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Commercial-in-Confidence<br />

28 July 2009<br />

<strong>KI</strong> <strong>Traveller's</strong> <strong>Levy</strong> <strong>Economic</strong> <strong>Impact</strong><br />

<strong>Assessment</strong><br />

Report by Access <strong>Economic</strong>s Pty Limited for<br />

<strong>Kangaroo</strong> <strong>Island</strong> Council


Commercial-in-Confidence<br />

<strong>KI</strong> Traveller’s <strong>Levy</strong><br />

<strong>Impact</strong> <strong>Assessment</strong><br />

TABLE OF CONTENTS<br />

EXECUTIVE SUMMARY ........................................................................................................ 1<br />

1. Introduction and background ..................................................................................... 3<br />

1.1 <strong>KI</strong> regional profile ................................................................................................................. 4<br />

1.2 <strong>KI</strong> tourism industry profile .................................................................................................... 6<br />

1.3 Why consider a Traveller’s <strong>Levy</strong> for <strong>KI</strong> ............................................................................10<br />

1.4 Case studies and examples ...............................................................................................11<br />

2. The economics of a Traveller’s <strong>Levy</strong> ....................................................................... 15<br />

2.1 Efficient design criteria .......................................................................................................15<br />

2.2 Efficient taxes and the elasticity of demand .......................................................................15<br />

2.3 Principles of efficient cost recovery....................................................................................16<br />

3. Design considerations .............................................................................................. 18<br />

3.1 The elasticity of demand for tourism: a literature review ...................................................18<br />

3.2 Design specifications .........................................................................................................21<br />

3.3 Conclusions ........................................................................................................................23<br />

4. Modelling and analysis ............................................................................................. 24<br />

4.1 Establishing the revenue target .........................................................................................24<br />

4.2 Model framework and parameters .....................................................................................24<br />

4.3 Options modelled ...............................................................................................................27<br />

4.4 Model results ......................................................................................................................27<br />

4.5 Sensitivity analysis .............................................................................................................30<br />

4.6 Discussion and implications ...............................................................................................33<br />

5. Administration and implementation ......................................................................... 36<br />

5.1 How would a levy be charged and collected ....................................................................36<br />

5.2 Assessing the costs of administration and implementation ...............................................37<br />

5.3 The feasibility of exempting locals .....................................................................................38<br />

5.4 Potential impediments and barriers ...................................................................................38<br />

5.5 Key factors in successsful introduction ..............................................................................39<br />

6. Summary and conclusions ....................................................................................... 40<br />

7. References ................................................................................................................. 42<br />

Appendix A: <strong>KI</strong> Traveller Survey ....................................................................................... 43<br />

Appendix B: List of consultations ..................................................................................... 44<br />

Appendix C: Key consultation discussion points ............................................................ 45<br />

Appendix D: Comparing TRA and TOMM data ................................................................. 47


Commercial-in-Confidence<br />

<strong>KI</strong> Traveller’s <strong>Levy</strong><br />

<strong>Impact</strong> <strong>Assessment</strong><br />

FIGURES<br />

Figure 1.1: <strong>Kangaroo</strong>s <strong>Island</strong> and surrounds 4<br />

CHARTS<br />

Chart 1.1: <strong>Kangaroo</strong> <strong>Island</strong> industry profile 6<br />

Chart 1.2: International visitor nights to <strong>KI</strong> by country of origin, 2008 7<br />

Chart 1.3: Domestic overnight visitors to <strong>KI</strong> by origin, 2008 8<br />

Chart 1.4: Overnight visitors to <strong>Kangaroo</strong> <strong>Island</strong> by length of stay, 2008 9<br />

Chart 1.5: Main method of visitor transport on the island, 2007-08 11<br />

Chart 1.6: Annual EMC collections 13<br />

Chart 2.1: Rising price-elasticity of demand and tax efficiency 16<br />

TABLES<br />

Table 1.1: Population characteristics of <strong>Kangaroo</strong> <strong>Island</strong> 5<br />

Table 1.2: <strong>Kangaroo</strong> <strong>Island</strong> visitation, 2007-08 6<br />

Table 1.3: Expenditure by tourists on <strong>KI</strong>, average of three years to June 2007 7<br />

Table 1.4: Visitors to <strong>Kangaroo</strong> <strong>Island</strong> by purpose of trip, 2007-08 8<br />

Table 1.5: International visitor length of stay on <strong>KI</strong> by length of stay in Australia, 2008 9<br />

Table 3.1: National park estimates of elasticity from the literature 19<br />

Table 3.2: General travel elasticity estimates from the literature 20<br />

Table 4.1: Weightings for international growth rate forecast 25<br />

Table 4.2: Modelled price elasticity of demand 25<br />

Table 4.3: Per-visitor expenditure by visitor type 11 26<br />

Table 4.4: Option 1 modelling results 28<br />

Table 4.5: Option 2 modelling results 28<br />

Table 4.6: Option 3A modelling results 29<br />

Table 4.7: Option 3B modelling results 29<br />

Table 4.8: Option 4 modelling results 30<br />

Table 4.9: Price elasticity sensitivities, Option 1, 2011 31<br />

Table 4.10: Forecast demand growth sensitivities, Option 1, 2011 31<br />

Table 4.11: Improved quality sensitivity 33


Commercial-in-Confidence<br />

<strong>KI</strong> Traveller’s <strong>Levy</strong><br />

<strong>Impact</strong> <strong>Assessment</strong><br />

EXECUTIVE SUMMARY<br />

Access <strong>Economic</strong>s was engaged by the <strong>Kangaroo</strong> <strong>Island</strong> (<strong>KI</strong>) Council to undertake a study of<br />

the likely economic impacts of a levy on travellers to <strong>Kangaroo</strong> <strong>Island</strong> (a ‘Traveller’s <strong>Levy</strong>’).<br />

The aim of the study was to explore whether the <strong>KI</strong> circumstances justify the introduction of a<br />

Traveller’s <strong>Levy</strong> and to analyse what impacts such a levy would likely have on the local<br />

tourism industry, as well as residents, visitors and the broader economy. In addition, the<br />

study was tasked with canvassing options for design and administration and identifying<br />

practical impediments to the introduction and collection of such a levy.<br />

Context and background<br />

The financial position of <strong>KI</strong> Council necessitates it securing alternative sources of revenue<br />

and the <strong>KI</strong> circumstances warrant the introduction of a charge such as a Traveller’s <strong>Levy</strong> as<br />

one option for achieving this. The combined impacts of a small rate-payer base and higher<br />

than average per-capita service-delivery costs, together with significant levels of tourism<br />

activity – a key contributor to these service-delivery costs – provide a rationale for a userpays<br />

motivated levy on tourists.<br />

Assessing the impacts of a levy<br />

The impacts of a Traveller’s <strong>Levy</strong> on the <strong>KI</strong> economy will be determined, among other things,<br />

by its effects on tourism visitation and expenditure, which in turn are a function of the<br />

responsiveness of visitation to changes in price. Demand for visitation to <strong>KI</strong> is likely to be<br />

less sensitive to price (and hence a levy) than tourism on average due to the relatively<br />

unique nature of the <strong>KI</strong> tourism experience (i.e. the limited number of substitutes) and high<br />

level of visitation by international visitors.<br />

Raising Council’s revenue target of $1.8 million annually is estimated to require a per-visitor<br />

levy of between $8 and $11, depending on its specifications. Considering purely the price<br />

effects of a levy of this magnitude and taking no account of the impacts of any associated<br />

improvement in tourism infrastructure, the reduction in visitation to <strong>KI</strong> – and by extension<br />

tourism expenditure on the <strong>Island</strong> – is estimated to be relatively modest at between 2 and<br />

3%. The analysis suggests this finding can be readily scaled to revenue targets of other<br />

magnitudes within a reasonable range.<br />

Five alternative levy options have been modelled (Table A, below).<br />

TABLE A: SUMMARY OF MODELLING RESULTS, $1.8 MILLION REVENUE TARGET; 2011<br />

<strong>Levy</strong> specifications <strong>Levy</strong> rate Reduction in<br />

visitation<br />

Reduction in tourism<br />

expenditure<br />

Per-visitor levy<br />

All travellers $ 8.55 4,260 $1.87m<br />

All travellers excluding children $ 9.41 4,550 $1.84m<br />

All travellers excluding residents $10.23 5,530 $2.06m<br />

All travellers excluding res.& children $11.34 5,480 $2.03m<br />

Per-night levy $ 2.99 5,110 $2.42m<br />

1


Commercial-in-Confidence<br />

<strong>KI</strong> Traveller’s <strong>Levy</strong><br />

<strong>Impact</strong> <strong>Assessment</strong><br />

The loss of visitation under the options is estimated to vary from around 4,000 to 5,500 in<br />

2011, with the exclusion of residents placing a greater share of the burden on visitors and<br />

hence resulting in a greater impact on tourist numbers. Foregone tourism expenditure is<br />

estimated at between $1.84 and $2.42 million. Compared with a per-visitor levy, a per-night<br />

levy shifts the burden away from day visitors and onto the relatively high-yield domestic<br />

overnight and international segments of the market. Accordingly, though the net impact on<br />

visitor numbers is smaller, the impact on total expenditure is greater. In addition, though the<br />

impacts are unlikely to be great, a per-night levy would also serve as a marginal disincentive<br />

to longer stays.<br />

However, these results do not take into account the likelihood of a continued deterioration in<br />

the condition of tourism infrastructure in absence of a levy potentially reducing tourism<br />

visitation over time. Or, moreover, that improved or better-maintained infrastructure may in<br />

fact buoy tourism demand for <strong>KI</strong> – a response which would appear not unlikely given current<br />

perceptions toward the quality of road infrastructure. Indeed, the improvement in quality<br />

generated by the levy revenue could be expected to at least partially offset, and potentially<br />

entirely outweigh, the price effects of a levy.<br />

Design and administration<br />

Though the most efficient levy design would involve exclusion of residents and a differential<br />

levy based on traveller characteristics and length of stay, the logistics of collection and the<br />

need to ensure the costs of compliance and administration are not overly onerous, suggest a<br />

flat per-passenger charge, with a potential reimbursement facility for local residents travelling<br />

by air. Given SeaLink currently offer residents a concessional fare, it would be feasible<br />

within the existing pricing structure to exclude residents travelling by ferry. If it could be<br />

achieved cost-effectively, equity considerations would also warrant excluding children.<br />

While a direct charge would provide Council with greatest control over the specifications of a<br />

levy, it is not clear that the Council (through state government legislation) would have the<br />

capacity to regulate such a levy. In light of this, the most feasible mechanism for introducing<br />

a levy would likely be through an increase in wharfage and landing fees, though in this case,<br />

some control over the specifics of the levy would be foregone. Irrespective, introduction of a<br />

Traveller’s <strong>Levy</strong> would likely face a number of practical and legal impediments, including<br />

strong resistance from key operators within the industry.<br />

Conclusions<br />

Ultimately, the net impacts of a Traveller’s <strong>Levy</strong> on <strong>Kangaroo</strong> <strong>Island</strong> would depend on the<br />

how the levy revenue was expended. Though the revenue collected is estimated to be at<br />

least broadly equivalent to the foregone tourism income – and when the impacts of improved<br />

tourism infrastructure are considered may in fact considerably outweigh it – the benefits of a<br />

levy are not in the revenue itself, but rather in the value of the services this generates.<br />

Provided the additional funds are allocated efficiently, improving amenity for residents and<br />

enhancing the tourism experience for visitors, a Traveller’s <strong>Levy</strong> is likely to generate net<br />

benefits for the <strong>KI</strong> community.<br />

Access <strong>Economic</strong>s<br />

July 2009<br />

2


Commercial-in-Confidence<br />

<strong>KI</strong> Traveller’s <strong>Levy</strong><br />

<strong>Impact</strong> <strong>Assessment</strong><br />

1. INTRODUCTION AND BACKGROUND<br />

Access <strong>Economic</strong>s was engaged by the <strong>Kangaroo</strong> <strong>Island</strong> (<strong>KI</strong>) Council to undertake a study of<br />

the likely economic impacts of a levy on travellers to <strong>Kangaroo</strong> <strong>Island</strong> (a ‘Traveller’s <strong>Levy</strong>’).<br />

The aim of the study was to explore whether the <strong>KI</strong> circumstances justify the introduction of a<br />

Traveller’s <strong>Levy</strong> and to analyse what impacts such a levy would likely have on the local<br />

tourism industry, on residents, on visitors and on the broader economy.<br />

In addition, the study was tasked with canvassing options for design and administration and<br />

identifying practical impediments to the introduction and collection of a levy. Excluded from<br />

this is an assessment of any legal obstacles that the introduction of a Traveller’s <strong>Levy</strong> would<br />

face – though such issues are noted throughout this report, they have not been analysed indepth<br />

here and would need to be investigated in a dedicated piece of analysis.<br />

The approach to the study has been a multi-faceted one. Detailed desktop research was<br />

undertaken to survey the literature on the responsiveness of tourists to taxes and charges<br />

and to identify relevant case studies and examples which might inform the study. A purposebuilt<br />

economic model was constructed to simulate the impacts of a Traveller’s <strong>Levy</strong> on the <strong>KI</strong><br />

economy under a range of alternative assumptions and designs. In addition, key<br />

stakeholders were consulted to canvass views toward a potential levy, collect anecdotal<br />

evidence of the possible impacts and explore practical issues and impediments to collection<br />

and administration.<br />

In the first instance, a Traveller’s <strong>Levy</strong> is modelled without direct regard to how the revenue<br />

generated is expended, or what the counterfactual may be in absence of a levy. Council’s<br />

financial position suggests that if a levy were not introduced, either roads and related<br />

infrastructure would continue to be under-maintained or alternative revenue would need to be<br />

sourced to fund adequate road maintenance (the feasibility of this is not examined here,<br />

though the options would appear few). Against a counterfactual where roads and road<br />

infrastructure are under-maintained over time, the road maintenance that a Traveller’s <strong>Levy</strong><br />

facilitates can be expected to lead to an improvement in the <strong>KI</strong> tourism experience.<br />

Assessing the extent of this improvement, or its impacts on the tourism market, is<br />

challenging.<br />

This report outlines the findings of this study and presents an assessment of the overall net<br />

impact of a Traveller’s <strong>Levy</strong> for <strong>Kangaroo</strong> <strong>Island</strong>. It is structured as follows:<br />

<br />

<br />

<br />

<br />

<br />

<br />

The remainder of Section 1 provides background to the study, including an economic<br />

profile of <strong>KI</strong> and the <strong>KI</strong> tourism industry, the basis for considering a Traveller’s <strong>Levy</strong><br />

and relevant case studies and examples.<br />

Section 2 overviews the economic principles and concepts underpinning the design of<br />

a Traveller’s <strong>Levy</strong> and its likely impacts.<br />

Section 3 considers, in light of the analysis in Section 2, the optimal design of a<br />

Traveller’s <strong>Levy</strong>.<br />

Section 4 presents the modelling framework and reports the results of economic<br />

modelling.<br />

Section 5 discusses practical and logistical issues surrounding the possible introduction<br />

and administration of a levy.<br />

Section 6 summarises the report’s key findings and conclusions.<br />

3


Commercial-in-Confidence<br />

<strong>KI</strong> Traveller’s <strong>Levy</strong><br />

<strong>Impact</strong> <strong>Assessment</strong><br />

1.1 <strong>KI</strong> REGIONAL PROFILE<br />

1.1.1 GEOGRAPHIC CHARACTERISTICS<br />

<strong>Kangaroo</strong> <strong>Island</strong> is a 4,400km 2 island located some 112 kilometres southwest of Adelaide<br />

(see Figure 1.1). It is Australia’s third largest island outside the mainland (behind Tasmania<br />

and Melville <strong>Island</strong>) and represents its own Local Government Area (LGA), and Statistical<br />

