Passenger Movement Charge
4.1
As noted in a previous chapter, the reform package includes a one-off $5
increase to the passenger movement charge (PMC) from $55 to $60. This chapter
considers views expressed by inquiry participants regarding this aspect of the
package.
Background
4.2
The PMC is a $55 cost for the departure of a person from Australia to
another country. It is charged regardless of whether the person returns to
Australia. The PMC is collected at the time a ticket is sold, and then
forwarded by the carrier to the Department of Immigration and Border
Protection.[1]
4.3
The PMC was introduced in 1995 as a replacement for the Departure Tax,
and is levied on all outbound international passengers. It was originally
intended to offset the cost to government of the provision of passenger
facilitation at airports, including customs, immigration and quarantine
functions. As the Australian Airports Association (AAA) notes in its
submission, since the PMC was established at $27 in 1995, it has been increased
four times, with the most recent increase in 2012 bringing the PMC to $55.[2]
4.4
In his second reading speech, the Treasurer advised that the
approximately 9 per cent increase currently proposed was broadly in
line with the increase in the consumer price index (CPI) between 2012 and 2017.
Placing the $5 increase in context, the Treasurer further noted that in the
same period since 2012 the government had:
...already acted to lower the cost for travellers and to
improve their visitor experience.
We have invested significantly in improving the performance
of our airports and the passenger experience through our airports.
We have also established the counter-terrorism units which
form an important part of our border security, all funded out of the budget—all
funded without making a call on the passenger movement charge.
We have also acted on recommendations of the Financial System
Inquiry regarding credit and debit card surcharges. As a result of these
changes, travellers to and within Australia are no longer subject to excessive
surcharging, whether booking into a hotel, booking a flight or tickets to a
show—or even catching a cab.[3]
Views on the measure
The PMC in international context
4.5
Some witnesses emphasised that, even without the increase in the PMC,
Australia's departure tax was already high by international standards. Indeed,
according to the AAA, Australia already has the second highest departure tax in
the OECD after the United Kingdom. Moreover, unlike Australia, the United
Kingdom's Air Passenger Duty is a tiered charge based on distance travelled, and
is thus lower for short-haul flights. Even among developing countries, only
Fiji and Ghana levy higher departure taxes than Australia.[4]
The PMC as a cost-recovery mechanism
4.6
The AAA noted that whereas the PMC was ostensibly intended to offset the
cost to government of the provision of passenger facilitation at airports,
revenue currently raised by the PMC ($881 million in 2014–15) far exceeded
the current costs to government of passenger facilitation (under
$400 million for the same period)[5]:
This latest proposed
increase to the PMC is expected to further increase this revenue stream by
generating an additional $260 million for the Government over the next
three years. Although the PMC was originally introduced as a cost-recovery
mechanism, it has now been increased on five separate occasions without even
being reviewed to ensure it is meeting its originally intended purpose.[6]
4.7
Similarly, American Airlines submitted that it opposed both the 'way
this increase is being implemented as well its lack of any relationship to
airport improvement'. American Airlines added:
The proposed PMC
increase impacts the aviation sector by raising the cost of ticket prices by
approximately 9%. And since the funds collected are not returned to airport
operators, there are no off-setting benefits for the traveling public. Cost
conscious travellers may not be offered a competitive or desirable airfare for
travel to/from Australia due to the continuously increasing costs. Just as
airlines compete for customers, airports also compete for customers and high
fees negatively impact the airports' ability to attract new routes and
commercial entities.[7]
4.8
A number of other organisations also noted that the PMC already raises
more in revenue than is required to cover the costs of passenger facilitation.
