A further reduction in revenue caused by the COVID-19 omicron outbreak and rising interest and inflation costs has compounded the challenges in putting together Auckland Council’s budget for the coming year.

Auckland Mayor Phil Goff and Finance and Performance Committee Chair Desley Simpson say the council predicted many of these concerns in the just-completed consultation for its draft annual budget. But over the past three months many economic indicators have worsened in terms of cost impacts on the council.

They say the current financial environment will require tough decisions by councillors, including finding savings from lower-priority council spending. There would also be a need to push back some parts of the council’s capital programme because of rising construction costs, supply chain constraints and the impact of lower council revenue.

“We’ve estimated that the total loss of revenue to council caused by COVID-19 will be over $900 million,” Goff said.

“Lost revenue from our shareholding in Auckland Airport has continued at around $60 million a year and lost public transport fares have also contributed to total revenue losses well in excess of that.

“Non-rates revenue makes up over 60 per cent of council’s income and, ironically, that has been hardest hit by the pandemic.

“We are aware that the public—like council itself—also faces the burden of higher costs from inflation and rising interest rates. We are therefore not prepared to address the problem by simply pushing up general rates this year beyond the 3.5 per cent foreshadowed in our consultation document and long-term plan,” Goff said.

Councillor Simpson said, “Last year we worked hard to find $126 million in cost savings and we have built into this year’s and each future year’s budget a further $90 million a year in reduced costs, as well as selling surplus properties to help fund the capital investment programme.

“This coming year and beyond we will need to lift that level of cost reduction by reducing spending on non-priority services and pushing back some capital projects.

“We will also be drawing on the Government’s ‘Better Off’ funding package to meet a significant part of the operating budget deficit for 2022/23.”

Mayor Goff said, “The bottom line for council is that we need to manage our finances prudently and sustainably and we will do so.

“That includes meeting extra costs of up to $40 million a year so that we fully fund the depreciation of our assets by 2027/2028. That ensures we are putting money aside to meet future renewal and replacement costs on council’s assets, which have grown in value since 2016 from $45 billion to over $60 billion.”

“Despite the pressures on council, we still need to address the increasingly urgent need to respond to climate change. The latest report from the IPCC, endorsed by nearly every member country in the United Nations, shows that without urgent action now the economic and environmental cost of global heating will be catastrophic,” Goff and Simpson said.

“Putting off action now reduces our ability to head off climate disaster and places huge costs on our children and grandchildren.”

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