International Visitor Levy Ministers Matt Doocey (Tourism and Hospitality), Nicola Willis (Finance) and Tama Potaka (Conservation). Composite photo / NZME
International Visitor Levy Ministers Matt Doocey (Tourism and Hospitality), Nicola Willis (Finance) and Tama Potaka (Conservation). Composite photo / NZME
The International Visitor Levy (IVL) rose from $35 to $100 in October, which is expected to raise an additional $149 million a year. By law, it needs to be spent on tourism and conservation.
Documents released to the Herald reveal ministerial wrangling behind the scenes over how IVL revenue could be used to improve the Government’s finances.
Budget 2024 provided $307m of fiscal headroom by replacing Crown funding with money from existing and future IVL pots. Stakeholders say the IVL should increase overall funding, rather than saving the Crown money to stand still.
This will inject an estimated $229 million a year - ring-fenced for tourism and conservation - into the Government coffers, a much largerpot of money after the rate rose from $35 to $100 on October 1.
Whether the additional IVL money will plug these infrastructure gaps, however, is unclear. Those in the tourism and conservation space are lobbying their corners, but there’s also nervousness over the Government’s “funding switch”.
This refers to using IVL money to replace the cuts to Crown spending that Finance Minister Nicola Willis has driven across the public sector. The switch essentially substitutes cash from foreign tourists for Crown money, while overall spending stands still.
This gives the Government the same fiscal headroom as if it had banked the IVL revenue straight into the Crown account, and it’s legal as long as the returned Crown funding comes from the tourism or conservation portfolios.
The International Visitor Levy rose from $35 to $100 in October. It is paid by about 60% of foreigners, with Australians and most Pacific Islanders exempt. Photo / Greg Bowker
But environmental, tourism and local government advocates overwhelmingly oppose this, wanting instead for IVL money to add to - not replace - what the Crown spends in those sectors (which some stakeholders say is woefully inadequate).
And it’s not just the switch, but what’s being switched: $28mfrom the IVL pot is for Tourism NZ, which markets New Zealand to potential overseas visitors. The current IVL investment plan specifically excludes using it for marketing.
The nervousness is also related to Willis’ efforts to explore how the IVL could “go further” in helping the Government’s finances.
This includes looking into freeing the IVL pot from the tourism and conservation ring-fence, revealed in documents released to the Herald, whichshow ministerial wrangling behind the scenes:
The consultation was in danger of being jettisoned as Budget ministers sought to push through the IVL increase for Budget 2024. Slow progress led to them considering passing a new law so the legal requirement for consultation didn’t apply. This was eventually dropped.
The slowing of progress centred around Willis’ interest in exploring how the IVL could improve the Government’s finances, including using it for general Crown purposes.
She eventually abandoned this (it would require a law change), but achieved a similar outcome in Budget 2024 by using the funding switch.
Finance Minister Nicola Willis has been driving a savings programme across the public sector that some have called austerity, though Willis rejects this. Documents released to the Herald reveal her looking into using the IVL to improve the Crown's fiscal position. Photo / Mark Mitchell
‘I was unaware’
There’s also disquiet over how the funding switch was done. For Budget 2024, Willis had directed 7.5% and 6.5% cuts in tourism and conservation baselines respectively. This was partly achieved by switching out $45m from the existing IVL pot (an $80m-a-year fund, based on the $35 rate).
On top of that, she also demanded a $100m cut over four years: $50m each in tourism and conservation. Some back and forth with Tourism Minister Matt Doocey and Conservation Minister Tama Potaka ensued before this morphed into a $261.9m funding switch, this time from a future IVL pot based on a higher IVL rate.
This makes the total funding switch $306.9m over four years.
“I was unaware that the Government was pulling back from any additional funding that the IVL would bring in,” said Local Government NZ president and Selwyn District Mayor Sam Broughton.
Swapping out Crown money for IVL money would make sense if there was enough investment in tourism and conservation, he said, but there wasn’t.
Tourism Industry Aotearoa chief executive Rebecca Ingram echoed this sentiment: “We are a very strong advocate for the IVL being used as additional funding, not core funding. [A funding switch] is not what the IVL should be used for.”
Labour also used the funding switch when in government, but not nearly to the same degree ($20m worth), and not in a way that was contrary to the IVL investment plan. Labour is now calling for Willis to rule out changing the law to enable using the IVL for general Crown purposes.
Willis did not respond directly when asked if she was still interested in exploring this, though she suggested it wasn’t on the radar for now.
“The Government is currently working to determine how future levy revenue can best be used to achieve its goals for conservation, tourism and hospitality,” she said in a statement.
