International Tourism

The sector of the New Zealand economy that has been worst affected by the Covid shutdown is tourism. According to the Tourism Satellite Account produced by Statistics NZ, large numbers of people (possibly 70,000) lost their employment in the tourism sector during the first year of the shutdown. By the time the figures for the following year are available, more than half the employment in the sector might have disappeared.

The tourism sector has always been a very noisy advocate for more government support. However, this publicity is out of proportion to the contribution that it makes to the economy. Prior to the arrival of Covid, the tourism sector contributed just 5.5 percent of GDP in NZ. Estimates for the year ending March 2021 suggest that the contribution has dropped to 2.9 of GDP. By the time the continued down downturn in tourism through 2021 is factored in, the contribution of the sector to GDP will be significantly less.

Strangely enough, the collapse of international tourism has not had the dramatic effect on the economy that was expected. In the September 2021 quarter, GDP was 0.6 percent greater than the quarter prior to the emergence of Covid. The economy has kept growing despite the shutdown. This suggests that tourism does not make as large a contribution to the economy as is often assumed.

The problem is that many tourism businesses are only viable if they can employ very cheap labour. In the past, they have tended to rely on young tourists from overseas travelling around New Zealand and taking casual employment when they need more money to keep going. The young people who want to travel the world without spending too much are the ones who benefit most from this practice.

Tourism is supposed to benefit the NZ economy because overseas tourists bring money from their home country and spend it here. However, if they earn it in poorly paid jobs that keep wages down for everyone, they are a drag on the economy, even if they spend all that they earn. They will still need to spend a significant sum for travel home with an international airline, which takes some of the money that they earn here out of the country.

That Covid shutdown has cut off the supply of cheap labour that much of the tourism sector relies on. Industry leaders are now appealing to the government for assistance. They want the border opened up so they can continue to find cheap labour. I hope that the government will resist these calls.

Tourism has significant economic costs (externalities) that tourists don’t always pay for. Increased tourism puts pressure on economic infrastructure. Better roads are needed. National parks need better support structures and maintenance. Investing in infrastructure to support international tourism is only viable if the sector is making a significant contribution to the economy.

Reliance on back-packer tourists who want to travel cheaply and spend very little money is not the basis for an economically viable industry. New Zealand needs international tourists who are willing to spend money and contribute to the economy. The Covid shutdown provides an opportunity to reposition the industry to become more economically viable. If the government encourages continuing dependence on cheap labour, it will prevent the necessary changes from occurring.

See Migration.