KEY POINTS:
A broken promise by Auckland City Mayor John Banks and Citizens & Ratepayers has led to a $6 million tax bill for the city's water-users.
The policy of taking "charitable payments" from the council-owned water company, Metrowater, has attracted a $6 million tax bill this year and the
possibility of a further payment to Inland Revenue.
Metrowater reported a $29.1 million profit this year, of which $22.4 million was paid to the council as a charitable payment. Tax has not had to be paid in previous years because of deferred losses.
Before last year's local body elections, Mr Banks and C&R promised an end to "water price gouging". But they broke that promise by continuing to take albeit lower payments from Metrowater.
They are also phasing out the policy, but not before the likelihood of Metrowater becoming part of a regional water company as a result of the Royal Commission of Inquiry on Auckland Governance.
The water policy came in for severe criticism during the previous council's time. Critics accused the council of using Metrowater as a "cash cow" to disguise rates rises.
A parliamentary select committee inquiry into the policy accused the council of misleading ratepayers and abusing its charitable payments powers, and strongly advised the council to reconsider it.
Former Mayor Dick Hubbard and chief executive David Rankin decried the report and ignored its findings.
On the hustings, Mr Banks hammered Mr Hubbard for "stealing water profits" to prop up council spending and promised an end to "water price gouging". C&R promised to ensure "tax is minimised and that Aucklanders pay a fair price for their water" and not to use water bills for unrelated council services.
City Vision councillor Leila Boyle said C&R was continuing to use Metrowater to fund council projects unrelated to water and wastewater.
"These policies are hurting our poorest families by raising fixed charges higher than they need to be."
Finance committee chairman and C&R councillor Doug Armstrong yesterday said it was disgraceful having to pay tax to the Government but it was a "negative" consequence of taking charitable payments.
Mr Armstrong said the council had adopted a "middle of the road" approach to phase out charitable payments.
To abolish them in one hit would have meant an extra 6.6 per cent increase in rates this year. On the flip side, water bills would have dropped 11.9 per cent.
Ever since the "charitable payment" scheme was devised, council officers have been aware of the tax issue and sought a binding ruling from Inland Revenue.
The ruling is still outstanding, but the assumption is that tax is payable on general revenue. Metrowater and the council are also seeking a ruling on whether tax has to be paid on a network upgrade charge that could lead to further tax being paid.
Metrowater chairman Ross Keenan and chief executive Jim Bentley made no mention of the tax bill in this year's annual report.
HOW IT WORKS
* Auckland City Council takes "charitable payments" from its water company, Metrowater.
* The payments help to lower rates but push water bills artificially high.
* The new council promised to abolish the system but has only lowered the level of payments.
* Now it faces a $6 million tax bill for the practice and may have to pay more.