For example, the Board of Airline Representatives of Australia (BARA) pointed
to evidence that 'supports the widely held industry view that the PMC already
substantially over recovers on the costs incurred by the Australian Government
in providing border clearance processes'.[8] Similarly, Cruise Lines
International Association Australasia submitted that:
...the tourism sector
more than contributes to the costs of passenger movement services through the
taxes and charges already levied, and believes that the PMC should be frozen at
its current level.[9]
4.9
Other submitters also noted that the additional revenue raised by the
PMC increase would not be used to offset the passenger movement costs. The
Association of Asia Pacific Airlines (AAPA) noted that this was inconsistent
with the International Civil Aviation Organisation's (ICAO) policy that
'charges are levies to defray costs of providing facilities and services for
civil aviation'. Given Australia is a member of ICAO, the AAPA urged the government
to reconsider the proposed PMC increase.[10]
4.10
Similarly, the Australian Federation of Travel Agents (AFTA) argued that
the disconnect between the PMC and passenger movement costs represented a
breach of Australia's international commitments. According to AFTA, in 2015–16
the costs of passenger facilitation were only 26 per cent
($265 million) of the revenue raised by the PMC, with the PMC thus
resulting in a windfall to the government of $719 million.[11]
4.11
AFTA also noted that the disconnect between PMC revenue and passenger
facilitation costs was growing—whereas PMC revenues were already increasing
with increased passenger movements, passenger facilitation costs had fallen and
were flat going forward. As a result, even at the current rate of $55, the PMC is
expected to result in an extra $155 million per year every year over the
forward estimates.[12]
Concerns about the effect of the PMC increase on the aviation and
tourism sectors
4.12
Various aviation and tourism organisations argued the higher PMC would
damage Australia's aviation sector and visitor economy. For example, Qantas
advised that it was 'strongly opposed' to the PMC increase, which it suggested
was 'inconsistent with the Government's objective of strengthening the
Australian economy'. Qantas further argued that the PMC increase would have a
disproportionate impact on Australian airlines:
In an intensely
competitive aviation market where airlines are often 'price takers', the
hypothesis that the proposed increase can simply flow down to passengers via
increases in airfares does not hold true, as the 'carbon tax' experience
demonstrated. For example, modelling commissioned in 2015 on a proposed $6 levy
to fund Western Sydney Airport demonstrated that 50 per cent of that
cost would have been unrecoverable for Qantas and 53 per cent for
Jetstar. Over the last 12 months, competition has intensified on routes to and
from Australia due to a significant increase in airline capacity; as a result,
the 2015 analysis is considered conservative in the context of the proposed
increase to [the] PMC.[13]
4.13
The Northern Territory Government advised that it opposed the increase
in the PMC increase, and suggested the increase was particularly problematic in
terms of its efforts to promote short-haul international routes out of Darwin.[14]
4.14
Noting that it had long advocated freezing the PMC at its current level,
AFTA submitted that the PMC 'represents a significant fixed cost in a highly
volatile market which affects demand for travel to and from Australia'.[15]
AFTA argued that the proposed increase in the PMC, 'in extremely tight
operating conditions acts to further erode any economic growth opportunities
for Australian travel agents'.[16]
4.15
Mr Jayson Westbury, Chief Executive of AFTA, also argued that an
increase to the PMC would place an additional burden on Australian families and
could detrimentally affect the economic matrix on which the success of the
tourism industry relies:
This is a further burden on hardworking Aussie families who
save hard to take their overseas holiday. It is a rite of passage that should
be encouraged as, without a robust outbound travel industry, the inbound
industry does not work. Planes need to be full both ways. Cruise ships will not
come to Australia if Australians are not part of the consumer mix. It is an important
economic matrix that creates success for Australia and its tourism industry,
which will be an important industry in the future. The more the government
takes in taxes from the process that lets the matrix work successfully means
the more margins in this business will be very small and very tight.[17]
4.16
ATEC was very supportive of the measures in the reform package intended
to grow the WHM market (including measures not in the bills, such as increase an
in the age limit for WHM visas from 30 to 35, the planned $10 million
Tourism Australian promotional campaign, and so on). However, ATEC submitted
that the proposed increase in the PMC:
...puts all the other
growth stimulating measures at risk. By levying the travelling population 9%
more in tax, on top of existing visa fees and other charges associated with
visiting Australia, you risk a contraction in visitor arrivals, with travellers
potentially opting for an alternative destination. It is counter-productive and
sends the clear message to travellers that Australia is using tourism as the
cash cow of the Australian economy.[18]
4.17
Noting that many other countries were reducing or removing departure
taxes, the TTF submitted:
Within a competitive
tourism environment, governments should be looking at policies that facilitate
inbound and outbound travel; and further enhance the overall visitor
experience. Travel taxes achieve just the opposite: it will have a real effect
on travellers at the decision-making stage of a journey which will in turn
impact the tourism and travel industries.[19]
4.18
IATA suggested that the PMC increase would lead to a reduction in demand
equivalent to 30,000 fewer international passenger return journeys each year
(where an arrival and departure count as one trip). IATA referred to modelling
it had undertaken that showed increasing the PMC 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;
and lastly will act as a brake on the Australian aviation sector. We estimate
that the reduction in aviation-related Gross Value Added (GVA) compared with a
scenario where the PMC were abolished could total AUD375 million with 3,800
fewer jobs supported.[20]
4.19
The TTF also referred to IATA modelling showing the sensitivity of passenger
numbers, and holiday visitors in particular, to ticket price increases.