Subdivision. Despite its proximity to Adelaide, the island is among the most isolated LGAs in<br />

South Australia, ranked fourth based on the Accessibility/Remoteness Index of Australia<br />

(ARIA).<br />

Access to the <strong>Island</strong> is via either air or ferry. Regional airlines REX and Air South offer<br />

regular flights to the <strong>Island</strong>’s Kingscote airport while ferry operator SeaLink provides a<br />

passenger and vehicle ferry service on the 45 minute route from Cape Jervis to Penneshaw.<br />

FIGURE 1.1: KANGAROOS ISLAND AND SURROUNDS<br />

Tourist attraction<br />

Urban boundary<br />

ADELAIDE<br />

MURRAY BRIDGE<br />

STRATHALBYN<br />

VICTOR HARBOR<br />

STOKES BAY<br />

EMU BAY<br />

<strong>KI</strong>NGSCOTE<br />

CAPE JERVIS<br />

CAPE BORDA LIGHTHOUSE<br />

<strong>KI</strong>NGSCOTE AIRPORT<br />

PENNESHAW (L)<br />

AMERICAN RIVER (L)<br />

EMU RIDGE EUCALYPTUS DISTILLERY<br />

CLIFFORDS HONEY FARM<br />

CAPE WILLOUGHBY LIGHTHOUSE<br />

FLINDERS CHASE<br />

VIVONNE BAY<br />

KELLY HILL CAVES SEAL BAY<br />

SOUTHERN OCEAN LODGE<br />

ADMIRALS ARCH<br />

GIS data © Commonwealth of Australia<br />

0 30 60<br />

kilometres<br />

1.1.2 DEMOGRAPHIC CHARACTERISTICS<br />

The 2006 Australian Bureau of Statistics Census reports the <strong>KI</strong> population at 4,261. At this<br />

time an estimated 2,209 people, or a little over half of all <strong>KI</strong> residents, were in the labour<br />

force (employed or actively seeking work), and of these, 2,119 were working in paid<br />

employment, including 1,168 in full-time positions. Just 90 people were classified as<br />

unemployed, placing the <strong>Island</strong>’s unemployment rate at 4.1% (Table 1.1).<br />

4


Commercial-in-Confidence<br />

<strong>KI</strong> Traveller’s <strong>Levy</strong><br />

<strong>Impact</strong> <strong>Assessment</strong><br />

TABLE 1.1: POPULATION CHARACTERISTICS OF KANGAROO ISLAND<br />

Total<br />

Total on-island population 4,261<br />

Off-island ratepayers 2,000<br />

Total employed 2,119<br />

Employed full-time 1,168<br />

Employed part-time 777<br />

Employed other 174<br />

Unemployed 90<br />

Unemployment rate 4.1%<br />

Total labour force 2,209<br />

Source: Access <strong>Economic</strong>s based on ABS Census data<br />

More recent data published by the Bureau suggest that at June 30 2007, <strong>KI</strong>’s population had<br />

grown to 4,479 1 . Looking forward, the <strong>Island</strong>’s population is projected to increase by an<br />

average of 1.1% annually over the period to 2021 – approximately double the rate of<br />

population growth forecast for South Australia as a whole. 2 Growth of this magnitude will see<br />

the <strong>Island</strong>’s population reach around 5,400 in 2021.<br />

1.1.3 ECONOMIC CHARACTERISTICS<br />

Chart 1.1, below, shows the industry profile of <strong>Kangaroo</strong> <strong>Island</strong> – relative to that of the<br />

national economy – based on employment by industry. The standout industries for <strong>KI</strong> – both<br />

in absolute terms and relative to the Australian economy – are Agriculture, Forestry, and<br />

Fishing, which employs some 23% of the <strong>Island</strong>’s workforce (relative to 3% nationally) and<br />

Accommodation and Food Services, which employs some 13% of the <strong>Island</strong>’s workforce<br />

(compared with 6% nationally).<br />

Defining the proportion of the <strong>Island</strong>’s labour force which is employed in the tourism services<br />

sector is difficult to undertake with precision as the ‘tourism industry’ is defined not by the<br />

good or service produced, but by the person by whom it is consumed. As an indication, the<br />

2004 National Tourism Employment Atlas suggests that tourism accounts for around 14.5%<br />

of total employment on the <strong>Island</strong>. 3<br />

1 ABS Cat No. 3235.0<br />

2 South Australia Department of Planning and Local Government Population Projections Enquiry System,<br />

http://www.planning.sa.gov.au/index.cfmobjectid=1EAEEDC0-F203-0D46-ADDE3AB8A1CA2487<br />

3 Tourism Transport Forum, National Tourism Employment Atlas - 2004.<br />

5


Commercial-in-Confidence<br />

<strong>KI</strong> Traveller’s <strong>Levy</strong><br />

<strong>Impact</strong> <strong>Assessment</strong><br />

CHART 1.1: KANGAROO ISLAND INDUSTRY PROFILE<br />

25%<br />

20%<br />

<strong>Kangaroo</strong> <strong>Island</strong><br />

Australia<br />

15%<br />

10%<br />

5%<br />

0%<br />

Source: Access <strong>Economic</strong>s<br />

1.2 <strong>KI</strong> TOURISM INDUSTRY PROFILE<br />

Data collected as part of the Tourism Optimisation Management Model (TOMM) survey<br />

suggest that 175,000 persons visited <strong>Kangaroo</strong> <strong>Island</strong> in the 2007-08 financial year.<br />

Combined with average length of stay data from TRA, this implies that around 586,000 visitor<br />

nights were spent on the <strong>Island</strong>. Table 1.2 provides details of these visitors by visitor type,<br />

indicating that around 90% stayed at least one night on the <strong>Island</strong>.<br />

More than a quarter of visitors to the <strong>Island</strong> in 2007-08 were international tourists – a<br />

relatively high proportion in light of the fact that at the state level, international visitors<br />

represented only 2% of total visitors. Visitors from elsewhere in South Australia (i.e.<br />

intrastate travellers) made up the largest share of both visitor numbers and visitor nights on<br />

the <strong>Island</strong>.<br />

TABLE 1.2: KANGAROO ISLAND VISITATION, 2007-08<br />

Visitors<br />

% of<br />

Visitors<br />

Visitor<br />

nights<br />

% of visitor<br />

nights<br />

Day Trip 16,657 10% - -<br />

Intrastate Overnight 60,297 34% 247,218 42%<br />

Interstate Overnight 52,363 30% 214,688 37%<br />

International Overnight 46,016 26% 124,243 21%<br />

Total 175,333 100% 586,149 100%<br />

Source: Access <strong>Economic</strong>s estimates using TOMM and TRA data<br />

Visitors to the <strong>Island</strong> predominantly travel in groups. In 2007-08, TOMM data indicates that<br />

some 42% of visitors travelled with a partner and 49% with friends or family – shares which<br />

have been relatively consistent over proceeding years.<br />

6


Commercial-in-Confidence<br />

<strong>KI</strong> Traveller’s <strong>Levy</strong><br />

<strong>Impact</strong> <strong>Assessment</strong><br />

In 2007, total visitor expenditure on <strong>Kangaroo</strong> <strong>Island</strong> totalled $82 million - 83% of which was<br />

from domestic overnight visitors (TRA, 2008). On average, a domestic visitor is estimated to<br />

spend $145 per night on the <strong>Island</strong> and an international visitor $127 per night – relatively<br />

high compared with the state and national average (Table 1.3).<br />

TABLE 1.3: EXPENDITURE BY TOURISTS ON <strong>KI</strong>, AVERAGE OF THREE YEARS TO JUNE 2007<br />

Source: TRA 2008<br />

Domestic International<br />

Average length of stay (nights) 4.1 2.7<br />

Average spend per trip ($) 597 335<br />

Average spend per night ($) 145 127<br />

S.A. Average spend per night ($) 127 95<br />

Australia Average spend per night ($) 117 70<br />

1.2.1 THE INTERNATIONAL MARKET<br />

Chart 1.2 shows a breakdown of international visitor nights to <strong>Kangaroo</strong> <strong>Island</strong> by country of<br />

origin. The UK is the largest source country by some margin, accounting for one third of<br />

visitor nights on the <strong>Island</strong>. Other key source countries include the USA, and major<br />

European countries Germany, France and Italy. Some 30% of these international visitors are<br />

backpackers (TRA 2009), noted for long stays in the country and lower than average pernight<br />

expenditure.<br />

International visitors to <strong>Kangaroo</strong> <strong>Island</strong> are overwhelmingly from long-haul countries of<br />

origin, with just 7% of all visitors coming from either New Zealand or an Asian country. The<br />

source countries for international visitation to <strong>Kangaroo</strong> <strong>Island</strong> largely represent traditional<br />

markets for Australian tourism as a whole. Rapidly growing markets at a national level,<br />

particularly China and the Middle East, have not filtered through to <strong>Kangaroo</strong> <strong>Island</strong> at all,<br />

with visitation from these regions close to zero.<br />

CHART 1.2: INTERNATIONAL VISITOR NIGHTS TO <strong>KI</strong> BY COUNTRY OF ORIGIN, 2008<br />

9%<br />

9%<br />

3%<br />

3%<br />

5%<br />

9%<br />

7%<br />

1%<br />

3%<br />

4%<br />

11%<br />

33%<br />

3%<br />

New Zealand<br />

Asia<br />

USA<br />

Canada<br />

United Kingdom<br />

Germany<br />

Scandinavia<br />

France<br />

Italy<br />

Netherlands<br />

Switzerland<br />

Other Europe<br />

Other Countries<br />

Source: TRA<br />

7


Commercial-in-Confidence<br />

<strong>KI</strong> Traveller’s <strong>Levy</strong><br />

<strong>Impact</strong> <strong>Assessment</strong><br />

1.2.2 THE DOMESTIC MARKET<br />

Intrastate tourists account for around two-thirds of domestic overnight visitors to <strong>KI</strong>. Of<br />

interstate visitors, NSW was the largest domestic source market, accounting for 14% of<br />

visitor numbers, with neighbouring Victoria accounting for a further 9% (Chart 1.3). Very few<br />

visitors from less populated states and territories visited <strong>Kangaroo</strong> <strong>Island</strong> in 2008.<br />

100%<br />

CHART 1.3: DOMESTIC OVERNIGHT VISITORS TO <strong>KI</strong> BY ORIGIN, 2008<br />

80%<br />

60%<br />

40%<br />

20%<br />

0%<br />

SA NSW Vic Qld WA NT ACT Tas<br />

Source: TRA<br />

1.2.3 PURPOSE OF TRAVEL<br />

The vast majority of visitors to <strong>Kangaroo</strong> <strong>Island</strong> are leisure travellers, with 93% of those<br />

visiting in 2007-08 doing so for a holiday. Of the remainder, 4% travelled to the <strong>Island</strong> for<br />

business and 3% to visit friends and relatives. These shares are reasonably consistent<br />

across different visitor types, although intrastate and day visitors are somewhat more likely to<br />

visit <strong>Kangaroo</strong> <strong>Island</strong> for reasons other than a holiday (see Table 1.4).<br />

TABLE 1.4: VISITORS TO KANGAROO ISLAND BY PURPOSE OF TRIP, 2007-08<br />

Day Visitors<br />

Intrastate<br />

Overnight<br />

Interstate<br />

Overnight<br />

International<br />

Visitors<br />

Holiday 13,725 54,267 50,268 45,095<br />

Visiting friends & relatives 110 2,413 1,448 460<br />

Business 2,815 3,618 483 460<br />

Source: Access <strong>Economic</strong>s estimation using 2006-07 TOMM data and TRA data<br />

1.2.4 LENGTH OF STAY<br />

Of those who stay on <strong>Kangaroo</strong> <strong>Island</strong> for at least one night, stays are typically quite short.<br />

TRA reports that the average length of stay for domestic visitors is 4.1 nights, while for<br />

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international visitors it is 2.7 nights. 4 The comparable averages for South Australia as a<br />

whole are 3.5 nights for domestic visitors, and 18.9 nights for international visitors. Chart 1.4<br />

details the length of stay by overnight visitors to the <strong>Island</strong> for 2008. Of these, 65% stayed<br />

for three nights or less, while only 2% stayed for more than one week.<br />

CHART 1.4: OVERNIGHT VISITORS TO KANGAROO ISLAND BY LENGTH OF STAY, 2008<br />

1%<br />

1%<br />

14%<br />

33%<br />

28%<br />

1 night<br />

2 nights<br />

3 nights<br />

4 to 7 nights<br />

8 to 14 nights<br />

15 or more nights<br />

23%<br />

Source: TRA<br />

Many tourists to <strong>Kangaroo</strong> <strong>Island</strong> visit as one stop on a longer trip. Table 1.5 provides<br />

details about how long visitors stayed on <strong>Kangaroo</strong> <strong>Island</strong> compared with their length of stay<br />

in Australia. Although some who stayed in Australia for a very short time spend a large<br />

proportion of their trip in <strong>Kangaroo</strong> <strong>Island</strong>, these data suggest that more than 98% of<br />

international visitors to the <strong>Island</strong> visited as one stop on a longer trip. On a similar basis,<br />

some 80% of interstate visitors to <strong>Kangaroo</strong> <strong>Island</strong> are also estimated to be visiting as one<br />

stop on a longer trip, however most visitors from South Australia visit the <strong>Island</strong> as a discrete<br />

trip.<br />

TABLE 1.5: INTERNATIONAL VISITOR LENGTH OF STAY ON <strong>KI</strong> BY LENGTH OF STAY IN AUSTRALIA,<br />

2008<br />

Nights on <strong>Kangaroo</strong> <strong>Island</strong><br />

4-7 8-14 15-21 22+<br />

1 night 2 nights 3 nights<br />

Nights in Australia<br />

nights nights nights nights<br />

1-9 nights 660 453 - 195 - - -<br />

10 to 39 nights 9,295 11,080 4,705 1,137 127 90 -<br />

40 to 99 nights 1,728 1,989 1,018 1,598 - 50 -<br />

100 to 199 nights 272 946 504 134 - - 118<br />

200 nights or more 692 799 507 - 118 - -<br />

Source: TRA<br />

4 2007-08 TOMM data suggests higher average length of stay, with 4.8 nights for intrastate, 5.0 for interstate and<br />

3.1 for international (2.5 in 2006-07). For a summary of the differences between TOMM data see Appendix D.<br />

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1.3 WHY CONSIDER A TRAVELLER’S LEVY FOR <strong>KI</strong><br />

A Traveller’s <strong>Levy</strong> has been under consideration for some time by <strong>KI</strong> Council as one of a<br />

number of options for improving Council’s financial position and ensuring that local<br />

infrastructure – and hence the quality of the <strong>KI</strong> tourism experience and the amenity of locals<br />

– can be maintained and enhanced. Revenue shortfalls, coupled with a large road network<br />

and commensurately high road maintenance bill – reflecting, in part, the level of road usage<br />

by tourists who visit the <strong>Island</strong> – have led to consideration of a levy on travellers to the<br />

<strong>Island</strong>.<br />

Council’s fiscal position<br />

<strong>KI</strong> Council has identified a need to consider alternative sources of revenue in light of pending<br />

budget shortfalls and a fundamentally unsustainable financial position. In 2007-08, the<br />

Council posted an operating deficit of $3.36 million or 32% of operating revenue, while the<br />

budget for 2008-09 projects an operating deficit of $2.8 million (27% of operating revenue). 5<br />

Despite residents paying above-average rates relative to comparable councils 6 ($489 per<br />

capita in 2005/06), the <strong>Island</strong>’s fiscal position is a challenging one due to the combination of<br />

its limited ratepayer base, the large land area that it governs (443,000 hectares) and the<br />

significant local road network associated with this (1,316km). Further, by the very nature of<br />

the area on an island, Council incurs higher costs of delivery for most services compared<br />

with other councils. It also bears the cost of maintaining roads which, under other<br />

circumstances, would likely fall under the jurisdiction of other levels of government. In<br />

particular, as JAC Comrie Pty Ltd note, Council are responsible for some roads that it<br />

considers have characteristics that elsewhere may result in them being classified as arterial<br />

roads and therefore be the responsibility of the State.<br />

Though Council’s Long Term Financial Plan sees its operating budget returning to surplus by<br />

