“Bottom line — comparing 2024 to 2019 is not like for like,” said ANZ’s International Pacific economist, Dr. Kishti Sen.
We were having an email exchange about airport departure tax just before last Friday’s budget, with expectations that the Government would increase departure tax back to $200, where it was before COVID.
“The government is well within its rights to look for revenue to fund its expenditures and deliver on its core services. But can a few extra dollars on departure tax really shift the dial on revenue? Probably not,” Dr. Sen responded.
“So I would like to see it remain where it is so Fiji can remain in the fight for the tourism dollar.
“We want to increase the number of tourists coming into the country and get them to spend more money in-country.”
Tourism has been the backbone of Fiji’s economy post-COVID, with an impressive recovery pushing the country’s Gross Domestic Product up by 20 percent in 2022 and eight percent in 2023.
With growth forecasts officially revised downwards to 2.8 percent for 2024, a return to pre-COVID levels, tourism continues to drive the economy. Considering Fiji’s perception as an expensive destination compared to its competitors, does it make sense to touch departure tax?
At $140, it was already astonishingly high.
“We see our problem as supply (for rooms), not demand,” Minister of Finance Professor Biman Prasad told this newspaper.
After last Friday’s announcement, hopes that the Government wouldn’t touch departure tax were shattered.
“We’re increasing it in phases. August 1, we’re increasing it from $140 to $170, and next year, August 1, we’re taking it back to $200. So it’s not something new. It was a COVID measure to bring it down.”
But could the immediate post-COVID boom and strong visitor arrivals be misleading us regarding the ongoing economic challenges in Australia and New Zealand, our two major source markets?
“Consider this: For a family of four (Mum, Dad, and two kids), Fiji’s typical tourist cohort, they will soon have to put together $800 in departure tax before they even think about booking an airline ticket and reserving their hotel accommodation,” Dr. Sen pointed out.
“It all adds up, potentially putting Fiji out of reach for many visitors who love Fiji, especially given the current cost-of-living pressures.
“Furthermore, just because the tax was $200 in 2019 does not mean it should return there.
“Fiji was ranked as an expensive holiday destination in 2019, largely due to the $200 tax on departures.
“Also, the cash rate in 2019 was 0.75 percent. Today it is 4.35 percent.
“Mortgage holders and renters in Australia are squeezed. More of their disposable income is consumed by higher mortgage repayments and rent, leaving less for discretionary spending like overseas holidays. This is also true for New Zealand.”
“Bottom line — comparing 2024 to 2019 is not like for like. Fiji was already an expensive destination in 2019,” Dr. Sen said.
According to a report he co-authored on Fiji’s tourism market, visitor arrivals from Australia, Fiji’s biggest market, had hit record levels immediately post-COVID but are now trending downwards again.
Australians traveling to Fiji comprised around five percent of Australia’s total annual travelers. Immediately post-COVID, this figure almost hit 15 percent. Now weakening, Fiji must do all it can to hold it at least seven percent, according to Dr. Sen.
“The two key drivers of Fiji’s overseas visitor arrivals are income growth in source markets and Fiji’s competitive position — prices relative to competitors,” Dr. Sen said.
“Right now, household disposable income, which reflects the spending power of consumers, is squeezed.
“More of consumers’ gross income in key markets is taken up in interest payments for mortgages and personal debt. The standard variable home loan rate in Australia has shot up to 8.8 percent from 4.5 percent two years ago.
“In New Zealand, the housing floating rate is 8.6 percent, up from 4.9 percent a couple of years ago. Interest rates on personal debt have also increased in line with the hike in policy (cash) rates.
“A third of Australians are mortgage holders, and their disposable income growth has slowed or gone backwards.
“Another third of the Australian population are renters, and they also feel the pain of higher interest rates.
“Almost all landlords have passed on their higher debt servicing costs to tenants. Hence, the rise in interest rates globally is putting pressure on household disposable income. In Australia’s case, 67 percent of the population is impacted.”
Adding to this are the high price inflation rates that both Australians and New Zealanders are dealing with.
“It is currently running at 3.6 percent in Australia and taking its time to return to the 2-3 percent target band,” Dr. Sen said.
“Most pundits believe a rate cut is not on the cards for the Reserve Bank of Australia this year.
“In 2019, annual inflation averaged 1.6 percent in Australia. In New Zealand, annual inflation is four percent this year versus 1.7 percent in 2019.
“Against this backdrop, the timing may not be quite right now to be lifting the departure tax twice more in a short period.
“Soon, a family of four (mum, dad, and two kids), Fiji’s core visitors, will have to gather $800 in departure tax before booking an airline ticket and accommodation.
“Food and leisure expenses get added on top. Suddenly you’re approaching a price point that may deter potential tourists from choosing Fiji over more competitive markets.
“Yes, departure tax was $200 in 2019, but the cost-of-living pressures are far greater today than they were in 2019.
“The interest rate dynamics are tighter, and the high inflation environment makes it more challenging to afford an overseas leisure trip.
“Households are therefore looking for value for money when planning an overseas holiday.
“Even if they do travel, tourism spending (yields) are likely lower this year since the savings buffer built up during the pandemic has largely been drawn down.
“The cash savings ratio has returned to pre-pandemic levels in most markets. Further hikes in departure tax may give some of our competitors a ‘free hit’.”
This is something for our policymakers to consider before the budget debate begins next week.