1.

Summary
The following report is based on the article ‘Tourism Investment Monitor’ by the
Australian Tourism Industry published in the year 2015. It emphasizes on the
total estimation and value of the large scale products according to the Australian
tourism investment pipeline of the year 2014. Various methods and techniques
are used in the previous reports which provides a benchmark for comparison of
growth every year. The total number of projects in 2014 pipeline rose up to 168,
29 more than the previous year.

The accommodation projects were valued at $8.5 billion which would provide an
additional 15,915 rooms to the accommodation supplies. The prediction in
accommodation investments looks quite promising over the next year. Records
say that the international tourists in Australia have spent a record 220.6 million
nights compared to the year end in 2013 which depicts a growth of the visitors
spending 35.2 nights per trip in Australia. 2014 had seen a rise in holiday
arrivals which were up by 9.8% and VFR was also up by 13.4%. The arts,
recreation and business services infrastructure projects were valued at $13.9
billion and it is predicted that the future lies good for investors and growth in
this particular field. The investor appetite for tourism investment projects is
predicted to rise in the coming years provided the growth in value and volume in
pipeline projects. Considering this year’s monitor ‘Mixed – use developments’
also showed significant growth, with about 69 ‘Mixed – use developments’ up by
28 projects which was valued at around $33.6 billion, a growth of 55%. This can
give rise to about 18,315 new rooms.

For the sake of delivering new and feasible projects to the industry, it is
necessary to have growth in the number of projects. With a constant number of
project completions, this year’s monitor showed a steep rise in the number of
projects with more progression through the pipeline. Modification and
improvement of the current tourism infrastructure can contribute significantly
to the Australian economy. According to the reports, the current tourism
industry contributes a lot to the entire nation in form of jobs (534,000 people)
and also adds $27.2 billion to the total exports. This makes inbound tourism
Australia’s largest services export industry with a total worth of 443.3 billion in
GDP.

The overnight tourist expenditure ranges from $115-140 billion and the
accommodation supply increases by 20,000 rooms in Australia. This makes
Australia one of the top 10 major accommodation markets. The international
aviation capacity increased by 40-50% and domestic by 23-30%. To fill the
vacancies in the tourism industries, an enormous strength of 56,000 people were
added. It is predicted that with the speed Australia’s tourism sector is growing,
they will be at their prime by the end of 2020 and will be able to achieve their
desired goals.

Mixed – use projects are under the radar of investors in recent days. Seeking
investment and growth is beneficial for any industry, but an equilibrium or
balance should be maintained between the supply and demand of resources
otherwise it hinders with the scope of the entire project over time. In the year
2014, the number of projects increased considerably which can be shown by the
fact that there were 3000 new accommodation rooms, 3 new aviation facilities
and the number of projects were 3 times more than compared to 2013.

If the targets set are to be achieved by the end of the year 2020, the tourism
sector needs to be consistent. A large number of Asian(China and India mainly)
investors have an eye on the booming tourism industry in Australia, which will
be beneficial in a lot of ways as it will attract a lot more foreign tourists. The
increase in demand eventually calls for an increase in supply which further more
adds quality and the industry remains active on the global level of competition.
2.
Researching on the debatable question of whether the constant increase in
investments on the Australian tourism industry, we can summarize that the
policies excised are sustainable.

The travel and tourism industry of Australia is robust and builds AUD94 billion
on spending. Tourism contributes AUD34 billion on the total GDP rate, provides
500,000 jobs and yields 10% growth in the gross export earnings.
Infrastructures like airports, hotels and road are financed by the earnings from
the tourism industry. Choice of labor (skilled or unskilled), enhanced service
quality, better infrastructure, expansion in number of destinations would assist
Australia to sustain and improve the economic value of Australia as a tourism
industry with increased investments. (Tourism 2020 2011).

