Embargoed Until Delivery

An Address by
Hon. Lockwood Smith PhD
Minister of Tourism
New Zealand Tourism:
The Fourth Key Goal
Tourism Seminar
Room 119, Hunter Building
Victoria University
Wellington

1400 hours
Wednesday 29 October 1999

Stephen Doorne & Professor Plimmer;

Tourism experts and future tourism experts.

Thank you for the opportunity to participate in your seminar, and my apologies for having to change the date on you.

When I was working towards my PhD, I really wanted to contribute to New Zealand’s leading industry.

And so I studied animal science, trying to understand how grass might be more efficiently turned into milk and beef.

In 1999, a young person wanting to contribute to New Zealand’s leading industry would study tourism.

For what it’s worth, I think you’ve made a good decision with tourism for your study, research and career.

Tourism has an outstanding future, and you have the opportunity to be part of that.

This decade, according to the international visitor survey, we’ve seen foreign exchange earnings almost double in constant 1999 dollars.

And, last week, we heard that the industry has achieved the highest ever number of international visitor arrivals in New Zealand’s history.

In just two years, we appear to have recovered from the Asian Economic Crisis.

Data on median length of stay and average spend per day is also positive.

They are very important statistics because we don’t achieve much if visitor numbers rise but length of stay and spending figures start to fall.

All the statistics need to be considered as a package but right now they all suggest an outlook that is very positive.

Given it’s election season, you might expect I’d be jumping up and down trying to claim credit for these achievements for the Government.

But I’m not going to do that.

It’s the tourism operators who have taken the risks, invested the time and money and developed the intellectual property that’s led to the remarkable development and growth of the tourism industry.

They deserve the credit.

When I became Minister of Tourism earlier this year, I asked the industry to establish a goal for foreign exchange earnings.

Just last week, the new CEO for the New Zealand Tourism Board accepted this challenge.

George Hickton set a goal for foreign exchange earnings of $7.7 billion over the next five years.

He also set a goal of increasing international visitor arrivals from 1.5 million to 2.5 million visitors over the next five years.

It’s great to have these goals articulated – it gives us all something to focus on, and real targets against which the industry can measure its performance.

And the results are exciting for the industry, and all New Zealanders.

It’s estimated that increasing foreign exchange earnings to $7.7 billion could mean a total of between 170,000 and 200,000 tourism-related jobs.

All other things being equal, tourism would, indisputably, be by far New Zealand’s biggest industry.

My role is to support the industry and the board in that effort, in areas where the Government can usefully assist.

You’ll know that I’ve set three key goals for my time as minister:

 A sustainable flow of tourism earnings;
 Removing barriers for tourists;
 Removing barriers for the industry;

The first goal – a sustainable flow of tourism earnings – is about ensuring that we attract tourists to New Zealand all through the year, every year.

The global marketing strategy is designed to support that.

Some people were initially confused and thought the strategy was to be all about attracting tourists to the mega-events of 1999/2000.

It was never about that.

It was always about leveraging off the media coverage they will generate to launch a single proposition with which to promote New Zealand over the next decade.

I’m very happy with that single proposition – “100% Pure” – which research tells us latches into the values of potential customers.

I think it is a very compelling proposition.

More importantly, our research tells us it is.

I’m confident the strategy is going to work.

My second key goal is to reduce barriers for tourists.

It’s about achieving visa-free access for as much of the world’s population as possible.

We’re certainly making good progress there.

It’s about making it as easy as possible for those who still need visas to get them.

That’s why we’re expanding our immigration offices in China, Indonesia, Russia, South Africa and India.

And my goal is about signing as many air services agreements as possible and encouraging more airlines to fly here.

It increases capacity and competition brings down prices.

It’s vital that once people have decided to come to New Zealand that it’s easy for them to do so.

We’re making good progress on that second goal.

The third of my three key goals is reducing barriers for the industry.

By this I mean sorting out the RMA consents process, reducing taxation compliance costs and generally making it easier for our tourism industry to go about its business.

I want owners of tourism facilities to be making money working with tourists, not filling in forms for the Government.

I think these three goals are sensible yardsticks – appropriate for Government – against which I expect to be held accountable.

But today, for the first time, I want to add a fourth key goal – increasing investment in our tourism industry.

At the present time, with a hotel occupancy rate of 48.9%, it may not appear that urgent.

But with our global marketing strategy, and reducing barriers for tourists, we can expect visitor numbers to increase significantly.

For example, McDermott Fairgray forecasts visitor numbers of nearly 2.2 million by 2005.

And, of course, we want to go higher.

Right now, we are not adequately prepared for that in terms of infrastructure.

In many parts of New Zealand – Cape Reinga is one – our facilities simply could not cope.

Roads and some airports need improvement.

Rental car companies will need to buy more cars, and so on and so on.

In some cases, there is a need for investment by central and local government – roads for example – but in most cases the investment needs to come from the private sector.

A great deal of that investment will come from New Zealand, with additional funds from overseas.

The question to consider is the kind of environment that will encourage New Zealanders to invest domestically rather than overseas.

What kind of environment is needed to encourage people who invest internationally to invest here rather than in, say, Australia?

Part of the answer is the global marketing strategy.

If New Zealand and overseas investors see effort being put into the effective marketing of New Zealand globally, they will want to latch onto that.

So too efforts to reduce barriers for tourists and businesspeople to come to New Zealand.

But beyond tourism-specific measures are matters of general economic policy.

