper says the council can’t levy a specific bed tax but can do something to the same effect by charging a targeted levy on accommodation providers and say indicative analysis suggests it would add $6-10 to the cost of a nights stay in a 4-5 star hotel.

While mentioned above, the discussion of fuel taxes, as an eventual replacement for the Interim Transport Levy, is only that the mayor wants to have the discussion so definitely nothing will be changing on this in the next year or two, especially given the government has been hostile to the idea. It seems a bit silly to me to then go and replace the Interim Transport Levy. While it was only ever meant to be temporary it feels like it has been effective and was also a good way for the council to ensure the funding went to areas they really wanted focused on, like public transport and cycling infrastructure. Does this also suggest that Goff won’t push for actual road pricing and stick with an easier and likely less effective fuel tax option?

The one area I did find particularly relevant to some of the discussions we’ve had is around the targeted rate for large-scale developments. Essentially for the same reason the government’s infrastructure fund exists, Auckland is expected to add about 110,000 homes to its urban edges in the coming decades and it’s going to cost a huge amount to pay for the council’s share, potentially up to $10 billion just for transport. And all of this while a lot of new or upgraded infrastructure is needed in the existing urban area too. The infrastructure needed has been the subject of the Transport for Future Urban Growth (TFUG) work. For example, here is the preferred transport network for the South showing just the major infrastructure planned.

TFUG - Draft Preferred Plan - South

 

The proposal would see a targeted rate applied to an area that is expected to developed that would help fund the infrastructure needed to service that area. The council say this has a number of advantages, including:

  • increasing land holding costs, thereby weakening the incentives for landbanking
  • reducing the reliance on existing ratepayers across Auckland to subsidise new housing developments
  • creating a closer link between the rates paid by landowners in a specific area and the uplift in the value of their land as a result of it being available for development
  • establishing a more predictable and secure revenue stream for council

It seems like a fairly elegant part of the solution to the issue of how fund that expensive and large scale greenfield infrastructure but does so by effectively increasing the price of housing in these areas which is bound to be opposed by land owners and developers. It could however also be argued that it particularly benefits those who have pushed to restrict housing development options closer to the city as their actions have helped in pushing more development to the edges and now they might not have to share many of the costs.

In addition to the proposals for what will be charged, there was one other issue of relevance to the blog in the paper under the title of other budget changes. These are potential changes that the council say don’t meet the significant and materiality thresholds but are likely to have high public interest. The item is titled Mass Transit Network.

An expanded and well-connected mass transit network is at the heart of Auckland Transport’s plans for supporting growth in existing urban and future urban areas. Auckland Transport has indicated the intention to accelerate planning and design works on routes and the most optimal mode, whether it be bus or light rail. It has also indicated the opportunity for early acquisition of strategically important properties. The debt impact is projected to be approximately $40 million in 2017/18.

Speeding up the process for these big PT projects would certainly be welcome.

What do you think of the Mayors proposals?

60 comments to Phil Goff’s first rates proposal

  • The Real Matthew

    This may surprise some people but generally speaking I’m not in favour of the Mayor’s proposals.

    With inflation in the 0.x% range a rates rise of 2.5% seems obscenely high. The only way it looks good is when you compare it with Len Brown’s rates rises. But it seems just raising rates isn’t enough for this money hungry council. I don’t know what tourists have done to earn the wrath of the mayor but thanks for coming guys, let’s sock you with a tax for the privilege of staying in our crappy city. With the hotel industry needing more beds this tax will act as a constraint on supply.

    With several apartment projects requiring buyers to stump up with additional funds and others falling over how about some measures to assist the housing market? How about reducing compliance for small household additions? How about providing time limits on the council to approve consents? How about reducing the absurdly large costs to sub-divide properties?

    Though Goff has been an improvement he seems to be falling into the same trap that Len Brown fell into. He’s forgetting what the core role of a council is and instead is focussed on big ticket items so he can get his photo taken cutting ribbons and unveiling statues.