According to this modelling, every price increase of 10 per cent
would generate an estimated five to seven per cent decline in the
number of leisure passengers travelling globally.[21]
4.20
According to IATA, at $60 the PMC would represent more than
9 per cent of the cost of return fare on a Trans-Tasman route and
5 per cent on routes between Australia and the rest of Asia.[22]
4.21
A number of witnesses highlighted the sensitivity of Trans-Tasman routes
in particular to a higher PMC. For example, Tourism Industry Aotearoa reported
that the PMC on Trans-Tasman flights was 'already the highest border tax in the
world for short-haul flights (under 2,000 miles)', and the higher PMC would
further increase barriers to Trans-Tasman travel.[23] The TTF also
highlighted the proportionally high cost of the PMC for many Trans-Tasman
flights:
The impact is even
greater on heavily discounted fares, with some one-way tickets on trans-Tasman
routes as low as $130 at certain times of the year. The current PMC of $55
comprises 42 per cent of such a fare, and the proposed PMC of $60 would
represent 46 per cent.[24]
4.22
Other witnesses told the committee that the increase in the PMC was a secondary
issue, and that they were unconcerned about its inclusion in the reform
package. For example, Mr Kevin Byrne from Advance Cairns told the committee
that he had not heard concerns from his members, and businesses generally
seemed 'pretty ambivalent' about the proposal. He offered that:
...fares are so
competitive now that it will be absorbed and I don't think people will really
notice it. We also respect the fact that the government of the day has a
requirement to essentially balance the books. We are all in business ourselves.
So we do not have an opinion either way. I don't think it is really going to
have a dramatic material effect on the visitation of Cairns.[25]
4.23
Similarly, Mr Ben Woodward from the CaPTA Group, a family owned tourism
company in Tropical North Queensland, told the committee that he did not expect
the 'relatively small increase' in the PMC to have 'much of a detrimental
impact on the [tourism] industry'.[26]
4.24
Treasury advised the committee that it had not modelled the economic
impact of the PMC increase, stating that its macro-economic modelling function
did not extend to modelling changes such as a small change to a price such as
the proposed $5 PMC increase.[27]
Consultation
4.25
Some witnesses expressed concern about an apparent lack of consultation
regarding the proposed PMC increase. For example, AFTA submitted:
The announcement of
this increase by the Government has not followed any consultation nor has the
modelling of the potential impacts been released. This is of great concern for
the travel and tourism industry.[28]
4.26
Representatives from the tourism industry also voiced concerns that the
proposed increase to the PMC was not raised during the government’s review
process into the WHM program. For example, Mr Westbury from AFTA commented:
Within the package review process that was undertaken, I
think—correct me if I am wrong—there were some 1,700 submissions made and not
one mentioned the PMC. During the consultations, which we all took part in,
with the consultant, not once at any of those dialogues was the PMC mentioned
to any of us as a potential way of the government topping up the package.[29]
4.27
Qantas submitted that given the lack of industry consultation on
increasing the PMC, it may be that the government had not fully considered its
impact on Australian airlines and passengers.[30] Similarly,
BARA described the lack of consultation on the PMC increase as 'extremely
disappointing'.[31]
4.28
Australian Chamber – Tourism also highlighted a lack of consultation or
proper assessment of the impact of the increase in the PMC on Australia's
visitor economy. It recommended that any future proposals to increase the PMC
should be made following consultation with the sector and a proper assessment
of its impact.[32]
4.29
Mr Martin Ferguson, representing Tourism Accommodation Australia, noted
that in his experience—which included being the Minister for Tourism between
December 2007 and March 2013—increases in the PMC did not affect passenger
numbers. Nonetheless, he emphasised the need for government to consult with the
industry before considering future changes to the PMC.[33]
4.30
Treasury confirmed that it had undertaken no departmental level
consultations on the changes to the PMC.[34]
Inclusion of the PMC increase within the WHM reform package
4.31
Some witnesses questioned the logic of including the PMC increase as
