The Productivity Commission has dropped its support for bed taxes in a major victory for the sector’s powerful peak bodies.
Tourism Industry Aotearoa and Hospitality New Zealand have lobbied hard alongside the New Zealand Hotel Owners Association for a change to the commission’s stance on levies.
In its draft report issued in July, the Productivity Commission had recommended the introduction of bed taxes to fund tourism-related infrastructure at a local government level.
The industry pushed back strongly on this recommendation, working with the commission to affect a turnaround in its final Report into Local Government Funding and Financing tabled in parliament last week.
“We are thrilled, it is a great outcome,” said Julie White, chief operating officer of Hospitality NZ.
“Visitors are already paying their fair share, contributing $1.7 billion annually in the form of GST. Tourists already pay for the costs they create that support the tourism and hospitality industry.”
The commission report says councils instead need to make better use of the funding options already available to them, including user-pays policies, rates and debt funding.
And it argues central government funding could also be targeted more efficiently to ensure councils can equip themselves to better address tourism challenges.
“Bed taxes would miss the majority of travellers and add costs to a small set of operators already struggling with increased business and compliance costs, at a time when tourism is slowing,” said Chris Roberts, CEO of Tourism Industry Aotearoa.
Roberts says the TIA agrees with all eight of the tourism findings and the four tourism recommendations outlined in the report, including “wholeheartedly” supporting the commission’s conclusion on tourism.
That conclusion states: “Better use of existing tools and central government funding should be enough to address tourism funding.
“Given the small scale of the funding gap, introducing new tools would incur significant implementation, administration and enforcement costs and is unlikely to result in a net benefit to councils.”
The peak bodies have long argued that a tax solely applied to commercial accommodation unfairly burdens just one sector with generating funds to benefit the entire tourism industry.
Bed taxes would require accom providers to charge a nightly surplus for each guest, but opponents say raising prices to accommodate such a charge is often infeasible in a competitive market, leaving operators out of pocket as they scramble to cover the excess.
Amy Robens, executive director of the hotel owners association said members were pleased the commission had “reflected many of the hotel industry’s concerns” in its final report.
“Hotel owners have long maintained that tourism benefits a wide spectrum of the economy and community. Targeted rates and bed taxes on accommodation owners are both unfair and disproportionate and therefore are not an effective and efficient way of raising growth infrastructure funding,” she said.
Robens argues central government should take greater responsibility for tourism funding.
“NZHOA strongly believes that funding and financing growth infrastructure should not fall so heavily on local councils or commercial accommodation providers,” she said.
“It’s gratifying that the Productivity Commission has found the government should be more fairly and systematically distributing existing funding to councils.”
Other aspects of the commission’s report were also welcomed by the industry, Julie White saying Hospitality NZ “strongly agrees” with the recommendation that short-stay rentals run as commercial entities should be subject to business rates.
“The Report also recommends the introduction of a national register of providers, which is something that Hospitality NZ has long recommended,” she said.
“Central government has a duty to regulate the peer-to-peer accommodation providers as we have a duty of care for all visitors and these properties should be treated on a level playing field.”
Chris Roberts points out that the report acknowledges tourism is the only industry in Aotearoa ‘double-taxed’ by the GST system.
It states: “International tourism not only incurs 15 percent GST; the imports funded from its foreign-currency earnings also incur 15 percent GST. This charging of GST on both the export and import sides is not consistent with the principles of a pure GST.”
See the full Productivity Commission report here