Tim Hazledine: Don't spend hotel levy to attract more visitors

In today's overpopulated world our main physical asset, our land (and landscape), is becoming scarcer and more valuable. Photo / Greg Bowker

Mayor Phil Goff's plan to increase the rates paid by Auckland accommodation providers to fund $27.8 million of council spend on visitor promotion activities 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 tickets have been sold; all that will do is boost the re-sale price of tickets on Trade Me.

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 per cent last year in Auckland (and 13 per cent in desperately over-crowded Queenstown).

So, irrespective of the merits of the targeted rates increase, to which I will return, the smart thing for the council to do 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 Ateed, council's promotional spending arm, suddenly and surprisingly decided not to hand over the agreed $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 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 onto the international market; more raw radiata logs; more lightly processed dairy products.

And more bums on seats on airplanes 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 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 & Green" slogan.

Instead of squeezing more planeloads of low-budget tourists onto congested roads and beaches and rivers and lakes and national parks - and 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 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 Mayor 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 Goff, don't make your job needlessly harder by using the money in ways that exacerbate the very problem you are trying to deal with.

* Tim Hazledine is a professor of economics at the University of Auckland Business School