So what is the peak of the Laffer Curve on a tourist tax? Credit Ketan Kumawat, public domain, Photo via Good Free Photos

New Zealand has decided to bring a Monty Python sketch to life. They’ve decided that the best way to finance the government of New Zealand is to tax foreigners living in foreign countries. This has the undoubted benefit that foreigners living in a foreign country cannot vote against the politicians imposing the taxation. Something of great interest to politicians of course. The problem is that said foreigners do still have the choice of not turning up and thus not paying the tax:

Tourists to New Zealand are set to be stung with a new tax but Australians have been given a free pass.

From late next year, international visitors heading to New Zealand will pay between NZ$25 and NZ$35 ($23 and $33) to get into the country, the government announced on Friday.

However, Australian citizens and permanent residents, people from Pacific Islands Forum countries and children under two will be exempt.

The move reflects an ongoing debate within New Zealand about the environmental and infrastructure pressures put on the country by booming tourism growth.

As Monty Python did point out, this is a great tax:

As above, from the political point of view this is great. The people paying the tax cannot vote against the people who imposed it. It’s a Get Out Of Jail Free card for the politicians imposing it. That’s not where it ends though, of course it isn’t.

What’s the price elasticity of tourism demand into New Zealand? And what’s the tax take from someone who does visit New Zealand?

That first question, well, how many fewer people will visit as a result of the tax? True, New Zealand is many miles and about half a century distant from anywhere else. It’s not somewhere people go to on a £9.99 Ryanair flight. So, the impact on the number of tourists might not be large. But there will be some impact. Might only be the one person who sticks in the mud with the insistence that if they’re going to charge me to get in I ain’t going! An insistence that a price change isn’t going to change demand at all – that tourism demand for New Zealand is entirely and wholly inelastic – isn’t something we can support. How much? is the important question though.

There will be some amount of tax revenue – VAT at least, excise duties as well – received from the spending of each tourist into New Zealand. So, the question is, will the extra revenue from each tourist in this tax be greater than the loss of revenue from those few to many who don’t turn up as a result of the tax? That is the question that needs to be answered to find out whether this tax will raise net revenue at all. Effectively, what’s the peak of the Laffer Curve for a destination tax?

No, I don’t know either. But here’s the real point. We’re all damn certain that the politicians haven’t worked it out either, aren’t we?