$12M this year from travel tax

Press, 4 October 1977, Page 41

$12M this year from travel tax

The Government had considered imposing restraints on overseas funds instead of the travel tax but decided not to because it could have led to the retention of funds overseas and undesirable forms of trafficking, the Deputy Secretary to the Treasury (Mr S. A. McLeod) told travel agents at their annual conference in Queenstown.

Mr McLeod, who was one of three Government speakers at the conference, said he wanted to answer criticism of the tax and to explain the reasons for its introduction. "At the time the 1976 Budget was being prepared. New Zealand was facing its largest balance of payments deficit in history,” he said. "A brake had to be applied.” The Government considered various

options and decided that of all the practicable alternatives, the tax would impose the least restraints on the freedom of New Zealanders to travel, said Mr McLeod. "It also had the fewest administrative drawbacks, for a system restraining funds would have again involved the recording of all individual applications to the Reserve Bank for funds.” Mr McLeod said that the Government, by applying a brake to the demand for funds, never contemplated that overseas travel would grind to a halt. “The aim was to bring about a deceleration in the rate of growth,” he said.

“I would like to draw an analogy with action taken in a Budget nearly 20 years ago — what became known as the Black Budget of 1958. The Government was confronted then by the most serious balance of payments crisis since the war and comprehensive controls were placed over practically all imports.

“The question arose about what we should do over the imports of petrol which was then, as now, a significant factor in our balance of payments problem. Thought was given to imposing rationing as in wartime, but the administrative nightmares of that were too daunting, so a fiscal measure was adopted instead; “The duty was increased by a shilling a gallon. Now that did not cause a ’ reduction in consumption, but it did change a sharply-rising curve of consumption into a plateau. The levelling off in consumption for the following year helped make the deficit problem more manageable,” said Mr McLeod. The parallel with the travel tax was, he considered, fairly close. “Economists believe that if you raise the price of something, at least some marginal buyers will be induced to hold off a little > longer, or they will buy a little less,” he said. Mr McLeod said that in the Government’s judgment, the impact of the travel tax had been justified. Later, in answer to a question, Mr McLeod said $4.91M was collected in tax for the eight months ending March, 1977. He estimated that about SI2M would be collected this year.