Economic Contribution of the Tourism Accommodation Sector in Australia. Tourism Accommodation Australia

Transcription

1 Economic Contribution of the Tourism Accommodation Sector in Australia Tourism Accommodation Australia March, 2013

2 Document Control Job ID: Job Name: Client: Client Contact: Project Manager: Economic Contribution of the Tourism Accommodation Sector Tourism Accommodation Australia Rodger Powell Kieron Lacey Telephone: (07) Document Name: Last Saved: TAA Tourism Accomm Economic Impact (b) - AEC Group 12/3/ :49 AM Version Date Reviewed Approved Draft v1.0 16/10/2012 KL SS Draft v2.0 25/10/2012 KL Draft v3.0 31/10/2012 KL SS Draft v4.0 1/11/2012 KL SS Draft v5.0 2/11/2012 KL SS 12/11/2012 KL SS (b) 12/3/2013 KL SS Disclaimer: Whilst all care and diligence have been exercised in the preparation of this report, AEC Group Limited does not warrant the accuracy of the information contained within and accepts no liability for any loss or damage that may be suffered as a result of reliance on this information, whether or not there has been any error, omission or negligence on the part of AEC Group Limited or their employees. Any forecasts or projections used in the analysis can be affected by a number of unforeseen variables, and as such no warranty is given that a particular set of results will in fact be achieved. i

3 Executive Summary The tourism accommodation sector is comprised of establishments which provide predominantly short-term non-residential accommodation (i.e., accommodation which is not leased, and which is provided to guests who would generally stay for periods of less than two months). These establishments include: Licensed hotels and resorts. Motels, private hotels and guest houses. Serviced apartments. Caravan parks. Holiday flats, units and houses of letting entities. Visitor hostels. Tourism accommodation represents only a sub-set of activity generated by the accommodation industry as a whole, as it excludes expenditure and activity generated by long term guests staying at accommodation establishments. Tourism accommodation is a large contributor to the Australian economy Australia recorded a Gross Domestic Product (GDP) of $1.4 trillion (including $1.3 trillion in gross value added activity) during the financial year, and recorded over 11.3 million people employed. As tourism plays a part in almost every sector of the Australian economy, its contribution to GDP and employment is far reaching and cannot be overlooked. Table ES.1 provides a summary of the contribution of Australia s tourism accommodation sector to the national economy. Including direct and flow-on impacts, the tourism accommodation sector is estimated to have supported $18.0 billion in gross product in This accounts for 19.7% of total (direct and flow-on) gross product supported by the tourism industry as a whole, and 1.3% of total gross product generated by the Australian economy for the year. The tourism accommodation sector also supported some 213,862 jobs in (96,671 jobs through direct impacts and 117,191 jobs through flow-on impacts). This accounts for 23.1% of jobs supported by the tourism industry as a whole and 1.9% of total jobs supported by the Australian economy. Jobs supported by the tourism accommodation sector contributed over $9.2 billion to Australian household incomes. Table ES.1. Estimated Direct and Flow-On Contribution of the Tourism Accommodation Sector to the Australian Economy, Tourism Accommodation Sector Component Gross Product ($M) Gross Value Add ($M) Household Incomes ($M) Employment (Persons) Direct Contribution $6,164.6 $5,612.0 $3, ,671 Flow-On Contribution $11,880.1 $11,016.2 $5, ,191 TOTAL CONTRIBUTION TO AUSTRALIA $18,044.6 $16,628.2 $9, ,862 Source: ABS (2011c), AECgroup Tourism accommodation contributes to the Australian Government s tax revenue The tourism accommodation sector is estimated to have contributed $758.8 million in Australian Government tax revenue during , equating to 14 cents/dollar of gross value add directly produced by the sector. The tourism accommodation sector s average Australian Government tax contribution per dollar of gross value add is above the average paid by Australian industries (12 cents/dollar). ii

4 Table of Contents DOCUMENT CONTROL... I EXECUTIVE SUMMARY... II TABLE OF CONTENTS... III 1. INTRODUCTION BACKGROUND DEFINITION OF THE TOURISM ACCOMMODATION SECTOR GEOGRAPHIC SCOPE METHODOLOGY ECONOMIC CONTRIBUTION ASSESSMENT OVERVIEW OF THE AUSTRALIAN ECONOMY OVERVIEW OF THE TOURISM INDUSTRY CONTRIBUTION OF THE TOURISM ACCOMMODATION SECTOR CONTRIBUTION ASSESSMENT DIRECT & FLOW-ON CONTRIBUTION BY INDUSTRY CONTRIBUTION OF TOURISM ACCOMMODATION TO THE TOURISM INDUSTRY KEY FINDINGS AUSTRALIAN TAXATION CONTRIBUTION CONTRIBUTION TO AUSTRALIAN GOVERNMENT TAXES... 8 REFERENCES... 9 APPENDIX A: CONTRIBUTION ASSESSMENT METHODOLOGY APPENDIX B: TOURISM RESEARCH AUSTRALIA ESTIMATES OF TOURISM ECONOMIC CONTRIBUTION APPENDIX C: ALLOCATION OF AUSTRALIAN GOVERNMENT TAXES APPENDIX D: DIRECT CONTRIBUTION OF AUSTRALIA S TOURISM INDUSTRY.. 19 APPENDIX E: CONTRIBUTION OF TOURISM ACCOMMODATION iii

