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In the course of an interesting discussion regarding the importance of dairy to the New Zealand economy, tourism was raised and quickly put to one side, the logic being that if the outflow of money taken by Kiwis going offshore was deducted from the total then the total financial benefit to the economy would pale into insignificance.
As someone involved in ‘hospitality’ I can vouch for the impact both international and domestic tourism has had on our turnover and the border lockdowns certainly made themselves felt, as have the staged openings. Domestic tourism spending was certainly useful and kept us in business but still didn’t make up for what was lost by the absence of the internationals.
So, given this as a backdrop I thought I would do some digging and look at the pre-Covid numbers both in and out of the country and try and ascertain how the balance stood and see if my numbers and impressions married to the stats. Looking at the year ending March 2020 (only a minor disruption by Covid at that stage although the cruise boats absence was already being felt) total tourism spending was nearly $42 bln of which the GST content paid was $3.88 bln so the total sector is certainly important to the government coffers.
Of the $42 bln total, the split between international tourism and domestic tourism is large with domestic making the greater slice at $24.3 bln (58%) and international $17.7 bln (42%). The difference I found a little surprising perhaps the internationals are more ‘visible’ than domestics hence the impression there are more of them.
A graph made up of Stats NZ data provides an interesting comparison with the three columns from 2018, 2019 and 2020. (Different sources provide slightly different numbers but relativity similar).
The next question is whether or not Kiwi’s going offshore should be deducted from the ‘financial benefits’ of the international tourists. I have doubts as to the relevancy as money coming in is still money coming in. However, so long as the imported costs to dairy is also deducted to achieve a net benefit then perhaps there is some use in the exercise.
The number of Kiwis returning from overseas trips was a tad over 3 mln in 2018 and not far behind the number of international visitors at roughly 4 mln so a net benefit to internationals but the balance between inwards and outwards not so different.
The outflow of money required to directly support dairy is difficult to calculate but fertiliser is a major obvious one, as is PKE. Fertiliser has been estimated to be around 5% -10% of the milk price, expensive, but it is not going to threaten overall profitability (yet).
Other things which may be required to build infrastructure and to operate on an ongoing basis could equally be applied to both the dairy and tourism sectors so shouldn’t be seen as a factor in my view.
So, based on the above, once the borders are fully open international tourism may not be a stand-alone substitute for dairy, but it is very important to the New Zealand economy.
The 225,000 people directly employed in tourism versus the 50,000 directly employed in dairy attests to that.
And, as stated earlier, I believe that the argument that outgoing Kiwis need to be deducted is a flawed argument as (assuming borders are open) they are going to be going anyway. Whether New Zealand can find anything else as profitable and with the same international competitive advantages (although both sectors appear to be losing these advantages) is unlikely, especially in any timely fashion.
So, it is a matter of improving the benefits of both sectors to make them more sustainable.
However, we shouldn’t be too quick to right off invisible incomes (and outcomes). The Swiss economy has one of the highest rates of GDP in the world based upon it (actually second in 2021) and 74% of that was generated by the service sector and physical exports 24% so there are precedents. New Zealand even had aspirations in that area once, they probably went with the sale of the banks offshore.
8 Comments
$24 billion divided by 5 million kiwis is $ 4800 per head , which is surprising . Perhaps including business and all other travel not so much .
Other than that , i think we need to look at attracting tourists that provide maximum income and benefits to NZ , with the least environmental impact.
An easy way to start would be to charge gst and carbon tax on all international flights and fuel sold for cruise lines etc . AFAIK, we would be the only country to do so , but so what .
I think the assessment of how significant inbound tourism is to our economy is a good deal more complicated than this article suggests. The late Dr Paul Callaghan for example, in analyzing possibilities for future growth was fairly dismissive..."if you want to be poor, promote tourism".
But whether this was true or not, I think we need to look beyond the possible income to costs and indeed leakage of revenue. For example, a passenger from say China booking a package tour, pays a Chinese carrier to get to & from, stays in a Chinese owned hotel and travels internally on a Chinese owned tour company. And the employment benefits might be overstated too...many hospitality and tour guides seem to be young people on a working holiday.
Not a lot actually contributes to our internal economy, although to be fair some of major agriculture companies are foreign owned and I guess a good deal of farm financing is conducted through foreign owned banks who quite reasonably will repatriate their profits.
While I don't believe the old Labour government's ambitions toward greater self sufficiency via import substitution, car assembly etc., was ever a winner, neither I suggest, should we grasp at straws such as tourism without first understanding all the pros and cons and developing strategies to capture the maximum feasible benefits.
225,000 is a big number, If you add all the populations of Queenstown, the west coast and lets say Rotorua, you still wouldn't t be there, and at least half of those are children or retired.
Where does the 225k come from?
How many are overseas workers?
The comment about money not joining the NZ economy, the external operator, buying very little in NZ, forget about China, they were gone before covid, there are a few big US operators like Overseas Adventure Travel, and small ones like Backroads, who operate remotely, and avoid GST, ACC, and a few other costs, on labour they employ in NZ. Likewise, there are small operators from everywhere who bring in their own guides, on a holiday visa, not a working visa, and pay them back home.
Compliance with NZ rules and regulations is not as tight as we would like it to be, and that leakage should be the focus right now, then you will have real jobs in tourism for kiwis
In general I try and avoid comparisons between tourism and dairy. However, I have on occasions between drawn into that debate by suggestions that tourism can be a saviour. The hard reality is that we require both.
I am very cautious of the labour comparisons. The figure for 50,000 directly employed in dairy looks like a figure for on-farm labour plus dairy processing. Almost certainly it does not include all the people who service the on-farm dairy industry, including all contractors who come onto the farm, and those working in service industries such as fertiliser. Companies such as Ravensdown, Ballance, LIC and similar, together with silage contractors, rural accountants, DairyNZ staff and similar, are not considered by the Stats Dept to be part of the dairy industry, nor of the broader agricultural industry. They are supposedly all part of the service sector.
My guess is that the figure of 225,000 for tourism relies on a very broad definition of the sector. The exceptionally low unemployment figures during the COVID period would seem to confirm that.
The graph would be very interesting if it could be updated to include at least 2021. Both dairy and meat jumped considerably. And just as well that this happened. Despite this, the external current account is going to be more than a little distressing when the June quarter figures are released next week.
KeithW
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