Tourist tax: Biting the hand that feeds

Should we start asking our tourists to pay more? Photo: Getty

With record numbers of international visitors arriving, the calls are getting louder for them to pay for the strain on infrastructure. But with tourism now New Zealand’s main industry, should we take the risk? Shane Cowlishaw reports.

Love them or hate them, the tourists are here to stay.

It’s been impossible not to notice the marked increase in visitors to our shores, with campervans on the road and cruise ships in the harbours.

Last year more than three million people visited New Zealand, an increase of about one million from a decade ago.

All those visitors spent a record $14.5 billion and the industry catering for them employed 188,000 jobs directly, and a further 144,000 indirectly.

But as the money has poured in, so has the stress on the country’s infrastructure and environment.

Both our public toilets, and Great Walks, are overflowing and calls are strengthening for tourists to pay up.

Up in Auckland, Phil Goff has pushed through his proposed, although watered-down, accommodation tax.

Targeted at about 300 hotel and motel owners, it is expected to raise $13.5m to cover costs of tourism marketing and events for the city.

Down in Wellington, Parliamentary Commissioner for the Environment Jan Wright has suggested taxing tourists to protect our native birds.

At the release of her report that painted a grim picture for the future of New Zealand’s birds, Wright called for a nature border levy to fund their protection.

So, what are the options, and the risks?

The current situation

While many are calling for tourists to pay more, the country is currently benefiting in several ways from their presence.

Alongside residents, international tourists also pay GST on every purchase while in the country.

For the year ended March 2016, the amount of GST collected from international visitors rose more than 20 percent to $1.1b.

They also pay petrol tax every time they fill up those road-hogging campervans.

At the beginning of 2016 a border clearance levy of $16 for arriving passengers and $6 for departing passengers was introduced.

International tourists are stung with this charge, alongside New Zealand travellers, with the proceeds going towards border protection. In the first six months of its collection, the levy raised almost $20m.

Tourism lobby groups such as Tourism Industry Aotearoa believe these taxes are enough and don’t want to see international visitors lumped with more, in case they are discouraged from coming.

But local councils are demanding more money and a report commissioned by several large companies including Air New Zealand, Auckland Airport, and Christchurch Airport conclude that more levies were the best way forward.

Completed by consultants McKinsey, the report recommended a two percent bed tax and a $5 increase to the departure levy.

A ‘blunt tool’

Treasury officials have been considering the merits of a tourist tax as well, but are lukewarm on the idea.

Several draft internal papers, released under the Official Information Act, show the department believes a better way to charge tourists was through targeted user charges.

One document considering the McKinsey report reached the conclusion that bed and departure taxes did not reach the high burden of proof needed to move away from New Zealand’s broad base, low tax rate (BBLR) approach.

“For such a tax to be of net benefit it needs to be strongly targeted at the harm it addresses and at a rate corresponding to the harm. A poorly targeted corrective tax can result in economic distortions, harming efficiency and equity, and would be contrary to the BBLR framework.”

The suggested levies were a “blunt tool” that overcharged low infrastructure users and undercharged high users.

“This over and undercharging creates further economic distortions and inefficiencies. For example, a tourist with low infrastructure use in NZ could be deterred from visiting NZ due to them being charged for infrastructure they do not use. This would be inefficient and deter tourists whose visits may be of net benefit to NZ. It could also be considered in equitable to charge tourists for infrastructure they do not use.”

It was also important to consider whether any new taxes would reduce expenditure, and therefore lower GST collection and income tax.

Administration and compliance costs could also outweigh collection, the report noted.

Dr Christian Schott, senior lecturer at Victoria University’s School of Management, agreed a border tax was a crude tool but one that had many benefits.

It could replace taxes targeted at specific businesses, such as hotels, and was not as problematic and complicated as a bed tax.

The large increase in tourist numbers had placed the country’s infrastructure and environment under great pressure, and to protect it for future generations action was required.

There was a real debate to be had about whether tourist numbers should be slowed, as New Zealand grappled with the rising numbers both culturally, socially, and environmentally, he said.

“We need to be cautious about whether we continue to invite the whole world into a country that’s struggling.”

What the opposition want

Both Labour and the Greens are firm believers in a tourist levy.

The Green Party’s current policy is to boost the current border tax charge.

Dubbed the “Taonga Levy”, it would see current charges for international visitors rise by between $14 and $18 to around $40.

But co-leader James Shaw said the amount, and the way it was collected, could change following the McKinley report.

It was possible the final policy before the election could see an increase to the amount collected, which could come from other sources such as a bed tax.

Revenue would be split 70:30 between conservation and tourism and was expected to generate $46m a year for Predator Free NZ and $20m annually for the Regional Tourism Facilities Fund.

Shaw did not agree that extra taxes would lead to any serious decrease in tourist spending and argued measures such as bed taxes were common in other countries.

“It’s not uncommon and it’s solved problems in other parts of the world which have a strong tourism industry and the sky hasn’t fallen in places like Switzerland.”

Kris Faafoi, Labour’s immigration spokesperson, was supportive of the Green Party’s idea but said Labour would fund conservation from other revenue.

Money collected from a tourist tax would be mainly for industry infrastructure, although some could be used for other areas such as improving tourism training.

It was important not to turn away tourists, but the country was clearly struggling to cope and work needed to be done to bring in more high-value visitors as New Zealanders were “starting to get grumpy”.

Labour was still finalising details of its policy, but would release it soon, Faafoi said.

NZ First did not respond to questions about their policy or view on the subject.

The Government’s response

Former Tourism Minister John Key was keen on exploring bed and levy charges, but his successor has taken a different view.

Paula Bennett’s response to the idea was that New Zealand was already expensive to visit and any increase could lead to a perception the country was a rip off.

In response to the pleas for help, Bennett announced a $102m Tourism Infrastructure Fund at this year’s Budget, which will be spread out over the next four years.

This replaced the Regional Mid-Sized Tourism Facilities Grant Fund, which had largely been derided as inadequate.

The Department of Conservation also received an extra $76m to upgrade and develop tourist facilities on conservation land and to expand the Great Walks network.

Targeted taxes are also set to be introduced, or increased, in some areas. It will soon cost international visitors more to hike our Great Walks than New Zealanders.

Bennett was unavailable for an interview, but in a written statement said New Zealand had a reputation as a world-class destination and it was important it was not perceived as being unaffordable.

Responding to a question about whether the new funding was enough, Bennett said $178m was a lot of money “in anyone’s terms”.

“Our priority should be to spend it. I’ve asked the sector and local government to join with me to get projects over the line. If more is needed then we can look at options in the future.”

While there was pressure on the country caused by tourism, Bennett was not convinced that a tourist tax was the right way of addressing those issues.

“The tourism sector made it clear that tourism infrastructure was its number one priority at present.

“That is why we went down the path of creating the Tourism Infrastructure Fund in Budget 2017, which will have an immediate impact by helping local communities address these issues.”