By Eric Crampton*
New Zealand is one of the world’s most expensive places to live.
While there are a lot of reasons for that, a pretty substantial underlying reason is the country’s small population.
When the fixed cost of providing things can be spread across more people, each of us pays less.
This applies not only to goods but also to services: If the New Zealand Opera Company were restricted to performing only in Auckland, rather than touring productions across the main centres, Auckland would enjoy less good-quality opera because the fixed costs of hiring a company, building sets, and rehearsing a performance would have to fall entirely on Auckland patrons.
The same thing happens when customers tour to the amenities. Wellington could not sustain as many great waterfront restaurants and bars without the cruise ships that regularly disgorge hordes of white-sneakered, sun-visored, nylon-shell-accoutred retirees hunting for local experiences. And I doubt that the cable car from Lambton Quay up the hill could survive on commuter traffic alone.
Tourists, as annoying as they can be for locals, help to spread the fixed costs so that residents can enjoy a lot more facilities whenever the cruise ships are not in town.
But for the same reasons that New Zealand isn’t a cheap place to live, neither is it a cheap place to visit.
Tourists face all of the costs we have to bear, plus the cost of getting here. It then is not surprising that tourist expenditures are pretty sensitive to costs.
NZIER reported in 2007 that tourists’ expenditures dropped by 0.8 percent for every one percent increase in the dollar: when tourists find things more expensive, they spend less.
In a recent blog post, Gareth Morgan argued that Kiwis should abandon xenophobia in favour of a more focused attempt to gouge money out of tourists.
Morgan’s recommendations are right in part: if ACC has higher claims from foreign tourists in rental cars, for example, then ACC might want to increase the risk-rating on rental car companies’ premiums.
But he also argues for levies on tourists at the airport to cover parking costs, and explicit foreigner-gouging at zoos and museums.
If tourists respond to airport levies the way they do to exchange rates, this would mostly result in less tourist spending elsewhere.
And it also ignores that the zoos and others already charge tourists more: few tourists find it worthwhile to buy the annual pass that provides excellent value for locals.
Perhaps even more importantly, explicit government-sponsored foreigner gouging would ruin not only much of the tourist experience but also locals’ experiences. I know I’d get pretty sick of having to show my driver’s licence whenever a cashier heard my unchangeable Canadian accent.
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Dr. Eric Crampton is Head of Research at the NZ Initiative
14 Comments
I think you just made that one up
You are right on the money - it's more a function that there are no credible public institutions capping those that seek to gouge both citizens and tourists alike.
The Commerce Commission and the Renumeration Authority are two headline culprits - but the list is extensive if one persists with surprisingly little investigative zeal.
Regulatory denial of Geoff Bertram's assertions that questionable revaluation of energy generators' assets has enabled excessive price hikes is my favourite.
Brendon, There's a supermarket milk war going on in the UK.
http://www.dailymail.co.uk/news/article-2904107/Store-wars-drive-milk-r…
Aj https://keithwoodford.wordpress.com/2014/04/02/why-is-new-zealands-reta…
I guess a reduction in farmer numbers by screwing them till the give up is considered a good scheme by some Aj.;-) http://www.independent.co.uk/news/uk/home-news/supermarket-price-war-le…
New Zealand is one of the world’s most expensive places to live.
While there are a lot of reasons for that, a pretty substantial underlying reason is the country’s small population.
....
That doesn't mean a large population is a panacea either.
3.4.2 Large population increase?
In theory, a high rate of immigration over an extended period could greatly increase
New Zealand’s population, allowing productivity gains from economies of scale, both from
conventional sources and the particular effects identified by economic geographers.
However, the 2025 Taskforce, set up to provide advice to the government on how to close
the income gap with Australia, did not favour greatly expanding immigration and
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considered this approach unrealistic and potentially “enormously disruptive”.
If in New Zealand's situation a much larger population would greatly improve viability,
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growth and resilience, disruption may be worth the cost. A larger population is
technically feasible; New Zealand has similar land area to countries with much larger
populations (for example, the United Kingdom or Japan). The historical growth of Australia
over the 19th century, or California during the 20th century provide precedents for large
population increases.
However, just because greatly increasing population is feasible does not mean it is a wise
strategy. While there is clear evidence that within countries, large urban agglomerations
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have higher incomes and productivity, there is no such evidence across countries
(bigger, more densely-populated countries are not richer than smaller countries with more
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scattered populations). The observation that the very highest productivity is found in
large urban areas producing knowledge-based products does not mean all societies can
or should attempt to recreate the San Francisco Bay Area or London. When what is now
the United States rust belt was the global productivity leader, many other regions
improved their wellbeing through industrial development on a less extensive and less
productive scale. Today New Zealand or other productivity “followers” may be able to
materially improve productivity and living standards from current levels without adopting a
large scale agglomeration strategy. Silicon Valley also illustrates the limitations of such
strategies; notwithstanding the presence of Silicon Valley, the State of California has
serious economic and fiscal problems. Similarly, Israel has a thriving innovative hi-tech
sector, similar population, and comparable overall productivity to New Zealand.