Figure 2.1

According to Jackson report the overall investment in the tourism sector has
grown with respect to the increase in gross capital formation of the private
sectors. Higher investments in tourism is the key for the rise in rate of
production, which in the long-term would impact the profit, modernization and
growth. Fig. 2.1 states although there has been rise in overall investment but
the investments in tourism is inferior and may result in shortage of supply for
rental accommodations. Tourism industry has been relatively considered as low
source of profit when compared to mining in Australia. From the year 1998-99 to
2003-04, the return on investment in the tourism sector was evaluated as 11.4%
when compared to the 14.9% average return on all industries. Whereas the
supply of rental accommodations rose to 216,733 (1.6% average rate of growth)
from 2001 to 2007. The occupancy rate has also increases from 57% to 66%
over the same period but some tourism operator sight that the increase in room
rates have not kept pace with rise in occupancy and this cause negated the
contribution of further investment in accommodation sectors. (Jackson et al
2009).

The rise of value for the Australian dollar and the increasing competition in the
tourism market are the two challenges that Australian tourism currently faces.
 The international market share continues to rise with a steady fall in the
expenditure for domestic tourism since 2000. Thus investments should be made
on the new service/product, new tourist destinations, production rate, labor
forces to increase the growth and quality of service.

In case the country’s share of global arrivals are on fall at the present rate then
by 2030 the count of international arrivals would be shortened by 3.6 million. A
platform with sustained changes and increased investments would form the
future of long-term tourism with an increase of AUD22 million contribution
towards GDP and creation of 100,000 tourism jobs by 2030. (Jackson et al 2009).

Impacts of sustainable economy

The growth in tourism industry in the past decade has accelerated the number
tourists every year. Tourists all over the globe fly to different destinations
increasing the global tourism earning used in transportation and infrastructure.
This rise in tourism has created many job opportunities and increased the
economic values in the country. Economic social–cultural and environmental
impacts are inevitable element of the development of tourism (Cooper et
al.1998).

Global tourism have its own pros and cons on the environment. With the rise in
tourism there has been considerable rise in sewage, air and water pollution
because of host community’s sewage overload and disposal of old
infrastructures. Due to tourism the prices of food, accommodation, services rise
which can result in inflation in backward countries leaving the local community
with financial crisis. On the contrary the earnings of the tourism industry assists
in the enhancement of the host country locals, enhancing the infrastructure of
the community such as transportation system.

Lastly, the tourism industry has affected the costs and welfare local residents.
The economic gains can be classified as the short term impacts whereas the
value to the natural resource and social cultural are the long term impacts. When
compared with other industries the tourism industry has less environmental
effects. Top quality planning and management is the key aspect which would
support the tourism industry to reduce the negatives and maximize positives to
gain sustainable benefits.

3.
Supposing the Australian hospitality industry is perfectly competitive and the
government has decided to excise tax on hotel accommodation buyers; the effects it will
have on several factors are discussed below:

3.1 Equilibrium on rental prices

Figure 3.1

Assuming the buyer’s tax imposed on equilibrium rental prices in a perfectly

competitive market scenario; let the DP, DQ, SP and SQ be the demand price, demand
quantity, supply price and supply quantity respectively. Under no tax scenario the price
for renting accommodation hotel’s demand and supply meet at the point of equilibrium,
E where the price of the supplier is same as the price of the consumer demand i.e. DP=
SP and the quantity supplied meets the consumer demands (DQ= SQ ). Tax excised on
buyer’s price increases the cost of quantity for the consumers with a decrease in the
demand for quantity. As Fig 3.1 illustrates the buyer’s tax impact where at the new
equilibrium EN price of the quantity increases with a steady fall in demand D2 and PN as
the price for consumer demand rises. The price, PS for the sellers decrease whereas the
price, PN for the buyer at the new equilibrium after tax is excised.

Consumer Surplus, Producer Surplus and Total Surplus

Figure 3.2

In Fig 3.2, consider the price at equilibrium be PE and the quantity be QE. When the
buyer’s tax is imposed, the buyer’s price PB increases thus this decreases the consumer
surplus. Thus the consumer surplus in the above figure is denoted by A and the
decrease in consumer surplus = B + C.

