The poster-child of New Zealand tourism has put a number on what it wants from the Government to maintain its status as an international drawcard. David Williams delves into Queenstown’s business case for a cash injection – or a bed tax.

Queenstown’s council wants a $278 million Government injection to help pay for much-needed infrastructure, or the power to collect a bed tax on international tourists, which might start at $10-a-night.

The council’s plea is detailed in a business case – which can be revealed by Newsroom – completed for the council in March and submitted to the Government before May’s Budget.

The Queenstown Lakes district needs Government help, the report says, because when it’s at capacity, each resident is paying for the roads, water supply and toilets used by 34 international tourists – a much higher ratio than other tourism hotspots. The report’s warning to Tourism Minister Kelvin Davis is that without external funding, Queenstown’s tired infrastructure will become “eroded”, turning off high-value international visitors and hurting New Zealand’s brand.

Much of the Crown money, if granted, would be used on Queenstown transport projects and the town centre, including shifting the main arterial road to the periphery of the central business district. That’ll open up Queenstown’s waterfront areas for private commercial investment.

While the report evaluates several scenarios, it says a $278 million Crown investment over five years is the best value for money. The justification for the investment is that an increase in Queenstown tourism brings huge benefits to the rest of the South Island and the country. Over a decade, the report estimates the Crown injection might lead to extra international visitor spending of $1.6 billion, plus an increased tax take and thousands more tourism jobs.

If the Government won’t stump up with cash, an alternative revenue source – suggested deep in the report, on page 107 – is a bed tax, similar to one in Auckland. (Regular Airbnb hosts are already being hit with higher rates.)

Based on an initial $10 charge, rising to about $17 in year four, the report estimates a Queenstown bed tax would bring in $100m within four years, and $400m by year nine.

Mayor Jim Boult, who has been pushing central government on a bed tax, couldn’t be reached for comment. But the plan faces opposition from some local businesses, who fear it will drive visitors away.

Queenstown’s council itself won’t be sitting on its hands, waiting for a Government handout. It’s selling off most of its last large land assets, expected to rake in $70 million, and its own infrastructure spending will push its debt to a forecast $365 million by 2029, leaving little headroom for emergencies.

Bed tax might be a battle

It’s not clear where a potential bed tax might fit in to the Government’s existing tax work. There’s already a Productivity Commission review of local government funding, and a tax working group, headed by Sir Michael Cullen, that is expected to release an interim report in September.

Indeed, Queenstown might find itself battling a pre-election political promise – Prime Minister Jacinda Ardern’s captain’s call not to introduce new taxes in its first term. It might also be unpalatable for the Government to endorse a Queenstown bed tax, just as it brings in a tourism levy at the border. (Submissions on the proposal close this Sunday.)

The Government let Auckland introduce a regional fuel tax, but to date Tourism Minister Kelvin Davis and Finance Minister Grant Robertson have been lukewarm, at best, on a Queenstown bed tax. On Tuesday of this week, Robertson told a Queenstown business audience the Government is open to a conversation about alternative funding sources for councils. According to an Otago Daily Times story, the most important thing for him to understand was “what the plan is”.

Queenstown council’s business case, completed in March by consultants MartinJenkins, with input from Treasury and the Ministry of Business, Innovation and Employment, goes some way towards answering Robertson’s question – although there’s no assessment of the possible negative effects of a bed tax.

Boom causes headaches

Queenstown is in an extraordinary growth phase, with runaway house prices, skyrocketing rents and big-city congestion. Its international airport, the country’s third-busiest, already has more than two million passenger movements a year, is planning for five million movements within 30 years, which might require a new terminal. Tourism giant Skyline Enterprises plans a $100-million-plus redevelopment of its Queenstown gondola operation and hotel developments already applied for might add an extra 2000 rooms.

There’s a scramble for workers, not just to cope with a huge boom in the resort’s commercial and residential construction, but to replace those who leave because of unaffordable rent and property prices. Some frontline tourism staff, and even professionals, have moved to nearby towns, with a one-way commute of up to an hour, to escape Queenstown’s high-priced living costs.

