INDICATIVE IMPACTS OF KEY CHANGES


TREATMENT OF GOODS PURCHASED BY VISITORS

Background information

The Australian TSA measures the direct contribution of the tourism industry to the Australian economy. Key aggregates of tourism output, tourism gross value added, tourism gross domestic product (GDP) and tourism employment in the Australian TSA relate to the direct effects of tourism consumption. The direct effects take into account only the immediate effects of the additional demand (tourism consumption) created by visitors in terms of additional output and additional value added. A direct effect occurs where there is a direct relationship, generally in the form of direct physical contact, between the visitor and producer of the additional output of a good or service.

The fundamental change arising from the new international TSA standard relates to the the treatment of goods purchased by visitors and the resultant impact on the derivation of tourism supply aggregates in the Australian TSA. Under this change, the direct contact principle used to determine the producers which are deemed to be in a direct relationship with visitors has been tightened. To reflect this change, and emphasise the requirement for a direct relationship, the terminology used in the Australian TSA to describe key tourism supply measures has been modified to direct tourism output, direct tourism gross value added, direct tourism GDP and direct tourism employment.

This change will result in some components of tourism gross value added, as previously recorded in the Australian TSA, being reallocated to indirect effects. The total impact of tourism consumption on value added of all industries, including direct and indirect or flow-on effects, is published by Tourism Research Australia (TRA).

Application of the Direct Contact Principle

In the Australian TSA, the expenditure by the visitor on retail goods (at purchasers' prices) can be split into the following components:

• the margin received by the retailer selling the product to visitors, contributing to the output of the retail trade industry which is measured on a margin basis and not at the full value of their sales
• the margin received by businesses in the wholesale trade and transport industries which distribute the finished good from the final manufacturer to the retailer, contributing to the output of the wholesale trade and transport industries which are also measured on a margin basis
• the basic price for the finished good received by the final manufacturer (domestic output of the manufacturing industry).

The previous approach was to treat the entire value of the expenditure by the visitor on retail goods as constituting the value of the direct relationship with the producer and therefore being reflected in direct tourism output, direct tourism gross value added and direct tourism GDP. This treatment results in the output and value added of the retailer, as well as various industries which are involved in the supply chain from the production of the finished good onwards, being attributed to the tourism industry. This includes industries such as manufacturing, agriculture, oil refining as well as other margin activities such as wholesale trade and freight transport.

In the case of retail goods purchased by visitors, the new international standard states that only the retail margin will contribute to direct tourism output, value added and GDP. This is because it is deemed that only the retailer has a direct relationship with the visitor and is therefore part of the tourism industry. As a consequence the output, and consequently value added, attributed to other (than retail) industries will be excluded from the value of direct tourism output.

This change in methodology will require the removal of the following components of supply by producers that do not have a direct relationship with visitors in deriving direct tourism output and direct tourism value added:

• The basic price receivable by domestic producers in the supply chain that are not in direct contact with the visitor. This relates specifically to goods supplied by producers classified to industries including agriculture, mining, manufacturing and wholesale trade.
• Associated wholesale and transport margins, given that these services are provided by producers in the wholesale trade and transport industries with no direct relationship with the visitor purchasing the good from the retailer.

Comparison of the new and previous standards

The tourism related industries affected by this change in methodology are shown in the table below. Note that all other tourism related industries are not affected by this change since they will continue to satisfy the direct contact principle. The table below outlines the difference between the application of the previous standard and the new recommended standard by tourism related industry, using results from table 4 of the 2007-08 issue of the Australian TSA:

Direct Tourism Gross Value Added
Selected industries	Calculated with previous Standard ($m)(a)	Calculated with New Standard ($m)	Revision
Air and water transport	4 241	4 232	-9
Other road transport	936	715	-221
Rail transport	553	488	-65
Food manufacturing	942	-	-942
Beverage manufacturing	704	-	-704
Transport equipment manufacturing	156	-	-156
Other manufacturing	885	-	-885
All other industries	3 145	1 080	-2 065
Total Gross Value Added (all industries)	33 733	28 686	-5 047
- nil or rounded to zero (including null cells)
(a) Source: Table 4, Australian National Accounts: Tourism Satellite Account, Australia 2007-08 (cat. no. 5249.0)

The key changes in this table are explained as follows:

• Since the transport industries in the Australian TSA include both passenger and freight transportation activities, the supply relating to the transport margin component of goods purchased by visitors is removed from direct tourism gross value added calculated under the new standard. Note that the transport margin only includes transport charges invoiced separately by the producer.
• The manufacturing industries do not have a direct relationship with visitors, instead visitors purchase manufactured goods from retailers and the retail margin is the only component included in direct tourism gross value added.
• The reduction in direct tourism gross value added for All other industries is due to the removal of the wholesale margin component of goods purchased by visitors and the removal of the basic price of goods produced by the agriculture and mining industries.

