Time to cool the hype on the trans-Tasman bubble

Thursday, 28 May 2020

Tourism flows between New Zealand and Australia are roughly even, which means there may not be big economic benefits for either country.

OPINION: The economic benefits of a trans-Tasman travel bubble may only be in the tens of millions and there is a small but real chance that the costs of implementing one too soon could be catastrophic.

Like most people, I'd love to see such a bubble come about at a sensible time.

But a decision by the Australian co-chair of the Australia New Zealand Leadership Forum, Ann Sherry, to dangle an aggressive timetable in front of Kiwis by suggesting a trial might be completed in time for the July school holidays was not, in my view, at all constructive.

Although that comment grabbed the headlines, ANZLF New Zealand director Fiona Cooper distanced the forum from Sherry's desired timeline when contacted by Stuff on Thursday.

Cooper – to her credit – said only that ANZLF would like a bubble to be in place as soon as feasible and as soon as the governments believed it was safe.

* Coronavirus: PM Jacinda Ardern brushes off Winston Peters' comments against Covid-19 restrictions

* Dreaming of the ditch: Trans-Tasman travel may be coming soon**

'We are not pushing for a specific date.

'I know plenty of business leaders are bandying dates around and that is their business,' she said.

'We are not doing that.'

The bubble idea has yet to be subjected to a cost-benefit analysis.

Cooper points out it is the Government that will make the actual decisions about when it may be safe to move.

But politicians don't operate in a vacuum.

They are necessarily influenced by public opinion, which is in turn shaped in part by commercial lobbying, and that lobbying had become pretty intense.

So Prime Minister Jacinda Ardern has had to cool expectations by suggesting September might be more realistic.

It's time to take a step back and a deep breath.

Then a good place to start would be for an independent organisation to conduct a cost-benefit analysis, to consider the potential gains and risks.

The ANZLF reports that Kiwis made 1.4 million visits to Australia last year, while Australians made 1.5 million visits to New Zealand.

In dollar terms, the flow was also very even, it believes, with trans-Tasman visitors spending about $3 billion a year in each country.

But that doesn't mean tourism in the two countries will benefit to the tune of $6b from a bubble.

The chances are that if the border opens and Kiwis take a holiday on the Gold Coast, that will be with money they are then less likely to spend on holiday in New Zealand.

The same would go for Australians coming over for a skiing holiday in Queenstown.

It would be disingenuous to suggest the changed international and domestic tourism flows would necessarily cancel each other out.

The net result of a bubble might be more dollars – perhaps hundreds of millions – spent on tourism in both countries.

Aussies could ski in Queenstown while we warmed up on the Gold Coast - it's a tempting idea.

But the 'displacement' of domestic tourism would surely be significant.

And if people aren't spending money on holidays, they will probably be spending it on something else, perhaps on eating out and entertainment in their community.

That consideration could further whittle back the net economic gains of a bubble, perhaps to the tens of millions in its first year.

If that is the case, then the additional benefits of entering the bubble in July rather than September would be trivial.

And while tourism flows have been even in the past, it could be that if Australian mid-winter holidays really took off among Kiwis, that local tourism operators might lose out overall from the bubble.

There must be doubts about how many trans-Tasman tourists there would be over the next few months, given the need for at least some health checks and the possibility that rules might need to be changed and trips cancelled.

I also wonder whether tourists from either country would receive a universally warm welcome — either on holiday, or on their return from their fellow citizens — if there was perceived to be any ongoing risk of community transmission in either country.

The 'cost' side of any cost-benefit analysis would be trickier to calculate.

The risk of a trans-Tasman bubble reintroducing the coronavirus to New Zealand is probably low, but it's not easy to guess at.

The discovery on Tuesday of a new coronavirus cluster on a freight ship berthed in Fremantle, West Australia, illustrates that.

The coronavirus pandemic started with one case before it grew to 5.7 million infections, after all.

ANZLF stated in a news release on Wednesday that 'while our countries continue to focus on the number one priority of getting the virus under control, we can start planning and testing for what might be possible'.

But that language is curious.

New Zealand's goal hasn't been on 'controlling' the virus, whatever that might mean, but rather on eliminating the virus.

The consequences of New Zealand 'getting it wrong' and reintroducing community transmission of Covid-19 would be utterly catastrophic, both to the industries the ANZLF is trying to help and everyone else.

The Reserve Bank indicated on Thursday that a model that included New Zealand spending another eight weeks in a level 4 lockdown could see unemployment rise to 18 per cent, house prices halve and the viability of banks called into question.

Who is up for another $11b in wage subsidies? Another $50b fiscal stimulus package, or another $60b in quantitative easing?

Of course, nothing is risk-free.

For the sake of argument, let's put the chances of accidentally reintroducing the coronavirus from Australia and losing control of it during the next 12 months at 0.25 per cent, and the potential cost of doing so at $40 billion.

That would imply a risk-weighted cost of $100m and, depending on your view of my earlier 'guestimates', that a cost-benefit analysis would be at best a close-run thing.

Different assumptions will give different answers, and the equation would greatly improve if New Zealand waited until there were no active cases in Australia.

Cooper points out that there would be 'intangible benefits' to a bubble.

'Many families are split across the Tasman and about 40 per cent of travel between Australia and New Zealand was people visiting friends and family.

'The past few months have been particularly tough for those who have been kept apart during major life events,' she says.

But there might be intangible costs also, most notably the health implications and deaths that might come from any new infections.

If we are considering opening up the border earlier than September on humanitarian grounds, then would a quarantine requirement be too much to ask?

If it's more of an economic decision, then let's do the numbers before throwing around very ambitious dates.