Is there demand for a tourist tax?

By Danielle van Dalen June 12, 2018

I’m no economist, but even I know that basic economic theory says that as the price for a product increases, the demand for that product will decrease. Geoffery Crouch of the University of Calgary, however, claims that there is an exception to this rule, and when that price change has a positive impact on the product it can change our pattern of behaviour so that people will continue to purchase despite an increase in price.

This exception is useful for understanding the tourist tax recently announced by Conservation Minister Eugenie Sage.

When that price change has a positive impact on the product it can change our pattern of behaviour

In October, the government is beginning a seven-month trial of taxing tourists for using our beautiful walking tracks. That is, tourists will be charged more than New Zealanders when exploring the Milford track, Kepler, Routeburn, or Abel Tasman Coastal Walk.

Previous discussions around tourist taxes led to fears that, as basic economic theory predicts, the increased prices will simply deter tourists from visiting NZ. In fact, earlier this year, Chris Roberts, Tourism Industry Aotearoa Chief Executive pointed out that tourists are “already being taxed quite heavily,” both through GST and their border clearance levy. Last year, when the previous Government considered a tourist tax, former Tourism Minister Paula Bennett, “said New Zealand had a reputation as a world-class destination and it was important it was not perceived as being unaffordable.”

It’s important to ask whether this will detract from our tourist industry

However, if we take into account the idea that increased price can have a positive “quality signalling” effect on a product and therefore its consumer appeal, this tourist tax seems much more reasonable. Chris Roberts has also acknowledged that New Zealand doesn’t currently have the infrastructure to support the number of people visiting our shores. If we want to continue to promote our beautiful country as a tourist destination we need to protect it and provide suitable infrastructure to support those people wanting to visit it. This means protecting our wildlife and native plants, as well as the upkeep or building of walking tracks and huts. Obviously, this comes at cost.

Over the years different solutions have been suggested. A border tax where people are taxed when they enter the country was considered under the previous government, for example. After exploring the idea more thoroughly however, Treasury found these to be a “blunt tool,” and preferred more targeted taxes. And targeted tourist taxes are nothing new either. Examples can be found around the world. Venice and Brugge, as well as Cambodia’s Angkor Archeological Park, Harrison’s Cave in the Caribbean, and Peterhof Palace in Russia are just a few of the world’s attractions where tourists pay more to visit than locals.

When considering a tourist tax like the one announced it’s important to ask whether this will detract from our tourist industry. It seems to me, however, that trialling a targeted tourist tax like this is an opportunity, as the economic theory suggests, to improve and sustain our product (or great walks) so that both tourists and New Zealanders can continue to enjoy them for many years to come.

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