Without being too political, I believe we can say that New Zealand is a fairly attractive destination for investment right now.

Our tax structure is currently competitive compared with Australia and other alternative destinations for investment.

We have a skilled workforce and labour market law based on co-operation rather than confrontation.

With very low and soon zero tariffs, business inputs can be purchased at the lowest world price.

International surveys say we have no corruption in our bureaucracy, and we are working on the cost of complying with laws and regulations.

Right now, a relatively stable currency reduces foreign exchange risk.

And, for overseas investors, we have a liberal approval regime.

There is more the Government is doing to attract investment to new enterprises, such as our innovation sharemarket concept and our red carpet programme for potential investors.

But some of our advantages may be slipping away, and that would have direct, negative consequences for our tourism industry’s potential, and yours.

Australia, of course, has announced its intention to reduce its corporate tax rate to below ours.

That immediately means that, assuming equal business returns, an investor makes more money from building a tourism facility in Australia rather than New Zealand.

If you consider that there is a bigger domestic market in Australia than in New Zealand, a decision in favour of Australia makes some sense.

That costs potential jobs for New Zealanders.

The National Government has stated that lowering that tax rate is the next step in our taxation reform as fiscal conditions permit.

But whoever the next Government is will have to consider ways of getting our tax advantage back.

Increasing the corporate tax rate, of course, would be the worst thing possible.

A second area of concern to the tourism industry is the current situation at Ansett New Zealand.

We’re seeing confrontation being used rather than co-operation to settle a dispute.

That is inevitable when employment arrangements are based on an old-fashioned union mentality.

Largely in New Zealand, we’ve moved beyond that.

That’s why we haven’t seen a repeat of the bad old days when Air New Zealand pilots would have gone out on strike, along with the air traffic controllers and probably bus drivers as well.

But the Employment Contracts Act is not about reducing union power per se, but about asking everyone involved in the labour market to use a bit of common sense.

As Tourism Minister, I visit many tourism businesses.

As Trade Minister, I visit many small and medium sized businesses starting to export.

What I don’t see in any of the successful ones is an old-fashioned nine-to-five, forty hours a week, for so many weeks of the year mentality.

The Employment Contracts Act means that our best enterprises tailor their activity to the needs of the customer.

If a big order has come in, or it’s peak tourist season, it’s all hands to the deck, flat out.

The quid pro quo is that we don’t have a situation where, even if there is no snow, ski-lift attendants are expected to go to their posts and pretend to work.

Our most innovative businesses use common sense.

But as soon as you try to have everyone’s employment arrangements standardised and negotiated by Big Unions and Big Employer Groups in Wellington, that’s the nonsense you will end up having.

The Employment Contracts Act has introduced common sense, which is so vitally important in an industry with peaks and troughs such as tourism.

And it is very important it remains.

Moving back to a centrally controlled labour market is the last thing we can afford to do if we want to attract investment into the tourism industry.

When it comes to business costs, we still have some way to go.

Our low and soon zero tariffs mean that when a new tourism facility has to purchase an import, it pays only the world price, not an extra tax.

Fitting out a new restaurant in a tourist resort, for example, is expensive enough already.

It makes no sense to me to start making them pay extra taxes – tariffs – if they need to purchase some imported goods to establish their business.

That’s what tariffs are – taxes – and I think we’ve done well getting rid of them.

But we haven’t done quite so well in recent years with the other costs government imposes on business.

Now, we are seeing progress on ACC charges with big reductions in premiums thanks to competition.

We’re simplifying tax forms, and we’re sorting out the RMA so that decisions are made more quickly.

I’m not sure that the complexity of a tax form would make the difference for a major investor.

But for a new small tourism operator just starting out, spending less time on the accounts is a big plus.

For all business – large and small – the savings from tariff elimination and the ACC reforms are significant.

They send a powerful message that it’s worthwhile investing in New Zealand.

For international investors, of course, it’s very important that they feel our currency will remain relatively stable.

They don’t want to see it fall or else they start to lose money immediately.

But they don’t want to see it move up too fast or else New Zealand becomes a more expensive tourist destination.

Most would prefer a slow, steady appreciation and that comes about through price stability, and balancing fiscal policy and monetary policy to keep interest rates down.

Finally, of course, we have to allow overseas investors to invest here.

There are some people who believe we shouldn’t do that.

They seem to argue that it’s better for New Zealand for an investor to build their hotel in Melbourne rather than Wellington.

Or that it’s better for a New Zealand hotel to close down rather than be bought by an overseas investor.

Believe me, I have tried to understand the attempt at logic behind those positions in order to better rebut them.

Alas, I’ve failed.

Thankfully, both the National and Labour parties support overseas investment, with only the Alliance wanting to cut it.

What I can tell you is that our ability to attract more investment to the tourism industry will directly impact on your future careers.

If we can’t get the investment we need into this industry, we aren’t going to be able to cater for increasing numbers of tourists.

And we’ll let down those who do come here.

We’ll be throwing away our investment in the global marketing strategy.

But if we can get the investment we need, the tourism industry has no limits.

Now that the marketing strategy is in place, and we’re making progress on immigration issues and air services agreements, it’s becoming the number one priority.

It’ll be my number one priority in my next three years as Minister of Tourism.

Thanks for providing me the opportunity to share some thoughts with you today, and to meet face-to-face with the future of the New Zealand tourism industry.

It’s an exciting and dynamic industry, and a great career choice.

I wish you all the best for your very promising futures.

ENDS

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