2017, this is only achieved by significantly restraining outlays, and in particular, by reducing<br />

infrastructure spending below that which is required for satisfactory up-keep of Council<br />

facilities. Indeed total Council expenses are projected to grow by just 0.8% annually, in real<br />

terms, over the eight years to 2017 in order to achieve the budget target. In addition, it is a<br />

plan predicated on the Council securing additional sources of revenue.<br />

The significance of tourism to the <strong>Island</strong><br />

<strong>KI</strong> Council is by no means unique among local governments in experiencing fiscal<br />

challenges. However, one of the defining characteristics of the <strong>KI</strong> situation is the significant<br />

level of tourism activity – and by extension, the reliance of the regional economy on tourism.<br />

Indeed, as noted above, tourism expenditure on <strong>KI</strong> was estimated at around $82 million in<br />

2007, resulting in the industry accounting for some 15% of employment on the <strong>Island</strong>.<br />

With such levels of tourism, however, come additional costs to local infrastructure. In<br />

particular, extensive road usage by tourists contributes to the <strong>Island</strong>’s sizeable road<br />

maintenance costs. Determining the proportion of total road usage which is accounted for by<br />

tourism is not possible due to an absence of recent data. Though research undertaken by<br />

Council in the early 1990s identified residents as the greatest road users, tourism numbers<br />

have grown significantly since this time. Anecdotally, the layout of the <strong>Island</strong> and the<br />

5 <strong>Kangaroo</strong> <strong>Island</strong> Council, Long term financial plan, 2009-2019.<br />

6 Compared with 18 Councils with similar characteristics – see JAC Comrie Pty Ltd (2008).<br />

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geography of its major tourism attractions suggests that large amounts of road travel are<br />

undertaken by tourists. For example, TOMM data indicates that around three-quarters of<br />

tourists visit Flinders Chase National Park and Seal Bay and 43% Stokes Bay. Given the<br />

main entry points of Kingscote and Penneshaw (refer Figure 1.1, above), this provides at<br />

least an indication of the travel patterns of visitors.<br />

Irrespective, road travel is a major part of the <strong>KI</strong> tourism experience. As Chart 1.5 shows,<br />

nine in ten visitors to the <strong>Island</strong> use either their own car or a hired car to travel the <strong>Island</strong>,<br />

with just 10% using buses or other methods of transport.<br />

CHART 1.5: MAIN METHOD OF VISITOR TRANSPORT ON THE ISLAND, 2007-08<br />

6%<br />

2% 2%<br />

7%<br />

19%<br />

38%<br />

Private vehicle - 2WD<br />

Private vehicle - 4WD<br />

Hired vehicle - 2WD<br />

Bus/coach tour<br />

Hired vehicle - 4WD<br />

4WD tour<br />

Other<br />

26%<br />

Source: TOMM Visitor Exit Survey<br />

Unlike most of the <strong>Island</strong>’s other road users, however, tourists make no direct contribution,<br />

and only negligible indirect contribution, to the cost of road maintenance or to infrastructure<br />

upkeep more generally. Rate revenue from properties used predominantly for tourism<br />

activities is modest and revenue from Council camping grounds is insufficient to cover<br />

maintenance costs for the areas and associated public conveniences. 7<br />

While of course not all costs are – nor can be – recovered from direct users or beneficiaries,<br />

as the case studies in Section 1.4 next highlight, particularly insofar as national parks are<br />

concerned, direct charges are commonly applied to tourists to cover the costs of tourism<br />

infrastructure and facilities. Though in theory it may be possible to extract these costs from<br />

tourists indirectly (i.e. through rate-payers charging higher prices and in turn paying higher<br />

rates), such an approach can be complex and ineffective, and a direct levy offers a more<br />

targeted, more administrable alternative.<br />

1.4 CASE STUDIES AND EXAMPLES<br />

Government authorities at a range of levels apply levies, charges and user-fees to the<br />

tourism industry to fund the cost of providing tourism-related services and to recoup the costs<br />

imposed on a region by high levels of tourism activity. Entrance charges at National Parks<br />

7 JAC Comrie Pty Ltd (2008), p. 25.<br />

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across the country are common, and several regions of high tourism activity have also<br />

introduced tourism levies on local businesses, or in some cases, directly on tourists.<br />

This section draws on several examples of such levies and charges, analysing how they are<br />

applied and, where possible, what the resulting impacts have been. Absent the application<br />

of statistical analysis, the conclusions which can be drawn in relation to the impacts are<br />

illustrative at best. The experiences of these examples are also drawn on throughout latter<br />

parts of this report to inform the analysis of a potential Traveller’s <strong>Levy</strong> on <strong>KI</strong>.<br />

1.4.1 NATIONAL PARK CHARGES<br />

Many of Australia’s national parks charge a vehicle entry fee as a mechanism for recovering<br />

the costs associated with, for example, maintaining and improving visitor facilities;<br />

conserving local fauna and their habitats; protecting sites of ecological or cultural significance<br />

and/or controlling pests. One such prominent example of this is Kakadu National Park in the<br />

Northern Territory.<br />

Kakadu National Park<br />

Entrance fees to Kakadu National Park have fluctuated markedly over recent years. In April<br />

2004, following a review into the fee scheme, entrance fees were increased from $16.25 to<br />

$25 to cover a shortfall in operating revenue. Then, in July that year, the Prime Minister<br />

declared that the entrance fees would be abolished from December, with operational<br />

expenditure funded through other vehicles. More recently, the Federal Government has<br />

announced that an entrance fee of $25 for all persons 16 years and over will be reintroduced<br />

from 1 July 2010.<br />

Assessing how these changes have impacted on tourist numbers is hampered not only by<br />

the host of other variables that impact on visitation, but by the absence of a time-series of<br />

quality visitor data. TRA suggests that visitation grew from 180,000 in 2003 to 276,000 in<br />

2005 before falling to 200,000 in 2007. However, data from the Department of Environment,<br />

Heritage, Water and the Arts, suggest visitation growing from 203,000 in 2005 (the earliest<br />

which data is publicly available) to 229,000 in 2008 – an average annual growth rate of 4.2%.<br />

1.4.2 TOURISM LEVIES<br />

A number of regions also raise revenue from the tourism industry through levies on tourism<br />

businesses – either through direct charges or increased local rates – or in isolated cases,<br />

directly on tourists. This section overviews three of the more prominent examples of tourism<br />

industry levies.<br />

Sunshine Coast Regional Council<br />

From 1 July 2009 the Sunshine Coast Regional Council (comprising regions previously<br />

covered by Caloundra City Council, Maroochy Shire Council and Noosa Shire Council) will<br />

issue a tourism levy on businesses in the region, subject to the business being considered<br />

one of the following:<br />

<br />

<br />

short term accommodation and iconic tourism; or<br />

commercial and industrial businesses.<br />

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The levy will be determined relative to the location of the business (coastal or non-coastal),<br />

effectively creating a two category, two-tiered system; and in accordance with the<br />

unimproved capital valuation of the property, with a minimum levy of $50 per annum.<br />

The funds raised by the levy will be used to support coordinated efforts by council to promote<br />

the region as a tourist destination and to improve transparency and accountability for such<br />

activities by removing fundraising from general revenue contributed to by rate payers.<br />

Current forecasts anticipate raising $2.7 million in the 2009-10 financial year.<br />

The levy has existed in various incarnations since financial year 2002-03 in the previous<br />

Caloundra City Council region and 2001 in the previous Noosa Shire Council. Though the<br />

exact operation at the new Sunshine Coast Regional Council level may have changed<br />

marginally, the scheme is only truly novel for the old Maroochy Shire area.<br />

Great Barrier Reef<br />

As part of the Commonwealth Government’s broader management strategy for the Great<br />

Barrier Reef Marine Park (GBRMP), the Great Barrier Reef Marine Park Authority<br />

(GBRMPA) has created the Environmental Management Charge (EMC) to contribute toward<br />

the management and protection of the marine park. Since 1993 the EMC, charged to every<br />

visitor to the park, has been collected in parallel with commercial activities requiring a permit.<br />

The tourist operator who holds the permit is required to explicitly charge each tourist. The<br />

charge does vary according to the type of activity undertaken; however the average charge is<br />

$5.00 a day for each tourist 8 .<br />

Funds raised via the EMC comprise approximately 20% of the GBRMPA’s income. Chart 1.6<br />

shows the rate of funds collection since the charge’s inception.<br />

CHART 1.6: ANNUAL EMC COLLECTIONS<br />

thousand dollars<br />

8,000<br />

7,000<br />

6,000<br />

5,000<br />

4,000<br />

3,000<br />

2,000<br />

1,000<br />

0<br />

1993-94<br />

1994-95<br />

1995-96<br />

1996-97*<br />

1997-98**<br />

1998-99<br />

1999-00<br />

2000-01<br />

2001-02<br />

2002-03***<br />

2003-04<br />

2004-05<br />

2005-06<br />

Source: GBRMPA 2009 where * Standard charge increase - $A1 to $A; **Standard charge increase - $A2 to<br />

$A4; ***Standard charge increase - $A4 to $A4.50<br />

8 For the full schedule of fees see<br />

http://www.gbrmpa.gov.au/onboard/home/emc/what_is_the_charge/environmental_<br />

management_charge_fee_schedule<br />

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For each operator, the associated obligations include appropriate record keeping and<br />

disbursement of the charge to the authority as well as accurately advertising the charges to<br />

customers. Failure to properly administer the charge can result in confiscation of an<br />

operator’s permit or a maximum penalty of $5,500 for each instance.<br />

In addition to the visitors charge, the GBRPA collect fees through permits for activities<br />

including:<br />

installation and operation of structures – e.g. jetties and marinas;<br />

works in the marine park;<br />

anchoring or mooring for an extended period;<br />

waste discharge from a fixed structure;<br />

research;<br />

education programs; and<br />

traditional hunting.<br />

These charges are carried out in conjunction with the Queensland Environmental Protection<br />

Agency which provides permits to eligible applicants for accessing a number of the islands in<br />

the Great Barrier Reef area.<br />

Lord Howe <strong>Island</strong><br />

An environmental levy is collected by QANTAS on behalf of the Lord Howe <strong>Island</strong> Board as<br />

part of the total airfare for travel to Lord Howe <strong>Island</strong>. The levy totals $36.50 per person of<br />

which $17.50 goes to the <strong>Island</strong> for management activities and the remaining $19.00 is used<br />

for airport maintenance. A rebate of $10 is available to locals and their immediate family on<br />

application.<br />

The levy has been in place in one form or another for approximately 20 years, but has only<br />

been managed in its current form for the last two years. On average $1 million is raised<br />

annually through the scheme. As the <strong>Island</strong> is subject to a 400 person cap on tourist beds,<br />

demand has not been seen to be strongly influenced by the levy. For example, during the<br />

last five years tourist numbers have increased from 12,000 per annum to 17,000.<br />

Rottnest <strong>Island</strong><br />

Rottnest <strong>Island</strong> is a Western Australia Government nature reserve (a statutory authority) with<br />

around 300 residents and no rate-payer base. The Rottnest <strong>Island</strong> Authority currently<br />

charges visitors $14.50 for an adult, $12.30 for a senior and $5 for a child 4-12, with children<br />

under 4 admitted free. There are also discounts for families (defined as 2 adults, 2 children)<br />

and those who are staying on-island pay 28% more than day trippers. The Rottnest <strong>Island</strong><br />

Authority is a not-for-profit government authority, and all the funds raised go to maintaining<br />

the environment, infrastructure and heritage on the island. The charge on visitors means<br />

that the <strong>Island</strong> Authority is essentially self-funded.<br />

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2. THE ECONOMICS OF A TRAVELLER’S LEVY<br />

In considering a possible Traveller’s <strong>Levy</strong> for <strong>KI</strong>, a range of economic considerations must be<br />

taken into account – both in conceptualising and analysing its likely impacts and determining<br />

the optimal design (in terms of setting the rate, its base, administration and collection). This<br />

section overviews some of the key principles underpinning the economics of a Traveller’s<br />

<strong>Levy</strong>.<br />

2.1 EFFICIENT DESIGN CRITERIA<br />

In assessing alternative mechanisms for collecting revenue (such as taxes, levies or<br />

charges), economists draw on a range of criteria against which to evaluate different options.<br />

In some cases these criteria are complementary, in others they are competing and hence<br />

must be traded off based on priority. Ultimately, it is never possible to meet all criteria<br />

simultaneously.<br />

<br />

<br />

<br />

<br />

<br />

<br />

Revenue sustainability: does the levy generate sustainable, reliable revenues for<br />

Council to meet its expenditure requirements over the longer term<br />

Simplicity: are the compliance costs to business and collection costs to <strong>Kangaroo</strong><br />

<strong>Island</strong> Council excessive Is the levy a cost-effective revenue-raising instrument<br />

Efficiency: does the levy significantly distort behaviour in a way that results in large<br />

dead weight losses<br />

Equity: does the burden of the levy fall disproportionately on particular parts of the<br />

community that may be a concern<br />

Cross-border competitiveness: does the levy reduce <strong>KI</strong>’s competitiveness as a<br />

tourist destination in a way that overly encourages tourists to visit alternative locations<br />

Competitive neutrality: are businesses conducting similar activities treated in similar<br />

ways<br />

2.2 EFFICIENT TAXES AND THE ELASTICITY OF DEMAND<br />

An important construct in the analysis of a Traveller’s <strong>Levy</strong> – both its design, and by<br />

extension its impacts – is the relationship between the elasticity of demand, efficiency and<br />

economic incidence.<br />

Economists generally measure the efficiency of a tax or levy by the level of ‘deadweight loss’<br />

that it generates. A perfectly efficient tax is one which does not change behaviour and<br />

therefore imposes no efficiency-cost or deadweight loss on the economy. The extent to<br />

which behaviour changes in response to a change in (tax-inclusive) price is determined by<br />

the price-elasticity of demand. Where demand is invariant with price (perfectly inelastic), the<br />

introduction of a tax or levy will have no impact on demand, therefore resulting in no change<br />

in behaviour and hence no deadweight loss to the economy. Alternatively, where demand is<br />

highly responsive to price, the introduction of a tax or levy will induce relatively large changes<br />

in behaviour and result in relatively significant deadweight losses. That is, where demand for<br />

visitation to <strong>KI</strong> is relatively inelastic, the introduction of a levy will have little – or in the<br />

extreme, no – impact on visitation and the impact on tourism-orientated businesses will be<br />

minimal.<br />

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The price-elasticity of demand also has a major bearing on the economic incidence of a tax<br />

or levy (i.e. by whom it is borne). The greater the elasticity of demand, the smaller the<br />

proportion of the tax or levy that the consumer bears, and the more is borne by the producer.<br />

The distinction between legal and economic incidence here is an important one. Even<br />

though the legal incidence of a tax or charge may fall on producers (i.e. producers are the<br />

ones who directly pay), where demand is inelastic (and subject to the elasticity of supply),<br />

such a tax or charge will be passed onto consumers through higher prices, leaving them to<br />

ultimately bear the economic incidence to the tax or levy. Where demand is relatively more<br />

elastic, passing on the tax will result in a reduction in demand, leaving producers more<br />

inclined to absorb the tax themselves.<br />

Chart 2.1 depicts this point. Rising price-elasticity of demand lowers the efficiency of the tax<br />

and shifts the economic incidence of a tax from consumer to the producer. The efficiency or<br />

‘deadweight’ loss induced by the imposition of taxes in these diagrams is represented by the<br />

red (consumer surplus losses) and green (producer surplus losses) triangles.<br />

