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Managing tourism externalities – a tax or a promise?

· Catriona McNaughton,Tourism,Tax,Analysis

To manage the growth of tourism, countries must consider how to balance the positive economic effects of tourism while managing the externalities of large tourist influxes. In many cases these externalities come as a result of tourists using public goods such as parks, roads and museums or contributing to the need for additional services such as waste management and policing without having contributed to their cost. This has been exacerbated in recent times by the relative reduction in airfare costs fuelling a growth in ‘budget’ travel (such as freedom camping which relies more on the public goods and services at local destinations), and cruise tourism (which offshores much of the economic benefits with accommodation and meal costs that reduces contributions to local economies).


To manage these externalities many countries have looked towards tourism taxes which are implemented in a number of forms including airport or arrival taxes or through corporation taxes for tourism related activities. Venice for instance has implemented a tourist tax from some time through rates at hotels. The tax is scaled based on a number of factors such as the season and is bringing in upwards of 30 million Euros a year. These types of taxes are often criticised for unfairly burdening businesses within the tourism sector, reducing competitiveness with comparable holiday destinations and for not adequately considering tourism benefits such as revenue for maintaining public goods, exposure to other cultures and economic support.


Another key argument against many of these taxes, particularly those based on accommodation is their tangential connection to the desired outcomes. Taxing accommodation does not reduce congestion or reduce the use of public goods and services in key areas. Those whom are price sensitive can often stay in suburban or nearby areas and instead take a day trip into peak areas which still contributes to asset use. Many taxes are also distorted, such as hotel taxes not applying top cruise ship visitors. While cruise ships will provide a contribution through docking fees or taxes, the strong competition between ports and ability to dock at cheaper ports and transport guests into key areas means these taxes are often artificially low. The Venice accommodation tax was estimated to only apply to around one in five tourists due to factors such as day trips (which amount to more than half of the tourists entering Venice) cruise ships and non-commercial accommodation. To combat this, a new charge of up to 10 Euros per person will be implemented in Venice this year which aims to to ensure more comprehensive tax collection and to reduce over-tourism. However, this charge still fails to change tourist behaviour or address many of the key externalities of tourism.


In early 2018, the small island nation of Palau took a new approach in changing their immigration laws to introduce a passport pledge. Visitors were required to sign a commitment to protect Palau before they were allowed to enter:


“Children of Palau, I take this pledge, as your guest, to preserve and protect your beautiful and unique island home. I vow to tread lightly, act kindly and explore mindfully. I shall not take what is not given. I shall not harm what does not harm me. The only footprints I shall leave are those that will wash away.”


The pledge requires visitors to follow a checklist such as ‘Don’t litter’, ‘Don’t touch or chase wildlife’, ‘Do learn about the people and culture’ and ‘Do support local businesses and the community’. Those breaking the pledge face fines of up to $1 million USD. In addition to changing tourists’ behaviour, the pledge aims to draw attention to global environmental challenges and the need for individuals to take responsibility for safeguarding environmental assets into the future. For Palau, the pledge presented a relatively low tourism risk as the island continues to seek responsible tourists. Many of the visitors are attracted to the diving opportunities and so are likely to follow such a pledge and be further encouraged or attracted by this measure. But while it was considered a highly successful communications campaign, winning numerous awards and recognition, evidence of a change in tourist behaviour remains anecdotal.


Prior to the Palau pledge, Iceland introduced ‘The Icelandic’ Pledge in June 2017 and following it in late 2018, the ‘Pono (righteous) Pledge’ was introduced in Hawaii and the ‘Tiaki (care) Promise’ was introduced in New Zealand. The key difference with these pledges is that they are opt-in and focus more on promotional activities such as asking visitors to share posts with hashtags. Interestingly, a key difference between these promises and the tax approach is in the direct connection to the behaviour change desired. For instance, the Tiaki Promise includes key messages about travelling safety, which to some extent aims to address the number of visitor related crashes on New Zealand’s roads. They also take a more positive approach, encouraging and identifying good behaviour and recognising that in some cases the externalities are driven by cultural differences, for instance an expectation that someone will be employed to pick up litter in national parks. As with Palau there is little evidence of significant behaviour change from visitors as a result of the promises. This could be due to the infancy of these approaches and real change will ultimately take many years to clearly identify.


One clear behaviour change associated with the Tiaki Promise is the extent of commercial backing. While tourism operators are usually opposed to tourism related taxes due to their potential impact on future revenue, the promise has been backed by New Zealand’s commercial tourism heavy-weights including New Zealand’s Tourism Industry Association which represents more than 80 percent of the sector in terms of revenue. This may be to some extent a response to growing calls for local governments in New Zealand to impose visitor taxes that manage growing costs particularly of high-profile public issues like freedom camping and to growing calls for the industry to provide a greater contribution to maintaining and developing the public infrastructure tourists use. The sector, which was once seen as vital to supporting New Zealand’s ongoing development, is facing new challenges in its licence to operate and must act quickly to get ahead of growing public pressure to reduce tourism impacts.


It will be years before we see the influence such promises have on reducing the externalities of tourism. What is clear is that those destinations advancing such initiatives are those that depend upon their environment as a key attractor and are therefore those most susceptible to environmental degradation. With such a significant proportion of natural and fragile tourism assets including the exceptional geological and marine environments epitomised by Uluru and the Great Barrier Reef, is it time Australia starts to consider what we expect from our visitors, and how to balance their economic contribution with protecting our assets for future generations?

Catriona McNaughton is the Communications Analyst at FPL Advisory.

FPL Advisory is a team of specialists resolving risks and creating opportunities with respect to government. We work with public sector and corporate clients to execute strategies for owning and managing change.