Accommodation tax could help as rates and cost of living rise
Local authorities around NZ are struggling for funding, with councils battling to pay for the construction and maintenance of their assets. Rate rises aren’t something anyone enjoys – and especially not during a cost of living crisis.
So, here’s an idea to assist - it won’t work for all councils, but will for many.
I have been involved for most of the last 40 years in adventure travel, hotels, retail, aviation and hospitality, as well as six years as mayor of the Queenstown Lakes District (QLD). I reckon I know a thing or two about tourism. But, just to put the record straight, I now have zero involvement – so no vested interests, and no axe to grind.
To put this problem in context – in 2019 pre-Covid, Queenstown had an average peak day population of 44,800 locals and 72,200 visitors, or about eight tourists for every five locals; one of the highest ratios in the world. The problem is the locals must pick up the cost of the infrastructure required for those visitors.
Councils across NZ are announcing massively increasing rates. This cannot go on forever. Councils need alternative sources of income. In my time as mayor, QLDC studied offshore models and concluded that the best solution was an accommodation levy – or a bed tax, as it’s called.
So, why a tax aimed only at accommodation?
The answer lies in the question of who is in the tourism industry. A dairy farmer knows what he is because there are cows in the paddock. Yet a West Coast gas station or a Taihape burger bar might be in
the tourism industry and not necessarily know it. Likewise, the number of campervans in the car park of my local supermarket tells me they are too. The only tourism activity that is largely used almost solely by visitors is accommodation.
Imagine trying to separate the income a supermarket or a gas station earns from locals versus visitors; it’s nigh impossible. And imagine the complexity of requiring numerous small businesses to collect a new tourism tax from their customers.
In 2017-2018, QLDC got serious about an accommodation levy. A referendum of locals voted 82% in favour. Then came Covid, and the plan was rightly shelved. Visitors are now returning, and I think it’s time to dust off the plan.
This time though, it needs to be applied across NZ. International visitors tend to travel around the country, and we shouldn’t replicate the US and European experience of different taxes in each location. A simple and consistent percentage of room cost that’s paid by the consumer
on top of the bill is the best way to tackle this problem. Phil Goff had a go in Auckland with a scheme that involved a large property rates increase for accommodation providers. Understandably, hoteliers went puce with rage. Most hotels are not owned by the operators, and the rates increases couldn’t easily be passed on to consumers.
Any new accommodation levy could be matched by a contribution from central government. Tourism is the only export industry which is not zero-rated for GST.
Let’s say the tax is 2.5% of the accommodation charge and the average room rate in Queenstown is circa $250 per night. The accommodation levy would be an additional $6.25 for each occupied room, about the price of a cup of coffee. With the Government’s contribution, we could raise around $250 million per annum across the country, with the large majority coming from folk who don’t live in NZ.
The trick here, though, is to ensure the money raised goes to the right place spending on infrastructure that is utilised by locals and tourists alike. Not nice-tohaves, but hard infrastructure.
Let’s do this in partnership with the accommodation industry, which should have a strong part in designing the scheme. Collecting levies on accommodation is complex in the modern world of online travel agents, wholesale bookings and third-party hotel management. One day, sooner or later, we will adopt a scheme such as I describe. It will work much better if the accommodation industry is inside the tent and helping design things properly.
And finally, what a great way to answer the social licence argument for tourism. Government and councils would be able to say that enduring improvements to community infrastructure are being funded by non-ratepaying tourists. If that’s not “regenerative tourism”, I don’t know what is!