The increase in buyer’s price after tax imposition decreases the selling price PS of the
producer thus decreasing the producer surplus which is denoted by F and the fall in
producer surplus = D + E.

The total surplus is hence given by the sum of consumer surplus and the producer
surplus i.e. A + B + D + F. The buyer’s tax is the cause for fall in total surplus by C + E.
This is referred as deadweight loss (DWL) caused by the distortions in market i.e. tax.

3.2 Social welfare

The biggest measure of income raised by government on tax revenue comes from
market transactions. Thus the whole economy thus suffers a loss from taxation known
as the deadweight loss shown in Fig 3.3 highlighted in red.

The loss of the social welfare contains buyers who will not buy product due to higher
price and producers who stop producing goods as they would not receive sufficient
economic cost on selling price. Thus in the economic market the buyers pay tax through
decreased consumer surplus and the producer contributes to tax over reduced
producer surplus.

Figure 3.3

The price of the buying increases and in turn decrease demand thus the buyers price PB
rises and the supplier price PS falls, this phenomenon shifts the equilibrium price to a
higher price. The income generated by the government is the difference between the PB
and PS times the quantity of products.

3.3 Federal Government Revenue

Figure 3.4

Fig. 3.4 illustrates the variations of tax revenue as the product of the buying price to
that of the quantity. There is tax revenue is always less generated by the government
with the variance in percentage of buyer’s tax apart from moderate tax percenatage.
When the buyer’s tax is increased as show in Panel a the buying price of the consumer
rises but the willingness to buy decreases thus resulting in lower revenue. Whereas
decreasing the buyer’s tax would result in low tax revenues (Panel b).

4.
Supposing that the labor market in tourism industry is perfectly competitive and the
forecasts on tourism activities and investments are correct; the effects it will have on
new wage level and the consequences when minimum wage is above equilibrium wage
are stated below:

4.1 New wage level for tourism industry

A company’s need for labor relies upon the marginal product of labor and price of the
product the company generates. In order to attain the market demand curve for labor
we sum up the demand curves of individual firms. Supply in a labor market are
dependent on variables like wage availability in new job opportunities, the skill set
required and work preferences. The intersection of the demand and supply curve for
labor determines wage. In a perfectly competitive labor market each company is a
wage-taker and the supply curve is given for individual firm is perfectly elastic at the
labor market wage.

Fig. 4.1 illustrates the wage W1 evaluated the point at which the supply and demand
curves meet in Panel (a). The number of labor is given as L1. Each company takes the
given market wage rate and thus the labor supply curve s1 is horizontal. The labour
supply curve is also given as s1 =MFC. The point of intersection of marginal revenue of
product MRP1 and determines the number of labor the company hires. The profit of the
company is maximised when MRP1=MFC.

Figure 4.1
 4.2 Minimum Wage

Assuming that the government has set the minimum labor wage above the
equilibrium wage under perfectly competitive labor market the consequences and
impact to social welfare are given below.
The wage gap due to advanced technology, is an essential social welfare problem.
The rapid alteration in technology has increased the demands for skilled and educated
workers. This phenomenon of hiring workers with superior wage encourages people to
gain higher education. In meantime the, changes in innovation appear to be abandoning
the less skilled labor. Workers failing to develop skill would eventually lose market
values.

Figure 4.2

Fig 4.2 illustrates the scenario when the government sets minimum wage above
the equilibrium wage. The point of intersection of the labor supply and demand curve
gives the equilibrium wage. Governments around the globe has forced minimum wage
in order to hike the labor wages which are comparatively low. The minimum wage acts
as the price floor and needs to be above the equilibrium wage W1 in order to be
effective. The implications of minimum wage are shown in the illustration. Upon the
increment of minimum wage Wm to that of the equilibrium wage W1, the number of
labor falls from L1 to L2 and the premium wage increases the number of labour supplied
i.e. L3. Thus the difference in labor supplied to labor demanded is defined as Labor
Surplus and expressed as L3 − L2. The labor surplus is the cause for unemployment.
Let’s presume the present equilibrium salary of uneducated and untrained
workers is W1, determined by the point of intersection of the demand and supply curves
of these workers. In case the government estimates that the salary level is too low and
orders to increase the salary to a minimum wage Wm, then this strategic planning
reduces employment from L1 to L2, but it boosts the incomes of labor who pursue to
work. The increment in wage also increases the supply of labor to L3. Thus the
difference in the quantity of labor supplied and the demand for labor quantities, L3 − L2,
is defined as labor surplus which raises unemployment.