To combat this, the Otago Regional Council has introduced $2 bus rides across the Wakatipu Basin, set up a mayoral taskforce to tackle housing unaffordability and developed a town centre masterplan. The problem now is how to pay for its plans.

The MartinJenkins report says there’s a significant disparity between those who pay for Queenstown’s infrastructure and who benefits from it. The council, the report says, lacks the financial capacity to fund and underwrite the required investment in things like roads, water services and transport schemes.

Without Government input, Queenstown might not be able to afford water and roading infratructure for some new housing developments. (Although it’s unclear how that sits with an announcement made by the previous government a year ago, that the council could access up to $50 million housing infrastructure fund – which would have to be repaid – to develop 3200 new houses.)

Overcrowded, expensive, polluted

Without Crown input, the MartinJenkins report paints a picture of disappointed tourists arriving in an overcrowded, increasingly expensive and polluted resort, with a town centre that lacks personality. A significant proportion of arterial roads within the town centre would be left as they are. “Increasingly the town centre would become an unattractive place for locals to visit and non-tourism-related business would move out to other areas.”

Eventually high-value tourists will be replaced by backpackers.

In the report’s favoured “sustained” scenario – with the suggested $278 million Crown injection – Queenstown infrastructure spending over the coming decade reaches $870 million, of which $374 million, or 43 percent, relates to international visitors. (Queenstown council’s recently adopted 10-year plan has a $1 billion capital spending programme.)

The Government money would be used to shift arterial roads from the centre of Queenstown, freeing up more waterfront land for commercial development. The town centre would be redesigned, with wider footpaths and “more and better public spaces”.

Other investments include improved wharf facilities for water taxi and ferry services, and priority cycle and bus lanes. The extra money would also be used to build two new drinking water reservoirs and three new water treatment plants.

The report’s brief discussion about a bed tax, envisages a uniform, per-night charge for international tourists. But the charge could be tailored to the type of visitor, time of year and type of accommodation.

“Before any levy is introduced, there would need to be an in-depth assessment in order to provide an understanding of how much a visitor levy would influence the behaviour of international visitors to Queenstown and also of the impact on New Zealand’s tourism industry more generally.”

“TIA will vigorously resist any poorly designed tax or levy proposals that could tarnish New Zealand’s reputation as a country.” – Tourism Industry Aotearoa submission

Expect some tourism industry pushback to a Queenstown bed tax.

In its submission to the Queenstown council’s long-term plan, lobby group Tourism Industry Aotearoa says any new funding models contemplated by councils need to be fair and applied nationally. “Ad hoc taxes on visitors or tourism business at a local level are undesirable,” the group wrote. “TIA will vigorously resist any poorly designed tax or levy proposals that could tarnish New Zealand’s reputation as a country that welcomes visitors.”

It’s generally accepted, even by Government ministers, that councils need help to pay for infrastructure.

As last year’s general election campaign reached its climax, The Economist magazine noted public debate over the country’s growing pains, whether from the torrent of tourists or from the back end of a cow.

In the article, TIA chief executive Chris Roberts admitted some popular tourist places were getting “hammered”. New Zealand’s wild places were filling up, the magazine reported, and freedom campers were defecating in the open. “Traffic jams in resorts such as Queenstown, once unheard of, are another cause for grumbling.”

Last November, at a major annual tourism summit in Wellington, Tourism Minister Kelvin Davis, in his first major ministerial speech, expanded on this theme. He said, in general, the higher-than-expected volumes of tourists had led to a shortfall in services. The Government’s major policy to tackle that was an international visitor levy, collected at the border. But, Davis said, “it is also important to ensure that our more iconic visitor regions are not neglected.”

You don’t get more iconic to New Zealand tourism than Queenstown, images of which are repeatedly used in international marketing campaigns to attract visitors here. The Government’s got some big calls to make.

* This story has been corrected to reflect it was the Otago Regional Council that introduced $2 bus fares.

David Williams is Newsroom's environment editor, South Island correspondent and investigative writer.

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