So what is the peak of the Laffer Curve on a tourist tax? Credit Ketan Kumawat, public domain, Photo via Good Free Photos

New Zealand has decided to bring a Monty Python sketch to life. They’ve decided that the best way to finance the government of New Zealand is to tax foreigners living in foreign countries. This has the undoubted benefit that foreigners living in a foreign country cannot vote against the politicians imposing the taxation. Something of great interest to politicians of course. The problem is that said foreigners do still have the choice of not turning up and thus not paying the tax:

Tourists to New Zealand are set to be stung with a new tax but Australians have been given a free pass.

From late next year, international visitors heading to New Zealand will pay between NZ$25 and NZ$35 ($23 and $33) to get into the country, the government announced on Friday.

However, Australian citizens and permanent residents, people from Pacific Islands Forum countries and children under two will be exempt.

The move reflects an ongoing debate within New Zealand about the environmental and infrastructure pressures put on the country by booming tourism growth.

As Monty Python did point out, this is a great tax:

As above, from the political point of view this is great. The people paying the tax cannot vote against the people who imposed it. It’s a Get Out Of Jail Free card for the politicians imposing it. That’s not where it ends though, of course it isn’t.

What’s the price elasticity of tourism demand into New Zealand? And what’s the tax take from someone who does visit New Zealand?

That first question, well, how many fewer people will visit as a result of the tax? True, New Zealand is many miles and about half a century distant from anywhere else. It’s not somewhere people go to on a £9.99 Ryanair flight. So, the impact on the number of tourists might not be large. But there will be some impact. Might only be the one person who sticks in the mud with the insistence that if they’re going to charge me to get in I ain’t going! An insistence that a price change isn’t going to change demand at all – that tourism demand for New Zealand is entirely and wholly inelastic – isn’t something we can support. How much? is the important question though.

There will be some amount of tax revenue – VAT at least, excise duties as well – received from the spending of each tourist into New Zealand. So, the question is, will the extra revenue from each tourist in this tax be greater than the loss of revenue from those few to many who don’t turn up as a result of the tax? That is the question that needs to be answered to find out whether this tax will raise net revenue at all. Effectively, what’s the peak of the Laffer Curve for a destination tax?

No, I don’t know either. But here’s the real point. We’re all damn certain that the politicians haven’t worked it out either, aren’t we?

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Chester Draws
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Chester Draws

There are quite a few places out there that are now charging with the *intention* of reducing numbers of tourists. Various sites are effectively full in parts (walking tracks in NZ in particular). Dubrovnik charges an outrageous sum to walk its city walls, precisely to lower visitor numbers. In this case there’s a more targeted approach. NZ gets an enormous number of visitors who do it on the very cheap (freedom camping etc) who use more resources than they give back in tax. They are a considerable net loss to the country when they visit. If the tax halves the… Read more »

Southerner
Member

I”m past the clubbing age but I remember when I was a youth in my fifties paying a lot of money to get into a club where I would drink a lot of expensive booze and pay for some floozy to drink a lot of even more expensive booze, upon which the proprietor undoubtedly made a healthy profit– just so that I could laid. People do pay entry fees. HOWEVER the cost of collecting that paltry NZ$25-35 will probably exceed the revenue, while not being enough to discourage the yobs, so it is just one of those bloody-minded taxes meant… Read more »

Chester Draws
Member
Chester Draws

Collection of the tax isn’t going to be expensive. Every visitor, with trivial exceptions on yachts, comes in by plane or cruise liner.

The tax might be charged in bulk to the airlines and cruise lines, since they have to provide nationality lists anyway.

It might be more difficult for the UK, with so many points of entry.

Mr Womby
Member
Mr Womby

Re: the cost of collecting the tax. I recently stayed in a hotel in France where I was charged €2 visitor tax and my first thought was “What’s the point?”.

ManOfBath
Member
ManOfBath

I’m beginning to think Bath needs something like this. We have more tourists than we can handle. The majority seem to be day tourists and most just drive round in coaches, gawking at the buildings which cost us a fortune to keep looking nice, on pain of prosecution. I believe Florence charges such a tax on coaches.

Spike
Member

Tim’s thesis — that the tax will face Diminishing Returns and most of the Parliament don’t know what that means — is reinforced by the fact that 2/3 replies at this point effectively say, “Yes, people will not visit — and hurrah for that!” Many countries charge a Departure Fee, at least for tourists rich enough to Depart by airliner. Japan required a separate step and a separate payment I was not ready for. It has always seemed to be a bad final memory to leave the tourist with. A fee to enter the country is a tiny bit better.… Read more »

Spike
Member

Sorry if I mischaracterized you. But you confirm the point I was making, which is that, if legislators understood how their new tax might start killing the goose that was laying golden eggs, they might support it even more fervently.

On your second paragraph: Tourism is an industry, which produces revenue and taxation (not just boorish foreigners). What if I said, “Just building a manufacturing plant for the sake of it is stupid,” and asserted some sort of right to judge what is being manufactured?

Chester Draws
Member
Chester Draws

My reply was not “Hurrah, people will not visit”. It was “Hurrah, scrotes will not visit”.

Just welcoming tourists for the sake of it is stupid.

Rudulph_Hucker
Member
Rudulph_Hucker

Some might say that Wales adopted a similar model many years ago. It’s called the Severn Bridge Toll. You pay to get across the bridge into Wales, but you don’t pay to get out.

TD
Member
TD

I may be wrong, but it seems to me that I paid some sort of airport tax in NZ years ago. Is this really different? Given the costs of a trip to NZ, this figure probably isn’t enough to dissuade many from going.

Pretty place. I had a work assignment there once for several months. Enjoyed myself greatly.

jgh
Member
jgh

Can’t foreigners get a VAT refund ‘cos they’re foreigners? So the change in number of foreigners has no impact on VAT receipts.

moqifen
Member
moqifen

sounds like the dumb government of Jordan. When i was there in 2016 every jordanian was complaining about the drop in tourism – approx 70% drop. The solution – 20% tax on food and drink for tourists. Ended up getting our guide who was jordanian to pay for all meals and we’d then reimburse him.

jgh
Member
jgh

moqifen: that’s the argument I used to hear when I was on Taxi Licensing: our customer numbers are dropping, so we want to put prices up to recoup the losses. I would always tell them: regulated fares are a *ceiling*, not a fix, if you want more customers try dropping your fares. If I had my way I’d’ve abolished the fare ceiling, let the market sort it and reduced regulation down to safety of driver and vehicle. The problem with Hackney is the annonymous supplier problem, you don’t know the price until you’ve agreed to purchase (by flagging down). Just… Read more »

Spike
Member

I don’t agree at all that flagging a taxi constitutes an agreement to ride in it, though sure they will act offended if you don’t. Getting the attention of a taxi driver should be the start of (usually brief) negotiations (though negotiations are usually interdicted by fares set by rulebook). Boston at least has fares posted on the outsides of vehicles. Good luck figuring what you will owe from that, but again, you can make a taxi stop so you can take a closer look without promising to get in. Also, branding of taxis removes transaction uncertainty. “Your way” (to… Read more »