Auckland Toilet Tax: Borrowing Games

July 19, 2018
2 mins read

Oh no, not another tax? ALASDAIR THOMPSON casts his eye over the suggestion Auckland might face a ‘Toilet Tax’.

The front page of the New Zealand Weekend Herald screeched with news of an ‘Auckland Toilet Tax’ earlier this month.

Oh no, not another special Auckland tax on the top of the new bed tax on accommodation providers including Airbnb property owners, and the 11.5 cents/litre Auckland fuel tax (including 1.5c extra GST).

What is this all about? What is it for? Is the Council or Watercare not charging whopping big development levies already? The Weekend Herald is not particularly helpful other than to tell us it is to fund the building of a 13km 4.5 diameter sewerage interceptor tunnel from Western Springs to the Mangere wastewater treatment plant.

So why are Government and Auckland Council considering establishing a new Crown-owned Special Purpose Vehicle (SPV) by Act of Parliament to do this? Isn’t that what Watercare is for? The Herald simply reports, ‘the cost to Aucklanders could be higher if the central interceptor is built and funded by Watercare’. They don’t explain why. It also states that Auckland Council is at its maximum borrowing level if it is to avoid a credit rating downgrade.

In 2011, after the November 2010 amalgamation of 10 councils to form one Auckland Council, Watercare – the Council owned enterprise responsible for water and wastewater across the whole region – introduced an Infrastructure Growth Charge (IGC) to fund new capital investment.

Watercare says, “Through the IGC, the cost of increasing the capacity of the bulk infrastructure is paid for by those who increase demand on the system now, rather than by existing or future customers.” Famous last words?

Without the IGC, Watercare explained, they ‘would need to recover a greater proportion of our growth-related capital investment costs through operation charges’ on current users.

The IGC is applied when a new dwelling or commercial property is connected to the network. For new subdivisions Watercare also require developers to build localised water and wastewater infrastructure which then get vested in Watercare.

The IGC is based on what growth-related investment is expected over a 15 year period. Current customers also contribute as operational charges include depreciation for re-investment in capital replacement.

For the last seven years, Watercare has only been charging a portion of the growth-related future expected capital costs but says it intends increasing that proportion. When? And why has Watercare, on its own admission, been undercharging its IGC on new connections?

As a former mayor, I am acutely aware of the importance of public health assets delivering safe water and wastewater services and that one way or another, users have to pay for that.

It has long been known that more investment was needed in Auckland’s wastewater capacity, in part to stop sewer wastewater overflowing into stormwater, into waterways and the Waitemata harbour and also to meet the increased demand from growth.

Now we hear a new or extra fixed charge (to service the borrowing?) is necessary to fund the $1.2 billion cost of this already overdue work. What we don’t know is how much Watercare has in the kitty from its IGC to make a down payment with.

To be inter-generationally fair, the cost of such assets, along with the interest cost of that capital, is probably best paid for over their useful life by users. This is why borrowing is sensible. And new people joining into the use of existing assets would also pay an entry charge to tap into previously supplied infrastructure.

That leaves one unanswered question. Why a new Crown-owned SPV to build and own the central sewerage interceptor tunnel and why would it do it more cheaply than Watercare could?

The answer to the first of these two questions is Watercare is perfectly capable of building and owning the big tunnel. It is its job. No new SPV organisation, with another set of overheads, is needed to do this. What Watercare needs is money to do the job.

And the only reason a new Crown-owned SPV might provide the $1.2 billion tunnel at a lower overall cost is that the Crown can generally borrow at lower interest rates than council or Watercare. If that is why this Crown-owned SPV is seriously being considered, why can’t the Crown borrow the money and on-lend it to Watercare, underwritten by ratepayers?

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