Despite a firm divide among Auckland councillors, the city's Finance and Performance Committee has voted in favour of introducing a so-called 'bed tax' for hotels and motels.
The controversial targeted accommodation rate would aim to lighten the load on ratepayers, by raising enough money to cover half the expense of staging major events in the city.
Nightly room rates would be between $3 - $6 for hotels, and $1 - $3 for motels.
On Thursday, councillors voted in favour 11 to eight.
The proposal is part of Mayor Phil Goff's first budget, and will be ratified by the council's governing body on Thursday afternoon.
He says by charging accommodation providers, $13.45 million of ratepayer funding for Auckland's tourism organisation ATEED would be freed up, and could be used to fund much-needed transport and infrastructure projects.
He says that means ratepayers would be spared hefty increases, and the city wouldn't need to further fall into debt.
"The problem is our city has a limited ability to borrow. We are at the limits of our debt to revenue ratio. Borrowing by itself cannot be the answer to our problems," Mr Goff says.
"We have to broaden out sources of revenue in order to fund huge infrastructure costs. Ratepayers cannot be called on to fund that alone."
Mr Goff told the committee accommodation providers are able to pass on the extra cost to consumers.
"Our advice was that businesses could pass on targeted rate in the same way they pass on costs. If they bundle it up there's no issue. They could also pass it on as a surcharge but they'd have to be careful with how. I would advise the industry to take legal advice on this."
Councillor Desley Simpson supports the move and says it's a small price to pay.
"The $3 cost is a cup of coffee, and $6 is less than a Big Mac. It's a coffee and Big Mac tax. It's not a lot that can be passed on".
But opinion among the city's councillors was firmly divided, with many concerned the 'bed tax' would hit operators and communities hard.
Councillor Wayne Walker believes accommodation operators will go out of business as a result.
"It's not a good situation. [Operators] are not able to always pass it on, and that's pretty clear. There are going to be job losses here, they are going to be felt, and felt by people in those communities who already hurt."
Councillor Greg Sayers is also against the move.
"I agree with the aims of the mayor and what he is trying to achieve, however I do believe that this is fundamentally flawed," he said.
"It is completely unrelated to business turnover and in turn a business' ability to pay it. It's a property tax, and using a targeted rate is… to be very blunt, quite frankly an inappropriate financial instrument for council to be using."
Mr Sayers believes there's also a strong likelihood that the move would be legally challenged by industry players.
"That'll cost ratepayers."
But Mr Goff says the council has been advised it can legitimately set the rate.
"We would not have proceeded with the proposal if it wasn't consistent with the statute we operate under. We've been advised that it's consistent with the Local Government Act, Fair Trading Act, and Commerce Act."
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