5 1. Introduction 1.1 Background Tourism Accommodation Australia (TAA) commissioned AEC Group Limited (AECgroup) to undertake an assessment of the economic contribution of Australia s tourism accommodation sector. The sector consists of organisations, establishments and individuals involved in operating accommodation for visitors travelling throughout Australia. 1.2 Definition of the Tourism Accommodation Sector The tourism accommodation sector is comprised of establishments which provide predominantly short-term non-residential accommodation (i.e., accommodation which is not leased, and which is provided to guests who would generally stay for periods of less than two months). These establishments include: Licensed hotels and resorts. Motels, private hotels and guest houses. Serviced apartments. Caravan parks. Holiday flats, units and houses of letting entities. Visitor hostels. The tourism accommodation sector distinguishes between visitors and long term guests within accommodation establishments. That is, the tourism accommodation sector excludes expenditure and activity generated by long term guests staying at accommodation establishments, and as such represents only a sub-set of activity generated by the accommodation industry as a whole. In order to determine the size of the tourism accommodation sector (as a proportion of the overall accommodation sector), the value of tourism spend on accommodation from the tourism satellite accounts (ABS, 2011c) was used. The tourism satellite accounts indicate the tourism component of the accommodation sector directly contributed 87.6% of the total accommodation sector s activity. 1.3 Geographic Scope The impacts for the tourism accommodation sector have been assessed in the context of Australia, comprising of all states and territories. 1.4 Methodology Estimates of the economic contribution of the tourism accommodation sector to the Australian economy are produced using Input-Output transaction tables and economic contribution models developed by AECgroup. Data sources used include National Accounts (ABS 2012b), Tourism Satellite Accounts (ABS 2011c), and Australian taxation data (ATO 2012, ABS 2012c). Measures used in this report include Gross Domestic Product (GDP), Gross Value Added (GVA) activity, employment, and household income (i.e., wages and salaries). Appendix A presents a detailed description of the methodology to estimate economic contribution. Estimates of the economic contribution of Australia s tourism industry as a whole have also been developed by AECgroup, following the same methodology outlined above and in Appendix A. AECgroup s estimates of flow-on activity supported by the tourism industry differ from those produced by Tourism Research Australia (TRA, 2012b). A comparison of AECgroup s estimates of the economic contribution of the tourism industry and TRA s is provided in Appendix B. The appendix also outlines the reasons why estimates used in this report differ from those produced by TRA, and rationale for adopting a different approach. 1

6 Estimates of the taxation contribution of the tourism accommodation sector to Australian government taxation revenues are developed based on results of the economic contribution modelling applied to taxation estimates. Appendix C presents a detailed description of the methodology to estimate taxation contribution. All estimates are presented in nominal terms (i.e., current prices in the year received), unless otherwise stated. 2

7 2. Economic Contribution Assessment 2.1 Overview of the Australian Economy Australia recorded a Gross Domestic Product (GDP) of $1.4 trillion (including $1.3 trillion in gross value added activity) during the financial year, and recorded just over 11.4 million people employed. Table 2.1 below provides a summary of GDP and employment by industry within Australia for the financial year. Table 2.1. Gross Domestic Product and Employment ( ) Industry Gross Domestic Product (GDP) Employment by Industry $M % No. % Agriculture, forestry and fishing $35, % 351, % Mining $123, % 205, % Manufacturing $108, % 991, % Electricity, gas, water and waste services $30, % 151, % Construction $99, % 1,033, % Wholesale trade $56, % 412, % Retail trade $61, % 1,234, % Accommodation and food services $31, % 776, % Transport, postal and warehousing $73, % 583, % Information media and telecommunications $40, % 215, % Financial and insurance services $137, % 406, % Rental, hiring and real estate services $29, % 206, % Professional, scientific and technical services $86, % 861, % Administrative and support services $32, % 400, % Public administration and safety $68, % 705, % Education and training $61, % 866, % Health care and social assistance $80, % 1,291, % Arts and recreation services $11, % 201, % Other services $23, % 458, % Ownership of dwellings $109, % n/a n/a Gross Sector Value Add (Total) $1,303, % - - Taxes Less Subsidies $97, Gross Domestic Product $1,401,167-11,354, % Sources: ABS (2011a), ABS (2012a), AECgroup 2.2 Overview of the Tourism Industry Australia s tourism industry directly contributed $34.6 billion to GDP in (with $31.5 billion through direct GVA). The leading contributor to Australia s tourism industry in was transport, postal and warehousing, contributing $6.8 billion in GVA (or 21.5% of total tourism GVA) followed by tourism accommodation ($5.6 billion in GVA or 17.8% of Australia s tourism sector) and food services ($4.8 billion in GVA or 15.4% of Australia s tourism sector). Appendix D contains a breakdown of the contribution to the tourism industry during