CHART 2.1: RISING PRICE-ELASTICITY OF DEMAND AND TAX EFFICIENCY<br />

2.3 PRINCIPLES OF EFFICIENT COST RECOVERY<br />

Given that part of the rationale underpinning a Traveller’s <strong>Levy</strong> would be the generation of<br />

revenue to fund essential tourism infrastructure (particularly roads), the principles of cost<br />

recovery provide important context in which to analyse a levy’s possible design. That is, as<br />

the primary use of the revenue raised would be increased road maintenance, and one of the<br />

factors contributing to the increased costs of road maintenance on the <strong>Island</strong> (and hence the<br />

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need to consider a Traveller’s <strong>Levy</strong>) is the levels of road usage by tourists, it is reasonable to<br />

consider the design of such a levy in a ‘user pays’ or cost recovery framework.<br />

Where a government agency or industry body provides services that benefit a small,<br />

identifiable group, it is rational to ensure that the group contributes to the cost of providing<br />

the benefits received (to prevent a few individuals ‘free riding’). That is, it is reasonable to<br />

apply principles such as ‘user-pays’ or ‘beneficiary-pays’. With regard to road infrastructure,<br />

though in most cases usage is by a large and disparate group, governments are increasingly<br />

looking to user-pays mechanisms as a way of partially funding major projects (such as toll<br />

roads), or specific segments or areas (such as national parks).<br />

The Productivity Commission 9 has outlined key issues to consider when assessing the<br />

appropriateness of cost recovery initiatives.<br />

<br />

<br />

Cost recovery charges should be linked as closely as possible to the costs of activities<br />

or products. If fees-for-service reflecting costs are not possible, specific taxation<br />

measures (such as levies) may be appropriate, but only where the basis of collection is<br />

closely linked to the costs involved (i.e. in this case, to road usage). 10 If it is not<br />

possible to link the levy closely enough to the activity for cost recovery to generate the<br />

desired efficiency and equity effects, taxpayer funding may be preferable.<br />

Cost recovery should not be implemented where: compliance costs or collection costs<br />

are high; where it would be inconsistent with policy objectives (for example, a userpays<br />

fee at the local transfer station may discourage the very recycling the transfer<br />

station seeks to promote) or where it would unduly stifle competition or innovation.<br />

Cost recovery should therefore be employed wherever it enhances efficiency and/or equity<br />

and where it is cost effective to do so. If cost recovery is the preferred option, the revenue<br />

raised should be derived from those who use/benefit from a service, in proportion with the<br />

benefit derived or cost imposed. Of course there will still be instances where cost recovery is<br />

not viable at all (e.g. when beneficiaries or risk creators cannot be identified or collection<br />

costs are unacceptably high). In these cases, funding should come from consolidated<br />

revenue rather than from cost recovery.<br />

9 Productivity Commission (2001) Cost Recovery by Government Agencies<br />

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3. DESIGN CONSIDERATIONS<br />

As highlighted by the economic considerations outlined in Section 2, a range of factors must<br />

be taken into account in analysing the appropriate design of a potential Traveller’s <strong>Levy</strong>.<br />

Drawing on that discussion, together with the desktop research and consultation undertaken<br />

as part of this study, the following sub-sections discuss how a Traveller’s <strong>Levy</strong> might<br />

optimally be designed.<br />

3.1 THE ELASTICITY OF DEMAND FOR TOURISM: A<br />

LITERATURE REVIEW<br />

A key variable for modelling the impact of a Traveller’s <strong>Levy</strong> is the price elasticity of demand<br />

for <strong>KI</strong> visitation. The price elasticity of demand demonstrates the impact of a given change in<br />

price (in this case resulting from the introduction of a levy) on demand (in this case, visitation<br />

to <strong>KI</strong>). More specifically, it demonstrates the percentage change in demand resulting from a<br />

one percent change in price. Hence the value of this parameter, coupled with the size of the<br />

levy to be imposed, is the key determinant of the impact of a Traveller’s <strong>Levy</strong> on visitation to<br />

<strong>KI</strong>.<br />

As part of this study, a literature review of studies analysing the price elasticity of demand for<br />

tourism and travel was conducted. Findings from this review are presented below and have<br />

been used to inform the parameters adopted in the modelling (see Section 4.2). As the<br />

studies surveyed employ a range of different techniques for estimating the elasticity of<br />

demand, and adopt a number of alternative approaches to reporting their findings, some<br />

caution must be taken when comparing and contrasting the results of different pieces of<br />

research.<br />

With this in mind, the findings from the literature are reported in two broad sections. The first<br />

reports price elasticity with respect to a single site visit (using a price base such as an<br />

entrance fee or travel fare). The second reports price elasticity with respect to travel overall;<br />

reporting the percentage change in demand in response to given change in the price of a<br />

trip. Though in both cases the price elasticity estimates capture the percentage change in<br />

demand resulting from a given percentage change in price, that given percentage change in<br />

price will generally be significantly greater where a single site visit (and small price base) is<br />

adopted.<br />

Eco-tourism destinations and national parks<br />

As a unique eco-tourism destination, some of the closest approximations in the literature to<br />

<strong>KI</strong> consider demand elasticities for national parks. Among the most relevant studies is that of<br />

Greiner (2003), a study which utilises a contingent valuation method to establish willingnessto-pay<br />

for entry to the Daintree National Park in north Queensland. The study employs a<br />

‘what-if’ scenario to assess visitors’ valuation of the particular outcome (rather than observed<br />

market behaviour of an actual change). Four different estimation methods are applied to the<br />

results, using a range of alternative statistical techniques. Estimates of the price elasticity of<br />

demand fall within a range of -0.16 to -0.27 (i.e. a one percent change in price induces a<br />

0.16% to 0.27% change in the quantity demanded).<br />

Knapman and Stoeckl (1995) estimate the price-elasticity of demand for visitation to Kakadu<br />

and Hinchinbrook <strong>Island</strong> to be significantly lower at -0.014 and -0.0015, respectively. Greiner<br />

(2003) explains this by the fact that Daintree National Park is generally considered one<br />

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component of the broader Tropical North Queensland trip, whereas Kakadu and<br />

Hinchinbrook <strong>Island</strong> are destinations in themselves.<br />

In an overseas example, the price elasticity of demand was found to be considerably higher.<br />

Reynisdottir et al (2008) employ a similar survey to that of Greiner (2003) to establish<br />

willingness to pay for Icelandic national parks, finding a price elasticity of demand at the<br />

median willingness to pay of -0.68 at Gulfess and -0.61 at Skaftafell (two Icelandic tourist<br />

destinations).<br />

TABLE 3.1: NATIONAL PARK ESTIMATES OF ELASTICITY FROM THE LITERATURE<br />

Reynisdottir, Song,<br />

Agrusa 2008<br />

Greiner 2003<br />

Knapman, Stoeckl<br />

1995<br />

Entry to national parks in Iceland Gulfess -0.68<br />

Skaftafell -0.61<br />

Elasticity of demand for Daintree<br />

National Park<br />

Elasticity of demand for recreation<br />

use fees<br />

Open-ended bid -0.27<br />

Tobit open-ended bid -0.16<br />

Double-bound dichotomous -0.16<br />

Double-bound/open-ended -0.19<br />

Kakadu -0.014<br />

Hinchinbrook -0.0015<br />

Price elasticity of demand for general travel<br />

A wide range of studies looking at travel more generally indicate that elasticities differ based<br />

on whether visitors are classified as “short-haul” or “long-haul”. IATA (2007), analysing US<br />

data, undertake an econometric regression to develop estimates in the context of air travel,<br />

generating figures of -1.4 for route-market level (roughly equivalent to intrastate travel), -0.8<br />

for national level, and -0.6 for international level. The results of Crouch (1994) support this<br />

finding with estimated elasticities of -0.60 and -0.48 for short- and long-haul travel,<br />

respectively. The suggested rationale underpinning such findings is that shorter routes have<br />

a greater number of alternatives and that price-awareness for destinations within close<br />

proximity is likely to be greater (Crouch, 1994).<br />

Divisekera (2003) generates results that somewhat contrast those of IATA and Crouch,<br />

finding more significant determinants of relative price-elasticity to be market maturity and<br />

traveller preferences, with tradition destinations (for a given source market) being among the<br />

most inelastic. Overall, the range of elasticities for international travel to Australia is found to<br />

be marginally higher than IATA, at between -0.93 and -2.04.<br />

BTE (1995) analyse how purpose of trip impacts on elasticity among international travellers.<br />

The study looks at long-run effects of changes in prices, particularly airfares, on visitation to<br />

Australia. Separate dynamic models of demand are estimated for leisure and business<br />

travellers to Australia from 12 different countries (accounting for some 79% of total visitors to<br />

Australia in 1994). Price elasticity estimates are found to be considerably higher for leisure<br />

travellers, with the estimates for holidaymakers ranging between double (Germany) and eight<br />

times the elasticity of business travellers (Table 3.2).<br />

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TABLE 3.2: GENERAL TRAVEL ELASTICITY ESTIMATES FROM THE LITERATURE<br />

Study Variable of interest Elasticity estimate<br />

Divisekera 2003<br />

Expenditure compensated<br />

international travel to Australia<br />

NZ -0.93<br />

US -1.20<br />

Japan -2.04<br />

UK -1.23<br />

BTE 1995 Air travel to and from Australia Business Leisure<br />

Ger -0.55 -1.23<br />

IATA 2007<br />

Crouch 1994<br />

Demand elasticities for air travel<br />

(USA data)<br />

Elasticities for Short-Haul versus<br />

Long-Haul Tourism<br />

Implications for <strong>Kangaroo</strong> <strong>Island</strong><br />

UK -0.21 -1.79<br />

Jap -0.24 -0.79<br />

Kor -0.20 -0.50<br />

Sin -0.22 -1.86<br />

NZ -0.16 -0.68<br />

USA -0.45 -1.85<br />

Route-market level -1.4<br />

National level -0.8<br />

International level -0.6<br />

International business -0.265<br />

International leisure -1.04<br />

Short domestic business -0.7<br />

Short domestic leisure -1.52<br />

Short- haul -0.60<br />

Long-haul -0.48<br />

As well as establishing a range in which the elasticity of demand for tourism lies generally,<br />

the findings from the literature have a number of direct implications for the elasticity of<br />

demand for visitation to <strong>KI</strong>:<br />

<br />

<br />

<br />

<br />

demand by leisure travellers (the vast majority of the <strong>KI</strong> market) will be relatively more<br />

elastic than visitors who travel for the purpose of visiting friends and relatives or<br />

business;<br />

demand by domestic visitors, particularly intrastate travellers, will be relatively elastic<br />

compared with international visitors;<br />

among each of these groups of travellers, demand will be relatively less elastic among<br />

those visitors for whom <strong>KI</strong> is the primary destination on their trip; and<br />

overall, as a relatively more unique destination for which there are limited substitutes,<br />

the elasticity of demand for visitation to <strong>KI</strong> is likely to be toward the more inelastic end<br />

of the spectrum.<br />

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3.2 DESIGN SPECIFICATIONS<br />

3.2.1 EFFICIENCY<br />

As the discussion in Section 2 outlined, there are a number of dimensions to the concept of<br />

efficiency in the context of a Traveller’s <strong>Levy</strong>. In the first instance, economic efficiency<br />

suggests that charges should be levied inversely proportional with the elasticity of demand in<br />

order to minimise the ‘deadweight loss’ or efficiency cost. That is, those with relatively<br />

inelastic demand for travel to <strong>KI</strong> should be charged a higher rate than more elastic segments<br />

of the market. This would imply that business and VFR travellers should pay a higher levy<br />

than leisure and holiday travellers and it would suggest that residents – if included in the<br />

scope of a levy – should pay a relatively high charge also.<br />

In a cost-recovery framework, where a Traveller’s <strong>Levy</strong> is conceived in the context of raising<br />

funds to offset the costs of road maintenance (to which travellers are a contributor), travellers<br />

should be charged in proportion with their road usage. This would suggest a differential<br />

charge depending on on-island mode of transport and distance travelled (noting that in<br />

practice, this would likely be prohibitively costly to administer).<br />

Cross-border competitiveness<br />

At the margin, all regional taxes and charges have the potential to impact on the decisions of<br />

individuals and businesses by undermining the competitiveness of a region relative to<br />

alternatives. Depending on the specifications of the tax or charge under consideration, this<br />

can be equally important for both consumers and for businesses. In the case of <strong>KI</strong>, it must<br />

be considered whether, by adding to the costs of a visit to the <strong>Island</strong>, the introduction of a<br />

levy would place the <strong>Island</strong>’s tourism industry at a competitive disadvantage relative to its<br />

rivals. Particularly for the domestic segment of the market, there are a host of opportunities<br />

in a similar price range to a trip to <strong>KI</strong> (though whether these are perceived as substitutes by<br />

visitors ultimately depends on preferences). Indeed, in the present climate, even short-haul<br />

international destinations such as Bali could be visited at a similar cost.<br />

From businesses’ point of view, a levy would not directly add to the costs of doing business,<br />

but may reduce potential tourism revenues, and hence the likely rate of return on an onisland<br />

investment. At the margin therefore, the supply of tourism services on the <strong>Island</strong> may<br />

be affected.<br />

The key economic parameter in conceptualising how a Traveller’s <strong>Levy</strong> would impact on the<br />

<strong>Island</strong>’s competitiveness is the price-elasticity of demand. 11 If demand is relatively inelastic –<br />

relatively unresponsive to price – then the imposition of a levy, while increasing the cost of<br />

travel to <strong>KI</strong> and in-principle reducing its competitiveness, will do little to discourage travellers<br />

or encourage them to seek alternative destinations. From a design perspective, the<br />

prescription is therefore a levy which is targeted most heavily at those segments of the<br />

market which are least responsive to price – business travellers and those visiting friends<br />

and relatives<br />

11 <strong>Impact</strong>s on substitutes for <strong>KI</strong> (i.e. <strong>KI</strong>’s competitors) are more directly reflected in the cross-price elasticity of<br />

demand (the percentage change in demand for other destinations resulting from a one percent change in the<br />

price of a <strong>KI</strong> trip), however the own-price elasticity provides a measure of the aggregate impact.<br />

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3.2.2 EQUITY<br />

The concept of equity has a number of dimensions in the context of a Traveller’s <strong>Levy</strong>. It<br />

suggests that travellers with similar characteristics undertaking a similar activity should be<br />

treated similarly, and that travellers with different characteristics, or undertaking different<br />

activities, should be differentiated. It implies that a Traveller’s <strong>Levy</strong> should not discriminate<br />

against a particular group of traveller or method of travel, or place a disproportionate burden<br />

on any individual segment of the market.<br />

<strong>KI</strong> residents<br />

A key consideration in this context is the application of the treatment of <strong>KI</strong> resident<br />

ratepayers and off-island ratepayers. In both instances there is a strong case for exempting<br />

them from a Traveller’s <strong>Levy</strong> on the grounds that they already contribute to the cost of local<br />

infrastructure. As noted, ratepayers already pay above-average rates relative to comparable<br />

municipalities, and Council is projecting small annual real rate rises in future as part of the<br />

strategy for managing Council’s financial position. This argument is amplified in the case of<br />

off-island ratepayers, who are far smaller beneficiaries from their contributions to Council<br />

than their on-island counterparts.<br />

Groups and families<br />

A Traveller’s <strong>Levy</strong> should also not place a disproportionate burden on those travelling in<br />

groups, particularly families. A single per-person charge would impose – in relative terms – a<br />

significant cost on families with multiple children. This would be circumvented with<br />

exemptions for children under a given age, a family/group charge or a per-vehicle levy.<br />

