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

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Commercial-in-Confidence KI Traveller’s Levy Impact Assessment The current economic climate: the current economic downturn – and more specifically, the downturn in global tourism activity – is adding to the negative sentiment towards a Traveller’s Levy. Many businesses perceive the adverse macroeconomic conditions as challenging enough, without adding to this with a Traveller’s Levy. However, a Traveller’s Levy is a long term solution to a long term problem and it must be viewed in this context. 5.5 KEY FACTORS IN SUCCESSSFUL INTRODUCTION The desktop research and analysis together with the stakeholder consultation and discussions with organisations in other regions suggest a number of factors key to the successful introduction of a Traveller’s Levy: Awareness and understanding: to maximise acceptance, it is integral that residents and local tourism operators are aware that the levy is going towards maintaining the Island and improving the tourism experience. Many have suggested this should be reflected in the levy’s title, with one suggestion being a Tourism Infrastructure Management Levy. Visitor education: as the levy will be linked to travel costs, the portion of travel fares which is accounted for by the levy (together with the purpose of the funds generated) must be clear – particularly in light of existing perceptions regarding the cost of travel to the Island. Implementation: significant lead-time would be required for businesses to adjust their booking systems and to update pricing schedules. Discussions with tourism operators suggest around 18 months would be sufficient. Administrative simplicity: the success of the levy hinges heavily on its costeffectiveness, which, in turn, is a function of its simplicity and ease of enforcement. Though other characteristics such as its efficiency and competitive neutrality will be important, given the level of revenue involved, administrative simplicity will be critical. Transparency: the levy must be administered in a fashion which is open and transparent and which makes it clear how the funds raised are being used. Revenue should be accounted for separately by Council (such as through an infrastructure fund) and hypothecation should be considered. 39
Commercial-in-Confidence KI Traveller’s Levy Impact Assessment 6. SUMMARY AND CONCLUSIONS The financial position of KI Council necessitates it securing alternative sources of revenue in order to ensure its fiscal sustainability, and the KI circumstances warrant the introduction of a charge such as a Traveller’s Levy as one option for achieving this. The combined impacts of a small rate-payer base and higher than average per-capita service-delivery costs, together with significant levels of tourism activity – a key contributor to these service-delivery costs – provide a rationale for a user-pays motivated levy on tourists. The impacts of a Traveller’s Levy The modelling undertaken here suggests that the introduction of a Traveller’s Levy would have only a modest adverse impact on the Island’s tourism industry, and may indeed not be detrimental at all. This reflects the finding that demand for visitation to KI is likely to be less responsive to price (and hence a levy) than tourism on average, due to the relatively unique nature of the KI tourism experience (i.e. the limited number of substitutes) and high level of visitation by international visitors. Consequently a levy of around $8-$11 will raise Council’s target revenue of $1.8 million annually. Considering purely a price impact and taking no account of any countervailing effects resulting from improved tourism infrastructure, a levy of this magnitude would result in an estimated reduction in visitation of between 4,500 and 5,500 visitors annually - a reduction of around 2 to 3%. Associated with this would be a reduction in tourism expenditure on the Island – and hence a reduction in the income of local tourism-related businesses – of between $1.84 and $2.06 million annually. The flow-on impacts to the South Australian economy would depend on the extent to which those who opt not to visit KI in light of the levy substitute towards other destinations within the state. However, this takes no account of the likelihood of a continued deterioration in the condition of tourism infrastructure in absence a levy reducing tourism visitation. Or, moreover, that improved or better-maintained infrastructure may in fact buoy demand for visitation to KI – a response which would appear reasonably likely given current perceptions toward the quality of road infrastructure on the Island. Design and implementation The most efficient levy design would involve exclusion of residents and a differential levy based on traveller characteristics and length of stay. However, the logistics of collection and the need to ensure the costs of compliance and administration are not overly onerous suggest a flat per-passenger charge, with a potential reimbursement facility for local residents travelling by air (those travelling by ferry could be charged a concessional fare). If it could be achieved cost-effectively, equity considerations would also warrant excluding children. While a direct charge would provide Council greatest control over the specifications of a levy, it is not clear that the Council (through state government legislation) would have the capacity to regulate such a levy. In light of this, the most feasible mechanism for introducing a levy would be through an increase in wharfage and landing fees, though even in here, legislative hurdles remain. In addition, under this model, some control over the specifics of the levy would be foregone as operators would be free to pass through the higher costs as they deem appropriate. 40
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