PUBLIC SECTOR REFORM AND GOVERNMENT TOURISM ORGANISATIONS
From Chapter 13 of the memoir Compass Points
The NZ Tourist and Publicity Department/ NZ Tourism Department:
The Ministry of Tourism and the NZ Tourism Board
Few government departments escaped the Labour government’s ‘Rogernomics’ revolution of the 1980s, and the Tourist and Publicity Department was no exception. From the mid-’80s its commercial and publicity branches were under constant review.
The Government Tourist Bureaus, later renamed NZTP Travel, faced persistent pressure to become profitable. They had three avenues for making more money: to sell more tickets overseas to inbound tourists, to sell more domestic travel, and to sell more outbound travel to New Zealanders. Each of these was fraught with conflicts of interest or other issues, and progress was slow and difficult. We restructured the whole network as an independent unit with its own board, and that helped a bit.
Early on the Waimangu Round Trip was closed. I decided that within New Zealand the Bureaus should be limited to the main centres and the two main tourist towns, Rotorua and Queenstown, which meant closing Invercargill. I expected strong resistance from the city, which I got, but I was mildly surprised to receive a very long — maybe ten pages — legalistic letter from the chairman of the States Services Commission telling me I had exceeded my authority by doing this. I read it with increasing weariness to about page four, confirmed that the reprimand in the letter was the worst that was going to happen, then put it in the bottom drawer to finish another day — and never did. Other bits went or were downsized. Mid-decade we sold Tiki Tours to Guthries in Christchurch.
Perhaps in recognition of some of the ironies and constraints over seeking commercial returns, Treasury around 1985 gave NZTP Travel authority to invest its revenues until the end of each financial year, in limited ways, which opened a new source of revenue through interest — but also lit a time bomb. In 1989 it was found that contrary to instructions, staff had invested money in the debenture stock of a company that subsequently went into receivership. Yes, Equiticorp. That was a huge distraction for me, requiring outside examinations both of departmental systems and individual accountabilities, handling investigations by the Auditor General and a select committee of parliament, and making decisions on staff disciplinary measures. In the end I was satisfied that it was primarily a case of aberrant behaviour by a distracted staff member (because the computer system at the core of the travel sales activity had collapsed) rather than a departmental systems failure, and that despite all the external criticism the financial systems we had in place did meet Treasury requirements. That was a view eventually accepted by the Audit Office but was hardly reflected in the Select Committee’s highly critical report. As a footnote, I was able to monitor the progress of the receivership throughout the 1990s and early 2000s and it is mildly pleasing to record that all of the money lost was returned to the government’s coffers. But the episode was the worst in my public service career.
The improvements in NZTP Travel’s financial performance were never enough and never could have been enough for the Labour government’s mood in its second term of office. It was placed on the government’s list for asset sales in 1989. The process was excruciatingly difficult. The department felt it could find buyers but was not permitted to become involved in the sale process, which was managed by Treasury. Nor could we negotiate or influence the arrangements that would apply to staff (such as redundancy) at the time of sale —the States Services Commission held this close to its chest. And it was protracted, spread over two years, to the great dismay of staff who felt unable to plan their lives. In the end NZ Rail bought the New Zealand offices of NZTP Travel but it was an arrangement without staying power which helped few of the staff. The overseas travel offices were basically just closed in the absence of robust purchase offers, although some bits were picked up by companies.
The department’s other actions helped make the sale and abandonment of NZTP Travel a manageable situation for the tourist industry. Our TRAITS (a computerised reservation system)/NZHOST programme, developed with prolonged difficulties, provided an accessible computerised database of New Zealand tourism products for information offices and travel agents at home and abroad to access, and came on stream around 1990. The Visitor Information Network (VIN) that we created, now the i-site chain, provided physical outlets to meet the information and booking needs of independent and domestic travellers. The commercial travel agents, however, had still not done much to expand from overseas into domestic tourism and in 1990/91 seemed still not to be well placed to take over these roles. In contrast, for inbound travel there had been a timely strengthening of private sector capabilities off-shore which made the closure of the overseas travel offices acceptable.