3.2.3 REVENUE SUSTAINABILITY<br />

In order to satisfy the criteria of revenue sustainability, to ensure a levy provides Council with<br />

a sufficient, reliable revenue stream, it should be rendered on a stable, projectable revenue<br />

base. There must be a level of certainty that this base will not be eroded over time, or<br />

fluctuate too significantly.<br />

The main potential point of differentiation in the revenue base for a Traveller’s <strong>Levy</strong> would be<br />

the inclusion or exclusion of local residents. Irrespective, the likely absence of significant<br />

behavioural change in response to the introduction of levy – i.e. the fact that demand is<br />

unlikely to reduce significantly by the introduction of a Traveller’s <strong>Levy</strong> – suggests that<br />

revenue sustainability does not pose a significant challenge in the design of a levy.<br />

Revenues will of course fluctuate with visitation, and hence be subject to seasonal and<br />

cyclical trends, however subject to the usual degree of uncertainty, these can be factored<br />

into revenue projections relatively easily.<br />

The other important aspect of revenue sustainability is compliance and enforcement –<br />

ensuring that, over time, the levy continues to be rendered, collected and remitted as<br />

planned. The simpler the levy design, the more straightforward this will be. If it is a flat rate<br />

per-traveller, then it can easily be monitored based on visitor numbers. Where it is integrated<br />

with wharfage fees and landing charges, again the scope for non-compliance is minimal.<br />

Only where the design of the levy is more sophisticated, would issues of compliance and<br />

enforcement likely arise.<br />

3.2.4 COMPETITIVE NEUTRALITY<br />

From a competitive neutrality perspective, an important consideration in the design of a<br />

Traveller’s <strong>Levy</strong> is ensuring that those who travel to the <strong>Island</strong> by air and those who travel by<br />

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sea are treated similarly in its application. The levy must not distort travellers’ decision with<br />

respect to mode of travel – these choices must continue to be governed by what is most<br />

appropriate, convenient and cost-effective for the traveller. Likewise, providers of these<br />

services – airlines and ferry operators – must be assured that the levy will not be<br />

implemented in a fashion that biases travellers’ decisions towards one mode of transport or<br />

another.<br />

3.2.5 SIMPLICITY/PRACTICALITY<br />

One of the most crucial aspects in the design of a Traveller’s <strong>Levy</strong> is ensuring it can be<br />

administered in a simple, cost-effective manner, without imposing undue burden on those<br />

who collect or administer it and without unduly inconveniencing travellers. Particularly in the<br />

context of a relatively modest levy such as that being considered in the case of <strong>KI</strong>,<br />

minimising the costs of administration (relative to the revenue collected) is critical to its<br />

efficiency.<br />

Provided the levy is administered either (i) in a fashion that integrates with existing pricing<br />

mechanisms (i.e. does not require its own pricing structure or formula); or (ii) as an addition<br />

to existing wharfage and landing charges, the ongoing administrative costs will be negligible.<br />

More sophisticated levy designs would of course be more burdensome to administer.<br />

Employing a mechanism for exempting residents is one area which would add to the<br />

administrative complexity and costs of a levy.<br />

3.3 CONCLUSIONS<br />

The discussion above highlights, within an efficient taxation design framework, key<br />

considerations in the conceptualisation of a Traveller’s <strong>Levy</strong> for <strong>KI</strong>. Evidently, some of these<br />

considerations are complementary, while some can only be achieved at the expense of<br />

others. The conclusions in relation to optimal design of a Traveller’s <strong>Levy</strong> for <strong>KI</strong> can be<br />

summarised as follows:<br />

<br />

<br />

<br />

<br />

The most efficient levy would be one which varies inversely with the elasticity of<br />

demand, charging those segments of the market which are less price-sensitive a higher<br />

rate. It would also reflect travellers’ on-island mode of transport, charging visitors in<br />

proportion with their road usage.<br />

Equity would suggest that residents – who already pay above-average rates and who it<br />

is proposed pay further rate rises in future to help meet Council’s funding shortfalls –<br />

should be exempt from a levy.<br />

Families should not be subject to a per-person charge, with either a group price, a pervehicle<br />

charge or exemption of children under a given age ensuring the levy does not<br />

impose an undue burden on these travellers.<br />

Travellers commuting by air or sea should be treated similarly, ensuring the levy has no<br />

bearing on their decision of whether to travel by air or sea.<br />

Above all, the levy should be simple and cost-effective to administer. It must be<br />

integrated with existing pricing, charging and revenue collection methods and must not<br />

require significant amounts of additional oversight or enforcement.<br />

Whether these specifications can be achieved hinges on a range of practical and logistical<br />

issues, which are canvassed in Section 5 of this report.<br />

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4. MODELLING AND ANALYSIS<br />

4.1 ESTABLISHING THE REVENUE TARGET<br />

As noted in earlier sections of this report, as part of Council’s strategy to address its fiscal<br />

challenges, a range of strategies have been put in place to limit outlays and generate<br />

additional revenues. In considering the possibility of an alternative revenue source such as a<br />

Traveller’s <strong>Levy</strong>, Council has identified an annual funding shortfall of $1.8 million which they<br />

would seek to bridge. In the economic modelling that follows, a Traveller’s <strong>Levy</strong> is analysed<br />

in the context of a $1.8 million revenue target. The scope for, and appropriateness of, a<br />

potential Traveller’s <strong>Levy</strong> collecting greater amounts of revenue is discussed at the end of<br />

this section.<br />

4.2 MODEL FRAMEWORK AND PARAMETERS<br />

In order to gauge the likely financial and economic impact of a Traveller’s <strong>Levy</strong> on the <strong>KI</strong><br />

economy, the impact on visitation to, and expenditure on, <strong>Kangaroo</strong> <strong>Island</strong> must be<br />

estimated. To undertake this exercise, Access <strong>Economic</strong>s has developed a purpose-built<br />

economic model. Travellers to the <strong>Island</strong> are differentiated into five classifications:<br />

international overnight, interstate overnight, intrastate overnight, day visitors and residents.<br />

In addition, the model distinguishes between travellers based on purpose of trip: leisure,<br />

visiting friends and relatives, and business/education. In addition, the modelling introduces<br />

resident trips based on TRA data on travel by <strong>KI</strong> residents.<br />

Visitor numbers and total visitor expenditure on the <strong>Island</strong> are estimated under a baseline or<br />

‘business as usual’ scenario and under a Traveller’s <strong>Levy</strong> scenario, with a number of<br />

alternative Traveller’s <strong>Levy</strong> specifications modelled. The difference between the baseline<br />

and the scenario reflects the net impact of a Traveller’s <strong>Levy</strong>. In the first instance, the<br />

modelling considers the impact of a levy without any direct consideration of how the revenue<br />

generated might be allocated, or what flow-ons to tourism activity may stem from this. The<br />

impact of an improvement in the tourism experience is then explored in subsequent sections.<br />

4.2.1 FORECAST DEMAND<br />

Based on financial year 2007-08 visitor estimates, forecasts for baseline visitation to <strong>KI</strong> for<br />

each traveller type are estimated to 2018-19. Domestic forecasts adopt the latest Tourism<br />

Forecasting Committee forecast for Australia (TFC, 2009), while the international growth rate<br />

is a weighted average of the forecast growth rates for the top five source markets for<br />

international visitors to <strong>KI</strong> (see Table 4.1). These estimations produce a forecast average<br />

growth rate of 3.6% per annum for international visitors, and 0.98% per annum for domestic<br />

visitors.<br />

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TABLE 4.1: WEIGHTINGS FOR INTERNATIONAL GROWTH RATE FORECAST<br />

Country Weighting<br />

UK 23.4%<br />

US 19.4%<br />

Germany 21.7%<br />

France 13.9%<br />

Italy 21.7%<br />

Source: TFC (2009)<br />

Estimates of tourist visitation in 2008 are derived from a combination of TOMM and TRA<br />

data. Broadly, TOMM estimates are adopted for overall visitor numbers and estimates of<br />

visitor shares by origin and purpose of trip (the latter based on 2006-07 TOMM data).<br />

However, comparison with TRA data indicated inconsistencies of some shares, notably day<br />

visitors which accounted for 14.5% of all visitation under TRA estimates and just 4.6% of<br />

TOMM estimates. To account for this, day trip visitors are held as an average of these two<br />

figures, at 9.5%.<br />

4.2.2 PRICE-ELASTICITY OF DEMAND<br />

As noted, the price elasticity of demand is the key parameter used to determine the likely<br />

impact of a levy on visitation to <strong>KI</strong>. As the appropriate context in which to consider a<br />

Traveller’s <strong>Levy</strong> is a visitor’s total spend on the <strong>Island</strong> (i.e. a levy adds not merely to a<br />

visitor’s cost of travel, but to the cost of their <strong>KI</strong> trip in aggregate), the price elasticity of<br />

demand is represented here as the impact of a given change in the cost of a <strong>KI</strong> visit.<br />

The elasticities adopted in the modelling reflect findings from the international literature,<br />

together with the results of visitor surveys and Access <strong>Economic</strong>s’ experience in travel and<br />

tourism economics. Table 4.2 shows the elasticity parameters adopted.<br />

TABLE 4.2: MODELLED PRICE ELASTICITY OF DEMAND<br />

Leisure VFR Business<br />

International -1.15 -0.60 -0.40<br />

Interstate -1.30 -0.60 -0.40<br />

Intrastate -1.50 -0.60 -0.40<br />

Daytrip -1.50 -0.60 -0.40<br />

Residents -0.50 -0.20 -0.20<br />

Several key factors underpin the value of these parameters.<br />

<br />

As an eco-tourism destination, <strong>Kangaroo</strong> <strong>Island</strong> is somewhat unique. For a visitor<br />

seeking this type of tourism experience, therefore, alternatives are limited, making<br />

these visitors more willing to absorb a price increase and therefore lowering the price<br />

elasticity of demand relative to more generic destinations.<br />

Initial results from a <strong>Kangaroo</strong> <strong>Island</strong> Council Traveller Survey (see Appendix A)<br />

suggest visitors would be relatively undeterred by a levy. Of 330 visitors surveyed prior<br />

to, during and after their visit to the <strong>Island</strong>:<br />

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<br />

<br />

71% indicated they would support a levy, with the figure marginally higher for<br />

those surveyed at the end of their trip (around 76%, compared with 67%<br />

surveyed pre-trip); and<br />

83% would not be influenced in their decision to visit the <strong>Island</strong> by a modest<br />

traveller’s levy in the range of $10 to $15.<br />

<br />

<br />

Business travellers and those visiting friends and relatives are less price sensitive than<br />

those travelling for leisure, as they typically need to travel to a specific destination at a<br />

specific date, with little flexibility in either. Leisure on the other hand is far more<br />

discretionary.<br />

Those who have travelled further to get to the <strong>Island</strong>, especially international visitors,<br />

will be less mindful of the levy when making their decision whether to visit the <strong>Island</strong>,<br />

as it accounts for a very small component of expenditure on their overall trip in<br />

Australia. Domestic intrastate visitors, however, are likely to be more responsive to<br />

price increases as a levy represents a much larger shift in the overall cost of a trip.<br />

Though the evidence base is limited, the modelling therefore assumes a higher<br />

elasticity of demand for intrastate visitors than for those travelling from further afield.<br />

4.2.3 PER-VISITOR EXPENDITURE<br />

The role of visitor expenditure in the modelling is twofold. First, it provides the expenditure<br />

base to which a levy is applied to derive the demand impacts. That is, a levy is represented<br />

in the modelling as the percentage change in the total cost of a trip to <strong>KI</strong> (e.g. a $10 levy<br />

represents a 2% increase in total travel cost if the average expenditure is $500 per visitor).<br />

The elasticities in Table 4.2 are then applied to this percentage change to determine the<br />

impacts on demand. For a given elasticity of demand, therefore, the impacts will be greater<br />

the lower the per-visitor expenditure (i.e. the impacts on intrastate visitation are greater not<br />

simply due to the higher elasticity parameter, but to the greater proportional change that a<br />

given levy represents). Secondly, it determines the dollar-value of <strong>KI</strong> tourism expenditure<br />

that is foregone for every visitor which is deterred by the introduction of a levy.<br />

Per-visitor expenditure estimates adopted in the modelling are derived from TRA data.<br />

Again, visitors are distinguished based on origin and purpose of visit, with Table 4.3 below<br />

outlining the parameters adopted. Per-visitor expenditure for each category is estimated<br />

through use of average per-night expenditure from TRA data (see Section 1.2) and estimates<br />

of the average length of stay of each visitor category derived using TRA data. 12<br />

TABLE 4.3: PER-VISITOR EXPENDITURE BY VISITOR TYPE 11<br />

Leisure VFR Business/Ed<br />

International $273 $1,000 $333<br />

Interstate $548 $417 $218<br />

Intrastate $568 $653 $290<br />

Daytrip $130 $130 $130<br />

12 In the case of international travellers who were visiting friends and relatives, this estimate was adjusted<br />

downwards due to the unusually high estimated length of stay (10 days compared with 2-4 days for all other<br />

categories) and also the expectation that those visiting friends and relatives spend slightly less than other<br />

categories (as they often stay with relatives rather than in a hotel, and may consume less tourism product e.g.<br />

eating out).<br />

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<strong>Impact</strong> <strong>Assessment</strong><br />

Those visitors who continue to visit <strong>KI</strong> despite the <strong>Levy</strong> are assumed to maintain the same<br />

level of expenditure on the <strong>Island</strong>. The introduction of what is effectively a tax, results in a<br />

reduction in visitors’ total net income, the impacts of which are spread across their entire<br />

consumption basket, not simply the <strong>KI</strong> trip. Given that in the context of an individual’s entire<br />

annual spend, a trip to <strong>KI</strong> represents an extremely small proportion, the impact on<br />

expenditure on the <strong>Island</strong> is assumed to be zero. In actual fact it is probably a very small<br />

negative number.<br />

4.3 OPTIONS MODELLED<br />

Reflecting the preferred design characteristics discussed above, four key levy options have<br />

been modelled:<br />

Option 1: A flat per-passenger charge applicable to all travellers to the <strong>Island</strong>, payable as<br />

a one-way levy (this would also approximate the impacts of introducing a levy through<br />

wharfage charges and landing fees). In 2007-08 this would have resulted in a levy being<br />

applied to 210,332 persons.<br />

Option 2: A flat per-passenger charge exempting children, including resident children<br />

(which also approximates the impacts of a family pass). In 2007-08 this would have resulted<br />

in a levy being applied to 193,320 persons.<br />

Option 3: A flat per-person charge exempting residents. In 2007-08 this would have<br />

resulted in a levy being applied to 175,332 persons (i.e. just visitors to the <strong>Island</strong>), or in the<br />

case where both residents and children are excluded, 158,320 persons.<br />

Option 4: A flat per-night charge, applicable to all visitors to the <strong>Island</strong> in accordance with<br />

their length of stay. In 2007-08 this would have resulted in a levy being applied to 175,332<br />

persons, based on 484,869 visitor nights, counting day visitors as one “night”. <strong>KI</strong> residents<br />

are excluded under this option.<br />

4.4 MODEL RESULTS<br />

As discussed above, the Council’s goal is achieving a revenue target of $1.8 million. Under<br />

each option therefore, the modelling estimates the levy rate required to meet this target, then<br />

estimates the impacts on visitation to <strong>KI</strong> – and hence tourism expenditure – resulting from<br />

this. Critically, the modelling results presented in this section represent purely the price<br />

impacts of the levy, with no account taken of the potential offsetting impacts of improved or<br />

better-maintained roads. This is explored in Section 4.5.3. Estimated figures are for<br />

financial years, and it is assumed that a levy is introduced at the start of the 2011 financial<br />

year.<br />

OPTION 1: A FLAT PER-PASSENGER CHARGE<br />

As the option with the broadest revenue base, the required levy rate under a flat perpassenger<br />

charge payable by all travellers is lowest of the four options, with a per-passenger<br />

levy of $8.55 required to raise the revenue target. At this rate, the levy is estimated to<br />

dissuade 4,620 visitors in the first year of operation, and 43,330 visitors over the period 2011<br />

to 2019 (Table 4.4). The reduction in visitation is disproportionately weighted towards day<br />

trip visitors, for whom the levy represents a relatively high proportion of their overall on-island<br />

spend. Day trip visitors account for an estimated 32% of lost visits in 2011, compared with<br />

just 9.5% of total visitors in the baseline. Overall, total tourism expenditure foregone is<br />

