Govt dumped departure tax plan

The Government was planning to slap a departure tax of up to $35 on travellers but dumped the idea in the months leading up to the Budget.

The "border charge" would have raised up to $169 million, with $79m of that coming from New Zealanders, papers obtained by Fairfax Media under the Official Information Act show.

Ministry of Economic Development officials also looked at a "two-banded" departure tax of $25 for short-haul passengers to Australia and the Pacific and $40 for long haul travellers that would have raised $143m.

A spokeswoman for Prime Minister John Key, who is also Tourism Minister, said ministers considered the use of a departure tax "but, in the end they found an alternative way of funding the tourism growth initiatives".

In a pre-Budget announcement Key unveiled funding of $158m over four years for tourism mainly aimed at targeting growth markets and high-spending travellers.

The officials said 77 per cent of the tax would be paid by passengers on holiday or visiting friends and relatives, while business and conference travellers would have paid just 13 per cent of the total.

The estimates were based on the tax being levied on passengers leaving by air, but it would also have caught those who arrived in New Zealand on cruise ships then left by air.

The officials said a flat tax would be the easiest to administer and could be added to airline ticket prices as was the case with the existing $8 international passenger security charge.

A flat tax would also be non-discriminatory and would minimise the risk of passengers re-routing travel to avoid it.

However, the tax was opposed by Treasury, which said it preferred broad-based taxes.

It was estimated a $44 charge would cover all existing costs of destination marketing, passenger clearance, aviation security and police presence.

Officials noted that tourism, which accounts for 16.8 per cent of export earnings, faced two major challenges; declining returns per visitor and relatively low productivity relative to other export sectors.

"Unless productivity improves, expansion of tourism could detract from, rather than add to, aggregate productivity," the officials said.

"Current settings for tourism are not proving sufficient to address these challenges.

"The departure tax proposal therefore offers an opportunity to instigate a package of tourism policy change targeted directly at assisting the sector to address its two key challenges and return to a value growth path."

It is understood tourism sector groups wanted the money ring-fenced for spending on tourism, but Treasury argued an "hypothecated" tax would require complex legislation and would reduce the Government's discretion over spending.

Officials said New Zealand was "at the low end" of the range of international departure taxes. In Australia the charge is a flat A$55 ($NZ67) while in the United Kingdom there are a band of charges up to stg 184 ($355) for each passenger.

There was little information on the impact of such a tax on spending by visitors, although a 2008 study suggested a $25 tax would cut overseas tourists spending by 0.5 per cent.

Low-cost airlines could be hit and there was evidence routes were changed or cancelling after a departure tax was imposed.