    • Realist

      I see you’re in favour of corporate welfare.

      How about we get proper developers who arent reliant on ratepayer subsidies?

      • Ricardo

        I think you’ll find that Real Mathews suggestions would help speed up apartment development and go some way to lowering end costs to buyers. That should be a good thing surely.

      • Josh

        Realist – Obviously your not in the industry. Compliance costs are ridiculous already, its hard making any money on these developments at the moment that the ROI is becoming ‘not worth the hassle’. On top of large compliance cost are the general building costs, fueled by a skill shortage in the industry. Putting further costs on the developers is only going to make developments take even longer to get off the ground. Not only that but house prices have to rise for it to become economical to undertake the projects.

        One thing ‘The Real Matthew’ didn’t pick up on, their are already time limits on the consent process. However due to lack of resources in the council consenting department, combined with the compliance criteria to enforce, these are running past the deadlines. And now the council are having to fight court costs from developers due to these consenting issues only costing the ratepayers more money. All this not helped by the flood of consents they would have received after the Unitary Plan adjustments.

        It’s only beneficial to the city to put these costs on the developers, if we can lower compliance costs at the same time. Otherwise our housing situation is only going to get worse.

        • JBM

          These developers really are complete failures aren’t they? If it is too expensive to build then go ask John Key to go and do something about nationwide building costs.

          • Josh

            They are trying, hence the court battles between council and developers. Also the construction industries push to get people into trades, supported by the government. To give credit to the government, without their investment in construction projects through the downturn we would be in a worse state skill wise than we are now. The risk is we over capitalise on skills in the industry and a downturn puts pressure on unemployment. However this is currently a low risk with current workload.

            I’m not sure what you would want the government to do, other than open the flood gate of immigration to anyone with a hammer? I do think the councils need to look at reducing consent costs as something that can be done. Otherwise its really market powers (demand and supply)

    • -crash-

      Travel to Europe and you pay a foreigner / bed tax. Usually a couple of percent. So not a burden on a traveller coming to NZ.

      I don’t understand the link between apartment projects falling over and reducing small addition compliance. Apartment projects are falling over because of material and labour constraints. There is an additional 6 month delay on tilt slab delivery in the market now and its growing. So much so that Rymans have brought their own factory and quarry to ensure supply for their developments. Other big players like Fletchers already have a similar set up or are doing the same. This is resulting in the next teuir down developers getting hit with increased construction costs to deliver projects on time. They cant ask for more time or money banks are saying no because they are starting to feel very exposed.

      The cost of subdividing a property in an established neighbourhood is marginal at best, a couple of hundred dollars for the application. The additional cost comes down to other matters such as consultant and surveyor fees even then its likely to be only a couple of percent of the end value. However things like water connection costs at 15k per connection regardless of dwelling size is an issue. As is the unsophisticated developer contributions matrices etc. These do add considerable cost to a section price. Even then these cost are marginal when compared to the end value of the section. So I don’t think this is a problem in of its self. Its a bit more systemic then that

      Auckland is missing a lot of big ticket items. Phil is simple trying to correct that, or at least attempting to do so. These failure weren’t undertaken in the past when they should of been and is costing the Auckland economy untold billions per year. Hell even New York is spending mega billions building the east side access rail line and station. A city needs these things to fulfil its potential as an economic hub that’s why they exist.

      • Josh

        Fletcher Construction Projects is only a small operation in terms of profit for Fletcher Building. The money they make comes from supply and materials to the building and construction industry.

        Yes materials and labour are the key restraints, but the compliance costs are huge also, and these are not helping developments already struggling with a skills shortage. Remember in the compliance costs with Auckland Council it’s their stupid rules that end up costing the developers more. For example if the soil contains any asbestos fibers, even under levels harmful to human health (something like 0.001mg/kg) then that soil has to go to the land fill. This can easily add at least $500,000+ to a apartment project. This is not even going through their requirements for heavy metals, hydrocarbons etc. Where in the rest of the country the higher allowable contaminant criteria means a lot of the material taken to landfills in Auckland you can just take to a clean fill. The problem is 80% of Auckland soil contains asbestos fibers, so if developers follows their consent conditions that is a lot of unneeded wasted money in just this example. It’s not necessarily just the consent cost but the resultant costs to un-substantiated compliance works.

