New border levy to deter tourists and dampen economic growth, NZIER says

A new levy on international visitors to pay for the growing costs of border control is inefficient, could deter up to 34,000 tourists from coming here each year, and dampen economic growth, the NZ Institute of Economic Research says.

The border clearance levy due to be introduced from January 1 is $21.57 for air travellers and those arriving and departing on private boat, and $26.22 for cruise ship passengers.

A coalition of tourism, travel, and aviation organisations have warned the tax will be an unwelcome handbrake on growth in the booming tourism sector and ignores a long-standing practice in New Zealand that border services are a public good and should be funded from general taxation rather than a travel tax.

NZIER principal economist Kirdan Lees said tourism is booming, bringing in new export dollars and a chunky boost to GST revenues to counteract the downturn in the dairy sector. (See report here)

A border charge would discourage tourists from visiting and spending money in New Zealand, he said. He pointed to estimates by economic consultancy Sapere that, on a market-by-market basis, a $22 increase in air ticket price reduces the demand to New Zealand by 0.9%, which means 34,050 fewer tourists each year.

That means $55 million fewer tourism dollars each year while the government takes $61.6 million in revenue from international tourists who pay the border tax, he said.

"So on net, it's not a great revenue earner," Mr Lees said. While exchange rates and other factors will influence the outlook, this outcome was clearly at odds with the Ministry for Primary Industries and New Zealand Customs consultation statement that said "people will not be put off travelling to New Zealand, as the levy is less than 1% of an international fare."

If additional border control was required, on tax efficiency grounds it would be far better to fund the system out of general taxation and welcome more visitors to New Zealand, Mr Lees said.

"Tourists already pay more than enough tax when they visit New Zealand. Whacking the tourism sector, just when it's getting going, looks like a poor policy choice."

Tourists already pay more tax than they receive in benefits, on every purchase from a latte in Queenstown to a hotel room in Auckland and that is likely to swell the government's coffers by up to $1 billion in 2016.

"Right now, tourists pay enough in tax to fund not just border control but also the Ministry of Primary Industries' entire budget," he said.

A border tax is also inefficient and not good tax policy, running against public finance guidelines that lay out principles for how the government should raise tax revenue, he said. One of those key principles is that taxation should be efficient and minimise the impact on competition and economic growth.

(BusinessDesk)