8 Figure 2.1. Contribution to the Tourism Industry s Gross Value Add Direct Tourism GVA ($M) Note: The tourism accommodation sector (and accommodation sector) is a service based sector, providing short term non-leased accommodation. The ownership of dwellings sector, by comparison, provides non-serviced accommodation options on a lease/ rental basis (e.g., private property owners that rent dwellings) and are therefore not included in the accommodation sector. Source: ABS (2011c). 2.3 Contribution of the Tourism Accommodation Sector Contribution Assessment The economic contribution of the tourism accommodation sector to the Australian economy is estimated across four key measures: Transport, postal and warehousing Tourism accommodation Food services Retail trade Ownership of dwellings Education and training Administrative and support services Arts and recreation services Rental, hiring and real estate services Health care and social assistance Information media and telecommunications Other services Financial and insurance services Professional, scientific and technical services Public administration and safety Wholesale trade Construction Electricity, gas, water and waste services Manufacturing Mining Agriculture, forestry and fishing $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 Gross Product: Refers to the value of all outputs of an industry including taxes/ subsidies on its final products after deducting the cost of goods and services inputs in the production process. Gross State Product (GSP) is the measure of a State s total gross production. Gross Value Add: Refers to the value of all outputs of an industry excluding taxes/ subsidies on its final products after deducting the cost of goods and services inputs in the production process. Household Incomes: Measures the level of wages and salaries paid to employees of each industry. Employment: Refers to the part-time and full-time employment positions supported by an industry, both directly and indirectly through flow-on activity. Employment has been estimated in terms of both total persons (full time and part time people employed) as well as in terms of full time equivalent (FTE) positions. Persons employed are presented in this section, with FTEs outlined in Appendix E. In , Australia s tourism accommodation sector was estimated to have directly generated approximately $6.2 billion in gross product. An additional $11.9 billion is estimated to have been supported by the tourism accommodation sector through flow-on activities. The direct contribution for Australia s tourism accommodation sector accounted for 0.4% of Australia s total gross product in , with flow-on activities contributing an additional 0.8% of Australia s gross product. Australia s tourism accommodation sector s gross value add (GVA) provided a similar contribution to Australia s total GVA directly (0.4% of Australia s GVA) and indirectly (0.8% of Australia s GVA). 4

9 Australia s tourism accommodation sector is estimated to directly support 96,671 jobs, which is equivalent to 0.8% of Australia s total employment. Australia s tourism accommodation sector is estimated to support a further 117,191 jobs through flow-on impacts. The Australian tourism accommodation sector, through direct and flow-on impacts supports a total of 213,862 jobs, 1.9% of Australia s total employment during Total household incomes associated with Australia s tourism accommodation sector are estimated to be 1.5% of Australia s total household income during (approximately $9.2 billion). A full breakdown of the direct and flow-on impacts of Australia s tourism accommodation sector can be found in Appendix E. Figure 2.2. Direct and Indirect Contribution of Tourism Accommodation Gross Product and Employment to Total Tourism Accommodation Impact Gross Product (in $Million) Employment (in Persons) Flow-On Type II Contribution, 0.5% of Australian total GDP, $6,899.9 Flow-On Type I Contribution, 0.4% of Australian total GDP, $4,980.2 Direct Contribution, 0.4% of Australian total GDP, $6,164.6 Flow-On Type II Contribution, 0.6% of Australian total Employment, 66,993 Flow-On Type I Contribution, 0.4% of Australian total Employment, 50,198 Direct Contribution, 0.8% of Australian total Employment, 96,671 Sources: ABS (2011c), AECgroup Direct & Flow-On Contribution by Industry Table 2.2 outlines the tourism accommodation sector s contribution to the Australian economy by industry. In addition to the direct contribution of $6.2 billion in gross product, flow-on activity generated by the tourism accommodation sector supports more than $1.0 billion in gross product in the sectors of financial and insurance services ($1.6 billion), manufacturing ($1.3 billion) and ownership of dwellings 1 ($1.3 billion). Direct employment supported by Australia s tourism accommodation was estimated at 96,671 jobs during The industries which received the largest employment through flow-on activities as a result of the tourism accommodation sector were retail trade (15,269 jobs), manufacturing (14,703 jobs) and administrative and support services (11,496 jobs). 1 Ownership of dwellings consists of landlords and owner-occupiers of dwellings. Owner-occupiers are regarded as operating a business that generates a gross operating surplus. The imputation of a rent to owner-occupied dwellings enables the services provided by dwellings to their owner-occupiers to be treated consistently with the marketed services provided by rented dwellings to their tenants. Owner-occupiers are regarded as receiving rents (from themselves as consumers), paying expenses, and making a net contribution to the value of production which accrues to them as owners (ABS (2007). This industry is included as it is a recognised sector of the economy and represents the payments for housing supported indirectly by the tourism accommodation sector through household incomes and expenditures. 5