        • SDW

          that’s not an Auckland Council rule, that is a result of a National Environmental Standard imposed on Councils by Central government.

          • Josh

            Actually no its a Auckland Council Rule. Their criteria for clean fill’s is below the NES which is the problem. If doing a job down south its OK cause you can just tip in Hamilton and trucking is not too expensive.

        • arum1

          Soil contamination is controlled by the Resource Management (National Environmental Standard for Assessing and Managing Contaminants in Soil to Protect Human Health) Regulations 2011, which is a central government requirement which AC needs to administer. And yes, they way the NES is worded now there are some stupid requirements. Asbestos is a problem because central government will not provide clear guidelines around it for soil contamination. But the building industry has known that Asbestos is a problem and has been a problem for a long time and has not done anything (In UK and US there has been a requirements to maintain an asbestos building register. Something that could be done easily and which would help preventing soil contamination. But because people have not want to manage the risk associated with asbestos within existing infra-structure they have not dealt with appropriate and it is coming back to bite them. Of course, there is still the belief that one fiber can kill you problem as well but that will take awhile to sort out that problem. My recent experience with asbestos with AC is they do not any visible asbestos…so perhaps it is your consultant giving you bad advice or the cleanfill rules (again central government)

    • Louis M

      Comparing rate increases to inflation is not valid. Inflation is calculated using the CPI, the costs a council incurs are quite a different set of goods & services to the average consumer basket of goods that the CPI is based on.

    • JimboJones

      Council spending would only be linked to inflation if Auckland wasn’t growing. As Auckland is growing the council needs extra money to spend on infrastructure as well as extra money for inflation related cost increases.

      • Realist

        Josh – need to pin down what your issues are.

        This proposal is about applying a targeted rate to greenfield land. It is making those developers pay the true costs of sprawl.

        Another great part of it is that the targeted rate will apply to a defined geography and would be based on projects only in that geography. Something that cant be said of DCs.

  • Realist

    Proposals are bang on.

    Note targeted rates do not make housing more expensive, they make rates more expensive AFTER a house is purchased.

    The Council should do away with development contributions in these greenfield areas to avoid “double dipping”.

    • My reading of the document is that the targeted rate is for greenfields land *before* it gets subdivided and the council gets its development contributions.
      I agree with Matt that it’s an elegant solution. Development contributions could maybe be reduced slightly as a result, but the paper suggests that maybe the contributions aren’t covering the full costs anyway, so they might stay intact.

  • The budget proposals sound good to me. The visitor levy is maybe a bit awkward – does it give AirB&B an unfair advantage? Hopefully it’s designed so as to create a level playing field.

    • Greg N

      Yeah Airbnb ignoring bed taxes,
      After all, its not like Airbnb rentals aren’t already having an unfair advantage with regards to [non-compliance with] GST regulations either.

      • Dan C

        I would have thought the service provider was responsible for GST. That assumes they’re turning over more than the 60k GST threshold which i doubt many AirBnb hosts do. Just as trademe dont collect GST on goods sales, its the traders responsibility, not the marketplace.

        • Sailor Boy

          “the service provider was responsible for GST”

          Air BnB is a service provider to guests, are they paying GST on the services they provide?

          • KLK

            I imagine that, contractually, its the homeowner providing the accommodation service.

            Air bnb is merely providing a facilitation service to the homeowner.

          • Sacha

            Much like Uber is technically not ‘provdsing’ that transport service you bought via their app.

    • Greg N

      “Does this also suggest that Goff won’t push for actual road pricing and stick with an easier and likely less effective fuel tax option?”