5.
Travel and Tourism has been one of the main aspects in almost all the economic
structures in terms of contribution to total GDP and employment contribution.
According to World Travel and Tourism council (WTTC), the industry has provided
US$7,580 billion towards GDP and 277 million jobs towards the world economy. The
study broadly discusses the travel and tourism contributions of United Kingdom,
Germany and France. (WTTC 2015)
5.1 United Kingdom
United Kingdom (UK) is ranked at four in the WTTC based on the total
contribution to the GDP. The Fig. 5.1 illustrates the key aspects of UK’s economy on the
world economy.
 Figure 5.1
The direct contribution to GDP has increases constantly from the year 2012 and has
reached GBP57.3bn and is predicted to rise by 2.8% in the year 2014. UK consumed
5.5% of the total job opportunities in 2013 and expected to rise by another 1.2% in
2014 (WTTC, United Kingdom 2014).

Fig. 5.2 shows the economic participation of UK in the travel and tourism industry to its
real prices. The steady rise in internal tourism consumption and the fall in import
expenditure from 2012 in the supply chain management has supplied directly towards
the GDP. The direct contribution to employment has been growing since 2010 and
expected to reach GBP 1785.9 billion by 2014.
 Figure 5.2

5.2 Germany
Germany has been ranked at tenth in the travel and tourism industry in
relation to its total contribution to GDP. The gross contribution to GDP increased by
4.7% of the total GDP. With the forecasted rise of 1.7% till 2024 and the total GDP is
expected to reach EUR156.3 billion. The visitor export has been on a steady growth and
is estimated to reach EUR53.8 billion by 2024. The rise in total employment
contribution is 5% of the global employment and is expected to grow by 0.3% p.a.
(WTTC, Germany 2014). Fig 5.3 broadly exhibits the focus points of German economy
on global travel and tourism.

Figure 5.3

Fig. 5.4 illustrates the contribution of Germany on the travel and tourism global
economy. The cost involved with imported products of travel and tourism providers has
been on a constant growth since 2009 which adds up to the direct contribution to GDP.
The steady increase in capital invested and government spending impacts the total
contribution towards the GDP. The total investment on employment has been on rise
and in 2024 it’s expected at EUR 2,187.1 billion.
Figure 5.4
 5.3 France
France stands at fifth place in the absolute ranking based on countries
contribution to total GDP. Fig. 5.5 focuses on the key points of the French economy on
global travel and tourism economy. The total contribution of France to GDP hit
EUR79.4bn which is 3.9% of the global GDP and is estimated to be at EUR244.9 billion
by 2024. (WTTC, France 2014)

Figure 5.5

Fig. 5.6 illustrates the investments on capital by the France government which is stable
since it took a drastic rise in 2011 and expected to achieve 18.4 billion by 2024. The
government spending on tourism industry has been steady and relatively constant and
the spending on imported goods are on the fall. The above components add up to the
total contribution towards GDP. Although there was a fall in total contribution towards
job opportunities from 2012 to 2013 the country has supplied 2,833,000 jobs which is
contributed 10.5% of the total employment.
 Figure 5.6

After analysing three of the leading economies in the tourism industry, the focus shifts
to the Australian tourism market to understand ways to uplift the particular economy.
Australia is currently ranked at eleventh position in terms of total contribution towards
GDP.

In order to be the most desired tourist destination, the Australian tourism economy
should raise the total contribution towards employment.
MFC- Marginal factor cost curve

GDP- Gross domestic product