10 Table 2.2 Estimated Tourism Accommodation Contribution to the Australian Economy by Industry Tourism Accommodation Sector Component Direct Contribution Gross Product ($M) Gross Value Add ($M) Household Incomes ($M) Employment (Persons) Tourism Accommodation Sector $6,164.6 $5,612.0 $3, ,671 Flow-on (Type I + II) Agriculture, forestry and fishing $621.5 $576.3 $ ,609 Mining $230.7 $213.9 $ Manufacturing $1,313.8 $1,218.3 $ ,703 Electricity, gas, water and waste services $404.0 $374.7 $ ,806 Construction $245.1 $227.2 $ ,573 Wholesale trade $586.1 $543.5 $ ,726 Retail trade $651.3 $603.9 $ ,269 Accommodation and food services (a) $307.8 $285.5 $ ,614 Transport, postal and warehousing $605.7 $561.7 $ ,434 Information media and telecommunications $688.6 $638.5 $ ,693 Financial and insurance services $1,591.2 $1,475.5 $ ,229 Rental, hiring and real estate services $382.3 $354.5 $ ,753 Professional, scientific and technical services $759.5 $704.2 $ ,003 Administrative and support services $922.3 $855.2 $ ,496 Public administration and safety $97.4 $90.4 $72.8 1,294 Education and training $324.3 $300.7 $ ,817 Health care and social assistance $357.9 $331.9 $ ,040 Arts and recreation services $127.9 $118.6 $72.9 2,599 Other services $310.1 $287.6 $ ,275 Ownership of dwellings $1,352.5 $1,254.1 $0.0 0 Total $18,044.6 $16,628.2 $9, ,862 Notes: Totals may not sum due to rounding. (a) Only non-tourism accommodation related activity is included for this industry classification. All tourism accommodation related activity is included in the tourism accommodation sector. Sources: ABS (2011c), AECgroup 2.4 Contribution of Tourism Accommodation to the Tourism Industry The tourism accommodation sector is estimated to have directly contributed 17.8% of Australia s total tourism industry s gross product in of $34.6 billion 2 (ABS, 2011c), and 20.9% of the tourism industry s flow-on gross product of $56.9 billion. Australia s tourism accommodation sector s contribution to total tourism industry GVA is estimated to be similar both directly (17.8% of tourism s GVA) and indirectly (20.9% of tourism s GVA). Australia s tourism accommodation sector is estimated to have supported 23.1% of the total employment supported by Australia s tourism industry (21.2% of total direct and 25.0% of flow-on tourism employment) during The total household incomes supported from Australia s tourism accommodation sector during were estimated to contribute to 21.9% of the total household incomes supported by the tourism industry (19.8% of direct and 23.3% of flow-on household incomes). Table 2.3 present a comparison of Australia s tourism accommodation sector to Australia s tourism industry. It should be noted the estimates of the tourism industry s flow-on contribution to the Australian economy presented in this section differ from those 2 Australia s tourism industry s main contributor in was the accommodation sector, contributing $5.6 billion in GVA, with the other main contributors to the tourism sector including: air, water and other transport ($4.8 billion), other retail trade ($3.7 billion), cafes, restaurants and takeaway food services ($3.5 billion), ownership of dwellings ($2.9 billion) and education and training ($2.4 billion). Further breakdowns of the contributors to the Australian tourism industry can be found in Appendix D. 6

11 produced by TRA (2012). A comparison between TRA and AECgroup s assessments is provided in Appendix B, as well as a description of the reasons the two estimates differ. Table 2.3. Estimated Contribution of the Tourism Accommodation Sector to the Tourism Industry, Tourism Industry Component Australia s Tourism Accommodation Sector Gross Product ($M/%) Gross Value Add ($M/%) Household Incomes ($M/%) Employment (Persons/%) Direct Contribution $6,164.6 $5,612.0 $3, ,671 Flow-On Contribution Production Induced (Type I) $4,980.2 $4,618.1 $2, ,198 Consumption Induced (Type II) $6,899.9 $6,398.2 $3, ,993 Total Flow-On Contribution $11,880.1 $11,016.2 $5, ,191 TOTAL CONTRIBUTION TO AUSTRALIA $18,044.6 $16,628.2 $9, ,862 Australia s Tourism Industry Direct Contribution $34,595.0 $31,495.0 $16, ,524 Flow-On Contribution Production Induced (Type I) $22,915.9 $21,249.6 $11, ,165 Consumption Induced (Type II) $33,952.9 $31,484.1 $13, ,208 Total Flow-On Contribution $56,868.9 $52,733.7 $24, ,373 TOTAL CONTRIBUTION TO AUSTRALIA $91,463.9 $84,228.7 $41, ,897 Tourism Accommodation s Contribution as a Proportion of the Overall Tourism Industry Direct Contribution 17.8% 17.8% 19.8% 21.2% Flow-On Contribution Production Induced (Type I) 21.7% 21.7% 24.2% 26.4% Consumption Induced (Type II) 20.3% 20.3% 22.5% 24.0% Total Flow-On Contribution 20.9% 20.9% 23.3% 25.0% CONTRIBUTION TO THE TOURISM INDUSTRY 19.7% 19.7% 21.9% 23.1% Notes: Totals may not sum due to rounding. Sources: ABS (2011c), AECgroup 2.5 Key Findings Based on the results presented in section 2.3 and 2.4, Australia s tourism accommodation sector is estimated to support in total: $18.0 billion in gross product ($6.2 billion through direct impacts and $11.9 billion through flow-on impacts). This accounts for 19.7% of gross product supported by the tourism industry as a whole and 1.3% of total gross product generated by the Australian economy. $16.6 billion in gross value add ($5.6 billion through direct impacts and $11.0 billion through flow-on impacts). This accounts for 19.7% of industry gross value added supported by the tourism industry as a whole and 1.3% of total gross value add generated by the Australian economy. $9.2 billion in household incomes ($3.4 billion through direct impacts and $5.8 billion through flow-on impacts). This accounts for 21.9% of household incomes supported by the tourism industry as a whole and 1.5% of household incomes supported by the Australian economy. 213,862 jobs (96,671 jobs through direct impacts and 117,191 jobs through flow-on impacts). This accounts for 23.1% of jobs supported by the tourism industry as a whole and 1.9% of total jobs supported by the Australian economy. 7