      A long bow to draw. Considering that Bridges was publicly pooh-poohing any idea of an actual [and/or even the need for any] road pricing before the late 2020s.

      So what do we do for the next 15 years while the Government gets their shit together on road pricing options? Do nothing?
      And go backwards?

      What I see Phil as saying is, “Central Govt, you must give us a replacement tool sooner than later for the annual Temporary Transport Levy.
      And you must do so before the levy runs out. So if you won’t consider road pricing options anytime soon, then we need a regional fuel tax to bridge the gap.”

      Seems a pretty sensible, straightforward and obvious position. And does not mean Goff is caving in.

  • Dan C

    How doea the targetted rate make housing more expensive? I thought the theory was that it made housing cheaper as people are going to want to pay less than they would for a property that doesnt have the extras rates to pay.

    The sticker price that is. All else being equal you would expect the purchase discount to be equal to the ongoing cost.

    Will this replace frontloaded development contributions?

    • Josh

      If developer costs go up, purchase prices of those developments go up.

      • Dan C

        Is this a levy or an ongoing rate?

        If its a rate then cost of landbanking goes up, but the cost to the developer will be small as they would only be subject to the rate while they are holding the land.

        Depending on the duration of the rate most of the cost will go on the end owner.

        • Josh

          They way a read it, it was a targeted levy more than a rate, e.g. in addition to developer levies already in place. However I could be wrong, if its a rate pushed to the end user, still doesn’t do much for housing affordability.

  • A bed tax would need a whole level of new bureaucracy that doesn’t exist at the moment. As well as hotels and motels, Air BNB and other third-party hosting would need to be registered and pass on the levy.

    A regional fuel tax of a few cents a litre already has a collection mechanism, would be cheap to implement and hardly noticeable to consumers.

    But an RFT shouldn’t need to be implemented in the first place though. The Government has been ratcheting up excise tax for years and blowing it on low BCR projects. Government simply needs to divert funding into Auckland Transport’s higher BCR projects. If there really is alignment through ATAP, then this should be happening already.

    • SDW

      Any ‘bed tax’ would likely only be applied to properties with consented/ established visitor accommodation facilities. It would simply come up as an additional line on the owners rates invoice, it would be up to them as to how they want to cover the cost (e.g. as a ‘city tax’ per person/ night). This is common in most major European cities
      Air BnB is quite different to a hotel/ motel. Many Air BnB providers are just providing use of a spare bedroom in their house. Some also act as short term accommodation more akin to a rented property than a hotel/ motel. They also generally don’t provide many of the everyday services once expects from a hotel/ motel such as cleaning/ towel replacement/ concierge/ left luggage etc so a like for like comparison is not warranted.

  • mfwic

    Just sack every last staff member at ATEED and there would be no need for bed taxes.

    • HSB1 Alumnus

      Abolish ATEED and spend the $$ on libraries

      • Nick R

        Why, so more backpackers can hang around using free wifi while residents continue to not check out books and not visit physical libraries? I guess that would count as tourist promotion.

    • Josh

      Hmm…only problem is ATEED actually attracts a lot of tourists (both domestic and international) spending into the economy. Although this is hard to quantify exactly how much.

      They also have definitely contributed to making Auckland the attractive city its becoming, which in turn has put pressure on the housing market. However if you see Auckland becoming a popular city to live in a problem, and therefore don’t want the nice things that is makes it popular, then I think you logic is significantly flawed. Or your related to the grinch, either-way I think in general ATEED have done a very good job, there has been some wastage but to loose ATEED entirely would be a real shame for the city, and a step backwards in what is helping make Auckland the great city its becoming. Looking for inefficiencies within ATEED, definitely needs to be looked at.

      • mfwic

        Yeah right. Tourist number increased across NZ and you give credit to ATEED. If the tourist industry wants more marketing then let them do it.

        • Josh

          People seem to travel for events, maybe you don’t consider this tourism? Or is it that domestic tourism and Aussies don’t count?

