Brian Fallow

Government should not prop up zombie enterprises just because they’re not to blame for their problems

Tourism jobs can’t all be saved

Public sympathy and stop-gap taxpayer support will not save the tourist industry from grievous damage. The brutal reality is that tourism is a luxury trade and not a good one to be in when times are hard.

It will be one of the main beneficiaries of the eight-week targeted extension of the wage subsidy announced last week, but at a cost of up to $1.6 billion a month, that cannot continue indefinitely.

The Budget also committed $400 million for a tourism recovery fund to cover:

● A campaign to encourage New Zealanders to support the local industry, reminiscent of the “Don’t leave home till you’ve seen the country” campaign of old. Domestic tourists normally account for a majority of tourism spending as it is.

● Tourism New Zealand providing businesses with advice about overseas market conditions, so they can “make good decisions about their futures”.

● A process to identify — somehow, the announcement is bereft of detail — tourism assets which are strategic and “provide them with the protection and assistance they need so they will not be lost”.

● A public-private taskforce to “lead the thinking” on the future of tourism in New Zealand.

A degree of disappointment greeted the scale of this investment, understandable when the statisticians reckon the tourism industry accounts for nearly 10 per cent of gross domestic product — 5.8 per cent direct value-added and 4 per cent indirect.

It employs, or used to employ, 229,000 people directly, including 29,000 working proprietors, or 8.4 per cent of the total number of people employed.

When those whose jobs depend indirectly on tourism are added, the share of total employment in the economy was 14.4 per cent.

And then there is the 20 per cent of export income international tourism has come to generate in recent years.

But travel for leisure lies deep in the discretionary zone of the range of consumer spending.

Both here and in the other 99.8 per cent of the world, the economic fallout from the pandemic is hammering employment, incomes, confidence and wealth.

It may well be years before borders fully re-open.

And every tourist destination in the world will be competing ferociously for a piece of a shrunken pie.

It is all well and good to encourage those New Zealanders who are sufficiently well-to-do to holiday abroad, to instead head for local attractions.

For every one of them, though, how many other New Zealanders will react to such a message along these lines: “a chance would be a fine thing”?

Many more people will lose their jobs before we reach the bottom of this recession.

Those who keep their jobs will on average work fewer hours. Some may accept a pay cut.

Those whose jobs and incomes remain intact are liable to increase precautionary saving.

And the retired will be watching their savings shrivel.

The same applies to Australians — which will limit the benefit to the sector from any re-opening of the Tasman border — and to the rest of the world.

No amount of wishful thinking changes that.

Nor does it justify spending public money propping up zombie enterprises just because their predicament is not their fault.

There are times when market forces need to be allowed to work.

The parallel is not exact, but the plight of the tourist firms today, in its swiftness and brutality, is reminiscent of what happened to farmers in the late 1980s. They suddenly lost their subsidies at a time when interest rates were sky high and the sector was still scrambling to find new markets to replace Britain, following its entry into the European common market.

For many farming enterprises it was a lethal combination. It wasn’t much fun for those which survived either.

But it was not the end of pastoral farming as an industry.

One of the key adjustment mechanisms was a drop in the price of farm land to levels which reflected a different set of expectations than had previously applied.

Banks made commercial decisions about which of their clients they would support and which would go to the wall. It was an unhappy time.

Something of the sort can be expected in the hospitality sector.

A hotel’s break-even occupancy rate depends not only how much it can charge for a room — and if it has to rely on Kiwis, that is liable to be less than for international visitors — but also, crucially, on what its owners paid for the hotel itself. That may well now be less than the previous owners did.

Wealth gets destroyed. Businesses fail. Jobs go. But physical assets like rooms, kitchens, bars and so on remain and are cheaper to rent.

The industry — as distinct from the set of firms currently operating in it — will survive.

But not at its current scale.

A case can be made that this shock, with the benefit of future hindsight, will be seen as saving the tourist industry from becoming a victim of its own success.

The Parliamentary Commissioner for the Environment, Simon Upton, last December delivered a report critical of the environmental impacts of mass tourism and arguing that it ran the risk of killing the goose that lays the golden egg.

“So much of what New Zealand has to offer centres around an absence of people, starting with a flora and fauna that had not encountered people until 800 years ago,” he wrote.

“A sense of remoteness and isolation, both physically and in time, lies at the heart of how so many special places are experienced.”

But for many visitors the experience of Milford Sound, for example, “can be a day spent on a bus to and from Queenstown, vehicles waiting a long time to get through the Homer Tunnel, and overcrowded car parks, all for a brief visit to a place that is crowded and noisy.”

On the principle of never wasting a good crisis, the industry has an opportunity now to reset the balance between volume and value.

The [tourism] industry — as distinct from the set of firms currently operating in it — will survive. But not at its current scale.