12 3. Australian Taxation Contribution 3.1 Contribution to Australian Government Taxes The tourism accommodation sector is estimated to have contributed $758.8 million in Australian Government tax revenue during , equating to 14 cents/dollar of gross value add produced by the sector. The tourism accommodation sector contributes to 87.6% of the total accommodation sector s Australian Government tax revenue (or 17.9% of the accommodation and food services sector s Australian Government tax contribution). The highest contributors of Australian Government tax revenue per dollar of GVA produced are wholesale trade (42 cents/dollar) and manufacturing (33 cents/dollar). The tourism accommodation sector s average Australian Government tax contribution per dollar of GVA is above the average taxes paid per dollar of GVA by Australian industries of 12 cents/dollar. Appendix C contains a full breakdown of Australian Government tax revenue during Figure 3.1. Contribution to Australian Government Taxes, Comparison of Tourism Accommodation Sector to Other Sectors of the Economy, Wholesale trade Manufacturing Financial and insurance services Rental, hiring and real estate services Professional, scientific and technical services Retail trade Administrative and support services Information media and telecommunications Tourism Accommodation Accommodation and food services (a) Arts and recreation services Construction Other services Transport, postal and warehousing Electricity, gas, water and waste services Mining Agriculture, forestry and fishing Health care and social assistance Education and training Ownership of dwellings Public administration and safety (b) Average All Industries -$0.20 -$0.10 $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 Tax per $1 of GVA Contributed ($) Note: (a) Only non-tourism accommodation related activity is included for this industry classification. All tourism accommodation related activity is included in the tourism accommodation sector. (b) The industry may not pay GST on goods produced; inputs which are used in the provision of goods and services may be purchased which include a GST component. As a result the industry may receive a GST refund as GST paid by the industry exceeds GST received. This may result in a negative GST contribution for the industry. An Australian Tax Office breakdown of taxes paid by industry can be found in Appendix B. Sources: ABS (2012b), ABS (2012c), ATO (2012) 8

13 References ABS (2007), Information paper: Gross State Product using the Production Approach, 2007, Cat. No , Australian Bureau of Statistics, Canberra ABS (2011a). Australian National Accounts: State Accounts, , Table 10. Expenditure, Income and Industry Components of Gross Domestic Product, Australia, Chain volume measures and current prices. Cat. No , Australian Bureau of Statistics, Canberra. Australian Bureau of Statistics (2011b). Australian National Accounts: National Income, Expenditure and Product, Sep Available from Last accessed 9 December, 2011). ABS (2011c). Australian National Accounts: Tourism Satellite Account, Cat. No , Australian Bureau of Statistics, Canberra. ABS (2011d). Australian National Accounts: National Income, Expenditure and Product, Jun Cat. No , Australian Bureau of Statistics, Canberra. ABS (2011e). Number of Employed Persons by Industry of Employment (ANZSIC 93 all 4 digit classification levels) by all Place of Work LGAs in Australia. Data provided by Information Consultancy Services, ABS, GPO Box 9817, Brisbane, QLD, ABS (2012a). Labour Force Australia, Detailed, Quarterly. Cat. No , Australian Bureau of Statistics, Canberra. ABS (2012b). Australian National Accounts: Input-Output Tables - Electronic Publication, Final. Cat. No , Australian Bureau of Statistics, Canberra. ABS (2012c). Taxation Revenue, Australia, Cat. No , Australian Bureau of Statistics, Canberra. ATO (2012). Taxation Statistics Australian Taxation Office for the Commonwealth of Australia, Canberra. TRA (2012a), State Tourism Satellite Accounts , Commonwealth Government Department of Resources, Energy and Tourism, Canberra TRA (2012b), Tourism s Contribution to the Australian Economy, to , Department of Resources, Energy and Tourism, Canberra West, G. (1993). Input-Output Analysis for Practitioners, Version 7.1, User s Guide. Department of Economics, University of Queensland, Brisbane. 9

14 Appendix A: Contribution Assessment Methodology The economic contribution estimates in this report are produced using Input-Output transaction tables and models developed by AECgroup for the purposes of this assessment, combined with data from a range of sources, including State Accounts data and various industry specific data from the ABS. The Input-Output models were used to produce estimates of the direct and flow-on contribution of Australia s tourism sector to the Australian economy in terms of output, gross value added activity, employment and income (i.e., wages and salaries). Overview of IO Modelling Input-Output (IO) analysis demonstrates inter-industry relationships within an economy, depicting how the output of one industry is purchased by other industries, households, the government and external parties (i.e. exports), as well as expenditure on other factors of production such as labour, capital and imports. IO analysis shows the direct and indirect (flow-on) effects of one industry on other industries and the general economy. As such, IO modelling can be used to demonstrate the economic contribution of an industry on the overall economy and how much the economy relies on this industry or to examine a change in final demand of any one industry and the resultant change in activity of its supporting industries. The economic contribution can be traced through the economic system via: Direct impacts, which are the first round of effects from direct operational expenditure on goods and services; and Flow-on impacts, which comprise the second and subsequent round effects of increased purchases by suppliers in response to increased sales. These effects can be identified through the examination of five types of impacts: IO Assumptions Output: Refers to the gross value of goods and services transacted, including the costs of goods and services used in the development and provision of the final product. Output typically overstates the economic impacts as it counts all goods and services used in one stage of production as an input to later stages of production, hence counting their contribution more than once; Value added: Refers to the value of output after deducting the cost of goods and services inputs in the production process. Value added defines the true net contribution and is subsequently the preferred measure for assessing economic impacts; Gross product: Gross product (or more commonly known as Gross Domestic/ State/ Regional Product) is a similar measure to value added, but also includes taxes less subsidies on the final goods and services produced. Gross product is the most commonly used headline measure of economic activity; Household Income: Measures the level of wages and salaries paid to employees of the industry under consideration and to other industries through flow-on activity; and Employment: Refers to the part-time and full-time employment positions generated by the economic shock, both directly and indirectly through flow-on activity. Employment has been estimated in terms of both total persons (full time and part time people employed) as well as in terms of full time equivalent (FTE) positions. The key assumptions and limitations of Input-Output analysis include: Lack of supply-side constraints: The most significant limitation of economic impact analysis using IO multipliers is the implicit assumption that the economy has no supply-side constraints so the supply of each good is perfectly elastic. That is, it is assumed that extra output can be produced in one area without taking resources 10