part of the WHM reform package. Mr Gerard Bell noted that the
overwhelming majority of passengers leaving Australia and subject to the
increased PMC were not WHMs. He suggested that it was inequitable that these
passengers should have to face the new charge 'just so 417/462 Visa holders
have a further incentive to seek temporary employment in Australia whilst on
Holiday'.[35]
4.32
When questioned by the committee regarding the appropriateness of the
PMC increase being included as part of the WHM reform package, Chief Executive
Officer of TTF, Mrs Margy Osmond, advised that 'absolutely the two things
should be separated'.[36]
Mrs Osmond further explained:
I think the other issue here is that when the negotiations
were held over the backpacker tax piece PMC was never mentioned. So, to suggest
that it has to be part of the package is, I think, wrong. We know that the
piece will pay for itself. If the argument for increasing the PMC is wholly and
solely to fill a gap, they do not need to increase it, because the package pays
for itself. So, to me, it is a no-sum game. If you can pay for what it is that
you needed to pay for within the reform package, why do you need to increase
the PMC?[37]
4.33
TTF advised that it had engaged KPMG to review the assumptions
underlying the reform package, and to consider if the PMC increase was
necessary to ensure the reform package was revenue neutral (when compared
against the proposed Budget 2015-16 changes). TTF reported that KPMG found that,
based on average WHM earnings, a tax rate of 19 per cent would
generate tax and superannuation revenues of $864.5 million between the
2016-17 and 2019-20 financial years, without the need for any increase in the
PMC. TTF highlighted KPMG's finding that, in KPMG's words:
The inclusion of the
increase in the PMC in the revised WHM policy appears to be incongruous with
the remainder of the package. Under reasonable assumptions about the number of
WHMs and average income per WHM it is not necessary to increase the PMC to
generate tax revenue from the package that is greater than that reported in the
2015-16 Budget.[38]
4.34
Australian Chamber – Tourism also argued that an increase in the PMC
charge was not required to meet the government's revenue targets.[39]
4.35
While some witnesses questioned whether the PMC increase was required to
make the reform package revenue neutral, Treasury confirmed that this was the
case. Mr Robert Ewing, representing Treasury, advised the committee that while
he could not speak to KPMG's modelling, 'the estimates and the costings that we
came up with are our best professional judgement of the changes to revenue and
expenses as a result of this package'.[40]
4.36
Treasury confirmed this advice in a subsequent written submission provided
to the committee. Reiterating that Treasury stood by its estimates of the
various elements of the reform package, Treasury noted that other
models—including modelling from KPMG and modelling undertaken by Lateral
Economics on behalf of IATA and the Australian Chamber of Commerce and
Industry—had arrived at different outcomes because they used more optimistic
assumptions:
By definition, if Treasury had made different assumptions
then different estimates would have been generated. The KPMG and Lateral
Economics reports simply illustrate this point, as they adopt more optimistic
assumptions and so produce larger estimates.
However, as stated earlier, Treasury's view is that its
revenue estimates are appropriate. Reducing the first tax rate for working
holidaymakers from 32.5 per cent to 19 per cent involves
some revenue cost, meaning that the revenue from the other elements of the
reform package is therefore necessary to ensure the package of changes
announced by the Treasurer is revenue-neutral overall.[41]
Committee view
4.37
The committee acknowledges concerns expressed during the inquiry about
the $5 increase to the PMC. At the same time, the committee notes that a range
of tourism operators and bodies advised the committee that they did not
anticipate this relatively small increase would have a material impact on
visitor numbers or on their businesses.
4.38
This is, the committee notes, the first time the PMC has been increased
since 2012, and the increase is broadly consistent with the increase in the CPI
since that time. The committee is also satisfied that the PMC increase is
required to ensure that the WHM reform package remains revenue neutral.
Recommendation 3
4.39
The committee recommends that the bill be passed.
Senator Jane Hume
Chair
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