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Reducing debt makes sense, says Hay

June 20, 2002

Reducing debt makes sense, says Hay

There are big benefits for ratepayers if the Auckland City Council frees itself of debt, according to Deputy Mayor, David Hay.

Saying that Auckland City should not worry about paying back debt does not hold water with Councillor Hay.

"Whichever way you look at it, debt is a cost on rates – the more you put up debt the more you use up rates on repayments and interest."

Councillor Hay says that if the Auckland City Council does not sell its shareholding in Auckland International Airport and use some of the proceeds to repay debt, the council will have to put up rates by 2 per cent over each of the next two years.

He says the extra rates would have been used to meet the interest bill on the money the council would have had to borrow to pay for building big projects such as Britomart and the indoor arena.

Most of the funds from the sale of the airport shares will be used to repay debt with the balance going into a newly created capital fund to be used to invest in community assets.

Councillor Hay says, “It’s not about selling the family silver – rather we want to purchase some new family silver. This council is not going to sit on its hands and let the city’s infrastructure deteriorate any more. We desperately need to move the city forward.”

Councillor Hay says while it may be acceptable for businesses to have debt, councils are quite different.

"A business will incur debt when it is investing in income-earning assets. The council is investing in community assets and they don’t produce income or generate a rate of return.

"As it stands, the cost of our debt is higher than our return on the airport shares. If we don't sell the airport shares now ratepayers will have to find an extra $7 million to fund our projected debt in 2004 and then a further $6 million in 2007.

"This council said it would reduce the burden of rates and we are keeping to that promise – so to put up rates to fund debt is unacceptable.

"The people to bear the greatest burden, if we took a laissez faire approach to putting up rates, would be the low-income families and the elderly in their own homes who struggle to pay their rates – and I find that totally unacceptable," said Councillor Hay.


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