15 away from other activities, thus overstating economic impacts. The actual impact is likely to be dependent on the extent to which the economy is operating at or near capacity. Fixed prices: Constraints on the availability of inputs, such as skilled labour, require prices to act as a rationing device. In assessments using IO multipliers, where factors of production are assumed to be limitless, this rationing response is assumed not to occur. The system is in equilibrium at given prices, and prices are assumed to be unaffected by policy and any crowding out effects are not captured. This is not the case in an economic system subject to external influences. Fixed ratios for intermediate inputs and production (linear production function): Economic impact analysis using IO multipliers implicitly assumes that there is a fixed input structure in each industry and fixed ratios for production. That is, the input function is generally assumed linear and homogenous of degree one (which implies constant returns to scale and no substitution between inputs). As such, impact analysis using IO multipliers can be seen to describe average effects, not marginal effects. For example, increased demand for a product is assumed to imply an equal increase in production for that product. In reality, however, it may be more efficient to increase imports or divert some exports to local consumption rather than increasing local production by the full amount. Further, it is assumed each commodity (or group of commodities) is supplied by a single industry or sector of production. This implies there is only one method used to produce each commodity and that each sector has only one primary output. No allowance for economies of scope: The total effect of carrying on several types of production is the sum of the separate effects. This rules out external economies and diseconomies and is known simply as the additivity assumption. This generally does not reflect real world operations. No allowance for purchasers marginal responses to change: Economic impact analysis using multipliers assumes that households consume goods and services in exact proportions to their initial budget shares. For example, the household budget share of some goods might increase as household income increases. This equally applies to industrial consumption of intermediate inputs and factors of production. Absence of budget constraints: Assessments of economic impacts using multipliers that consider consumption induced effects (type two multipliers) implicitly assume that household and government consumption is not subject to budget constraints. Despite these limitations, IO techniques provide a solid approach for taking account of the inter-relationships between the various sectors of the economy in the short-term and provide useful insight into the quantum of final demand for goods and services, both directly and indirectly, generated by tourism accommodation on the Australian economy. Significance Assessment Versus Impact Assessment The framework employed in contribution (or significance) assessment differs from that employed in economic impact analysis. Economic contribution assessment primarily seeks to identify the contribution of an existing industry to an economy; by comparison, economic impact analysis quantifies the impact of a stimulus in a particular industry or in several industries (West, 1993). When assessing the economic contribution of an industry, the standard economic impact analysis approach is inappropriate. Economic impact analysis assumes that all the economic activity supported by an increase in final demand of the industry being examined is attributable to the change in final demand, and would not occur without that change in final demand. Economic contribution assessment, on the other other hand, is a description of the level of activity associated with an industry or sector, but it does not presume the activity would not occur if the industry or sector were absent. That is, regardless of whether or not the industry being examined ceased to exist within the economy of interest, there will still be demand for their outputs (e.g., a complete vehicle needs tyres so that whether or not the entire tyre manufacturer is closed down, the car manufacturer s demand for tyres still exists). From a modelling stance, economic significance (or contribution) assessment examines the impact to an economy if the 11

