Taxing the hapless traveller

By JIM EAGLES

Airline passengers beware: you may be the next group the Government targets in its enthusiastic pursuit of new sources of revenue.

Finance Minister Michael Cullen has a review under way looking at how passenger clearance services are funded, and it will be no surprise if the outcome is an increase in the departure tax.

At present, as travellers may have noticed, New Zealand has one of the lowest departure taxes in the world. If you fly out of one of our seven international airports you will be charged $25, of which $20 goes to the airport company for using its facilities, $1 is taken by the Civil Aviation Authority and $4 is for passenger screening.

That, according to figures provided by the Treasury, compares extremely favourably with the likes of Sydney which charges about $100, London Heathrow, $135, and Los Angeles, $55.

But it is more expensive than Asian airports such as Singapore which, again according to the Treasury, charges $20, or Fiji, which also charges $20, Hong Kong, $21, and Taipei, $15.

The cost of passenger screening has come under Cullen's beady eye as a result of the stricter security requirements resulting from the War Against Terror.

Even before September 11, 2001, it cost $55 million a year to check passengers and their baggage, but the existing departure charge provided only around $19 million. The new requirements are expected to add an extra $28 million a year, taking the cost to the Government up to $64 million a year.

In terms of the overall Budget, that is chickenfeed - about what we're spending to attract more foreign film-makers - but the Government has shown a great liking for making selected groups, such as farmers, education providers and exporters, pay for programmes that may somehow affect them.

A good parallel to the passenger clearance exercise is the way exporters and importers were required to fund $20 million a year for the new trade security requirements imposed by the United States.

No surprise, then, that Cullen has announced that in the course of this review "we will ... be asking the industry and consumers to consider what contribution airports, airlines and passengers, as beneficiaries of these services, might make to the cost of funding them".

The group carrying out the review has so far had three meetings and, as you would expect, spent most of its time arguing about who should pay for what.

There is, evidently, general agreement that customs, immigration and agricultural services at airports should continue to be be mainly publicly funded, but that airlines, airports and passengers should substantially pay for security screening.

That, of course, means passengers should pay, since airlines and airports would inevitably pass on any extra costs.

A Treasury working paper estimates that completely covering the cost of screening passengers and their baggage would mean taking an extra $19 a passenger and increasing the departure tax to around $44.

The Government's track record suggests that is the direction it will want to move in.

But, while ministers are always keen to find more millions to spend, others may wonder if it is either sensible or fair to require airline passengers to pay for aviation security services.

The Treasury working paper puts forward the classic user-pays argument, that if users are charged for the service they will "better recognise the cost of the resources involved and gain an incentive to adjust their consumption in line with their willingness to pay".

But in this particular case the argument is flawed. New Zealanders travelling overseas to set up a trade deal, take a holiday in the sun, study or visit relations will have no choice but to pay whatever tax the Government imposes.

The only travellers able to "adjust their consumption" will be tourists from overseas, who can choose whether to come here or to opt for Singapore or Fiji instead.

Economic studies on the possible impact of a higher departure tax basically indicate that a $19 rise could reduce arrivals by 0.9 to 2.8 per cent. Given that tourists spent $16.5 billion here last year, a drop of just 1 per cent would cost the economy $165 million - which seems a little counter-productive.

And it could well be worse. With air fares dropping, aviation taxes are taking on much greater significance in the eyes of travellers. A budget fare from Auckland to Sydney is nearly doubled by departure taxes and fuel and insurance surcharges.

Christian Casbolt, general manager of incentive travel specialist the Events Centre, reckons the high airport taxes in Australia are turning people away.

"Many companies that would traditionally look to Australia for their conference or incentive travel are being put off by the increasing level of taxes," he says. "They are finding that when they add up all the charges, the gap in price to travel to Asia or the islands is no longer as great, and some are deciding they'd rather go there instead."

Casbolt says the extra taxes and surcharges (excluding our own departure tax) involved in a trip to Sydney are now around $138, but just $17 to Bangkok and $73 to Fiji.

"In the eyes of many business travellers the level of airport taxes in Australia is now ridiculous and there is some resentment about paying it."

Is that really the example we should follow?

But even if the Government does decide to give foreign tourists a financial incentive to go somewhere else, is it fair to lump the cost of security checks on to local travellers who have no choice but to pay?

Certainly there is an argument that if aircraft are safer then passengers are better off. But it could equally be argued that a reliable international air service benefits not just passengers but also the tourist industry, trade, international relations, education and just about every facet of national life.

Furthermore, bus passengers gain from drink-driving patrols, householders gain from the efforts of police burglary squads, children gain from strict rules for toys, and the sick benefit from quality controls on medicine, but they aren't charged levies to cover the cost.

If the state is going to impose a form of user-pays on airline passengers, shouldn't it apply the same rules to everyone else who gains particular benefit from some state service? Why single out airline passengers?