The tax increase the government hoped you wouldn’t notice
Why do Australians pay more to travel overseas than nearly any other country?
The government hoped you wouldn’t notice. The treasurer figured we would all be so distracted by the brouhaha over his surplus that we’d fail to see him lifting taxes on one of our favourite things. But as a person who loves holidays, I promise you I will always notice when someone hikes the holiday tax.
It’s hard to miss the taxes and fees section when we buy an airline ticket. It’s a hefty chunk of the price you pay when you book a trip. For international flights, one of the biggest fees is the departure tax. The official name is the Passenger Movement Charge (PMC). It doesn’t fund airports, it’s not a carbon tax either, it’s just a revenue grab.
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Before the budget was delivered last week, Australia’s $60 PMC was already one of the highest in the developed world for most flights. Ours is not the highest in the developed world for all flights because the UK has a higher charge for long-haul flights. They charge a modest £13 ($24) in tax for flights to nearby destinations, but more than £200 ($374) for far-away places. What this means is, if you fly return to the UK and back, you get hit by the two highest departure taxes in the world.
The International Air Transport Association said in 2016 that increasing it “would create significant harm for consumers - in the form of higher fares - and significant harm for Australian exporters through higher travel costs and reduced competitiveness.”
In last week’s budget, the government hiked the PMC to $70. An increase of $10 or, if you like percentages, a 17 per cent increase. Not enough to stop most Australians getting on planes, but enough to make flying a bit more painful.
The tourism industry was furious. “It makes no sense,” said the Tourism and Transport Forum in a media release, describing the industry as “deeply disappointed”.
Hefty fee for short-haul flights
Of course, a $70 departure tax isn’t such a huge component of a flight to the UK - which will cost you at least $1,493 this week on Qantas. But most flights aren’t to the UK. Australians mostly visit New Zealand and Bali, and flights to those destinations can cost as little as $461 (Auckland) and $440 (Denpasar) on Qantas this week. So, a $70 charge on top of that is a significant part of those sums.
A higher tax may stop some people travelling, but the government is betting most people will simply pay the fee. They are budgeting on the tax raising an extra $16 million in its first year, and more the year after. That implies 160 million people leaving Australia, which is certainly a lot more than the 10 million or so over the past year, as the next chart shows. It is, however, still lower than the 20 million departures in the 12 months to the end of 2019.
Now, our travel ledger looks sort of even. We have slightly more locals leaving on holiday each month than there are visitors arriving. But any sense of balance is misleading because we accept more overseas students who are here for longer durations. When it comes to tourism proper, Australians holiday hard. Many of the short-term tourists are here for a few brief days, while us Aussies go on holiday for weeks.
It’s not that we’re a bad destination, it’s just that on holiday people often visit multiple countries. Anyone visiting Australia might stop in New Zealand and Singapore too, and their visit to Australia will be only a fraction of their trip. So, even though the number of arrivals and departures are similar, the total number of days spent here by short-term tourists is not even a fraction of the number of days spent away by Australian tourists. It is far less. This is why traffic is so good in school holidays - we flee and are gone for ages, and tourist arrivals can’t take up the slack.
One implication of this is that short-term tourism is a net negative (where we lose more than we earn) to the Australian economy. We got the economic stimulus of this in COVID when Australians were stuck in the country, forced to spend up on holiday in Tumbarumba rather than Tuscany, keeping our economy humming. But now, when the economy is running hot and the RBA is trying to cool things down? Tourism overseas could be a release valve. Let people go and frolic in Bali, driving up prices over there, and reducing consumer spending in Australia, taking pressure off inflation.
Instead, the government is taxing tourism, and that will increase inflation directly.
International travel is a component of the GST basket, and it has actually risen faster than almost any other component recently - up 38 per cent over the past year. The government claims the Passenger Movement Charge increase is just to keep up with inflation, but they were free to leave it where they were. Instead, they chose to tax it.
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