Travel costs up: How Customs and Ministry of Primary Industries will fill a $186 million hole in their budgets

The price of travel is going to rise – get used to it.

With border processing charges set to soar, a tourism group is warning that this country could be about to shoot itself in the foot with fee rises of more than 150 per cent.

Airlines have fallen deeply into debt during the pandemic, and carriers which want to keep flying to New Zealand will have to recover the cost of servicing higher debt at some time. They also face higher fuel prices as economies recover, and other cost pressure is rising.

Likewise, airports have taken on staggering levels of debt – and they are in an even stronger position to recover costs.

Repaying all these loans is made even harder by worsening credit ratings and higher financing costs.

State agencies such as Airways used to pay dividends to the Government ($4 million in 2019), but now it’s being propped up to provide air traffic control services, with loan facilities and wage subsidies. The agency expects losses for the “foreseeable future” and has deferred investing in technology such as remote digital towers that will need to be started some time soon.

Right now, travel is being subsidised by the Government to keep New Zealand connected to the world.

A relief package for the aviation sector to mitigate the immediate impact of the border closure in March 2020 included:

• Suspending funding reviews for all aviation and border agencies for 12 months, including reviews of border processing levies
• Refunding airlines the equivalent of the border processing levies, and relief from payment of Airways NZ and Civil Aviation Authority fees and levies
• Establishing a $320m International Air Freight Capacity scheme

The Government has funded deficits in border processing services up to June 30 this year, which alone are estimated at $186m, because of the extraordinary circumstances following the outbreak of Covid. At one stage, the pandemic resulted in a 98 per cent fall in the number of travellers arriving and departing New Zealand.

But now it has directed Customs and the Ministry for Primary Industries (MPI) to consult on options for travellers to resume meeting the costs created by their travel.

This system aims to ensure that levied travellers arriving and departing New Zealand meet the costs to Customs and MPI that their travel creates, rather than taxpayers having to pay those costs, as has been the case during the past 14 months.

Before, Customs had estimated that 53 per cent of its total revenue in 2020/21 would be from fees and levies, and expected border processing levies to raise $76.2m — more than 65 per cent of Customs’ revenue from fees and levies.

Current levy:
•$20.11 (air)
•$21.96 (cruise)

One proposal:
•$160.76 (air)
•$70.23 (cruise)

Meanwhile, MPI forecast that about 35 per cent of its total revenue would be generated from cost recovery, with border processing levies forecast to raise about $100m, around half of its revenue from cost recovery.

In a sign of what is on the horizon for travellers, the border processing levy (BPL) could soar by $160 per airline passenger (including GST) if cost recovery was implemented in just one year, and by $70 for cruise passengers.

At the other extreme there’s the no-change option — leaving air travel fees at $20.11 and cruise at $21.96.

“The speed at which Customs and MPI return to full cost recovery needs to carefully balance the Government’s fiscal objectives against the impact on travellers, and any flow-on impact for others including airlines and airports, cruise lines and maritime ports, and the tourism sector,” says a discussion paper on the issue.

The size and rate of any increase will be determined by how far it can be spread, so the paper includes a range for the estimated number of levied travellers.

It says there remains uncertainty about the Government’s future decisions on relaxing or re-imposing border restrictions, foreign government decisions about border restrictions and requirements, airlines’ and cruise lines’ commercial decisions about the services and capacity they provide, and individuals’ decisions about whether to travel.

In the year to January 2020, there were about 6.9 million air arrivals and departures. That fell by 25 per cent in the year to June 2020 and will be 98 per cent down in the 12 months to June 2021. The paper estimates that numbers will be down by 88 per cent and 85 per cent in the two years to June 2023, recovering to down 42 per cent by 2024 — about 4 million arrivals and departures.

Cruise passenger arrivals and departures fell from 280,000 in 2019 to zero in the past year and are estimated to recover to 200,000 by 2024.

The paper says the assumptions don’t signal the Government’s future policy decisions.

In justifying the looming price rises, the paper says processing travellers at airports is now considerably more resource-intensive than before the pandemic, when about 350 staff worked at airports.

That number was halved last year as staff were redeployed to ports and other areas, but rose when quarantine-free travel with Australia started in April.

Staff now interact more with each traveller. Customs officers manage travellers’ movement from when they disembark their flight, check pre-departure Covid-19 tests, and carry out manual primary processing (whereas many travellers previously used eGates).

“Customs’ processing of travellers is likely to continue to be different in the future compared to before the Covid-19 pandemic,” says the paper.

“There is still uncertainty over what border processing will involve in this environment, and how much it will cost.”

Changes to border processing have included, or may include separate areas for processing travellers from quarantine-free travel nations, and health certification related to Covid-19, such as evidence of vaccination or a pre-departure tests..

Tourism Industry Aotearoa chief executive Chris Roberts says given that the Covid-19 pandemic has wiped out international tourism, it is definitely not the right time to be increasing the cost of travel.

”Along with Customs and MPI, Airways, Aviation Security, Civil Aviation Authority and international airports are all dealing with a largely fixed cost base and thinking about how to recover these costs across a very low level of international passengers,” he says. “We risk piling cost upon cost and imposing a significant handbrake on reviving our visitor economy.”

The levy needs to be left as it is for the “foreseeable future”, says Roberts.

Roberts says the two options have the increase in the levy delayed until September 2023.

”After that, if there is to be a return to a full cost recovery model, it needs to be carefully staged to match the expected gradual recovery of international travel over the next five years.”

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