16 industry or industries being examined were to cease activity locally and assuming that demand for outputs of the industry/ industries to be assessed will instead be met by imports. Additional detail regarding the approach used for economic significance modelling is provided in West (1993). Model Development The models used in this assessment are derived from sub-regional transaction tables developed specifically for this project. The process of developing a sub-regional transaction table involves developing regional estimates of gross production and purchasing patterns based on a parent table, in this case the Australian transaction table (ABS, 2012b). Estimates of gross production (by industry) in the study area were developed based on the Australian gross output identified in the Australian table (as the assessment was for Australia as a whole. Industry purchasing patterns within Australia were estimated using a process of cross industry location quotients and demand-supply pool production functions as described in West (1993). In addition to the general limitations of Input-Output analysis, there are two other factors that need to be considered when assessing the outputs of sub-regional transaction table developed using this approach, namely: It is assumed the sub-region has similar technology and demand/ consumption patterns as the parent (Australia) table (e.g. the ratio of employee compensation to employees for each industry is held constant); and Intra-regional cross-industry purchasing patterns for a given industry vary from the national tables depending on the prominence of the industry in the regional economy compared to its input industries. Typically, industries that are more prominent in the region (compared to the national economy) will be assessed as purchasing a higher proportion of imports from input industries than at the national level, and vice versa. Input-Output tables utilise an aggregated system of industry classifications based on the ANZSIC system. In total, the Input-Output tables produced by the ABS (2012b) define 111 distinct industries. Significance Assessment Approach The contribution assessment is initially undertaken for the financial year to be consistent with the Input-Output transaction tables utilised. These estimates are then rebased to values using: Data from the National Accounts (ABS, 2011a) to identify growth between and in gross product and gross value add for each industry of the economy; Data on labour productivity increases (ABS, 2011b) to identify changes in productivity per employee for each industry between and These estimates were then applied to production (estimated above) to identify preliminary employment estimates for each industry; Employment estimates above represent full time equivalents (FTEs). Estimates of total persons employed in were developed using a ratio of total persons employed in each industry in Australia in outlined in the ABS labour force survey (ABS, 2012a) compared to total FTEs in each industry outlined in the national transaction tables. The ratio for each industry was assumed to hold constant across states and years; Employed person estimates in for each industry calculated using the ratios above were then rebased to equal the average employment estimates for each industry across the quarters August 2010, November 2010, February 2011 and May 2011 in the ABS labour force survey (ABS, 2012a). By using this approach, the sum of all employment estimates by the 111 Input-Output sub-industries totalled the 12

17 average ABS labour force survey estimate across these four quarters in each industry group; and Estimates of incomes in were obtained assuming that the relationship between income and output in remains constant, which is consistent with the stylised fact of cost shares of output being close to constant over the long-term. Estimates of the flow-on effects of the Australian tourism accommodation sector in are obtained assuming constant proportion between individual industries flowon effects and the direct (total) effects (output, GVA, income and employment) in Since the relationship between industries is likely to have changed over this period, the estimates produced are indicative only. In the absence of a more recent Input-Output transaction table, which forms the basis to quantify the inter-relationships between industries, the estimates produced represent the flow-on effects of Australia s tourism accommodation sector assuming no significant structural changes in the relationship between industries. 13

18 Appendix B: Tourism Research Australia Estimates of Tourism Economic Contribution Tourism Research Australia (TRA 2012b) has released a publication outlining the tourism industry s contribution to the Australian economy in A summary of these estimates is provided in the table below. Table B.1. TRA Estimates of Tourism s Contribution to the Australian Economy ( ) Tourism Industry Components Tourism Gross Product ($M) Tourism Gross Value Add ($M) Tourism Employment ( 000 Persons) Direct Contribution $34,595 $31, Flow-On Contribution (Type I) $38,692 $37, Total Contribution $73,287 $69, Source: TRA (2012b) AECgroup s estimates of the tourism industry s contribution to the Australian economy in are provided in Table B.2. As can be seen, AECgroup s estimates of tourism s flow-on contributions differ from those produced by TRA (2012b), as do the direct employment estimates. The difference in estimates is due to several reasons, most notably because AECgroup has: Applied a different modelling approach. Used more recent input-output transaction tables. Included both type I and type II flow-on impacts. These reasons are examined in more detail below the table. Table B.2. AECgroup Estimates of Tourism s Contribution to the Australian Economy ( ) Tourism Accommodation Sector Component Tourism Gross Product ($M) Tourism Gross Value Add ($M) Employment (Persons) Direct Contribution $34,595.0 $31, ,524 Flow-On Contribution Production Induced (Type I) $22,915.9 $21, ,165 Consumption Induced (Type II) $33,952.9 $31, ,208 Total Flow-On Contribution $56,868.9 $52, ,373 TOTAL CONTRIBUTION TO AUSTRALIA $91,463.9 $84, ,897 Notes: Totals may not sum due to rounding. Sources: ABS (2011c), AECgroup Modelling Approach AECgroup conducted the modelling for the economic contribution of Australia s tourism accommodation sector and Australia s tourism industry using an economic significance assessment approach as outlined in West (1993), whereas TRA conducted their assessment from an economic impact assessment approach. While both techniques use Input-Output transaction tables, the two approaches use different sets of flow-on (indirect) multipliers, and as a result different estimates will be observed. An overview of the differences between an economic significance (or contribution) assessment and economic impact assessment is provided in Appendix A. The differences in modelling approach are driven by the different outcomes sought: An economic contribution assessment seeks to understand and quantify the contribution of an existing industry (or sector) operating within an economy. That is, the industry is imbedded within the economy with existing supply chains. An economic impact assessment seeks to understand the impact of an additional stimulus through the economy arising from a potential increase in final demand for products or services produced by an industry (or sector). 14