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estimated at $1.87 million annually. In this scenario, changes to resident behaviour are also<br />

observed, with a reduction in trips by residents of 1,690 in 2011.<br />

TABLE 4.4: OPTION 1 MODELLING RESULTS<br />

Variable 2011 impact 2011-2019<br />

impact<br />

Required levy rate $8.55<br />

Change in visitor numbers -4,620 -43,330<br />

Domestic overnight visitors -2,370 -21,910<br />

International overnight visitors -790 -7.950<br />

Day visitors -1,460 -13,470<br />

Change in resident trips -1,690 -15,460<br />

Change in tourism expenditure ($real) -$1.87m -$17.45m<br />

<strong>Levy</strong> revenue ($real) $1.80m $16.96m<br />

OPTION 2: A FLAT PER-PASSENGER CHARGE EXCLUDING CHILDREN<br />

Excluding children from the levy narrows the base of travellers upon whom the charge is<br />

levied. Children are estimated to represent around 9% of all visitors to <strong>Kangaroo</strong> <strong>Island</strong> and<br />

6% of residents. If this group is exempted then one of two alternative approaches must be<br />

adopted: either a smaller amount of revenue is collected, or the value of the levy must<br />

increase to achieve a given revenue target. The modelling adopts the latter (Table 4.5).<br />

TABLE 4.5: OPTION 2 MODELLING RESULTS<br />

Variable 2011 impact 2011-2019<br />

impact<br />

Required levy rate $9.41<br />

Change in visitor numbers -4,550 -42,700<br />

Domestic overnight visitors -2,300 -21,190<br />

International overnight visitors -840 -8,420<br />

Day visitors -1,420 -13,080<br />

Change in resident trips -1,740 -16,000<br />

Change in tourism expenditure ($real) -$1.84m -$17.16m<br />

<strong>Levy</strong> revenue ($real) $1.80m $16.97m<br />

When children are exempt, the required levy rate rises to $9.41, reflecting the lower number<br />

of visitors paying the levy (193,320 compared with 210,332 when children are included).<br />

Despite the higher levy, fewer visitor trips are lost, with a reduction of 4,550 visits in 2011,<br />

and 42,700 over the period 2011 to 2019. Although the levy is higher on a per-adult basis,<br />

excluding children reduces the burden on families (e.g. a family of four pays $18.82<br />

compared with $34.20 under Option 1).<br />

OPTION 3A: A FLAT PER PASSENGER CHARGE EXCLUDING RESIDENTS<br />

Excluding residents from the levy necessitates a higher levy rate to achieve a given revenue<br />

target –$10.23 when children are included. Consequently, with the burden placed solely on<br />

visitors, the impacts on tourist numbers is greater, with an estimated 5,530 potential visitors<br />

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<strong>Impact</strong> <strong>Assessment</strong><br />

electing not to visit in 2011 and 51,840 over the period 2011 to 2019. The relatively larger<br />

drop in visitor numbers means that lost tourism expenditure on <strong>KI</strong> is larger in this scenario,<br />

with $2.06 million lost in 2011.<br />

TABLE 4.6: OPTION 3A MODELLING RESULTS<br />

Variable 2011 impact 2011-2019<br />

impact<br />

Required levy rate $10.23<br />

Change in visitor numbers -5,530 -51,840<br />

Domestic overnight visitors -2,840 -26,220<br />

International overnight visitors -940 -9,510<br />

Day visitors -1,750 -16,120<br />

Change in resident trips 0 0<br />

Change in tourism expenditure ($real) -$2.06m -$19.21m<br />

<strong>Levy</strong> revenue ($real) $1.80m $17.04m<br />

OPTION 3B: A FLAT PER PASSENGER CHARGE EXCLUDING RESIDENTS AND<br />

CHILDREN<br />

Options 2 and 3A demonstrate the outcome if children, and then residents are excluded from<br />

the levy, however each of these is in isolation. When both are excluded, the levy rate<br />

required to generate the revenue target rises to $11.34. Consistent with the results in Option<br />

2 and 3A, the number of visitors lost and change in tourism expenditure is lower when<br />

children are excluded. This arises because the exemption for children reduces the burden<br />

on families, so larger travel parties are less dissuaded. Foregone tourism expenditure in this<br />

case is estimated at $2.03 million in 2011.<br />

TABLE 4.7: OPTION 3B MODELLING RESULTS<br />

Variable 2011 impact 2011-2019<br />

impact<br />

Required levy rate $11.34<br />

Change in visitor numbers -5,480 -51,450<br />

Domestic overnight visitors -2,770 -25,540<br />

International overnight visitors -1,010 -10,150<br />

Day visitors -1,710 -15,770<br />

Change in resident trips 0 0<br />

Change in tourism expenditure ($real) -$2.03m -$18.95m<br />

<strong>Levy</strong> revenue ($real) $1.80m $17.07m<br />

OPTION 4: A FLAT-PER NIGHT CHARGE, EXCLUDING RESIDENTS<br />

For a given revenue target, a per-night levy has quite different effects compared with a perperson<br />

levy, most significantly in relation to the distribution of the economic burden. In<br />

particular, the impacts on day visitors are markedly less, as the required levy rate of $2.99<br />

per day has a much smaller proportional impact compared with the per-trip levy of $8 - $11.<br />

The burden on international visitors is also reduced as the average length of stay of 2.7<br />

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<strong>Impact</strong> <strong>Assessment</strong><br />

nights results in an effective per-visitor levy of $8.07. However domestic overnight visitors,<br />

with an average length of stay of 4.1 nights, bare a significantly greater share of the burden.<br />

As Table 4.8 shows, under this option, the levy results in a fall in on-island tourism<br />

expenditure of $2.42 million annually, resulting from a reduction in visitation of around 5,000<br />

visitors. Compared with Option 1, the composition of these visitors is skewed markedly<br />

toward domestic overnight visitors, and hence reflects the relatively high per-visitor<br />

expenditure of this segment of the market.<br />

TABLE 4.8: OPTION 4 MODELLING RESULTS<br />

Variable 2011 impact 2011-2019<br />

impact<br />

Required levy rate $2.99<br />

Effective rate for domestic overnight $12.26<br />

Effective rate for international overnight $8.07<br />

Total change in visitors -5,110 -47,770<br />

Change in domestic overnight visitors -3,850 -35,560<br />

Change in international overnight visitors -750 -7,500<br />

Change in day visitors -510 -4,710<br />

Change in resident trips 0 0<br />

Change in tourism expenditure ($real) -$2.42m -$22.47m<br />

<strong>Levy</strong> revenue ($real) $1.80m $16.99m<br />

4.5 SENSITIVITY ANALYSIS<br />

Given the uncertainties inherent in any modelling, sensitivity analysis is a technique<br />

employed to test the impacts of variation in input parameters or underlying assumptions on<br />

model results. In this case, the greatest uncertainty underlies the impact of a levy on visitor<br />

behaviour. As the introduction to this section notes, the results above consider a levy only in<br />

the context of its price impacts. However, to the extent that the levy revenue generated<br />

serves to improve the tourism experience, the impacts could potentially be quite different.<br />

In the sensitivity analyses that follow, the impacts of varying assumptions regarding the<br />

elasticity of demand and growth in visitation are tested in the context of the results presented<br />

above. An additional sensitivity is then presented testing the impacts of an improved tourism<br />

experience that induces increased visitation to the <strong>Island</strong>.<br />

4.5.1 ELASTICITY<br />

In order to test the sensitivity of the model results to variations in the price elasticity of<br />

demand, Option 1 has been re-estimated with a ‘low case’ (0.5 times the elasticities in Table<br />

4.2) and a ‘high case’ (2.0 times the elasticities in Table 4.2). The results for 2011 are<br />

presented in Table 4.9, holding the levy rate constant. The sensitivity analysis show the<br />

modelling results to be relatively linear, with a given percentage change in the elasticity of<br />

demand producing a relatively proportional change in visitation.<br />

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<strong>Impact</strong> <strong>Assessment</strong><br />

TABLE 4.9: PRICE ELASTICITY SENSITIVITIES, OPTION 1, 2011<br />

Low Base High<br />

<strong>Levy</strong> rate $8.55 $8.55 $8.55<br />

Change in visitors -2,300 -4,620 -6,930<br />

Domestic overnight visitors -1,190 -2,370 -3,560<br />

International overnight visitors -400 -790 -1,180<br />

Day visitors -730 -1,460 -2,190<br />

Change resident trips -840 -1,690 -2,530<br />

Change tourism expenditure ($real) -$0.94m -$1.87m -$2.81m<br />

<strong>Levy</strong> revenue ($real) $1.83m $1.80m $1.77m<br />

4.5.2 DEMAND GROWTH<br />

While less significant in the short term, over time, the levy revenue raised and the tourism<br />

expenditure foregone will depend on growth in baseline demand for visitation to <strong>KI</strong>. To test<br />

the impacts of growth diverging from the parameters in Section 4.2.1 a ‘high case’ (25%<br />

increase) and ‘low case’ (25% decrease) for demand growth have been modelled. As the<br />

results in Table 4.10 below show, the modelling, even over the longer term, is relatively<br />

insensitive to changes in demand growth.<br />

TABLE 4.10: FORECAST DEMAND GROWTH SENSITIVITIES, OPTION 1, 2011<br />

Low Base High<br />

2011 2011-19 2011 2011-19 2011 2011-19<br />

<strong>Levy</strong> rate $8.55 $8.55 $8.55<br />

Change in visitors -4,590 -42,570 -4,620 -43,330 -4,660 -44,110<br />

Domestic overnight<br />

visitors<br />

International overnight<br />

visitors<br />

-2,360 -21,670 -2,370 -21,910 -2,390 -22,150<br />

-770 -7,570 -790 -7.950 -810 -8,340<br />

Day visitors -1,450 -13,320 -1,460 -13,470 -1,470 -13,620<br />

Change resident trips -1,690 -15,460 -1,690 -15,460 -1,690 -15,460<br />

Change tourism<br />

expenditure ($real)<br />

-$1.86m -$17.20m -$1.87m -$17.45m -$1.88m -$17.71m<br />

<strong>Levy</strong> revenue ($real) $1.79m $16.65m $1.80m $16.96m $1.82m $17.29m<br />

4.5.3 THE IMPACTS OF IMPROVED QUALITY<br />

To this point, the modelling results have considered the impacts of a levy on the <strong>KI</strong> tourism<br />

industry purely in the context of the price impact, without accounting for the potential impacts<br />

of improved tourism infrastructure on visitation. However, there are a number of reasons to<br />

suggest that an improvement in tourism infrastructure – particularly roads – may in fact have<br />

a positive impact on tourism visitation.<br />

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<strong>Impact</strong> <strong>Assessment</strong><br />

Visitor dissatisfaction with current road standards<br />

The corollary of the high level of road usage by tourists is the importance of road quality to<br />

the <strong>KI</strong> tourism experience. There is evidence that the value of the tourism experience is<br />

diminished by the current state of the roads, with a large proportion of visitors identifying road<br />

condition as a detractor from the tourism experience. Indeed, responses from visitors<br />

leaving the <strong>Island</strong> suggest that road and road infrastructure are:<br />

<br />

<br />

the number one source of dissatisfaction with their visit to <strong>Island</strong>; and<br />

the number one suggested key improvement.<br />

Visitor responses with regard to improved road standards<br />

Visitor responses from the <strong>Kangaroo</strong> <strong>Island</strong> Traveller Survey provide insights into how<br />

visitation to the <strong>Island</strong> might respond to a levy if it was associated with improved or bettermaintained<br />

roads. Noting that at this stage the findings reflect the responses of 330 surveys<br />

fielded over a relatively short space of time (the latter suggesting any seasonal differences in<br />

visitor perceptions may not be captured), several key results emerge:<br />

<br />

<br />

<br />

around 80% of visitors indicate that a modest Traveller’s <strong>Levy</strong> would not impact on their<br />

decision to visit the <strong>Island</strong>;<br />

around 20% suggest a modest levy coupled with improved/better maintained roads<br />

would increase their likelihood of re-visiting; and<br />

around 30% suggest a modest levy coupled with improved/better maintained roads<br />

would increase their likelihood of recommending the <strong>Island</strong> to others.<br />

4.5.3.1 MODELLING THE IMPACTS<br />

Overall, there is a genuine likelihood that the improvement in tourism infrastructure that<br />

accompanies a Traveller’s <strong>Levy</strong> may – coupled with adequate promotion and marketing – in<br />

fact partially or wholly offset the price impact of a levy. This may be through increased revisitation<br />

or – in light of the fact that for many, <strong>KI</strong> is a one-off experience – through positive<br />

reputation impacts. Indeed if the improvement in infrastructure is perceived sufficiently<br />

important to tourists’ decisions, it may in fact increase visitation. In this case, the Traveller’s<br />

<strong>Levy</strong> scenario results in increased visitation and hence not only greater revenues for Council,<br />

but greater tourism income for the <strong>Island</strong> as well.<br />

Determining the magnitude of such impacts is hampered by limited quantitative information<br />

on how visitation might respond to improvement in the quality of their tourism experience.<br />

Though data from the Traveller Survey is instructive, it is insufficient to reliably undertake<br />

such an exercise. The approach taken here therefore is largely illustrative, with the impacts<br />

of an increase in visitation equivalent to the average decrease under Option 1 modelled (on<br />

average, 2.8%). This is not to imply that a 2.8% increase is the likely outcome, but rather to<br />

illustrate what the impacts of a change of this magnitude would be.<br />

As Table 4.11 shows, this scenario results in an additional 4,300 visits annually, generating<br />

$1.45 million in additional tourism expenditure, while at the same time raising greater levels<br />

of revenue over time.<br />

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<strong>Impact</strong> <strong>Assessment</strong><br />

TABLE 4.11: IMPROVED QUALITY SENSITIVITY<br />

Variable 2011 <strong>Impact</strong> 2011-2019<br />

<strong>Impact</strong><br />

Required levy rate $8.56<br />

Change in visitor numbers 4,300 40,300<br />

Domestic overnight visitors 2,210 20,380<br />

International overnight visitors 730 7,390<br />

Day visitors 1,360 12,530<br />

Change in resident trips 1,690 15,460<br />

Change in tourism expenditure ($real) $1.45m $13.54m<br />

<strong>Levy</strong> revenue ($real) $1.88m $17.68m<br />

4.6 DISCUSSION AND IMPLICATIONS<br />

The modelling results above demonstrate that – depending on the base of travellers on<br />

which the levy is imposed – a levy of around $8-$11 per visitor would raise Council’s target<br />

revenue of $1.8 million annually. Considering purely a price impact and taking no account of<br />

any countervailing effects resulting from improved tourism infrastructure, a levy of this<br />

magnitude would result in an estimated reduction in visitation of between 4,500 and 5,500<br />

annually. That is, a reduction of around 2% to 3%. Associated with this would be a<br />

reduction in tourism expenditure on the <strong>Island</strong> – and hence a reduction in the income of local<br />

tourism-related businesses – of between $1.84 and $2.06 million annually. If the levy was<br />

charged on a per-day basis, the higher burden placed on the domestic overnight market<br />

would result in a greater loss of tourism activity, estimated at $2.42 million annually.<br />

However, these results take no account of the potential adverse impacts on tourism activity<br />

of a continued deterioration in the condition of local infrastructure in the absence of a<br />

