Queenstown’s visitor levy a cry for reform

Published in The National Business Review (Auckland), 15 March 2019

When Queenstown Lakes District council announced a referendum last week on imposing a levy on visitors to the tourist hub, it made headlines around Otago. In fact, the proposal potentially has implications for infrastructure and tax reform across New Zealand.

For many years, the resort town has been struggling to fund infrastructure for the growing influx of tourists. The numbers are stark. For every Queenstown ratepayer, there are 34 international visitors per year – and of course there are domestic visitors as well.

Put differently, 24,000 Queenstown ratepayers are funding roads and water services also used by about 3 million domestic and international tourists each year.

And that is the problem.

Queenstown’s holidaymakers generate substantial tax revenue. With every purchase, they pay GST. Their spending results in personal income taxes and corporate taxes. Yet none of this tax revenue stays in Queenstown; it is all siphoned off by central government in Wellington.

It is absurd that a booming town such as Queenstown is struggling to accommodate its boom. The proposed visitor levy would have the potential not just to raise revenue but also to slow Queenstown’s growth. That is if visitors were deterred by the higher price tag.

Queenstown’s experiences should be considered in the national context. Tourism has become a significant industry. According to Statistics New Zealand, for the year ended March 2018 tourism was directly and indirectly responsible for 10.4 percent of GDP. Direct employment was 216,000 people, which is 8 percent of the total number of employed people in New Zealand.

Given these figures, it is no surprise that the estimated GST revenue from tourism stands at $3.7 billion. Remember, this is just GST and none of the other taxes generated. The total tax take from tourism activities will be much higher.

All this puts the Government’s Tourism Infrastructure Fund into perspective. As explained on MBIE’s website, “The Tourism Infrastructure Fund provides up to $25 million annually to develop tourism-related infrastructure that supports regions facing pressure from tourism growth.”

The Tourism Infrastructure Fund is a welcome source of funding for struggling tourism hotspots. However, the list of recipients of the previous funding round also reveals the weaknesses of this approach.

In the last round, 34 councils received just over $14 million, mainly to upgrade car parks and build toilet facilities – whoop-de-doo.

Presumably, those councils also have to express a special gratitude to central government because these funds are “awarded”. One can imagine an awards ceremony: “And the winner is Selwyn District Council where $83,150 will build new toilets next to the Castle Hill community centre car park.”

It just underlines the extent to which councils are at the mercy of central government for funding at least some of their tourism infrastructure needs.

No wonder Queenstown Lakes District council does not want to rely on such discretionary funding and prefers to introduce its own visitor levy.

There is a problem with this levy, though. Central government might just advice other struggling tourism hotspots to follow Queenstown’s example and introduce their own bed taxes or entry levies. It would be an easy way out for central government as it would absolve itself for not properly sharing tax revenues.

It would be far better if central government reflected more thoroughly on Queenstown’s problems and came to a new fiscal arrangement between central and local government. In their last economic survey of New Zealand, the OECD recommended just that.

The visiting OECD experts found no link between local economic activities and local government revenue. This is obviously the case for tourism, but it goes beyond the sector. Local government will always need to provide infrastructure for its local economy but hardly see a fiscal return from such investment.

Ultimately, reforming local government finance would be in central government’s interest, too. Since central government benefits from the booming tourism industry, it should find new ways to ensure that local government has better infrastructure to deal with more tourists.

Queenstown Lakes District council probably holds little hope for such reforms to happen anytime soon. Hence, a new tax may be introduced to compensate for the deficiencies of our current tax structure.

It is not the best New Zealand’s tourism sector could hope for, but for now it is the only game in town.

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