Tourism: Out with the old think­ing, in with the new

The New Zealand Herald - - Opinion - Tim Ha­zle­dine com­ment Tim Ha­zle­dine is a pro­fes­sor of eco­nomics in the Univer­sity of Auck­land Busi­ness School.

Since when is a bor­der tax on an ex­port in­dus­try a good idea, asked Brian Fal­low in the Her­ald last Fri­day.

I can an­swer that. March 4, 1984. That’s the day the NZ dol­lar was freely floated on the for­eign ex­change mar­ket. Be­fore that, we had a fixed ex­change rate along with con­trols on im­ports to pro­tect do­mes­tic im­port-sub­sti­tut­ing in­dus­tries.

That sys­tem had its mer­its, but it def­i­nitely cre­ated an im­bal­ance be­tween the sup­ply and de­mand for for­eign cur­rency – a short­age – such that the value to New Zealand of an ad­di­tional dol­lar earned ex­port­ing ex­ceeded, in gen­eral, the value of an ad­di­tional dol­lar earned in the lo­cal mar­ket­place.

All this was swept aside at a stroke of Roger Dou­glas’s lib­er­al­is­ing pen when he sud­denly floated the Kiwi cur­rency. That brought its own prob­lems of macroe­co­nomic in­sta­bil­ity, but at least now there could never be a per­ma­nent short­age of for­eign cur­rency and thus no rea­son to favour ex­port­ing over other le­gal and use­ful mar­ket ac­tiv­i­ties.

Here is how it works. Sup­pose, for ex­am­ple, there is a sud­den drop in world prices of­fered for our dairy ex­ports. Earn­ings of US dol­lars and Chi­nese yuan will fall, so an im­bal­ance will open up be­tween the sup­ply of these and the de­mand for them from our im­port­ing sec­tor.

There will be a tem­po­rary ex­cess de­mand for for­eign cur­rency, or, equiv­a­lently, an ex­cess sup­ply of the Kiwi dol­lar. Re­sult: the Kiwi will de­pre­ci­ate against the cur­ren­cies of our trad­ing part­ners.

Then, the mar­ket ad­just­ments will swing into play. Dairy ex­ports will be cut back. Ex­ports from ev­ery other sec­tor, ben­e­fit­ing from our lower dol­lar, will in­crease. Im­ports, for the same rea­son, will de­crease. Bal­ance will be re­stored.

Bot­tom line: don’t priv­i­lege ex­ports with sub­si­dies and other ar­ti­fi­cial sup­ports – there is no need nor eco­nomic jus­ti­fi­ca­tion.

But hang on, didn’t Fal­low (an ex­cel­lent jour­nal­ist, usu­ally) re­fer to a tax on tourism ex­ports, not a sub­sidy: specif­i­cally the pid­dly lit­tle $35 “vis­i­tor con­ser­va­tion and tourism levy” to be charged to just some over­seas vis­i­tors from next year?

Yes he did, but a levy on in­com­ing tourists should be seen not as a rev­enue­grab­bing tax, but as user pays: specif­i­cally, as a con­ges­tion charge.

Like our other ma­jor ex­port in­dus­try, dairy­ing, tourism in New Zealand has now grown to the ex­tent that it is fac­ing an in­ex­orable “land” short­age, with the re­sult of driv­ing up costs at the mar­gin. Nowa­days, the ab­sence of a levy or charge is ac­tu­ally an im­plicit sub­sidy.

In the case of dairy­ing, farm­ers who are spared pay­ing for the use and dis­posal of clean and dirty wa­ter (and get the free use of the at­mos­phere to dump their green­house gases) have sim­ply over­run the ca­pac­ity of our lim­ited arable land base to cope with these things.

In the case of tourism, the in­evitably lim­ited sup­ply of prime nat­u­ral at­trac­tions (peo­ple surely don’t come here to visit our cities) is gen­er­at­ing queues, crowd­ing, in­flated prices, all of which truly make nearly ev­ery­body worse off.

Fal­low sug­gests the new levy is in any case too low to sig­nif­i­cantly af­fect be­hav­iour, and I agree with him. It is much too low. It should be set around $250-350,

Nowa­days, the ab­sence of a [tourism] levy or charge is ac­tu­ally an im­plicit sub­sidy.

at least in peak sea­son, to ef­fec­tively deal with the costs that ad­di­tional tourists im­pose on each other and all of us.

Such a levy would not be “mean­spir­ited” or “in­hos­pitable”. On the con­trary it would make the vis­i­tor ex­pe­ri­ence for those who re­ally want to come here (and the ex­pe­ri­ence of lo­cal tourists) that much more en­joy­able, at the ex­pense only of burn­ing off mar­ginal tourists who would choose in­stead to go some­where else (or to de­lay their New Zealand trip to the off­sea­son, when the con­ges­tion charge would be re­laxed).

It is more than 34 years since we floated our dol­lar but too many jour­nal­ists, politi­cians, civil ser­vants, in­dus­try lob­by­ists — and even some econ­o­mists who should know bet­ter — are still stuck in the mind­set of an­cient days when you had to col­lect five shilling postal or­ders to get for­eign ex­change; when the mis­sion was to push the sup­ply of com­mod­ity but­ter, cheese, milk pow­der, meat, logs etc; when land was cheap.

None of that holds any more: we’ve lost the old world, and we will not be mak­ing the best of the new if we don’t change our ideas.

The lim­ited sup­ply of prime nat­u­ral at­trac­tions is gen­er­at­ing queues, crowd­ing and in­flated prices, which make us all worse off.

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