          • mfwic

            But that shouldn’t ever be a Council function. The Council exists to take money from ratepayers to provide the things that we can’t provide for ourselves – that we actually need. ATEED on the other hand seems to exist to steal from the poor to give to the rich. If the vested interests that benefit from ATEED want those services then let them employ the private sector to do it. They spend something like 50 to 60 million per year with no benefit to most of those who have to pay. At best it is regressive and at worst they actually bugger things up for the private sector.

  • HSB1 Alumnus

    I was (hoping!) against hope that Phil – of Labour and ministerial rank – might be a bit more bold/explicit in what he’s after as Mayor. It seems like (for the most part) AC is going to toddle on just as it does – it’ll take the same amount of time to get a building consent (surely, Phil, dropping time to get consents processed would help get more housing built, even if it cost a few extra $ in council staff?), we’re not getting any “city building” community activities e.g. movies in parks, AT is under no pressure to improve services (I’d like to see Phil call the CE of AT into a room with the latest performance results, say “Improve them by 5% each or you’re sacked”), and I assume things like rubbish and noise complaints will be as average as they are now.

    Come on Phil! You helped oversee the Rogernomics Revolution, you helped the NZDF make dramatic changes in structure and equipment, where’s the boldness! You were Minister of Justice, where’s the groundbreaking CPTED partnership with Auckland police?

  • Julian

    Taxing hotel stays is quite common in the United States. In fact, San Antonio, Texas (which is heavily reliant on tourism) has a 16.75% tax per night.

    [from http://www.sanantonio.gov/Finance/bfi/Tax-Rate-Summary%5D

    “San Antonio’s current Hotel Occupancy Tax rate of 16.75% is levied on every room night charge and is distributed as follows: 7.00% City of San Antonio; 1.75% Bexar County; 6.00% State of Texas; and 2.00% dedicated to the City of San Antonio Convention Center Expansion.”

  • Adrian

    When it comes to public policy it is good to remember that there are no solutions only trade offs. I think, however, what Mayor Goff is proposing seems rather sensible. Bed taxes are fairly normal around the world but as already has been pointed out AirBnB adds an interesting dimension.
    However, the only for house prices to reduce is for supply and demand to change – the question is how much can the council do in this regard.

  • 01anthony

    Air BnB is like the uber of the hotel world.

    ‘bed taxes’ have been around elsewhere for a long time, not uncommon in tourist towns to be used to help capture revenue.

    Agree with the waiting and hoping that Mr Goff does have a ‘big announcement’ hopefully something transport related

    • Josh

      Would it not be up to the owners of AirBnB to ensure they are paying the correct taxes, essentially the way I see it, AirBnB is just a platform to advertise your service through them.

      • KLK

        That’s correct re Air bnb. And as pointed out above, the turnover from homeowners renting out their houses would not, in most cases, exceed the GST registration threshold. So no GST to pay.

  • Bryce P

    Vast majority of visitors aren’t going to AirBNB anyway. The beauty of a hotel is you book in and worry about little else. That’s still the big market. The only other option is to get a slice of the airport levy.

  • Anthony

    Airbnb is already set up to charge occupancy taxes https://www.airbnb.co.nz/help/article/654/what-is-occupancy-tax–do-i-need-to-collect-or-pay-it
    However I don’t think another tax is a solution to the ever increasing rates burden. Council needs to stop activities outside core services, particularly those that duplicate government responsibilities, stop working on speculative projects that aren’t good value for money or that won’t get built, simplify processes and reverse the trend of increasing staff numbers and their large salaries $800M p.a. The $500,000 city branding proposition is only the latest example of a culture of wasteful spending of ratepayers money.

    • Harrymc

      “Council needs to stop activities outside core services” – which are?
      “those that duplicate government responsibilities” – and again – what are these? And what if the government is falling down in its responibilities?
      “stop working on speculative projects that aren’t good value for money” Your value for money is my rubbish and vice versa; just stating this means nothing.
      There is nothing in your comment that is of any substance whatsoever.
      “I think the council should do what I want.” There you go – fixed it for you.