Budget 2024 banked the $261.9m on the assumption, as consultation was ongoing, of the IVL increasing to at least $70.
If it had only gone up to $50 - which Tourism Industry Aotearoa supported, and Doocey was interested in - half of the banked money would never materialise. If it had been $70, which Budget Ministers had previously agreed to before backtracking, almost all of it would have been used in the funding switch.
With a $100 rate, there will be an estimated $78m a year for additional investment, rather than replacing Crown money. Willis has indicated sympathy for giving it to cash-strapped DoC, but no final decisions have been made.
If there’s any sector involvement in discussions over how it should be spent, Broughton said he isn’t part of it.
“The best decisions are made in collaboration with those who have the best information, and the tourism industry itself and local government understand both local communities and visitors better than anyone.
“I’ve spoken with the Minister [Doocey] asking for involvement, but we haven’t had any discussions on how it will be spent.”
Tourists paying the International Visitor Levy flock to Milford Sound every year. But does the tax they pay go towards additional infrastructure, or to helping the Crown account? Photo / Supplied
Willis’ hunt for funding levers
The IVL was introduced in 2019 and, by law, had to be reviewed by July 2024. It started at $35 and applied to about 60% of foreign visitors, with Australians and most Pacific Island visitors exempt.
It’s no secret that the Government has been trying to slash spending while also trying to improve public services, so it shouldn’t be surprising that Willis took an immediate interest in using the IVL to improve the books.
Barely in the job, Willis wrote to Associate Finance Minister David Seymour in December 2023 about using the IVL for “significant revenue options” of at least $100m over four years for Budget 2024.
In February, Ministry of Business, Innovation and Employment (MBIE) officials provided Doocey with options to do this including:
Changing the law so the IVL didn’t have to be spent on tourism and conservation, and could be returned to the Crown.
Raising the IVL rate and using the additional revenue to replace cuts to Crown spending (a funding switch).
Raising the rate and using the additional revenue for tourism and conservation purposes, in line with current legal requirements.
The first had legal risks and would take 18 months to implement, while the second had “reputational and policy risks, as it differs from the sector’s understanding of how tourism investments are approved”, officials said. They supported option three, the status quo.
Doocey had already told officials he wanted the IVL to be either $50 or $70, having met with tourism groups who believed a $100 rate would hurt New Zealand’s appeal as a destination in a competitive market.
Ministerial shenanigans started when Doocey shared his intended Cabinet paper about a higher IVL rate with Potaka, whose department is in desperate need of more money. The Conservation Minister insisted his name was also on the paper and it should include a $100 option, which he later threw his support behind.
Conservation Minister Tama Potaka pushed for the IVL to be increased from $35 to $100, and for the additional revenue to be spent on conservation - which garnered some sympathy from Finance Minister Nicola Willis. Photo / Mark Mitchell
Willis steps in: IVL for Crown purposes?
How Willis responded to Doocey’s draft Cabinet paper is redacted in a March 13 MBIE briefing, but she appears to have halted the work and asked officials to look into using the IVL to improve the Crown’s finances.
That included freeing IVL money from being tied to conservation and tourism (the briefing says Cabinet was “actively considering unhypothecating the IVL”) and instead using it for general Crown purposes.
As officials waited on “a firm steer on the Minister of Finance’s position”, they outlined other options including unlocking existing IVL money that was already allocated to various projects. Officials warned this would mean “all ongoing projects the IVL intends to fund must either be funded through Crown funding, or stopped.”
This work went on for about two weeks before Willis let it go. “We understand that the Minister of Finance has ruled out any further legislative changes to the hypothecation,” an MBIE briefing on March 28 said.
It added that Budget Ministers, led by Willis, had decided on an IVL rate of $70 at a meeting a few days earlier. They also decided to keep the 50/50 split between tourism and conservation for the existing IVL pot, but Willis was leaning towards giving the additional revenue from the higher rate to DoC.
“We understand that the Minister of Finance expressed an initial preference to support cost pressures for the Department of Conservation,” the briefing said.
Willis still wanted to push through the new rate for Budget 2024, but officials told Doocey there was no longer enough time for consultation, required by law. They recommended passing a new law making it unnecessary this time, but not for future reviews.
The tourism sector would “react negatively” to the rate being lifted without consultation, officials added. “However, we expect the sector to be pleased that hypothecation is being retained to tourism and conservation investment, and that no activity [from allocated IVL funding] is being reduced.”
Tourism NZ markets New Zealand as a destination to overseas countries. It has had baseline funding cuts replaced by IVL revenue, even though marketing is specifically excluded in the levy's investment plan. Photo / 123rf
The funding switch
Willis had also asked Doocey and Potaka to find $50m more in each of their portfolios, on top of the baseline savings she’d demanded.
