How tourism will be asked to fund the deficit

Five stealth taxes to look for in the 2016 federal budget

The Australian Government is in a fiscal funk and as usual it will come knocking on tourism's door to help out.

It's election time. But before that, there's a budget to deliver. Sweeteners need to be handed out to shore up support in marginal seats and to keep business on side. 

But tax cuts and social security concessions are tricky when the ink is red. Chris Richardson from Deloitte Access Economics reckons Australia is facing $130 billion in deficit over the next four years. 

So what to do? Reining in spending on defence is impossible in the current security climate and deeper cuts to international aid would further lessen Australia's global standing. 

The federal government has been forced to rule out a change to negative gearing,  forgoing a potential $1 billion recoup and the ruse to reform the goods and services tax by trading income tax collection powers to the states fell at the first COAG hurdle. 

So, as with previous governments, the federal government will go after low hanging fruit in the May budget. There will be further talk of operational efficiencies, but hidden consumption taxes will be targeted for increases.

Once again, the softest targets of all will be those taxes on travel and tourism. 

An increase to the passenger movement charge is not on the cards for once, since the Coalition rule out an increase in this parliament as a result of vocal tourism industry lobbying against Gillard-era increases. 

Instead, five taxes by stealth will be tweaked, increased or subtly changed. Here's a guide to the ones to watch: 

  1. Passport fees. At $254 Australia's passports are double the cost of those issued by comparable countries. Regarded as a tax rather than a fee for services, successive governments have hiked up fees knowing there will be little consequence. Considering Australians require visas to enter more countries than their fellow first world travellers, the passport is already poor value. Nonetheless expect it to creep towards the $300 barrier in this budget.  This fee depresses first time travel by Australians putting pressure on inbound ticket prices. 
  2. GST refunds. Although long overdue, the likely reform to the Tourist Refund Scheme could provide a windfall to states and territories without a flow-on benefit to federal coffers. The current provision for Australian residents to claim GST on goods exported will disappear, representing around 60% of all claims. If accompanied by a privatisation of the services, this could free $15 million of operating expenses from federal hands and also enhance the visitor retail experience. If though, as seems likely, only half the reform takes place, then the temptation to cut Australian Border Force headcount further might prove too high. 
  3. Backpacker taxes. Although watered down to face down the concerns of the agricultural lobby, the proposal to tax working holidaymakers for the total of their earnings rather than above the tax-free threshold is still alive. The backpacker tax sends a worrying signal to young travellers from our traditional markets of Europe and North America. The working holiday maker schemes have been widened slightly to include limited numbers of Asian youngsters, but above-inflation visa price hikes (including one of  30% in 2013) have seen Australia's scheme lose its competitive edge against rivals. The net result is fewer staff in cafés and restaurants up and down the country. 
  4. Visa fees. Just like a booze and cigarettes, visa fees are hard for governments to give up, even when they know the harm they do. Visas depress demand to Australia by around 25% and countries that have abolished visas or made them free on entry have recorded massive upswings of tourist arrivals. Yet receipts from visa fees and consular service charges totalled $1.8 billion last year, making it a very hard habit to break. Rumours suggest, in fact, that Australia may head in the opposite direction and levy a $20 service fee on the eVisitor visas currently granted free-of-charge to European tourists. 
  5. Airbnb crackdown. Despite the fact that peer-to-peer accommodation services have pushed the flow-on benefits of the visitor economy to  hundreds of Australian suburbs, there is a suspicion of them in the federal bureaucracy. Despite the Australian Capital Territory being the first jurisdiction to legalise Überfederal politicians rarely interact with the sharing economy. In an effort to deflect attention from corporate tax avoidance schemes, expect the Australian Taxation Office to promise strict enforcement of income reporting from house sharing hosts. GST reporting obligations will surely follow, taking much of the dynamism out of the market. 

Forecasting federal budgets is a fool's game, of course. These predictions could never come to pass. There are plenty of spending priorities for the Australian tourism industry too, like a national bid fund to help convention bureaux compete against deep pocketed Asian rivals in attracting the mega conventions that bring tens of thousands of delegates. There may too be money found for additional marketing so that Tourism Australia offices can open in more Asian markets. 

Just as you can count on death and taxes, there is also an inevitability of governments everywhere to lay into easy targets. 

Jean-Baptiste Colbert, comptroller-general of finance of France in the late 1600s observed:

«L ’art de lever l’impôt consiste à plumer l’oie sans la faire criailler »

Or put another way, 

"The art of taxation consists in plucking the goose to obtain the most feathers with the least hissing" 
 

Sadly the tourism industry is not only a golden goose, but a reliably docile gander. And government knows it.