Traveller’s <strong>Levy</strong>. That is, the counterfactual may in fact be a diminution of the tourism<br />

experience which, over time, undermines visitation to the <strong>Island</strong>.<br />

Should the improvement in the tourism experience that accompanies a Traveller’s <strong>Levy</strong><br />

offset or outweigh the direct price impact, the loss of tourism expenditure will be markedly<br />

less, and indeed as the illustrative modelling undertaken here demonstrates, may even<br />

represent a gain.<br />

<strong>Impact</strong>s on the <strong>Island</strong>’s tourism industry<br />

To the extent that a Traveller’s <strong>Levy</strong> reduces visitation to <strong>KI</strong> and therefore tourism<br />

expenditure on the <strong>Island</strong>, the direct impact of a levy on the <strong>Island</strong>’s tourism operators will be<br />

a loss of income. However, the effects across the industry will not be uniform: the impacts<br />

on individual businesses will depend on the composition of their individual market. Those<br />

particularly reliant on intrastate visitors, for example, will be impacted more heavily by a pervisitor<br />

levy than those whose market is predominantly international travellers. In the case of<br />

a per-day levy, the burden shifts from those reliant on day travellers, to those whose market<br />

is primarily domestic overnight visitors.<br />

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<strong>Impact</strong> <strong>Assessment</strong><br />

<strong>Impact</strong>s on residents<br />

The benefit of a levy for local residents (as residents – i.e. as distinct from resident business<br />

owners) will be an improvement in the quality of local infrastructure, particularly roads (at the<br />

very least, compared with a counterfactual where road conditions continue to deteriorate).<br />

Council will be better equipped to provide services to the local community and this will allow<br />

the amenity of local residents to be enhanced. The cost on residents depends primarily on<br />

whether they are required to pay the levy each time they commute to the <strong>Island</strong>.<br />

<strong>Impact</strong>s on Council<br />

For <strong>KI</strong> Council, a Traveller’s <strong>Levy</strong> would enable it to better undertake its role of servicing the<br />

community. Council services would not need to be cut in order to balance its budget and the<br />

pressure to find alternative revenue sources would be relieved.<br />

<strong>Impact</strong>s on the state economy<br />

As a region within the South Australian economy, in the first instance, any reduction in<br />

economic activity on <strong>KI</strong> (i.e. any fall in gross regional product) will be reflected in a<br />

commensurate reduction in economic activity for the state (i.e. a reduction in gross state<br />

product). However, there are also broader implications and flow-ons to consider.<br />

A proportion of those visitors who would have visited <strong>KI</strong> but are deterred by a levy may opt<br />

instead for alternative destinations in South Australia, thereby reducing the net impact on the<br />

state’s tourism industry. Conversely, where <strong>KI</strong> is a visitor’s primary motivation for travelling<br />

to South Australia, should a Traveller’s <strong>Levy</strong> deter visitation to the <strong>Island</strong>, it may be that the<br />

state loses not simply the <strong>KI</strong> expenditure, but additional expenditure throughout the state.<br />

The fact that those for whom visiting <strong>KI</strong> is the primary motivation for visiting SA will be among<br />

the most insensitive to price, suggests that this latter impact will not be large.<br />

Other flow-ons<br />

While it cannot be reliably captured in modelling, a further consideration is that a Traveller’s<br />

<strong>Levy</strong> may not merely impact on demand; it may also affect supply. If tourism operators – be<br />

that SeaLink, Air South or REX, or one of the myriad of tourism businesses on-island – were<br />

to experience or perceive sufficiently large adverse impacts as a result of a levy, their<br />

commercial response may be to withdraw supply. This is particularly true in the case of<br />

aviation, where the current market environment is tenuous and where capital is extremely<br />

mobile (i.e. an aircraft can be readily shifted from one route to another). That said, the<br />

segment of <strong>KI</strong> travellers who commute by air are perceived as among the most inelastic,<br />

hence the likelihood of service withdrawal as a direct result of a levy would appear low.<br />

Net impact on <strong>KI</strong><br />

The modelling outlined above demonstrates that, when purely price impacts are taken into<br />

account, a Traveller’s <strong>Levy</strong> of around ten dollars in value generates approximately the same<br />

value of revenue as is foregone in tourism income (depending on the specifics). Given<br />

sufficiently low cost of administration (see discussion in Section 5.2) this would suggest that,<br />

on net, a Traveller’s <strong>Levy</strong> has the potential to have a positive impact on <strong>KI</strong>. When a likely<br />

counterfactual whereby tourism visitation declines in the face of ailing infrastructure is<br />

considered, and the potential impact of an improvement in the quality of the <strong>KI</strong> experience is<br />

analysed, the net benefits are in fact likely to be greater.<br />

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<strong>Impact</strong> <strong>Assessment</strong><br />

Ultimately, however, the net impact on <strong>KI</strong> is a function of how the funds raised are expended.<br />

The benefit to the <strong>Island</strong> and its residents is not the generation of revenue per se, but rather<br />

the benefits derived by residents and visitors from improved on-island infrastructure.<br />

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<strong>Impact</strong> <strong>Assessment</strong><br />

5. ADMINISTRATION AND IMPLEMENTATION<br />

To this point in the study, the report has analysed a potential Traveller’s <strong>Levy</strong> without close<br />

consideration of how it might actually be administered and collected. Drawing on the<br />

desktop research undertaken as part of this study, and in particular, consultation with key<br />

stakeholders, this section discusses the logistical and practical issues surrounding a levy’s<br />

potential introduction.<br />

5.1 HOW WOULD A LEVY BE CHARGED AND COLLECTED<br />

The method employed for charging and collecting a levy would be one of the factors critical<br />

to ensuring its cost-effectiveness and efficiency. The greater the extent to which it can<br />

integrate into existing charging and pricing mechanisms, the greater its administrative<br />

simplicity and the lower the burden of compliance. Given the magnitude of revenue involved,<br />

dedicated fee structures or collection mechanisms would simply be too costly to administer.<br />

The method of administration and collection also hinges heavily on Council’s capacity to<br />

introduce regulation mandating that operators charge and collect the <strong>Levy</strong> as specified by<br />

Council. This issue is noted but not analysed here and would need to be subject to a<br />

subsequent, dedicated investigation.<br />

With these points in mind, and given the discussion of the economics of a Traveller’s <strong>Levy</strong><br />

(Section 2), it would seem there are three broad options for administering and collecting a<br />

Traveller’s <strong>Levy</strong>: a direct charge; an indirect charge via landing and wharfage fees; or a pervehicle<br />

charge. Though the legal incidence of a levy would differ in each of these cases, the<br />

economic incidence would be similar. This subsection overviews the merits and feasibility of<br />

each of these options.<br />

Option 1: Direct charging<br />

With participation from SeaLink and the airlines, one possible method of collection would be<br />

to integrate a levy into existing fee structures as a direct, per-passenger charge set by<br />

Council. In the case of ferry travellers, this would allow for a myriad of options including<br />

exemptions for residents or children and family passes. However, as the airlines’ charge is<br />

simply a per-seat fare, the scope to differentiate between travellers who commute by air<br />

would be minimal, if at all. Indeed only a flat, per-passenger levy applicable to all air<br />

travellers would appear feasible. Given the importance of neutrality between the alternative<br />

modes of travel, this would suggest a flat, per-passenger charge for all ferry and air travellers<br />

as the only option for a direct charge.<br />

The <strong>Levy</strong> could be collected as part of fare revenue and remitted to Council periodically,<br />

making collection and administration an inexpensive activity. Provided data were collected<br />

independently, visitor numbers would provide Council with a simple cross-check, ensuring<br />

compliance and enforcement are similarly straightforward.<br />

Option 2: Indirect charging<br />

In light of the potential obstacles to the introduction of a direct charge (discussed in greater<br />

detail below), the alternative mechanism for levying a fee on commuters would be to collect a<br />

<strong>Levy</strong> from travellers indirectly though wharfage and landing charges. For ferry passengers,<br />

this would mean estimating projected visitation for the forthcoming year and increasing<br />

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wharfage (which is a single, annual charge) commensurately. Landing charges, which are a<br />

per-passenger fee, would simply be increased by the value of the <strong>Levy</strong>. Again, ensuring a<br />

ferry traveller and an air traveller pay an equivalent <strong>Levy</strong> would be important.<br />

Compared with a direct charge, indirect charging would see Council forego control over the<br />

specifications of the <strong>Levy</strong>. Both SeaLink and the airlines would be free to recover the cost of<br />

the levy in a fashion which is in their best interests commercially, including by increasing<br />

freight charges. That is, even if landing fees were increased by, say, $10 per passenger, the<br />

levy paid by the traveller may in fact vary from this. Commercial imperatives would drive<br />

operators to recoup the additional costs in a fashion that minimises impacts on their<br />

business; hence the outcome may in fact be a relatively efficient one, albeit less controllable<br />

from Council’s point of view. Once in place, the system would be simple and low-cost to<br />

administer – equally or more so, than a direct charge.<br />

Option 3: Per-vehicle levy<br />

A per-vehicle charge would be a hybrid of Option 1, introducing the <strong>Levy</strong> at the point of car<br />

hire in addition to a <strong>Levy</strong> on those who bring a vehicle to the <strong>Island</strong> via the ferry. Visitors<br />

travelling by bus would be charged separately and motorcyclists could be subject to a<br />

concessional rate. Given SeaLink currently charge on a per-vehicle basis, such a levy could<br />

be readily integrated with their existing pricing structure, provided a suitable<br />

regulatory/legislative mechanism exists.<br />

The major hurdle would be Council’s legislative power to impose a charge on rental car<br />

businesses, which, while not explored in-depth here, would appear beyond their jurisdiction.<br />

With different levies for different vehicles and the need to ensure compliance through<br />

monitoring both arriving vehicles and hire cars, this option would also be the most costly to<br />

administer, monitor and enforce.<br />

Conclusions<br />

In many respects, given the user-pays rationale for a Traveller’s <strong>Levy</strong>, a per-vehicle levy fits<br />

most closely with the policy intent. However, it would be the most costly to administer, would<br />

impose the most significant burden on industry and faces unknown legal barriers. A direct<br />

charge gives Council the flexibility to structure the <strong>Levy</strong> according to its preferred design, but<br />

again the challenge to implementing such a model would be a legal one.<br />

An indirect charge whereby a levy is rendered through an increase in wharfage and landing<br />

fees is likely to face relatively fewer barriers to introduction and would be the most costeffective<br />

to administer, though even in this case significant impediments would need to be<br />

overcome. Council foregoes direct control over the charges travellers face, though<br />

commercial imperatives would mean that the outcome is not necessarily a less efficient one.<br />

5.2 ASSESSING THE COSTS OF ADMINISTRATION AND<br />

IMPLEMENTATION<br />

While it is difficult to estimate the cost of collection and administration without the specifics of<br />

such processes being refined, if integrated with existing mechanisms, the costs of collection<br />

would be negligible. Indeed in the case of a levy being factored into wharfage fees and<br />

landing charges, the ongoing costs of administration would be close to zero. A direct levy<br />

aligned with operators’ existing pricing structures would be marginally more expensive.<br />

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The greater costs are likely to be those associated with implementing a levy. For operators,<br />

this would involve updating existing pricing schedules, re-printing brochures, and reprogramming<br />

booking systems. For Council, the largest and most uncertain component will<br />

be the legislative costs of introducing a levy. These are unknown at this stage.<br />

5.3 THE FEASIBILITY OF EXEMPTING LOCALS<br />

The report has discussed the case for excluding residents (and off-island ratepayers) from a<br />

Traveller’s <strong>Levy</strong>, concluding that there is a strong case for doing so. While practical<br />

mechanisms can be conceived for such an exemption, whether their implementation is<br />

ultimately feasible is a question of cost-effectiveness.<br />

For ferry travellers, as SeaLink already requests identification when selling discounted fares<br />

to locals, such an exemption would appear administrable (i.e. their residents’ discount would<br />

simply be greater). Alternatively, Council could offer a refund to locals on presentation of<br />

their tax invoice. In the case of air travellers, this would indeed be the only option. While<br />

feasible, the merits of such a system would hinge on Council’s ability to develop a low-cost<br />

re-imbursement mechanism.<br />

5.4 POTENTIAL IMPEDIMENTS AND BARRIERS<br />

Desktop research and, in a particular, consultation with local stakeholders, revealed a range<br />

of potential impediments and barriers to the introduction of a Traveller’s <strong>Levy</strong> on <strong>KI</strong>.<br />

<br />

<br />

<br />

<br />

<br />

Opposition from local tourism businesses: both discussions with local tourism<br />

operators and the survey results revealed a level of opposition to the introduction of a<br />

Traveller’s <strong>Levy</strong>. Of the 51 respondents to the <strong>KI</strong> Council Tour Operator Survey, 44%<br />

said they would support a <strong>Levy</strong> to assist the Council in maintaining/improving <strong>KI</strong>’s<br />

roads and other infrastructure and around half believe that the implementation of a<br />

Traveller’s <strong>Levy</strong> would impact negatively on their business.<br />

Strong opposition from SeaLink: given the importance of securing the ferry<br />

operator’s support, SeaLink’s stated opposition to a Traveller’s <strong>Levy</strong> poses a major<br />

challenge to its introduction. While this need not present an impasse, it is among the<br />

greatest barriers that introduction of a <strong>Levy</strong> would face<br />

Issues of legal jurisdiction: introduction of a Traveller’s <strong>Levy</strong> would invariably face a<br />

number of issues of jurisdiction which would need to be investigated, and which would<br />

ultimately determine what, if any, method of implementation was feasible.<br />

Imposing a levy on ferry operators.<br />

Imposing a levy on air operators.<br />

Imposing a levy on car hire businesses.<br />

Acceptance from travellers: despite survey results reporting a high level of support<br />

for a Traveller’s <strong>Levy</strong> (71% of respondents indicated they would support a levy)<br />

concerns are regularly raised about the cost of travel to the <strong>Island</strong>, which many suggest<br />

is excessive. Travellers will be therefore be more resistant to the <strong>Levy</strong> if they see it<br />

simply as adding to the cost of travel, rather than adding to the cost of their visit more<br />

generally.<br />

Legal precedents: state government authorities raised concerns that the introduction<br />

of a Traveller’s <strong>Levy</strong> on <strong>KI</strong> may create a precedent which allows other jurisdictions with<br />

similar fiscal shortfalls to seek such a solution, irrespective of the appropriateness of<br />

their circumstances.<br />

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<br />

The current economic climate: the current economic downturn – and more<br />

specifically, the downturn in global tourism activity – is adding to the negative sentiment<br />

towards a Traveller’s <strong>Levy</strong>. Many businesses perceive the adverse macroeconomic<br />

conditions as challenging enough, without adding to this with a Traveller’s <strong>Levy</strong>.<br />

However, a Traveller’s <strong>Levy</strong> is a long term solution to a long term problem and it must<br />

be viewed in this context.<br />

5.5 KEY FACTORS IN SUCCESSSFUL INTRODUCTION<br />

The desktop research and analysis together with the stakeholder consultation and<br />

discussions with organisations in other regions suggest a number of factors key to the<br />

successful introduction of a Traveller’s <strong>Levy</strong>:<br />

<br />

<br />

<br />

<br />

<br />

Awareness and understanding: to maximise acceptance, it is integral that residents<br />

and local tourism operators are aware that the levy is going towards maintaining the<br />

<strong>Island</strong> and improving the tourism experience. Many have suggested this should be<br />

reflected in the levy’s title, with one suggestion being a Tourism Infrastructure<br />

