It used to be a familiar sight, hardly worth commenting on. But the combination of Covid and six years of a more inward-looking Government who struggled even to get their Foreign Minister, let alone the PM, to travel much, makes it much more of a novelty than it should be.
Christopher Luxon was out again this week pressing the flesh in the Philippines and Korea. In the past 10 weeks, he has been to Japan, the US, the Pacific, and Australia too.
As well he might. There is a big international repair job to be done. New Zealand’s isolation in recent times has cost us investment, jobs, and frankly, just awareness in international business circles.
We have turned up our noses at investment in public infrastructure, we have shunned overseas investment more generally, and we have shuttered for long periods industries like tourism and education which used to be our largest and fifth largest export earners respectively.
And now, suddenly, we pop up wanting everything to go back to the way it was again. That will take time, and a concerted effort.
The rest of the world hasn’t just been sitting around twiddling their thumbs waiting for New Zealand to arrive. It’s been getting on with life. Intrepid Kiwi travellers report back about how much buzz there is in Aussie, Europe, and North America compared to here. And the economic stats tell you they are right.
Our economy is flat to falling, and our balance of payments is looking particularly sick. That’s the difference between what we buy from the world and what we earn. The deficit is back down at levels last seen in 2008, just before the GFC and when we last focused on lifting international investment.
In the 2010s our services balance was almost always positive, as a result of the contributions of tourism and education. Now it’s in deficit, along with the goods balance. All things being equal, that means our dollar will buy less in the future, particularly as interest rates drop. We are getting relatively poorer than the rest of the world, and likely to become more so unless we turn our income story around.
Which is what makes the Government’s move on the tourism visitor levy this week so inexplicable, and particularly the timing of it.
The fiscal context is understood. We are desperately searching for money down the back of the couch to somehow repair the Government’s budget. Socking a few tourists to help pay for DoC’s budget would be very tempting. Too tempting as it has turned out.
But there is a bigger picture here, and this approach is quite high-risk. At best it doesn’t help the tourism sector recover. At worst, it flattens it further.
Now it has to be said that plenty of people think charging tourists more is a good idea. It also has to be said that for the most part these aren’t the people who make their incomes from the sector. Face value popularity is often not a good test for economic policy.
Any number of tropes are trotted out as “evidence” that the visitor levy, and all the other charges we foist on international travellers are no big deal. “It’s a small cost relative to the overall cost of flying to New Zealand” we are told, as if that makes it less of a problem rather than more. It is precisely because it costs so much to come here that we need to be careful of loading up on the sticker price.
Rich tourists won’t even notice, we are also told. And they won’t, but they are not the ones we should worry about. We need to worry about the marginal buyer of our wares, those for whom New Zealand is almost a step too far, or for those who are weighing up whether to include New Zealand on their big trip down under or just stay a few extra days in Australia. Or maybe just stay in Europe and visit Croatia, or Portugal.
The rich-listers flying in on their private planes to Queenstown are coming regardless. Our concern should be the hoi polloi that make up so much of our tourism income, those who visit the secondary tourist markets in regional New Zealand like Oamaru, Nelson, Hawke’s Bay, and Rotorua. They are the people who provide the volume to support our hard-to-make-a-buck attractions, and the people who eat lunch and dinner in our struggling hospitality sector. All that community infrastructure was built on a certain throughput of international tourists. And we are currently around 15% below what we were before Covid.
A common argument for an increased or indeed any visitor levy is that it means tourists pay their way, but that ignores that they already contribute to the tax coffers via the GST they pay, and the revenue and jobs they provide to the tourism and hospitality sectors which in turn pay taxes.
There is every likelihood the levy increase is a zero-sum game. It provides some revenue but in suppressing the tourism recovery it costs more than it collects. That’s the risk in such endeavours.
It wouldn’t be such an imposition on the tourism sector if it was just the visitor levy. The trouble is that when the squeeze goes on Government spending, every agency wants to take the easy way out and lift their direct charges. So travel visa costs have gone up, regional airport charges are going up, the CAA and aviation security are lining up to put their charges up as well. The cumulative cross-government effect is significant. And some in local government still want bed taxes.
The association of airport owners reckon that a border crossing into New Zealand is now 70% more expensive than entering Australia, and getting worse. Airlines are worried too.
Airports and airlines are of course self-interested. They just want to bring more visitors into the country. Which I think in this case lines up with what we all want, if we want to pay our way in the world and be wealthier rather than poorer.
The other problem for the Government from this decision is the confused message it sends. You say you want to get the economy going, that we are open for business, and yet this. At best a piece of fiscal penny-pinching that assuages the “pull up the drawbridge” types and at worst, a real drag on the economic recovery.
It’s a strange decision, and strangely timed. It is inconsistent with every other aspect of the Government’s declared economic strategy. Senior economic ministers need to take control of some of these decisions and ensure everyone on the oars is rowing the boat in the same direction. The public won’t thank them for these sorts of mixed signals.
