Council accepts Hide claim of $10m Super City tax savings

The Auckland Super City will save $10 million a year in tax, says Local Government Minister Rodney Hide.

Last night, the Auckland City Council accepted and welcomed the savings, less than 24 hours after claiming the reforms would lead to a higher tax bill to ratepayers.

Mr Hide and Revenue Minister Peter Dunne said the council made assumptions and ignored $100 million of tax losses that would offset any tax exposure from moving tax-free activities of councils into tax-paying council-controlled organisations (CCOs).

Last night, the council's finance general manager, Andrew McKenzie, said the council had not looked at the impact of all the councils' cumulative tax losses because it did not have access to all the figures.

He said the nub of the council's submission to the Government was to look at all the tax issues.

"They have come back and said 'don't worry, it is going to be sorted'. Fantastic. The minister has given that assurance. There is no dispute at all," Mr McKenzie said.

Even though existing CCOs paid tax, the council had said moving more tax-free activities into the Super City CCOs would significantly increase the tax bill.

It gave the example of placing the tax-free activities of Auckland Regional Holdings - the investment arm of the Auckland Regional Council - into a new waterfront and council investments CCO.

As a taxable entity, it would have been liable for about $50 million in tax over the past five years.

Mr Hide told Parliament yesterday that there was $100 million of losses stranded in the current councils and Inland Revenue officials estimated tax savings of $10 million every year as a result of the Super City reforms.

Mr Dunne said it was possible some non-taxable activities would become taxable in the Super City, but significant prior and ongoing tax losses would be offset against taxable income in future.

"It is expected, that on the basis of published accounts, the combined councils will have existing losses of more than $100 million and that ongoing losses will easily offset any new tax exposure," he said.

Progressive Party leader Jim Anderton questioned whether Mr Hide and the Government were planning to run the Super City CCOs at a loss to prevent tax being paid to the Government.

Despite the Government's confidence on the tax issue, Mr Hide said no final decisions had yet been made on the taxation issue for the final structure of the Super City.

"One of the key considerations ministers will take into account is that restructuring should not result in any increased tax liability for the new Auckland Council structure."

Mr Hide has been careful not to be specific about savings to ratepayers from the biggest shake-up of local government since 1989.

He told Parliament the Super City would inherit the present councils' combined operating budgets of $2 billion a year and was confident the structure would ensure better value from rates and central government funding by reducing duplication, delays and problems like transport.

THE CCO DEBATE

* Seven council-controlled organisations are planned for the Super City.
* The CCOs will be run by unelected directors at arm's length from the council.
* More than 75 per cent of council services will be delivered by CCOs.
* Critics say the model will create a "corporate city, not a democratic city".
* Supporters say the CCOs will be accountable to the council and get things done.