Prime Minister John Key's first meeting with Gordon Brown has been overshadowed by Britain's controversial new air-departure tax that the travel industry says threatens the billion-dollar UK tourist market.
Mr Key told Mr Brown that the tax was of "significant concern" to New Zealand and said he will continue to pursue the matter with the British government.
"The UK is our second largest [market] for tourism and it would put quite a significant impost on those travelling to New Zealand. Given that tourism is our largest export earner, I am quite concerned about the proposal," Mr Key said after his meeting overnight New Zealand-time with Mr Brown at Number 10 Downing Street.
The UK government announced the departure tax on Monday as part of its pre-budget package, which was aimed at stimulating the country's ailing economy.
The tax will increase the further a passenger flies to help offset carbon emissions. Travel to New Zealand attracts the highest of four levels of the tax because of its distance from the UK. The British government also plans to incrementally increase the tax from $113 to $240 by November 2010.
Mr Key said he was also concerned about a "contagion effect" that would cause other countries to follow Britain's lead and adopt a similar tax.
He would not comment on whether Mr Brown had given any reassurance that the UK would address New Zealand's concern.
"The issue needs to be progressed further," he said. "I put our case on the table and we will take it up again in due course."
Mr Key, who is also Tourism Minister, hinted that there could be other ways to "handle the situation" but would not be drawn on what they were.
However, he stressed that the issue would not sour New Zealand's "strong relationship" with Britain.
"This is a small issue that needs to be kept in perspective," he said.
Mr Key said his half-hour meeting with Mr Brown was a "broad ranging discussion" which centred primarily on the global economic crisis.
On Monday the British government cut its goods and services tax, called VAT, by 2.5 per cent to 15 per cent, however Mr Key ruled-out a similar cut to GST in New Zealand.
"We have campaigned very strongly on changes to personal income taxes and we intend to deliver those, but there will be no change to GST," he said.
New Zealand Tourism Association chief executive Tim Cossar yesterday said the British tourism market added about $1 billion a year to the New Zealand economy, and any impact on that - even of just a few per cent - could be worth many millions of dollars.
The United Kingdom is New Zealand's second biggest tourism market, with about 290,000 visitors in the past year, but numbers have dropped by 4 per cent from the year before.
The tax will more than double within two years - rising from the current 40 ($113) to 55 ($155) in a year and increasing again to 85 ($240) in November 2010.
It will also add to the costs for New Zealanders visiting Britain, who will have to pay it on their return flight.
About 94,000 New Zealanders went on short-term trips to the United Kingdom in the past year.
Mr Cossar said his association would be talking to Mr Key about the tax.
"It certainly could have an impact on price in what is considered a reasonably expensive ticket anyway.
"Travelling to the other side of the world isn't cheap, so it's just another thing that could go against us."
Hospitality Association of New Zealand chief executive Bruce Robertson said the passenger tax was "clearly of concern".
"I would consider this to be a protectionist measure - anti-trade ... they're using the guise of sustainability and conservation as a measure of putting in a trade barrier, and that's really at odds with all the discussions at APEC last week.
"This is a trade barrier to make it more difficult for Britons to travel long distance and, effectively, will be encouraging them to stay at home. In the tourism sector, this will be seen as a trade barrier."
The tax would probably further slow tourism, in what was already a tight economy.
"The projections in terms of tourism travel are not that flash in terms of forward bookings, so an additional disincentive to travel by way of extra tax is certainly not going to help," Mr Robertson said.
"We are already an expensive destination, We don't need any additional costs being imposed on us."
House of Travel sales director Brent Thomas said he believed the current economic climate, with "fairly significant" fuel surcharges on flights and rising unemployment rates, was more of a threat to the industry.
Fuel surcharges could in some cases add more than $500 to a flight from Britain to New Zealand, which was much more likely than the travel tax to affect travellers.
Green Party co-leader Russel Norman said such levies were inevitable as countries incorporated carbon emission costs into their prices.
But he said it was bad timing for the tourism industry which was already struggling.
The best way to counter it was to encourage people to stay for longer and improve New Zealand's environmental performance.
Mr Key's meeting with Mr Brown came during his whirlwind visit to Britain's capital.
Key's big day
During his 24-hour stay Mr Key had an audience with the Queen at Buckingham Palace, met the Mayor of London Boris Johnson and Conservative Party leader David Cameron.
He also had an emotional reunion with his long-lost half-brother Martyn Key and managed to find time during the day to visit the giant NZ rugby ball near Tower Bridge on three separate occasions.