Roger Partridge: Time to tackle tourism infrastructures funding problem

OPINION:

This month events at either end of the country highlighted a fundamental failure afflicting New Zealand’s biggest pre-Covid export earner: tourism.

On March 10, Auckland Council heard submissions on when it should reintroduce its Accommodation Provider Targeted Rate (APTR), which it uses to fund Auckland events and destination marketing. The options the Council is considering are April 1, 2021, January 1, 2022, or July 1, 2022.

Not surprisingly, the hotel industry’s representative body, Hotel Council Aotearoa, said none of the dates were suitable. Along with the rest of the tourism sector, the hotel industry has been brought to its knees by the global pandemic. Reintroducing a targeted tax on hotels struggling to get to their feet is the last thing Auckland Council should be considering.

Indeed, HCA says the APTR should be scrapped and replaced by a more sustainable, fairer, and nationwide mechanism to fund local government’s tourism-related costs.

The Hotel Council has a point. Especially as HCA’s figures show its members only benefit to the tune of nine cents in the dollar from tourist spending in Auckland. Yet Auckland Council looks to recover 50 per cent of its spending on destination marketing and events from hotels owners while ignoring all other tourism businesses.

Meanwhile, at the Otago Tourism Policy School conference in Queenstown, New Zealand Initiative Chief Economist, Dr Eric Crampton, highlighted the shortcomings of Queenstown Lakes District Council’s equivalent of Auckland’s targeted rate on hotels: the (now on ice) bed tax.

As Crampton explained, bed taxes may help Queenstown’s ratepayers meet the costs of local tourism infrastructure, but they do nothing for places like Fox Glacier or Milford Sound where there are few beds.

Attendees at the Otago Tourism Policy School heard about no fewer than five different proposals for levying tourists. Auckland’s APTR. Queenstown’s mooted bed tax. The (on hold) International Visitor Levy to support conservation programmes. Parliamentary Commissioner for the Environment Simon Upton’s proposed departure tax to spur research into green aviation fuels technology. And differential pricing of tourist attractions – meaning higher prices for foreigners – to solve overcrowding and infrastructure funding issues at our most popular attractions. And that was just for starters.

While there is sense in charging international visitors for access to congested tourism hotspots, a patchwork quilt of local bed taxes and other tourism levies risks taxing tourists out of the country.

Problem for local councils

Yet it is hard not to feel sympathy for local councils who were struggling pre-pandemic to meet the costs of supporting the burgeoning tourism economy. It is simply unrealistic to expect (for example) Queenstown’s 24,000 ratepayers to fund the roads and other council-owned infrastructure needed to support about 3 million local and international tourists each year.

And it is equally understandable that local councils in Auckland and Queenstown should look to “captive” hotels within their districts to try to recoup some of their funding costs. Hotels cannot up sticks and move, are easy to identify, and typically have good record keeping. They are sitting ducks for councils looking for revenue targets.

But hotels are just one part of the tourism economy. Tour operators, airlines, airports, and the wider hospitality sector all benefit from tourist spending – and from the local infrastructure needed to support it. These businesses are often local ratepayers too. So, there is nothing equitable about local councils singling out hotels to help with the costs of tourism infrastructure.

Nor are bed taxes and targeted rates on hotels likely to incentivise the type of upmarket hotel development this country needs if we aspire to move up the tourism spending value chain. The country should be encouraging hotel chains to invest here, not targeting them with extra taxes.

The bigger picture

Fortunately, there is a bigger picture. Tourism may be stalled for now but, when it resumes, the tourists who return to New Zealand will once again generate billions of dollars of revenue for central government.

With every purchase they make on their credit cards, a portion finds its way to the Minister of Finance in the form of GST. And the extra business activity generated by tourist spending contributes to central government’s finances in the form of income and corporate taxes.

Ring fencing GST from tourists would be an administrative nightmare. But some mechanism must be found for central government to remit a portion of the general tax revenue it makes from tourism back to local councils struggling to provide infrastructure to support the tourism economy in their regions.

The Government’s first nod to this need came in 2017 with the announcement of the Tourism Infrastructure Fund to help fund local tourism infrastructure. But the Fund’s annual $25 million budget is dwarfed by pre-Covid estimates of the GST revenues generated by tourism of $3.8 billion, $1.8b of which comes from overseas tourists. And that figure does not include income or company taxes.

Cash-strapped local councils welcomed the Tourism Infrastructure Fund. But since its establishment, four rounds of funding have seen less than $60m paid out.

Little wonder that councils such as Auckland’s continue to look to captive hotels to help defray the city’s ongoing tourism-related costs. It is entirely predictable that central government’s refusal to share the spoils of tourism should force local councils to try novel ways of raising revenue.

But the solution to struggling local councils is not to bite the hands of tourists whose spending helps fill central government’s coffers.

Amid all the calls to “reimagine” New Zealand’s tourism industry, finding a fair and equitable way for central government to share the spoils from tourism spending must be at the top of the list.

– Roger Partridge is chairman of The New Zealand Initiative.

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