Submission in response to the New Zealand Productivity Commission's Draft Report: Local Government Funding and Financing, July 2019

Abstract

This response is specific to Section 6.7: Funding to address pressures from tourism. “The Government should legislate to enable councils in tourist centres to choose to implement accommodation levies to recover the tourism-induced costs of providing local mixed-use facilities not otherwise charged for. Councils in tourist centres should make greater use where possible of user pays for mixed-use facilities.” Introduction: It is without doubt that local government infrastructure has been, and will continue to be impacted by tourism, and to ensure that local residents are not the full bearers of the costs of providing the infrastructure (more than for their own needs), new funding mechanisms need to be found. The question is not what has to be done (more funding needs to be raised), but how the funding is secured and who should pay. This response disagrees with the Productivity Commissions R6.7: that Government should legislate to enable councils in tourist centres to choose to implement accommodation levies to recover the tourism-induced costs of providing local mixed-use facilities not otherwise charged for. The rationale for this disagreement is summarised below, and expanded in the following Sections: 1. Such levies, otherwise known (and accepted) as a ‘bed-tax’, does not meet the New Zealand Broad Based Low Rate (BBLR) framework for taxation. 2. The era bed-taxes were created (1946), including the intention of bed-taxes and use of its raised funds is not relevant today. 3. New Zealand’s Tourism Satellite Account (TSA) is not being used to its full effect, that is, the TSA highlights where ‘tourists’ (argued in the Productivity Commissions Report as being the impactor on LGA infrastructure) spend their money, noting that on average 10.17% is spent in commercial accommodation (2019). 4. Requiring one private sector industry to take on the burden of collecting funds on behalf of local government is inequitable. 5. Bed-taxes have a negative impact on hotels in terms of reducing occupancy, revenue and business value. 6. No economic-impact analysis has been undertaken to understand the affect such a tax will have on a local environment. 7. Bed-taxes cannot be ‘fully’ passed on to the customer; the tax is ‘shared’ by the customer and the commercial accommodation operator which is a biased burden on one sector and does not meet the principles of the New Zealand tax system. 8. In making Recommendation 6.7 the Productivity Commissions report does not present any robust, objective and credible research to support this recommendation which undermines the credibility of the recommendation. 9. Recommendation 6.7 does not meet the New Zealand Principles of Local Government Funding and Financing: Coherent, Equitable and fair, and Sustainable (Productivity Commission 2019, Box 0.1, p. 1). There is no perfect solution to the challenge; however, whatever solution is arrived at must be the most equitable, efficient, etc. as possible - the least imperfect solution. The total tourism is part of this problem and is therefore part of the solution. This communication re-presents a solution to the issue at hand (it formed part of my Submission to the Original Productivity Commission call for input), and asks the Commission to re-consider it as an option going forward. The solution is a Multi-Sector Targeted Tourism Rate (MSTTR) – see Section K; an effective, equitable tool for LGA’s to secure funding that is adequate, stable and predictable revenue over time, and meets the New Zealand Treasury comment on such taxes: ‘a carefully designed charge applied at the local level is more likely to be the more appropriate tool for these localised issues’. (New Zealand Treasury 2017, Framework Note: 8) .