TTF View – October 2012
A high-cost destination can’t afford to
increase prices with additional taxes
By John Lee, chief executive, Tourism & Transport Forum
WHEN demand is stagnant, common sense suggests putting your prices up would be unhelpful.
When the relative strength of your economy means the cost of your product has risen, it’s highly likely that adding a further burden will have a negative impact. And when improving your international competitiveness is critical, raising barriers to entry will have the opposite effect.
However, it seems these economic fundamentals did not come into calculations ahead of the 2012/13 Federal Budget.
Leading up to the Budget, TTF sought – and received – assurances from senior government figures that the passenger movement charge (PMC) would not be increased. Yet, when it was handed down in May, not only was the PMC raised 17 per cent from $47 to $55, it was also to increase each year through automatic indexation. To say we were surprised is an understatement.
An industry campaign overturned indexation of the PMC and secured the hypothecation of 10 per cent of additional revenues over the forward estimates – almost $50 million over four years – for investment in tourism infrastructure in regional areas.
While this funding will help to improve our tourism product and make our offering more competitive, Australia remains a high-cost destination which cannot match the price of many alternative destinations and must therefore offer a compelling value proposition to consumers.
However, two other budget measures threaten to further detract from that likelihood.
On top of the PMC rise – which means Australia has the highest departure tax of any developed country for short-haul flights – the Budget also introduced an Airport Police Tax.
This will see airports around Australia contribute to the cost of stationing Australian Federal Police officers at terminals from July next year, raising almost $120 million for the government over four years.
Although policing in airports is a public good which benefits the country, this tax will become yet another burden on travellers.
The Budget also cut funding for passenger facilitation, with Customs’ budget, having been cut in 2011/12, again reduced; frontline staff will fall by 190 over the next four years.
The result is that visitors to Australia will pay more and wait longer. Rather than supporting tourism operators and jobs in the broader visitor economy, they will be helping to fill government coffers and they will have to queue up for longer to enter the country.
The PMC is a badly-designed tax which has a disproportionate effect on short-haul markets and we are calling for the Productivity Commission to examine the charge. We’d also like to see the PMC linked to funding passenger facilitation – its original purpose.
When you’re a high-cost destination battling subdued global demand, welcoming international visitors with minimal delay at a reasonable price can deliver the value proposition needed to improve competitiveness and ensure demand continues to grow.
TTF View appears quarterly.