      • Sailor Boy

        Nailed it Harry

      • HSB1 Alumnus

        I’d say a good rule of thumb is:
        Council core services include:
        -> Dealing with public health and nuisance (i.e. providing clean water, collecting sewage, noise and dog complaints, public health e.g. restaurants, perhaps building consents here or in the second category)
        -> Protecting the environment (resource management and pest control)
        -> Providing direct community services (parks, libraries, halls)
        -> Enabling the movement of people (buses, trains, and roads)

        Another perspective sees councils as regulators (i.e. the Unitary Plan) and as service providers (e.g. libraries) – that can get a bit hazy i.e. is resource consent processing a service or a regulatory activity?

        What I would think many people agree with is that it’s *not* Council’s job to distort the free market by “economic stimulus” i.e. ATEED. Some may disagree. Personally as a bit of a leftist myself I’d rather council $ went on better *services* rather than subsidising private enterprise. Nor is it Council’s job to conduct foreign policy. If the mayor spent more time holding his/her managers to account and less time flying overseas for sister city jaunts, Auckland would be better off.

        I often think the right solution is to break up Council into loose fiefdoms; one could retain a “rump” Council that acts as a sort of pseudo-DPMC/Treasury/SSC. Then different members of Council could be responsible for different groups e.g. a “Councillor for Transport”. If the trains don’t run on time, then Len could demand that Councillor resign. And so forth.

    • Sacha

      “particularly those that duplicate government responsibilities” – such as?

  • It seems a poorly thought through tax which will reduce investment in hotels at a time when there is a real shortage of rooms. Remarkably Auckland actually has less hotel rooms than it did 5 or so years ago. Because of the councils restrictive housing policy, the price of houses means developers prefer apartments over hotels, so few hotels are being built. The council thinks the industry needs it to run promotions to attract people – but what it needs is more rooms. So the policy will have the opposite effect of what is required.

    I must say so far Phil Goff has been a disappointment. It seems years out of the limelight have made people more warm to him – but so far he seems quite awkward on TV and doesn’t seem to have any good ideas.

    • nonsense

      Hotels are creaming it at the moment. Occupancy rates are very high because of lack of rooms and prices compared to the rest of the world are obscene. They can afford to absorb the tax if they want

  • Ari

    A bed tax is another stupid distortion to the market. It will drive more people to Airbnb because of that distortion. I have started using Airbnb where ever I travel. It’s wonderful. No bad experiences so far. It (and others like it) will only continue to grow in time. There is no guarantee that anyone using Airbnb to let out rooms is going to pay any tax. The bureaucratic cost of enforcement is too high so it will only hurt the formal hotels who can’t so easily escape compliance.

    And yes. Fire the whole lot of ATEED. What an immensely useless waste of rates money. Disgraceful.

  • Matt P

    Excellent proposal: I agree with each of the proposed initiatives.
    I don’t think a bed tax will have any meaningful downsides. It will be barely noticeable to consumers, but it’s cumulative revenue value will be meaningful.
    I don’t think in Auckland it will accelerate a big shift to Air B n B. There’s still an awful lot of people who prefer hotels, especially in cities, and especially amongst business and international travellers who both form a big part of Auckland’s hotel customers.
    Personally, I would consider Air B n B for a coastal / small town NZ holiday, but never for a city trip, where I still prefer hotels.

    I like the targeted rate – both as a source of revenue, and as a disincentive to land bank.

  • Don

    The good news is that Simon Bridges is quoted in the Waiuku Post at last weeks starting ceremony for the new Pukekohe rail and bus station that the line from papakura to Pukekohe will be electrified.
    No news on how it will be funded……..but perhaps Bill Cashmore got one back on Mike Lee who used his recently lost power on the AT Board to switch the Pukekohe station funding to the new Parnell Station.

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