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G20 Summit

Governmental paradigm shifts needed to keep tourism resilient making sure the G20 does not forget tourism

David Beirman  Mar 30, 2009

In a few days the G20 leaders will be meeting in London to begin the process of advancing solutions for the global economic downturn. Unfortunately in discussing the range of actions needed to counter the threat of a recession, tourism appears to be fairly low on the agenda. Some governments, notably the USA, Britain, Japan China and Australia have already introduced stimulus packages to shore up banks and financial institutions and vital industries. The jury is still out on whether these measures will actually kick-start the economies of these countries in a matter which will flow on globally. A core element of the current downturn is that trade is down.

It is often forgotten by many governments that tourism is an integral element of international trade and in recent years the tax regimes in many countries have used tourism as an increasingly important element of revenue raising by increasing taxes on tourist movement and activity. As many eTN readers will readily recognize while air fares, hotel rates and tour costs have plummeted to historically low levels in real terms, departure taxes and associated travel related taxes have risen to historic highs. Some governments have cocooned themselves within a paradigm that if departure taxes are high, their citizens may feel a greater incentive to travel domestically instead of to foreign countries. The problem with this approach is that acts as a disincentive for foreign visitors to come to high taxing countries because they will be subject to these taxes. Departure taxes are working in a similar fashion to tariffs on goods that most countries have abandoned for the reason that they are a restraint on trade.

If the G 20 countries are serious about helping the global tourism industry which now generates close to one trillion dollars per annum in economic activity and employs tens of millions of people, the reduction of taxes will actually stimulate tourism. Kenya, which is not a G20 country recently enacted a wise decision of reducing its visa fees as one a range of measures to stimulate tourism. The thinking behind the move was that if travelers chose to visit Kenya, the reduced visa fee would be more than recompensed by a growth in the number of visitors spending money, creating employment and paying taxes in the country.

I am not suggesting that tourism should be a tax-free activity but tax regimes which are too harsh act as a disincentive for international tourism. Simulating an economy is not only about throwing money at a problem it also involves providing a facilitating business environment. In plain language, it requires reducing the government impost on doing tourism business. Too many governments, especially among the G20 countries have mercilessly used tourism as a cash cow to subsidize less efficient parts of national economies. Tourism has the potential to inject economic momentum but as consumers become increasingly cost and value conscious the nature of the tax regime may well be the difference between a destination being competitive or uncompetitive. Just as Wall Street was rightly accused of greed , many governments approach to supporting tourism infrastructure was slanted towards the premium end of the tourism market. This short sighted approach has now led a number of countries such as Dubai exposed with vast capacity in highly priced accommodation and a shortage of accommodation and infrastructure pitched at a more cost conscious tourism market. Tourism planning, in common with all strategic business planning should involve an ability to cater to shifts in market demand and cost expectations.

It is important for the tourism industry to ensure that its needs are taken into consideration when the G 20 meet in London.

Governmental paradigm shifts needed to keep tourism resilient making sure the G20 does not forget tourism
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