MBIE tourist levy analysis a pointless exercise

‘‘L EVY could mean 20,000 fewer visitors’’, shouted the Otago Daily Times headline to an article from NZME. That might be a good thing, with ‘‘freedom’’ tourism threatening to overwhelm smalltown and rural New Zealand. But the Ministry of Business, Innovation and Employment thinks it’ll be costly.

According to MBIE’s economic impact analysis, written in July last year while the proposed international visitor levy (to help fund tourism and conservation infrastructure) and electronic travel authority (as New Zealanders require to visit the United States) fee were out for consultation, and released just before Christmas, a $34 fee ($25 IVL, plus, for those not needing visas, a $9 ETA fee) for tourists (other than New Zealand and Australian citizens, and some Pacific Islanders) visiting New Zealand could reduce visitor numbers by 14,983, and visitor spending in New Zealand by $51 million. A $30 IVL, plus ETA, could mean 17,756 fewer tourists, and $60 million lost spending, rising to 20,529 fewer tourists and nearly

$70 million in lost spending for a $35 IVL plus ETA.

Really? How did MBIE calculate those figures? How could such a tiny addition to the cost (estimated as $9079 for German tourists) of visiting New Zealand have such a significant effect?

MBIE’s analysis of the impact of the IVL and ETA on inbound tourism is based on the microeconomic concept of ‘‘price elasticity of demand’’: the degree to which the demand for a commodity responds to a change in its price.

MBIE has used demand elasticity estimates for New Zealand tourism from a 2011 paper by Schiff and Becken, basing ‘‘price’’ on cost of return air travel to New Zealand plus expenditure while here. It’s applied those estimates to its predicted visitor numbers for 2021 (to give time for the market to respond to the new charges) and has assumed that the price elasticity of demand is constant, accounting for the estimates of increasing loss of visitors as the fee increases.

In the summary that begins the analysis, the word ‘‘impacts’’ (of the fee) is always preceded by ‘‘possible’’, but that qualification vanishes after the second paragraph of the seven A4page main body of the paper, replaced, despite reservations in the text about the estimates, by phrases such as ‘‘will no longer travel to NZ’’.

There’s at least one apparent contradiction in the paper. Relating demand to visitor intention, the text says the greatest effect is on holiday visitors, but (despite Schiff and Becken showing that emotional travel motives trump economic considerations) table 9.1 says those visiting friends and relations will be affected equally to those travelling only for holiday.

The main defect in the analysis, though, is that it appears to have applied the Schiff and Becken estimates naively, without considering the important prior question: do tourists really behave that way?

Personal experience of overseas travel, for a variety of purposes, suggests to Civis that while the significant cost of longhaul travel, and a rough estimate of onground costs, may affect travel decisions, especially for holidays, a tiny extra administrative charge, prior to departure, would have no effect at all.

Before the border clearance levy, to fund management of border risks, was imposed, Sapere Research Group predicted it would reduce visitor spending by $37 million to

$185 million. As MBIE points out in another paper, it actually seems to have had little impact.

Civis doubts that any fee less than $100 will affect visitor numbers. MBIE’s economic impact analysis is a pointless exercise. Common sense, please. US President Donald Trump’s ordered thousands of federal employees to work, despite their not being paid. It’s illegal for agencies to spend money not voted by Congress, except for ‘‘emergencies involving the safety of human life or the protection of property’’, so most can’t be paid while the partial government ‘‘shutdown’’ lasts.

There’s a word for forced, unpaid labour — slavery. Back to the future for the US, despite the 13th constitutional amendment, which bans slavery and (except in prison) forced labour.