It’s time we asked tourists to pay their fair share

Taxing locals to benefit visitors is unsustainable, says Dave Cull.

OPINION: If you’ve been to Europe or the US recently, or any number of tourist destinations around the world, chances are you’ve paid a tourist tax for the privilege.

New York and Chicago do it. France, Spain, Germany and Switzerland do it. They all have ways of allowing tourists to contribute to the funding of infrastructure and attractions they use.

And now the time has come to empower New Zealand’s local authorities to charge tourists to help pay for the localised infrastructure they use. Ratepayers pay more than their fair share. It’s time that other users contributed, too.

In Wellington, Chamber of Commerce chief executive John Milford has expressed concern at the city council’s proposal to add a special rate on hoteliers and moteliers in the capital. He said it could affect willingness of businesses to build accommodation for the projected rise in tourist numbers, and noted the significant contribution of tourism to the regional economy.

Local Government New Zealand understands the concerns, but these are better directed at central government, which has so far declined to let local authorities levy tourists using facilities in their districts, although the new Government appears to be open to considering the issue further. Local Government New Zealand welcomes this.

In the meantime and, in the absence of the ability to target tourists as users of infrastructure, councils must utilise the only tool they currently have. That results in the use of targeted rates on sectors that visitors use, such as accommodation and hospitality.

It is less than ideal, but it is the only option councils have to target users of council facilities who live outside the district. The grumbling of the accommodation sector is nothing compared to the rumblings from ordinary citizens who jostle with tourists for use of overwhelmed facilities in our regions and tourist hotspots, and also pay for the privilege through increased rates.

What is at risk is the social licence of the tourism industry itself. It would be far worse for the tourism industry to lose public support than bear a targeted local levy or even a new property rate.

Throughout New Zealand the growth in tourism is pressuring local authorities to provide a scale and quality of facilities that surpasses the needs of the local population and its ability to pay.

We have passed the point at which the value to a ratepayer of tourists’ spending equals the cost of their demands on the local infrastructure, environment and standard of living.

A key problem is that the benefits and costs of tourism fall unevenly. The $14.5 billion earned annually from tourists is claimed centrally (GST, income tax and company tax) but the cost is borne locally.

In other words, local authorities receive no tax revenue from tourists but are expected to tax their locals to provide the facilities used by tourists for free. Such facilities include public toilets, water and sewage, parks, pedestrian boulevards, and beautified shopping precincts and sightseeing venues. That is not a sustainable position from a ratepayer point of view.

Local Government New Zealand has since 2015 repeatedly asked central government for a fundamental review of the local government funding model because of the increasing stress on rates affordability. Business entities such as the New Zealand Initiative and Federated Farmers have also supported a call for greater localism and the ability for local councils to raise their revenue in new and different ways that will incentivise better performance and ensure all users pay for facilities in a fair and equitable manner.

Local Government New Zealand and its members want the ability to apply a local tourist levy, such as a bed tax or visitor fee, to fairly distribute the costs of the services provided.

A local mechanism is the best solution. Other options such as a border tax collect revenue centrally not locally, and will not change the present regime of councils having to ask central government for money.

Much better that the money is raised locally from everyone who uses facilities, and then spent locally. The ability to more closely target needs in each city and region is demonstrably the best way forward. Just ask the citizens of Switzerland, who have been successfully employing such a system for years. After all, which authority knows better where to build toilets, car parks, dump stations and freedom camping facilities: Central or local government?

Right now, local government, ratepayers and businesses should be united in seeking a review of local government funding sources. Asking ratepayers to pay for facilities used by others is not sustainable.

The stars are aligning on this debate and the next step is to identify ways of making this work. Business appears more open to thinking about different ways to fund local government infrastructure and the new Government is prepared to investigate the arguments. Hopefully relief is on the way for ratepayers.