Management <strong>Levy</strong>.<br />

Visitor education: as the levy will be linked to travel costs, the portion of travel fares<br />

which is accounted for by the levy (together with the purpose of the funds generated)<br />

must be clear – particularly in light of existing perceptions regarding the cost of travel to<br />

the <strong>Island</strong>.<br />

Implementation: significant lead-time would be required for businesses to adjust their<br />

booking systems and to update pricing schedules. Discussions with tourism operators<br />

suggest around 18 months would be sufficient.<br />

Administrative simplicity: the success of the levy hinges heavily on its costeffectiveness,<br />

which, in turn, is a function of its simplicity and ease of enforcement.<br />

Though other characteristics such as its efficiency and competitive neutrality will be<br />

important, given the level of revenue involved, administrative simplicity will be critical.<br />

Transparency: the levy must be administered in a fashion which is open and<br />

transparent and which makes it clear how the funds raised are being used. Revenue<br />

should be accounted for separately by Council (such as through an infrastructure fund)<br />

and hypothecation should be considered.<br />

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6. SUMMARY AND CONCLUSIONS<br />

The financial position of <strong>KI</strong> Council necessitates it securing alternative sources of revenue in<br />

order to ensure its fiscal sustainability, and the <strong>KI</strong> circumstances warrant the introduction of a<br />

charge such as a Traveller’s <strong>Levy</strong> as one option for achieving this. The combined impacts of<br />

a small rate-payer base and higher than average per-capita service-delivery costs, together<br />

with significant levels of tourism activity – a key contributor to these service-delivery costs –<br />

provide a rationale for a user-pays motivated levy on tourists.<br />

The impacts of a Traveller’s <strong>Levy</strong><br />

The modelling undertaken here suggests that the introduction of a Traveller’s <strong>Levy</strong> would<br />

have only a modest adverse impact on the <strong>Island</strong>’s tourism industry, and may indeed not be<br />

detrimental at all. This reflects the finding that demand for visitation to <strong>KI</strong> is likely to be less<br />

responsive to price (and hence a levy) than tourism on average, due to the relatively unique<br />

nature of the <strong>KI</strong> tourism experience (i.e. the limited number of substitutes) and high level of<br />

visitation by international visitors. Consequently a levy of around $8-$11 will raise Council’s<br />

target revenue of $1.8 million annually.<br />

Considering purely a price impact and taking no account of any countervailing effects<br />

resulting from improved tourism infrastructure, a levy of this magnitude would result in an<br />

estimated reduction in visitation of between 4,500 and 5,500 visitors annually - a reduction of<br />

around 2 to 3%. Associated with this would be a reduction in tourism expenditure on the<br />

<strong>Island</strong> – and hence a reduction in the income of local tourism-related businesses – of<br />

between $1.84 and $2.06 million annually. The flow-on impacts to the South Australian<br />

economy would depend on the extent to which those who opt not to visit <strong>KI</strong> in light of the levy<br />

substitute towards other destinations within the state.<br />

However, this takes no account of the likelihood of a continued deterioration in the condition<br />

of tourism infrastructure in absence a levy reducing tourism visitation. Or, moreover, that<br />

improved or better-maintained infrastructure may in fact buoy demand for visitation to <strong>KI</strong> – a<br />

response which would appear reasonably likely given current perceptions toward the quality<br />

of road infrastructure on the <strong>Island</strong>.<br />

Design and implementation<br />

The most efficient levy design would involve exclusion of residents and a differential levy<br />

based on traveller characteristics and length of stay. However, the logistics of collection and<br />

the need to ensure the costs of compliance and administration are not overly onerous<br />

suggest a flat per-passenger charge, with a potential reimbursement facility for local<br />

residents travelling by air (those travelling by ferry could be charged a concessional fare). If<br />

it could be achieved cost-effectively, equity considerations would also warrant excluding<br />

children.<br />

While a direct charge would provide Council greatest control over the specifications of a levy,<br />

it is not clear that the Council (through state government legislation) would have the capacity<br />

to regulate such a levy. In light of this, the most feasible mechanism for introducing a levy<br />

would be through an increase in wharfage and landing fees, though even in here, legislative<br />

hurdles remain. In addition, under this model, some control over the specifics of the levy<br />

would be foregone as operators would be free to pass through the higher costs as they deem<br />

appropriate.<br />

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In any case, a range of barriers would need to be overcome in order to introduce a levy, such<br />

as opposition from local businesses and resistance from transport operators. The greatest<br />

impediments are likely to be those not analysed in this report – the legal and jurisdictional<br />

issues regarding a levy’s introduction.<br />

Net impacts<br />

Ultimately, the net impacts of a Traveller’s <strong>Levy</strong> on <strong>Kangaroo</strong> <strong>Island</strong> depend on how the levy<br />

revenue is expended. Though the revenue generated is at least broadly equivalent with the<br />

foregone tourism income, and may in fact outweigh it, the benefits of a levy are not in the<br />

revenue itself but rather in the value of the additional services this generates. Provided the<br />

additional funds are allocated efficiently, improving amenity for residents and enhancing the<br />

tourism experience for visitors, a Traveller’s <strong>Levy</strong> is likely to generate net benefits for the <strong>KI</strong><br />

community.<br />

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7. REFERENCES<br />

Australian Bureau of Statistics Cat No. 3235.0<br />

BTE 1995, Demand Elasticities for Air Travel to and from Australia, Working Paper,<br />

Canberra, December<br />

Colmar Brunton 2009, TOMM Visitor Exit Survey 2007-08, Adelaide, March<br />

Crouch 1994, “Demand Elasticities for Short-Haul versus Long-Haul Tourism”, Journal of<br />

Travel Research vol. 33 no. 2, pp.2-7<br />

Divisekera 2003, “A model of demand for international tourism”, Annals of Tourism Research<br />

vol. 30 no. 1, pp.31-49<br />

Greiner, Rolfe 2003, Estimating consumer surplus and elasticity of demand of tourist<br />

visitation to a region in North Queensland using contingent valuation, Fremantle,<br />

February<br />

IATA 2007, Estimating Air Travel Demand Elasticities, InterVistas, December<br />

JAC Comrie Pty Ltd 2008, Local Government on <strong>Kangaroo</strong> <strong>Island</strong> Today and Tomorrow,<br />

Report for <strong>Kangaroo</strong> <strong>Island</strong> Council<br />

Knapman, Stoeckl 1995, “Recreation user fees: an Australian empirical investigation”,<br />

Tourism <strong>Economic</strong>s vol. 1 no. 1, pp.5-15<br />

Productivity Commission 2001, Cost Recovery by Government Agencies<br />

Reynisdotir, Song, Agrusa 2008, “Willingness to pay entrance fees to natural attractions: An<br />

Icelandic case study”, Tourism Management vol. 29, pp.1076-1083<br />

South Australia Department of Planning and Local Government, Population Projections<br />

Enquiry System, http://www.planning.sa.gov.au/index.cfmobjectid=1EAEEDC0-F203-<br />

0D46-ADDE3AB8A1CA2487<br />

Tourism Forecasting Committee 2009, Forecast 2009, Issue 1, Canberra, July<br />

Tourism Research Australia 2008, Regional Tourism Profiles 2007: <strong>Kangaroo</strong> <strong>Island</strong>,<br />

Canberra, August<br />

Tourism Transport Forum, National Tourism Employment Atlas - 2004<br />

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APPENDIX A: <strong>KI</strong> TRAVELLER SURVEY<br />

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APPENDIX B: LIST OF CONSULTATIONS<br />

Off <strong>Island</strong><br />

Organisation Name Title<br />

Local Government<br />

Association<br />

Wendy Campana<br />

Executive Director<br />

Department of Trade and<br />

<strong>Economic</strong> Development<br />

Department of Transport,<br />

Energy and Infrastructure<br />

South Australian Tourism<br />

Commission<br />

Office of State and Local<br />

Government Relations<br />

Leonie Boothby<br />

Scott Porter<br />

Sheree Goldsworthy<br />

Spiros Dimas<br />

Robert Jenkins<br />

David Crinion<br />

Pauline Coates<br />

Jane Gascoigne<br />

Regional Manager Office of Regional<br />

Affairs<br />

Senior Project Officer – Marine, Policy<br />

& Planning Division<br />

Director, Policy & Planning Division<br />

Manager Marine Facilities, Transport<br />

Services Division<br />

Project Director, Office of Major<br />

Projects & Infrastructure<br />

General Manager Tourism Policy and<br />

Planning<br />

Business Manager Research<br />

Executive Officer<br />

SeaLink Travel Group Jeff Ellison Chief Executive<br />

Bill Spurr<br />

Julie-Anne Briscoe<br />

Neil Gould<br />

Chair<br />

National Sales and Marketing Manager<br />

General Manager - Sales<br />

Regional Express Warrick Lodge General Manager - Network Strategy &<br />

Sales<br />

Air South Michael Kohn Managing Director<br />

Tourism Transport Forum<br />

On-<strong>Island</strong><br />

Organisation Name Title<br />

<strong>Island</strong> Govt Agencies and<br />

Council: <strong>KI</strong>DB, NRM, DEH,<br />

PIRSA, <strong>KI</strong>CE<br />

Elected Members/Council<br />

Senior Staff<br />

Tourism <strong>Kangaroo</strong> <strong>Island</strong><br />

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APPENDIX C: KEY CONSULTATION DISCUSSION POINTS 13<br />

<br />

<br />

<br />

<br />

<br />

<br />

<br />

<br />

<br />

<br />

<br />

<br />

<br />

<br />

<br />

<br />

Do you think the <strong>KI</strong> circumstances warrant introduction of a modest (perhaps $5 to<br />

$10) Traveller’s <strong>Levy</strong> as a means of ensuring the <strong>Island</strong>’s infrastructure (particularly<br />

roads) is adequately maintained<br />

What impact do you think a Traveller’s <strong>Levy</strong> would have on tourism visitation and<br />

expenditure<br />

What flow-on impacts do you think would stem from the introduction of a Traveller’s<br />

<strong>Levy</strong> on <strong>KI</strong><br />

Given a significant proportion of exiting visitors identify the condition of local roads as a<br />

major drawback (reason for not returning/recommending to others), do you believe<br />

there is a likelihood that a Traveller’s <strong>Levy</strong> coupled with improved maintenance of<br />

roads may actually increase tourism activity<br />

Have other experiences (past fee/price increases or fuel levies, for example) provided<br />

indicative evidence of how tourists might respond to a <strong>Levy</strong><br />

If a Traveller’s <strong>Levy</strong> was imposed what do you see as the most effective (and costeffective)<br />

way to collect and administer it<br />

Would it be feasible to, and what issues would arise in, attaching a Traveller’s <strong>Levy</strong> to<br />

your existing pricing structure (Setting aside any legal barriers for the time being).<br />

Given your current pricing structure, would a per-vehicle or per-passenger <strong>Levy</strong> be<br />

more/less feasible to administer<br />

If residents had a clear form of identification (a resident card or unique resident number<br />

to use in bookings), how additionally onerous would it be to exclude residents from a<br />

<strong>Levy</strong><br />

If you have introduced levies (such as fuel levies) in the past, what were the costs of<br />

updating booking systems/websites, etc, to reflect the new levy<br />

What lead time do you think would be required to introduce a <strong>Levy</strong> into your booking<br />

systems<br />

Do you have any opinion as to the likely costs of collection/administration of a<br />

Traveller’s <strong>Levy</strong> Would you wish to receive a fee for its collection<br />

How do you think the introduction of a <strong>Levy</strong> would impact on the competitiveness of <strong>KI</strong><br />

as a tourism destination relative to other destinations and for economic activity<br />

generally<br />

Given road maintenance costs are a major driver behind the need to consider a <strong>Levy</strong><br />

would you consider a vehicle levy as an alternative to a per-passenger Traveller’s<br />

<strong>Levy</strong><br />

Rather than applying a levy would a better approach be for <strong>KI</strong> to receive greater State<br />

Government road funding support (or alternatively for the State to assume<br />

responsibility for some of the key roads)<br />

Are there any allowances / block grants from the State Government to <strong>KI</strong> How does<br />

State govt revenue raised from <strong>KI</strong> compare with State govt services provided to <strong>KI</strong><br />

13 Not all points of discussion were raised with all stakeholders – some were specific to certain groups.<br />

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<br />

<br />

<br />

Does SATC have knowledge of other similar experiences (past fee/price increases or<br />

fuel levies, for example) that may provide indicative evidence of how tourists might<br />

respond to a <strong>Levy</strong><br />

Does <strong>KI</strong> Council currently receive funding support from the SA Government to help it<br />

offset additional costs it incurs as a result of impact of tourism Is there realistic scope<br />

for the level of funding support Council receives from existing or proposed programs to<br />

increase substantially in future<br />

What is the likely impact/acceptance if fees raised go to an Infrastructure Fund<br />

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APPENDIX D: COMPARING TRA AND TOMM DATA<br />

NVS and IVS<br />

The main source of visitor statistics for most tourism regions in Australia is the National<br />

Visitor Survey (NVS) and International Visitor Survey (IVS) which are conducted by Tourism<br />

Research Australia. These surveys are sample surveys with interviews conducted<br />

continuously throughout the year. In 2004 the IVS involved face-to-face interviews with<br />

some 20,000 international visitors conducted in departure lounges at major international<br />

airports and the NVS home telephone interviews with some 80,000 Australians about recent<br />

travel. These surveys provide a range of information about the characteristics and travel<br />

patterns of domestic and international visitors across Australia and enable comparisons with<br />

results at a national, state and regional level. The IVS sample is weighted to data on<br />

international visitor numbers provided by the Department of Immigration and Citizenship to<br />

the ABS. The NVS is benchmarked to population estimates and weights calculated on an<br />

individual trip basis.<br />

A limitation of the IVS and NVS is that, like all sample surveys, results are subject to<br />

sampling variability meaning that the smaller the estimate, the higher the sampling variability.<br />

Thus for many regions, including <strong>Kangaroo</strong> <strong>Island</strong>, NVS/IVS estimates may be subject to<br />

high sampling error and should be considered indicative only and used with an<br />

understanding of the level of reliability of the data. In particular, caution is needed in using<br />

the data to track performance over time as change from one period to the next may reflect<br />

normal sampling variability.<br />

TOMM estimates and surveys<br />

<strong>Kangaroo</strong> <strong>Island</strong> is fortunate as, being an island, it is able to measure passenger movements<br />

to the <strong>Island</strong> and conduct its own surveys at <strong>Island</strong> departure points as all visitors leave<br />

through a limited number of gateways. Passenger movements are measured and exit<br />

surveys conducted as part of the Tourism Optimisation Management Model (TOMM) and this<br />

provides a valuable additional source of information about tourism to <strong>Kangaroo</strong> <strong>Island</strong>.<br />

Visitor number estimates<br />

Under TOMM, the number of paying passenger movements are collected from commercial<br />

air and sea transport providers. These figures should provide reasonably accurate data on<br />

total passenger movements to the <strong>Island</strong>. To derive an estimate of total visitors to the <strong>Island</strong><br />

passenger movements are discounted by and estimate of travel to and from the <strong>Island</strong> by <strong>KI</strong><br />

residents. These are derived from the TOMM resident survey which is also a survey and<br />

hence subject to sampling variability.<br />

Visitor and trip characteristics<br />

To derive details of characteristics of visitors and their trip, TOMM conducts an exit survey of<br />

visitors leaving the <strong>Island</strong>. The methodology of this survey has changed over time. In 2004-<br />

05, it involved a self-completion survey distributed to visitors at airport and ferry departure<br />

points throughout the year with an incentive prize and reply paid envelope. In 2004-05, a<br />

sample of 1,474 visitors was achieved, which was a significant improvement on 2003-04<br />

when the response rate was quite low with just 295 responses. Results are weighted to<br />

reflect known ferry and air movements. The visitor survey estimates are, like all sample<br />

surveys, subject to sampling variability and, in addition, self-completion questionnaires mean<br />

respondent bias may occur.<br />

Source: SATC (2006) <strong>Kangaroo</strong> <strong>Island</strong> Tourism Market Analysis, a background paper to the development of the<br />

<strong>Kangaroo</strong> <strong>Island</strong> Strategic Tourism Plan. Unpublished.<br />

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