New Zealand tourism 'disappointed' by Travel Tax decision

The tourism, travel and aviation industries have expressed disappointed at the Government decision to push ahead with imposing a Travel Tax on New Zealanders and international visitors from 1st January 2016.

The New Zealand Government was announced today (14th October) that a Travel Tax of $21.57 (incl. GST) per air passenger and $26.22 (incl. GST) per cruise passenger will be imposed, with the money collected replacing the current Crown funding of border services provided by Customs and Ministry for Primary Industries.

Following the surprise announcement of a Travel Tax in the May budget, a coalition of tourism, travel and aviation organisations was formed, led by the Tourism Industry Association New Zealand (TIANZ).

In its submission, the Coalition Against Travel Tax (CATT]) warned that the Tax would be an unwelcome handbrake on growing the visitor economy – and if it was to be imposed, the design, timing and implementation of the Travel Tax needed significant amendment.

TIANZ Chief Executive Chris Roberts says the Tax ignores a long-standing understanding in New Zealand that border services are a public good and should therefore be funded from general taxation.

Roberts says the Government has downplayed the potential negative impacts of the Tax, stating “fortunately, the tourism sector is currently performing very well, with international visitor arrivals growing by 8% in the past year.

“However, the new Tax will be enough to deter some people from travelling – and could shave 1-2% off the current growth. In terms of visitor spend, New Zealand is set to lose more than it gains in the tax collection.

“CATT made a number of constructive recommendations regarding the implementation of the Tax and it is disappointing that these have not been taken up.”

The CATT recommendations included:

The introduction of the tax should be delayed until 1st January 2017 
• Detailed impact analysis needs to be completed to fully understand the impact that the introduction of the new Travel Tax will have on the propensity for international visitors to travel to New Zealand and New Zealanders’ propensity to travel offshore.  • Greater transparency is required of the cost structures for both Customs and MPI and more work needs to be done to establish what costs are appropriate and fair to be recovered through the Travel Tax.
• Australia and some other countries have strict requirements for fully inclusive price advertising. Brochures have already been issued for air and sea travel to New Zealand in 2016.
• The proposed 1st January 2016 introduction of the Travel Tax does not provide adequate time for the agencies responsible for collecting the tax to update their systems to incorporate the necessary requirements.

A significant proportion of the funding of MPI and Customs border services should remain Crown-funded. 
• A secure border is in the interests of every New Zealander; and certain sectors who are direct beneficiaries are not contributing to the cost under these proposals. If the Government insists in moving away from the public good model which has existed until now, the cost burden should be shared between the traveller – who typically receives little or no direct benefit; the sectors that do directly benefit; and all New Zealanders who receive a public good from having a secure border. 

More work needs to be done to determine the appropriate split, further supporting the need for delay.

The Travel Tax should be zero-rated for GST.
• There should not be a tax on a tax.

A traveller reference group needs to be established that is tasked with monitoring how the funds that have been collected from the Tourism Tax are allocated each year. 
• This group, with representation from the tourism, travel and aviation sectors, can usefully assist Customs and MPI to identify efficiencies and priorities for spending. This group should also provide oversight in future reviews of the Travel Tax and any other proposed legislative changes in relation to border taxes. 

Roberts says the failure to agree to a Traveller Reference Group is particularly disappointing, pointing out that it is directly counter to the Government‘s response to the Productivity Commission’s Report on Regulatory Institutions and Practices.

In that response, released in July, the Government promised to “improve regulator cost recovery practices, including providing more information to fee-payers through the use of open-book exercises so feepayers can have input into agency cost structures.”

Roberts stated “in other words, those who are forced to pay, should have a say. We will continue to push for a formal mechanism for the affected sectors to have a say on how MPI and Customs are spending the Tax”.

Roberts says the Government has made two notable concessions, which are welcome.

The first is that the Tax for cruise passengers has been capped at the consultation figure of $26.22 – but with the exempting of crew members, this will not allow full recovery of the border costs incurred.

He added “this means that the Crown is retaining a small part of the responsibility for funding border services.”

The second is that the level of the Travel Tax will be set for 30 months, with any adjustment likely to occur on 1st July 2018.

Images: Air New Zealand over Auckland (top) and Dunedin's St Clair Beach (below).

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