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Wednesday Letter: Why the Govt needs to step up

17 Jul 2019  By Contributor

Phil O’Reilly

How can the government make things better for tourism and the local communities impacted by it, asks Phil O’Reilly ONZM, managing director of public policy advisory firm Iron Duke Partners.

For many years now I have travelled extensively offshore and it is always interesting to talk to business people about their impressions of New Zealand. I often make the joke to New Zealand audiences that in all my travels, I have only ever really seen two types of offshore business person:  those who want to come to New Zealand and those who have been and want to come back.

I have realised over time that strong desire to come to New Zealand is based not just on New Zealand’s obvious beauty (there are plenty of beautiful places in the world after all) but also on the “idea of New Zealand.” An unburnished jewel a long way away from where they live and from their everyday reality.

Clearly, plenty of other people are making the choice to come here, visitors in the year ended March 2019 total nearly 3 ½ million with a total international visitor spend of $16.2 billion in that same period.

Annual visitor numbers have grown by one million in the last six years. It is this massive growth in tourism numbers that has underpinned a good portion of our economic stability and national income over the last decade. Tourism is now our largest single export earner.  That is cause for celebration but also for concern. We need to consider both sides of the issue if we are to sustain the numbers we are seeing and if we seek to alter the compositor of the tourist who come here.

As we all know that massive rise in tourism numbers has caused some growing pains and some opposition to tourism has started to emerge.

New Zealand is not alone in this.  Many countries that have seen big increases in tourism numbers over the last few years and even some of the most traditional tourist hotspots (France for example) have seen tensions arising among local communities whose way of life is being changed forever by the influx of tourists. They see many of the downsides of growth while not necessarily realising the many upsides.

In New Zealand, some local communities will certainly feel that tourism is more of a cost to them than an advantage.  This is for various reasons.  Notably, some of the costs of tourism (pollution, traffic, overcrowding and so on) are very obvious for locals to see, but the fact that the service station or the local café is doing much better business as a result of tourism is often not quite so obvious.

What’s more, the tax revenues from those tourists will almost all be going into central government coffers.  That has forced successive governments over the last few years to come up with policies which might return at least some of that money to these communities. I refer specifically to initiatives like the Tourism Infrastructure Fund and of course the Provincial Growth Fund.

In my view, too much of the central government investment in communities over the last ten years has been inadequate, often leaving local communities and councils to effectively fend for themselves, increasing local angst about tourism numbers and the feeling that communities are in this on their own, without much support.

Just have a look at how much GST revenue the government makes from tourists each year ($1.7bn annually according to Tourism Industry Aotearoa) and ask yourself whether it is reasonable that the government now also wants to charge tourists at the border so that they can invest some more in the conservation estate and elsewhere as a result.

Central government also needs to be careful about the overall impact of the various costs it puts upon the tourism industry and operators more generally. To use a simple example, the cruise industry has seen very significant increases in their compliance and licensing costs of one sort or another to various government agencies over the last few years. Most recently seeing a considerable increase in Maritime New Zealand levies. All of which is very difficult to pass on immediately to customers.  The overall impact of these costs has even led to ministers instructing MBIE to carry out a review of the overall costs associated with cruise which is a very welcome development if it leads to change in that part of the tourism sector.

And the impact of fees and charges on visitors themselves also needs careful consideration. The new tourism levy and electronic travel authority will cost many visitors to New Zealand in the order of $44-47.  That may not seem much but when you think that the average spend per night in New Zealand is $193 you can see that these kinds of costs add up and start to make New Zealand feel a much less welcoming destination.

Government will, of course, argue that it is investing heavily in tourism and that is doubtless correct.  For example, the PGF as of July 2019 indicated that it spent considerable amounts on tourism, perhaps as much as $450 million on tourism projects, infrastructure and planning.  That, of course, is welcome spending but until it is seen and felt by local communities who are supporting the tourism influx then it may well not lead to much of a change in public attitudes about the benefits or otherwise of tourism.

Some of those locations most impacted by tourism have started to take matters into their own hands.  Queenstown, for example, is now actively talking about the tourist bed tax which may well be a workable solution for that location.  Auckland also controversially introduced a targeted rate for hotels with the same kind of intention. Other councils of various sizes are actively looking at similar kinds of initiatives or have talked about them in the past. This is all simply a reaction to what I think is the real need for central government to step up much more actively in support of the largest export sector in New Zealand while making sure that local towns and communities feel as though they are benefiting from the tourism boom.

How can the government make things better for tourism in New Zealand and the local communities impacted by it? I have five ideas that might be worth thinking about.

  1. Connect tourism to the wider economic development story of New Zealand. One of the striking things about the tourism sector over the years has been its separation from much of the rest of the economic development language of New Zealand. I’m not sure whether that is by accident or design, but I know it to be true. Both the business community and the government to need to spend more time and effort with local towns and communities to ensure that the overall benefit of tourism is well understood from a wider business and economic development perspective. That way some of the positive knock-on effects of tourism in areas like manufacturing, services, infrastructure development and so on will be better understood, not just by business people but by local communities as well.
  1. Government should have a look at the overall costs that are being imposed on tourism operators like cruise as well as towns and communities that are having to invest heavily in the face of the tourism influx. Government makes a very substantial amount from GST revenue as well as other taxes that apply to tourists of one sort or another.  More of this income could be spent specifically on ensuring the longevity and quality of the tourism experience.
  1. The government should ensure that it actively focuses on ensuring that the gateway experience for tourists as good as it can be as well as ensuring that local experiences are of world-class quality. This is not about Auckland vs. the regions, but simply a recognition that for the vast majority of tourists coming to New Zealand, Auckland will be their first experience. Auckland is also New Zealand’s only truly international city and many tourists want that kind of experience.  We should make sure that we support Auckland at the same time as supporting the regions because they can both offer valuable experiences.
  1. We should focus on productivity in the sector. When Callaghan Innovation was set up some years ago its focus quite rightly was on high-value services and manufacturing including digital. I would argue that organisations like Callaghan as well as the universities and polytechnics should be spending much more time and effort on improving the productivity, creativity and innovation of the tourism sector – it is our largest export earner after all.
  1. Invest heavily in the skills of the sector and make sure that immigration settings are supportive of getting good people into quality jobs. As I travel around the world one of the most important determinants of a great tourism experience is highly skilled people. They are the difference between good and bad experiences, and they can also add insights and upskilling opportunities which not only mean a more satisfactory experience but more income for the operator and for the country.

We should celebrate the fact that Tourism is now our largest export earner, but we should also make sure that we treat it properly and hold it to account effectively. That way it will continue to be a massive contributor to our communities in the years ahead.

Phil O’Reilly ONZM is the chair of the Board of Business at OECD, a member of the APEC Business Advisory Council and a previous chief executive of BusinessNZ.


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