A lesson in Kiwi economics

Following the 2003 America’s Cup, the opportunity to host the event has been put out to bid, but Valencia lost money in 2007, San Francisco said no after 2013, Bermuda didn’t get the chance after 2017, and now Auckland is not eager to meet the asking price after 2021.

Kiwi Chris Mitchell offers this lesson for how money flows in New Zealand:

American readers may not know the ins and outs of the much-discussed NZ taxpayer funding. All imported goods and all goods and services sold in NZ attract a 15% tax called GST. There are no exceptions – not for food, medicine, etc.

GST is a federal tax in the US context, and this means that entirely separate to the NZ income tax of the employees of the NZ and foreign teams that the NZ government ‘earns’, there is an additional 15% GST earnt by central government for every dollar spent.

As a result, the ‘federal’ government earns an enormous amount whereas the costs borne by Auckland are largely funded by local ratepayers who have the misfortune to live there and endure additional traffic jams. Auckland city has to go cap in hand to central government to beg for money… and they hate Auckland.

If central government gets an additional income of say $500M, then it is a pretty good deal to pay $250M to seal the deal of the Cup coming to NZ. The NZ taxpayer then actually makes a sizeable surplus over and above what would otherwise go into the tax accounts that helps to pay for schools, hospitals, and all things funded publicly and free (ish). I’ll wager that NZ governments are laughing all the way if the full truth were ever published and if they even had a clue.

Therefore, it is very myopic and convenient for political commentators to seize upon one aspect of this and to ignore the other side of the ledger. If say, the NZ Symphony Orchestra was able to generate extra hundreds of million in the tax take, by running some event, I am sure they could do a deal to cover some extra trombone costs too.

It is a distortion for NZ politicians to imply visiting AC teams don’t pay their own way. AC teams pay plenty. Income tax in NZ is typically 30% and the single largest component of running an AC team is wages. Plus, as the challenging teams are not residents, hospital costs, etc are not free so they will need medical insurance for team members.

If only four teams each spend $100M on wages, that is approximately $180M in GST and Income tax without any consideration of tourism or broadcast spending, nor team bases and hotels, nor extra activity in the economy servicing and fueling 300hp outboards.

Looking back to Cups in 2000 and 2003, they were creaming it with large numbers of teams and they need to get back to that to make the sums work. The only thing that remains is for TNZ to prove to the government they can get there from here, to generate a huge surplus once more, and regardless of COVID, that seems a big call with the AC75 uptake.