Using the results from table 4 of the 2007-08 issue of the Australian TSA, implementing this change will reduce the level of direct tourism gross value added by about 15% and will reduce the level of direct tourism GDP by about 22% in 2007-08. The higher impact on direct tourism GDP is due to the greater relative decrease in the level of tourism net taxes on products, due to the removal of taxes and subsidies associated with upstream value added. In terms of other measures of supply, the new standard will have the similar effect of reducing the direct tourism output of the industries in the table above.

The other key tourism aggregate impacted by the new change is tourism employment, with the following tourism employment industries impacted by the implementation of the new standard: Road transport and motor vehicle hiring; Rail transport; Air and water transport; Manufacturing; and All other industries.

It should be noted though that this change does not affect tourism consumption which will continue to reflect the full value of the retail purchase.

The new approach is preferred in terms of consistency with the national accounts, and particularly for the purpose of comparison to other industries and understanding the economic impacts flowing from the direct interaction between visitors and businesses.


KEY EXPECTED REVISIONS FROM AUSTRALIAN TSA BENCHMARK PROCESS

Revision of Macro-Economic International Standards

The 2008-09 issue of the Australian System of National Accounts (cat. no. 5204.0) marked the implementation of the following updated international standards and related classifications:

• System of National Accounts 2008 (SNA08)
• Balance of Payments and International Investment Position sixth edition (BPM6)
• Australian and New Zealand Standard Industry Classification 2006 (ANZSIC06)
• Standard of Economic Sector Classifications of Australia 2008 (SESCA08).

The impact from some of the key changes will be to reclassify certain types of activities from intermediate consumption to gross fixed capital formation, resulting in an increase in gross value added in affected industries. The impact of these changes on key tourism aggregates of the Australian TSA will be minimal. The main changes are:

• introduction of Research and development as capital formation
• capitalisation of Expenditure on defence weapons platforms
• implementation of Orchard growth in the capital and production accounts.

The incorporation of updated international standards, in combination with data quality improvements, in the Australian System of National Accounts (ASNA) have increased the level of GDP by $49,578 million (4.3%) and have increased gross value added by $51,887 million (5.0%) in 2007-08. While these changes will have minimal impact on key tourism aggregates, they will impact on the tourism share of gross value added and GDP.

The Australian TSA methodology involves estimating a full benchmark every third year and the estimates contained in the next publication will reflect the establishment of a new benchmark in respect of 2006-07. As part of this benchmark process, the relationships established in earlier benchmark years will be reviewed and adjusted to account for significant revisions to the supply-use tables underlying the 2008-09 issue of the ASNA.

Improvements to Migration Statistics

The key change to the sources and methods for the Australian TSA concerns the measurement of short-term international students. The upcoming publication will incorporate revised ABS migration statistics which capture detailed characteristics of travellers including 'actual length of stay' of visitor arrivals.

The ABS produces a measure of tourism related services in the Balance of Payments which is derived by combining passenger transportation services and total travel services (business, education-related and other personal travel). A key conceptual difference between tourism related services credits in the Balance of Payments and tourism exports (international tourism consumption) in the Australian TSA relates to the treatment of international students.

While the balance of payments generally apply a one year rule to determine the residency of a household which has changed location, a key exception to this residency criteria is international students who will generally continue to be resident in the territory in which they were resident prior to studying abroad even if their course of study exceeds a year. This differs to the treatment in the TSA where a one year rule applies without exception in the determination of an individual's 'usual environment' and therefore on whether this individual is deemed to be a 'visitor'.

The activity of short-term international students is particularly difficult to measure in Australia, particularly if based on length of stay, due to the prevalent pattern of short-term interruptions (usually at vacation break) to a longer period of stay in Australia. The current data source for identifying short-term international students in the Australian TSA is Overseas Arrivals and Departures data, which classifies an international student as short-term if their 'intended length of stay' as recorded on their incoming passenger card is less than twelve months.

The Australian Bureau of Statistics has recently introduced improved methods for compiling migration statistics, which facilitate the identification of international students that stay in Australia for more than twelve months and therefore qualify as a resident, and conversely the number that stay for less than twelve months. Under this revised approach, an international student is considered to be a resident if they have stayed in Australia for a period of 12 months or more over a 16 month period (from the time of their first arrival in Australia).

Consistent with the revised approach taken for migration statistics, the usual environment of international students in Australia will be based on their actual length of stay in Australia (ignoring any short-term interruptions during their course of study). Those long-term international students that qualify as residents for migration statistics will be considered to have their usual environment within Australia and are excluded from the scope of international visitors in the Australian TSA.

In terms of impacts, it is likely that the adoption of this improved data source will have the effect of reducing the international tourism consumption of education services by between 20 to 30 percent for each year of the time series. The impact on both direct tourism value added and direct tourism GDP will be a reduction of around 2% in 2007-08.