Council reveals Super City's hidden tax bill

John Banks. Photo / Jason Dorday

Auckland ratepayers face a tax bill of tens of millions of dollars because of Government plans to have much of the Super City run by commercial organisations, says the Auckland City Council.

It says the cost of moving tax-free activities of councils into tax-paying council controlled organisations (CCOs) will have a significant effect on ratepayers, as it will have to be recovered through higher charges or rates.

Ratepayers will be hit three times. They will pay rates, GST on rates and higher charges or rates for tax on CCOs.

They also face a bill of $34.4 million to get the Super City up and running.

Prime Minister John Key and Local Government Minister Rodney Hide have been careful not to promise savings from the biggest shake-up of local government since 1989.

The Auckland City Council, headed by former National cabinet minister John Banks, yesterday finalised a damning submission on plans for seven CCOs to run more than 75 per cent of council services.

It wants the new Auckland Council to decide what functions should be run by CCOs, and criticised the Auckland Transition Agency, which is setting up the Super City for not providing enough information and a proper assessment.

The Government and the agency are under huge pressure to change their plan for a "corporate" Super City in which Aucklanders will be locked out of decisions affecting three quarters of the city's affairs - including the waterfront - and transport issues.

Mr Key has hinted at strengthening accountability requirements for the CCOs, but is not budging over their number or scope.

Auckland City wants the Government to make all new CCOs tax exempt for 10 years to give the Auckland Council time to restructure them, bearing in mind the tax implications.

It said the Government's third and final Super City bill made the mega-transport CCO tax exempt, but the other six CCOs would pay tax.

Even though existing CCOs paid tax, the council submission said, moving more and 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 new waterfront and council investments CCOs.

"If Auckland Regional Holdings was a taxable entity, it would have paid in the region of $50 million in tax over the past five years."

The region's bulk water supplier, Watercare Services, and two council water retailers, Metrowater and Manukau Water, do not incur significant tax costs.

But Auckland City is concerned about the tax liabilities when the wholesale and retail arms of water become part of an expanded Watercare CCO and surpluses are built up to pay for capital projects.

"No other council in the country is obliged to pay tax on the surpluses that need to be accumulated to fund water-related infrastructure projects," said the council submission.

A spokesman for Mr Hide said tax policy officials knew of Auckland City's concerns.

"A key principle of the transition legislation has been that any changes should be tax neutral," he said.

The select committee considering the final Super City bill was considering all the tax issues relating to Auckland Council reforms and expected to receive further advice soon, he said.

Mr Hide's office did not know how much tax the CCOs would pay.