19 To identify the contribution of an industry (or sector) to an economy, it is necessary to compare the economy with and without the industry in question (West, 1993). To achieve this, an economic contribution modelling approach examines the impacts of removing the industry (or sector) from the economy of interest (i.e., making it an exogenous variable within the Input-Output multiplier calculations). Final demand in all other industries is assumed to remain unchanged in the transaction table, with inputs purchased from the industry in question assumed to be imported if the industry is no longer present in the economy. By transferring the industry of interest to an exogenous variable, but maintaining final demand for all other sectors, we can then identify the level of economic activity that is reliant on the industry being within the economy (i.e., is generated as a result of intermediate purchases of goods and services by the industry in question). This is calculated as the change in economic activity between the with and without industry scenarios, using multipliers incorporating the industry in question s supply chain as exogenous, but demand for the industry in question s outputs by other industry as endogenous. The approach results in a modified equation to develop multipliers compared to traditional impact assessment. The approach used by AECgroup to modify the equation is consistent with that presented in West (1993). As can be expected, modifying the equations used results in different multipliers being produced for contribution assessment versus impact assessment. Additional detail regarding the differences in calculation methods is provided in West (1993). Transaction Tables Used Differences in AECgroup s modelling results and TRA s results can also be attributed to the Input-Output tables used to conduct the assessment. AECgroup used Australian Bureau of Statistics most recent Input-Output transaction tables as the basis for assessment, whereas TRA used Input-Output transaction tables. Flow-On Impacts Included AECgroup has included both production induced (type I) and consumption induced (type II) flow-on impacts whereas TRA has only included type I. Type II multipliers outline the level of activity typically supported by household incomes (and subsequent consumption) being recirculated through the economy. Limitations of using type I and type II multipliers is examined in Appendix A. 15

20 Appendix C: Allocation of Australian Government Taxes Australian Government Taxes Australian Government tax revenues by industry can be found in Table C.1 below. Table C.1. Australian Government Tax Revenue by Industry ( ) Sector Tax Estimates ($M) Contribution to GVA ($M) Tax Per $1 of GVA Contributed ($) Tourism Accommodation $758.8 $5,612.0 $0.14 Agriculture, forestry and fishing $829.0 $35,916.0 $0.02 Mining $3,961.9 $123,306.0 $0.03 Manufacturing $35,552.9 $108,305.0 $0.33 Electricity, gas, water and waste services $1,454.2 $30,883.0 $0.05 Construction $12,189.1 $99,866.0 $0.12 Wholesale trade $23,936.5 $56,646.0 $0.42 Retail trade $9,584.8 $61,032.0 $0.16 Food services $3,489.8 $25,908.0 $0.13 Transport, postal and warehousing $4,764.9 $73,803.0 $0.06 Information media and telecommunications $5,635.7 $40,749.0 $0.14 Financial and insurance services $33,865.2 $137,619.0 $0.25 Rental, hiring and real estate services $6,809.1 $29,800.0 $0.23 Professional, scientific and technical services $13,972.3 $86,574.0 $0.16 Administrative and support services $4,552.8 $32,419.0 $0.14 Public administration and safety (b) -$10,362.0 $68, $0.15 Education and training $428.0 $61,261.0 $0.01 Health care and social assistance $1,035.8 $80,232.0 $0.01 Arts and recreation services $1,416.7 $11,288.0 $0.13 Other services $2,849.4 $23,981.0 $0.12 Ownership of dwellings $25.3 $109,951.0 $0.00 Total All Industries $156,750.1 $1,303,373.0 $0.12 Not allocated (a) $131,323.9 Total Australia $288,074.0 $1,303,373.0 $0.22 Note: (a) Taxes that have not been allocated to an industry include personal income tax, fringe benefits tax, income tax paid by superannuation funds and income levies on non-residents. Note: (b) The industry may not pay GST on goods produced; inputs which are used in the provision of goods and services may be purchased which include a GST component. As a result the industry may receive a GST refund as GST paid by the industry exceeds GST received. This may result in a negative GST contribution for the industry. An Australian Tax Office breakdown of taxes paid by industry can be found in Appendix B. Sources: ABS (2012b), ABS (2012c), ATO (2012) Australian Government taxation revenues have been allocated to the tourism accommodation sector based on the allocation approach outlined in Table C.2. 16

21 Table C.2. Allocation of Australian Government Taxes to Property Related Activities Tax Item Tax ($M) Method of Allocation Income Taxes Levied on Individuals Personal Income Tax Fringe Benefits Tax Total Income Taxes Levied on Individuals $138,423 Income Taxes Levied on Enterprises Company Income Tax Income Tax Paid by Superannuation Funds Total Income Taxes Levied on Enterprises $64,801 $135,075 Small proportion allocated to industry based on ATO tax liabilities, rest not allocated to industry (household tax) $3,348 Allocated by industry based on ATO tax liabilities $58,118 Allocated by industry based on ATO tax liabilities $6,683 Allocated to financial and insurance services Income Levied on Non-Residents $1,707 Not allocated household tax Government Borrowing Guarantee Levy $13 Public administration levy Employers Payroll Taxes $505 Across by industry based on ATO tax liabilities Taxes on the Provision of Goods Services Goods and Services Tax (GST) General Taxes (Sales Taxes) Excises and Levies Taxes on International Trade Other Taxes on Provision of Goods and Services Total Taxes on Provision of Goods and Services $82,625 Total Taxation Revenue $288,074 Source: AECgroup, ABS (2012c), The Treasury (2010), ATO (2012) $48,093 Across by industry based on ATO tax liabilities $1,236 Retail trade $26,619 Across by industry based on ATO tax liabilities $5,839 Allocated to industry based on duties paid outlined in the Input-Output transaction table $838 Allocated to industry based on industry direct contribution to GVA Taxation liability by industry across a range of taxes is provided in Table C.3, as outlined by the Australian Taxation Office (ATO, 2012). 17