In 1984 the new Labour government determined that it wished to recruit ministerial press officers directly from the private sector, and the Information and Press Services Division was abolished. Before its announcement, the chairman of the States Services Commission (SSC) Merv Probine called me aside to insist that I accept the decision without fuss. This was unnecessary since I had no motive to resist the cabinet decision but I was concerned about relocating the staff and in other ways to help them absorb the change. Stricter commercial requirements were imposed on the National Film Unit (NFU) and the National Publicity Studios. A restructuring saw the latter renamed Communicate New Zealand (CNZ) in 1987 but soon after it became clear that the government was determined to include both these units into its privatisation programme. It would have made no difference if they had succeeded in becoming profitable, although that might have improved the process and the outcome.
I tried hard to get recognition within government that the historical records of these units — the NFU film library and the CNZ photographic library — should be preserved rather than sold. This was not easy because they represented significant saleable assets. The NFU’s archive was preserved but the photographic archive was sold with CNZ’s other assets with ‘conditions.’ The units were finally sold in 1990, the NFU to TVNZ, CNZ to a company called DAC. They had had distinguished pasts, contributing to New Zealand history and the arts in many ways, with many of their respective staffs achieving high reputations in their professional fields, particularly photography and filmmaking.
The end point of these processes was the existence, by mid-1990, of effectively a new entity: a tourism department without ‘and publicity’ and without any travel sales or other commercial role. It was for the first time roughly similar in its range of functions to many other national tourist offices, although still more comprehensive in its domestic development and research activities than the norm for a developed country.
Through this period it was not only Treasury and the government calling for privatisation. A group of industry heads led by Air New Zealand called for the core department to be abandoned in favour of a private sector entity. It would be managed by a board of themselves and receive all the government funding assigned to the department and more. They had been pushing for this in back corridors for a while, then around 1989 the government created the opportunity for this to be promoted in a very public way: the minister, Jonathan Hunt, called for a major tourism conference to be held at parliament to address what needed to be done to set and reach targets for tourism by 2000. He held a competition among the staff for a name, won by John Hanning, who was rewarded with a couple of bottles of wine for the title Tourism 2000: Grow For It.
The conference was divided on the matter of the department’s role and future. For the few big players an unequivocal endorsement of their proposal was the only thing that mattered, but the bulk of the medium and smaller businesses which provided most of the delegates were comfortable with the department. The upshot was the formation of a new industry (Air New Zealand) led grouping to consider strategic planning for the sector, with the hope by some it would lead to a tourism board. I went to its meetings, with a bit of an effort to appear enthusiastic — it was good at telling the department what it should do but not so good on seeing how they could work for the wider benefit of tourism beyond their own commercial focus.
The proposal to abolish the department was rejected by the government which announced, via press releases from Prime Minister Geoffrey Palmer and the minister, now Fran Wilde, a name change to New Zealand Tourism Department, or in shorthand from NZTP to NZTD. I launched it at the annual tourist industry conference shortly after. The press reported that the new department was well supported across the conference.
It was another feature of Grow For It that it considered projected tourism growth to 2000. The department forecast a doubling of tourist arrivals to around 1.86 million. In my speech I urged we should lift that to a plausible target of two million. Those arguing for a revitalised effort with a private sector board went for an implausible three million.
Despite the success of the new NZTD I knew throughout 1990 that it would not last. The National (opposition) Party announced early that year, an election year, that if it was in government after the November elections it would disband the department in favour of a private sector-led board, and it was clear that it would be elected. So by the end of 1990 I was discussing with my eighth new minister, John Banks, how best to form the department’s successor. Again it was difficult for staff over the year it took to establish the board, not knowing whether they would have a job, but their output and results were good nevertheless.
The upshot was to divide the department into two successors, in a classic policy/delivery split as was popular at the time. It had happened earlier to the departments of Transport, Education and others, the theory being that independent policy advice, not captured by the sector being advised about, was appropriately a core function of the public service, therefore requiring a ministry, while the delivery or implementation of programmes once approved and budgeted for was more efficiently carried out by entities separate from the public service with a private sector focus. The policy entities were invariably much smaller than those concerned with programme delivery.
