Hawaii State Budget Burden Will Be Passed On To Consumers and Drivers

by Staff on May 3, 2011

New tax bills may force hotels and airlines to increase their rates

If escalating gas prices and a sluggish economy weren’t enough to discourage residents and visitors alike from opening their wallets and diving into the consumer economy, the forthcoming tax increases could be.

While consumers won’t see an anticipated increase in the tax on alcohol or a new tax on soda that Governor Abercrombie had hoped for, they are likely to notice an increase in the cost of consumer goods and travel.

From July 2011 through June 2013, businesses such as Hawaiian Airlines and Matson will be subject to a four percent general excise tax (GET).  As they experience the suspension of their GET exemptions, the added expense will inevitably be passed onto consumers.  The Hawaii Harbors Users Group expressed their concern, stating in their testimony in opposition to the bill, “With approximately 98 percent of Hawaii’s imported goods passing through our harbors … we anticipate that this bill will result in a significant increase in cost to Hawaii’s residents and businesses”  (Source).  While the bill is expected to raise $173 million per year for the two years it is in effect, this estimate may be overly optimistic.  With an increase in costs to consumers, a decrease in consumer spending may result.

And if the actual revenue collected does prove to be less than estimated, the state’s budget director, Kalbert Young, reported that additional cuts to government programs and services would be required.

But first the state will attempt to squeeze revenue from other sources, including the Transient Accommodations Tax (TAT), rental car fees, and vehicle registration and weight fees.

The TAT revenue – that is collected on hotel room bookings and intended to aid in the upkeep of accommodations and services to visitors – will be capped at $85 million, leaving the four counties that rely on the TAT money (Honolulu, Maui, Hawaii, Kauai) to cover costs beyond this amount, while the state struggles to balance the budget.  Again, the expense may be shifted to the consumer, who is likely to see increased hotel rates as a result.

Visitors and residents will also be asked to dig even deeper into their wallets if they plan to rent or register a vehicle.  Daily rental surcharges will increase from $3 to $7.50 and vehicle registration fees will surge from $25 to $45.

The state deficit is undeniable.  And the need to balance the budget is unarguable.  But if lawmakers proceed to do so at the increased cost to the consumer, the local economy will continue to suffer.  Perhaps it is time to take another look at alternative sources of revenue that can provide additional monies without overburdening residents and visitors or overtaxing the state’s already floundering tourism industry.

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