KI Traveller's Levy Economic Impact Assessment - Kangaroo Island ...

Commercial-in-Confidence
KI Traveller’s Levy
Impact Assessment
Impacts on residents
The benefit of a levy for local residents (as residents – i.e. as distinct from resident business
owners) will be an improvement in the quality of local infrastructure, particularly roads (at the
very least, compared with a counterfactual where road conditions continue to deteriorate).
Council will be better equipped to provide services to the local community and this will allow
the amenity of local residents to be enhanced. The cost on residents depends primarily on
whether they are required to pay the levy each time they commute to the Island.
Impacts on Council
For KI Council, a Traveller’s Levy would enable it to better undertake its role of servicing the
community. Council services would not need to be cut in order to balance its budget and the
pressure to find alternative revenue sources would be relieved.
Impacts on the state economy
As a region within the South Australian economy, in the first instance, any reduction in
economic activity on KI (i.e. any fall in gross regional product) will be reflected in a
commensurate reduction in economic activity for the state (i.e. a reduction in gross state
product). However, there are also broader implications and flow-ons to consider.
A proportion of those visitors who would have visited KI but are deterred by a levy may opt
instead for alternative destinations in South Australia, thereby reducing the net impact on the
state’s tourism industry. Conversely, where KI is a visitor’s primary motivation for travelling
to South Australia, should a Traveller’s Levy deter visitation to the Island, it may be that the
state loses not simply the KI expenditure, but additional expenditure throughout the state.
The fact that those for whom visiting KI is the primary motivation for visiting SA will be among
the most insensitive to price, suggests that this latter impact will not be large.
Other flow-ons
While it cannot be reliably captured in modelling, a further consideration is that a Traveller’s
Levy may not merely impact on demand; it may also affect supply. If tourism operators – be
that SeaLink, Air South or REX, or one of the myriad of tourism businesses on-island – were
to experience or perceive sufficiently large adverse impacts as a result of a levy, their
commercial response may be to withdraw supply. This is particularly true in the case of
aviation, where the current market environment is tenuous and where capital is extremely
mobile (i.e. an aircraft can be readily shifted from one route to another). That said, the
segment of KI travellers who commute by air are perceived as among the most inelastic,
hence the likelihood of service withdrawal as a direct result of a levy would appear low.
Net impact on KI
The modelling outlined above demonstrates that, when purely price impacts are taken into
account, a Traveller’s Levy of around ten dollars in value generates approximately the same
value of revenue as is foregone in tourism income (depending on the specifics). Given
sufficiently low cost of administration (see discussion in Section 5.2) this would suggest that,
on net, a Traveller’s Levy has the potential to have a positive impact on KI. When a likely
counterfactual whereby tourism visitation declines in the face of ailing infrastructure is
considered, and the potential impact of an improvement in the quality of the KI experience is
analysed, the net benefits are in fact likely to be greater.
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