There were many options on how a tourism board might be structured, and I urged John Banks that what New Zealand needed was one based on the Trade Development Board model, which contrary to Treasury’s wishes would be fully funded by the government with the legislative status of a Crown Entity. That is what happened. The high-level papers which Treasury and the SSC put to cabinet contained sparse detail of who would do what after the split, although some things were specified, for example that the policy entity to be established within the Ministry of Commerce would take over the department’s land-owning responsibilities, including the ongoing management of Wairakei Tourist Park, at least until these could otherwise be disposed of. And so one day, as the next year’s budget round was due, I sat down with the large document with the whole of the department’s expenditure in line-by-line detail and spent hours going through it — allocating this to the proposed board, that to the planned ministry. Where the items related to overseas marketing (to the board) or policy advice (to the ministry) the decision was clear enough, but there were plenty of others. I concluded that most of the domestic development support arrangements should go to the ministry, and they did. One of the trickiest was research, and I reluctantly decided there was no option but to split it, overseas market research to the board and other tourism research to the ministry.
Parliament passed legislation forming the independent New Zealand Tourism Board to come into effect on 1 November 1991. Air New Zealand’s chief executive Norman Geary was appointed chair and an Australian, Ian Kean, recruited as chief executive. The Ministry of Tourism was set up in I July of that year with the intention that I run both it and the rest of the department which was to become the board during that four-month period. But with the chairman-designate wanting a head start, that just didn’t work and, squeezing consent from the minister and the SSC, I left the department for the ministry in September, with a staffer scheduled to remain with the board taking over as acting chief executive of the rest of the department.
I felt strangely ready for the downsizing that the restructuring involved. Eleven years as a departmental CEO, however stimulating, had taken some toll. The Ministry of Commerce under John Belgrave, who asked me to join that ministry’s senior management team, offered a welcoming umbrella and I comfortably settled into my own smaller office there. The tourism staff was about 14 persons and far more intimate than the department had been. But they were survivors with plenty to do and keen to get going, and it was good to get to know them much better than I had been able to at the department.
A cabinet decision on the split might have been the end of the matter but no, Norman Geary and no doubt others on his board felt that the board should take over all the department’s functions and that there should be no ministry or other government office of tourism. And if they could not abolish it they sought constraints, such as that the ministry should not have publicly visible relations with the tourism industry or represent New Zealand tourism in intergovernmental talks on tourism, even when the other partner was a ministry and not the other country’s promotional arm.
I stayed with the ministry for three years and throughout this time the issue never went away. John Banks, the minister, was fully supportive of retaining the ministry and more than once, tiring of board lobbying, asked me to try again to resolve it. I would have another round of talks with Ian Kean but he was adamant that his position was determined by his board and that he could not change it. In the end it did not matter, the ministry got on with what it needed to do.
After a few months the board arranged a meeting with Prime Minister Jim Bolger to brief him on its plans. The prime minister’s office asked me to attend. Geary made a good presentation but with fewer significant changes than might have been expected. The essential marketing thrust was a major drive in Australia to increase greatly the number of Australians visitors. I mentally wished him well, we had tried so hard with modest success, and while to the end NZTP still had very substantial programmes in Australia, our main thoughts on the next round of dramatic growth had been focused on South Korea. At the end of the presentation Mr Bolger turned to me and asked, ‘What do you think, Neil?’ I felt there was only one answer: ‘It sounds good to me, Prime Minister.’ The new board had to be given its head, and reservations from me would sound like sour grapes.
It is no part of this memoir to review the performance of the board, which operated as Tourism New Zealand, but after a year or two Australian arrivals had not moved dramatically and the board was focusing, successfully, on South Korea. Over the rest of the decade it more or less achieved our expected visitor arrival numbers, getting somewhere up towards the two million mark by 2000. The industry’s three million remained a mirage.
The rapid evolution of the government’s tourism institutions over the five years or so from around 1988 to 1993 caused a minor industry at university schools of tourism as the subject matter for theses, and I spent a bit of time trying to help these student authors make their way through the labyrinth of change. Their end products show that they and their tutors basically read accurately the first round of change, to a department without commercial and non-tourism functions, but had a variety of issues about the subsequent split of the department into a board and ministry. These hinged on whether the development of New Zealand as a destination could be maintained appropriately given a perceived thrust of the board to focus solely on overseas marketing and the smallness of the ministry’s resources, on issues of co-ordination and overlap between the ministry and the board, whether the board was captured by a few major players particularly Air New Zealand and other such matters.