Doocey agreed to slash Tourism NZ’s funding by a further $50m (he had already cut its baseline by 5% to help meet his baseline savings target) and offset the loss with IVL money. Similarly, Potaka said the only way DoC could withstand a $50m cut is if it was all replaced with IVL money.
With Budget 2024 looming and decisions still to be finalised, IVL Ministers (Willis, Potaka, Doocey) met on April 8 - and hit the reset button.
They agreed to “decouple” the IVL review from Budget 2024 so consultation could take place. That meant vetoing the previous decision for a $70 rate, and including a $100 option in the consultation document that went to stakeholders in May.
Ongoing consultation didn’t stop Budget 2024 from assuming a higher IVL rate than what some tourism advocates wanted, and banking a $261.9m funding switch over four years.
How it will be implemented wasn’t specified - the proposed $50m cuts for Tourism NZ and DoC each were dropped - but unless the law is changed, it has to come from the tourism and conservation portfolios.
Budget 2024 also included a funding switch over four years from the existing IVL pot: $12m replacing Crown money for the Great Rides, and $28m replacing baseline cuts to Tourism NZ.
The former is a continuation of a $20m funding switch from the previous government, while the latter more than offsets Tourism NZ’s 5% baseline cut that returned $22.39m to the Crown (Doocey also reversed a $30m cut to Tourism NZ from the previous government).
A further $5m in IVL money is being used for National’s election promise for a regional events fund.
Overall these give the Crown an extra $306.9m in fiscal headroom, while keeping to the tourism or conservation ring-fence.
Tourism and Hospitality Minister Matt Doocey initially wanted to increase the IVL from $35 to either $50 or $70. Cabinet eventually lifted it to $100, following stakeholder feedback. Photo / Mark Mitchell
Overwhelming rejection from stakeholders
If the Government was hoping for supportive feedback from the IVL consultation, it would have been disappointed.
Asked about using the IVL to fund Tourism NZ, only 23% of submitters were supportive, including 8% strongly supportive, while a majority (54%) were opposed, with 29% strongly opposed.
As for Crown funding versus IVL money for tourism and conservation, an overwhelming majority (84%) said the IVL could be used but “this should be in addition to Crown funding and not as a replacement”.
Regional Tourism NZ chair David Perks underlines this point: “The IVL should be spent on projects that support the sustainable growth of tourism, and those projects should be investment over and above what is spent from the Government’s consolidated fund.”
He said the Crown should be putting more money, not less, into tourism-related infrastructure; a 2020 study showed tourism adding $3.8b to the Government’s books through GST alone, and a further $3.5b in other revenue streams. Tourism-related Crown costs were estimated at $2.3b, leaving a net gain of $5b.
Forest & Bird has made a similar point in conservation, pointing to the vast difference between the Crown’s annual investment in DoC (about $550m), and the estimated value of conservation-related tourism ($4b).
Meanwhile, ratepayers in popular destinations such as Queenstown are left to pick up the infrastructure pieces after their populations double over summer. But pushing up rates to cover these costs is fraught, with the Government warning local authorities to clean up their spending act or it will be done for them.
The IVL should be used to soften the financial burden on ratepayers, say Local Government NZ and Tourism Industry Aotearoa, with water infrastructure, roading, and transport at the top of their investment wishlists.
Labour’s tourism spokeswoman Cushla Tangaere-Manuel said it is wrong for Willis to swell the IVL pot, and then raid it to balance the books.
“The IVL is there to support and enhance tourism and conservation. People come to Aotearoa for our beautiful landscapes. They don’t come so Nicola Willis is slightly closer to surplus.”
Willis did not respond to questions about whether she was still interested in using the IVL for general Crown purposes, or whether it was a bad look to use IVL money for Tourism NZ when a majority of stakeholder feedback opposed it.
That feedback - including the overwhelming rejection of a funding switch - seems to have sent IVL ministers back to the drawing board; Willis would not say whether she was still leaning towards using additional, unallocated IVL funding to boost DoC’s coffers.
“Decisions on the allocation of additional IVL revenue are yet to be taken,” she said in a statement.
In the meantime, the IVL pot keeps growing: by the end of summer, an estimated 750,000 international visitors would have paid the $100 rate, swelling the money pot by $75m.
DoC, tourism groups and local government authorities still don’t know how much of it will add to overall spending in their respective sectors - if any.
Derek Cheng is a senior journalist who started at the Herald in 2004. He has worked several stints in the press gallery team and is a former deputy political editor.