To make a judgment on whether a large increase in population is necessary or wise more
information would be required on both costs (including environmental, social, and cultural
costs) and benefits. Two key questions are how large the increase would need to be to
realise the benefits, and to what extent New Zealand’s level of geographic isolation would
continue to act as a brake on performance even with a large population.
http://www.treasury.govt.nz/publications/research-policy/wp/2014/14-10/twp14-10.pdf
UK has huge number of tourists. and is used as land area comparison. It also has thousands of years longer to dvelop. Are they in better place? no, they're worse off than we are.
It's only their historic advantage in banking and trade (ie the commonwealth) that has kept them afloat.
Increasing population has caused many problems for them and in the lower UK caused much desecration to environment and culture.
If tourists respond to airport levies the way they do to exchange rates, this would mostly result in less tourist spending elsewhere. Rotorua has had an airport levy for years - though everyone pays - doesn't seem to stop the tourists from using it and I doubt the $5 levy stops them spending elsewhere. Exchange rates affect every cost of the trip whereas a levy/additional fee only affects that particular part of the trip and is usually insignificant in the overall cost.
Canada is one country that charges tourists more for some activities. A couple of years ago we went salmon fishing and had to pay for a 'tourist licence' which was more than what a local would pay. Did we baulk at paying it because we were a tourist - no. Another $25 (or whatever the cost) was never going to be a deal breaker.
All DoC tracks should attract a fee in which tourists have to pay more than locals. Another $5-10 to walk a track is not going to stop tourists from walking them but would add to the DoC coffers which seem to run on empty and rely on clubs/volunteers to help out with maintenance. Given the number of international visitors using our DoC track system an additional charge of $5 or $10 per track used would result in some meaningful additional income for DoC without making it cost prohibitive.
http://www.doc.govt.nz/about-doc/role/visitor-statistics-and-research/n…
Firstly, let me say Eric, that you had better watch out. Gareth will call you a racist or some other name if you disagree with him.
I disagree with you on the size of population.
A Lawyer, Accountant or whatever can only handle x number of clients per day.
Secondly, with the service industry and retailing it is the number of clients/customers per industry that determins price and its called competition.
America may have 100 clients/customers per Lawyer/Accountant and NZ may have 200.
All this has nothing to do with the size of population. Note it is a ratio of product to consumer, and its called "the level of competition" Thats what does/should determine prices. But we wont go into rigging at this point.
I thoroughly enjoyed reading your article Dr Crampton.
As a dual-citizen of both NZ and Canada and having been raised between both countries, the NZ tourism debate is of particular interest to me.
While I think Mr Morgans article had some excellent points which also sparked some interesting suggestions (adding an extra box to the rental car agreement forms to charge a predetermined ACC Levy to nonresidents for example), I do feel that he/we may gain more leverage to achieve a more positive outcome by focussing more on what seems to be the core issue; which is to reassess how we should be subsidising public sevices and facilites like National Parks and emergency services, enjoyed by both residents and nonresidents alike.
I certainly feel that some of the potential leverage in an otherwise interesting debate is lost when sentances like "milk the foreigner" and "sting them for insurance costs" are used.
I think we could get a far better outcome by getting away from the Us & Them mentality and move more toward a collaborative sustainable approach on how best to pay for the services we all know and love about NZ.
Aside from the financial input (second largest export sector behind dairy, according to tourismnewzealand.com) the tourism sector is also an integral part of the culture of NZ; both tourists visiting NZ and New Zealanders themselves visiting other parts of the world.
We mustn't forget that kiwi's are world renowned as travellers, or "tourists", to the point where there is even an acronym that all kiwi's grow up with that I personally have not come across anywhere else in the world..."O.E".
Remember that there are 1 million NZ'ers living outside of NZ at any one time...one fifth of the entire population.
We must also remember that as well as being a very expensive place to live as Dr Crampton mentioned, New Zealand is also a very expensive place to travel.
I am currently living in BC Canada, and while we try to get back to NZ once a year, it is tough to financially reconcile when for the price of the airfare alone, we could be holidaying all expenses paid for 2 weeks in several locations in this hemisphere.
I have admired some of Gareth Morgans previous articles on financial matters and even chose to invest my funds in him when he started the Kiwisaver Super, have followed his and his wife's stories on motorcycle adventures abroad, so was therefore a little shocked at the disrespectful and flippant tone towards travellers that he of all people adopted in his latest article.
So to recap: while I wholeheartedly agree with adopting user-pays systems and also agree that the issue Mr Morgan pointed out is worth looking into; I would however recommend a more respectful approach when speaking about "tourists" . These are people making the considerable effort of crossing to the other side of the world, wanting to explore and spend their hard earned cash in a country that is increasingly expensive to live and travel in.
Regards,
Beth Christianos
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