KI Traveller's Levy Economic Impact Assessment - Kangaroo Island ...
KI Traveller's Levy Economic Impact Assessment - Kangaroo Island ...
KI Traveller's Levy Economic Impact Assessment - Kangaroo Island ...
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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 />
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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 />
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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 />
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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 />
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Commercial-in-Confidence<br />
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<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 />
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<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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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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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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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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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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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>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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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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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 />
47