Tax the tourists, share proceeds

A line-up of jets at Queenstown Airport in 2015. Each year, the airport handles more planes,...
A line-up of jets at Queenstown Airport in 2015. Each year, the airport handles more planes, passengers and tourists. PHOTO: QUEENSTOWN AIRPORT CORPORATION
It’s time we developed a new strategy to better cope with, and profit from, the surge in tourism, writes economist Prof Tim Hazledine.

Auckland's new mayor, Phil Goff, has an interesting plan to increase the rates paid by Auckland accommodation providers (motels, hotels, B&Bs, Airbnb) as a sort of indirect tax on tourists.

But he then proposes to use the money raised to fund the $27.8million of council spend on promoting inward tourism and subsidising ``major events'', such as conventions.

This is like increasing the tax on cigarettes and using the money to persuade people to smoke more. It's like a promoter continuing to advertise a concert after all the seats have been sold. All that will do is boost the resale price of tickets.

Basically, Auckland is sold out right now. We cannot comfortably cope with the boom in short-term (tourist) and long-term (immigrant) arrivals to our region and our country. All this is now doing is pushing up prices of land, houses and accommodation, with average hotel rates increasing 9% last year in Auckland (and 13% in desperately overcrowded Queenstown).

So, irrespective of the merits of the targeted rates increase - to which I will return - the smart thing for councils to do - in Auckland and the Lakes district - would be to simply shut down the tourist promotion spend and the subsidisation of major events, and give the money back to household ratepayers.

A good little start in this direction was made late last year, when our council's promotional spending arm Auckland Tourism, Events and Economic Development, or Ateed - suddenly and surprisingly decided not to hand over the promised $500,000 cash sweetener to the promoters of the Joseph Parker boxing match. What happened? Blow me down, the fight happened anyway, and was a great success with no public funding!

This is actually symptomatic of a tectonic shift in our economic paradigm stirring just below the consciousness of our political leaders. For decades - really, for ever - New Zealand's export strategy has been to push the supply side. Move more fatty frozen meat on to the international market; more raw radiata logs; more lightly processed dairy products. And more bums on seats on planes flying into New Zealand: never mind the revenue side, just crank up the volume.

Well, we don't have to do this any more. In today's overpopulated world our main physical asset - our land (and landscape) - is becoming relatively scarcer and more valuable. We should look after it better and extract more value from it. We should, in economics parlance, be moving up the demand curve: charging more, selling less and delivering a better product as we do it. Instead of subsidising commodity dairy production with lax environmental and emissions standards, we should be charging the full cost, and making good on our purported ``Clean and Green'' slogan.

Instead of squeezing more and more planeloads of low-budget tourists on to congested roads and rivers and beaches and lakes and national parks - and thereby spoiling things for everyone (including New Zealanders) - we should be using higher prices to ration the product: charge more, but deliver more, too.

So how do we do this? The simplest and probably best policy would be a government-imposed visitor levy, set at a rate high enough to really deter lower-value tourists - say, $250 for each incoming visitor without a New Zealand passport. Such a proposal is getting talked about, but usually with the rider that the revenues will be spent on improving tourism infrastructure, which fundamentally misses the point. No: just take the money and give it back to the taxpayer.

In the absence of a national policy, is Phil Goff justified in taking what seems to be the only action open to him - the accommodation-targeted rates increase - in the face of howls of protest from short-sighted business and tourism industry lobby groups? Well, perhaps he is, but please, Mr Auckland Mayor, don't make your job needlessly harder by using the money in ways that actually exacerbate the very problem you are trying to deal with.

Tim Hazledine is a professor of economics at the University of Auckland Business School. Prof Hazledine is a ratepayer in both Auckland and the Queenstown Lakes district.


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