An early cab off the rank for the ministry was to tell the world what it was planning to do via a regular newsletter, ‘to keep central and local government, the tourism industry and related organisations informed about the ministry’s work and government policies that affect tourism.’ Its first issue was out by December of 1991, explaining the ministry’s role ‘to ensure that government policy makers consider tourism in the policy formation process … [And that] there is a consistent set of government policies applying to tourism.’
In practice it engaged with such things as the Local Government Reform bill (which for the first time made statutory provision for tourism in local government planning), DOC’s tourism management strategy, Immigration’s visitor permits policy, the application of the Resource Management Act to tourism, tax depreciation rates and ACC charges as these applied to tourism, provision for tourism’s road, public toilets and infrastructure requirements, the formation of Industry Training Organisations following the most unfortunate disbandment of New Zealand’s apprenticeship arrangements: it was a long list. Tourism’s environmental sustainability was a particular focus. It achieved its work by presentations and lobbying to other departments and local governments, through ministerial and cabinet submissions, by producing issues papers and convening various taskforces.
We continued with the Tourism Facilities Grant scheme and over those next years gave numerous grants to projects such as the walk-through native bird aviary in Auckland Zoo, the restoration of St Faith’s church in Rotorua, the Otago Peninsula (Royal Albatross) Trust, facilities on the Milford Sound road, the Auckland Maritime Museum and many others.
I became concerned with the inherent risk of tourism ‘flightseeing’ involving small fixed wing aircraft and helicopters taking tourists over land of high scenic value, usually mountainous. Aviation safety had recently become deregulated, with the abolition of inspectors and their replacement by a company self-inspection regime. I had no fears of this in respect of scheduled airlines, but the sector of small craft and small company sight-seeing was attractive to adventurous people who might not always see passenger safety as we might see it.
I proposed a meeting to the head of the CAA and was surprised to see five persons in dark suits turn up and surround the boardroom table. They looked rather determined and defensive. Clearly an overt concern from me about their system would not be productive. So I simply noted that we were forecasting a huge growth in air sightseeing over the rest of the decade and gave the figures, and said we needed to ensure that that sector of the industry was geared up to handle it. Could we institute a joint study of the nature of future demand and its likely impacts, and consider the optimum policies for both agencies to manage these? They liked that and the study went smoothly over the following year, with one outcome the formation of local operator groups at places like Franz Josef glacier where this sightseeing was concentrated, to ensure that they were all implementing safety regimes adapted to local conditions. Nevertheless I have noted over the years (such as an audit report in 2010) that the rigour of the CAA certification system for small aircraft operators remained an issue long after we raised it.
In a new direction I became strongly interested in how economic instruments could be applied to ensure environmental sustainability. These applied the principle that firms and individuals would always respond to financial incentives, positive and negative, in their resource use and other behaviours, and we commissioned the NZ Institute of Economic Research to prepare a discussion document on how they might be applied to the tourism sector in our national parks and reserves. It was an excellent report but did not get its due time in the sun because when we distributed an early draft of it on a confidential basis to the NZ Conservation Board for feedback, one of them leaked it to the press, with resulting headlines about tourism planning economic exploitation of our national parks and the like. One of my ministers was particularly annoyed to read this — we were awaiting the feedback and a more final text before briefing him and others.
Pricing and property rights were the key instruments identified on the report. Some were simple and already in some use, for example differential pricing, such as charging more to go to Milford Sound in summer than winter, which helped even out high season pressures. But most of the instruments were more complicated than that. Issuing a permit or concession, say to run a walking trip in a national park, was one thing; to make it a saleable permit was another, effectively creating a tradeable property right. The exclusive right and saleability encouraged investment in track upgrading and facilities and provided clear incentives to protect carefully the surrounding environment. The long established tradeable fishing quotas that New Zealand is admired for are a classic economic instrument applied for environmental management in a different sector.
Various user charges, emission charges, deposit-refund systems, reverse auctions (bidding down not up), taxes and subsidies were all in the bag of options, and we talked about these with the Department of Conservation and anyone else relevant, and wrote about them and addressed meetings on them. Years later the full potential for this approach in tourism has yet to be realised.