Summary of the Article and Factors Influencing Investment

1. The article named “Tourism Investment Monitor 2017,” provides a brief overview of tourism industry in Australia. The tourist attractions and associated economic contribution of the industry increases investment in the investment. In the year 2016-17, investment projects in tourism totaled $37.8bn. These investment projects include individual investments initiated in accommodation, art, recreation and business service and aviation. Of these art, recreation and business service account for highest valued project with value being $17.0bn.

Several factors influence investment decision of an economy. In a specific industry investment particularly depends on trend in performance of the sector and future prospective growth (Goodwin et al. 2015). Tourism in Australia is one of the fastest growing industry. The increasing flow of visitors in the nation can be seen from growing number of night stay in hotel and other business service apartment, number of passengers in airlines and aggregate spending in tourism.

The increase in tourism demand in Australia is accompanied by an increase in supply and contribute to an expansion of the industry. The industry experienced a considerable increase in supply since 2010. In the presence of housing crisis resulted from increasing demand side pressure of houses in capital cities, tourists cannot be accommodated without increasing supply. If demand exceeds supply then there is an increasing pressure on house adversely affecting the tourism industry (Agenor and Montiel 2015). The high demand from international and domestic tourism demand increases occupancy rates in capital cities like Sydney and Melbourne above the national average.

The theory of demand suggests, an increase in demand for a particular good increases the demand for its complementary goods as well. In case of tourism, the complementary services of tourism refer to other services related to tourism (Bernanke, Antonovics and Frank 2015). Accommodation market is one sector directly related with tourism. With inflow of tourists, there is a visible increase in demand for rooms and other services in hotel and business apartment. There is also an increase in demand for passengers’ seat in domestic airlines. Significant investment is needed to increase place in educational institute in order to support inflow of international student.

The favorable economic environment of Australia is a significant determinant of tourism industry. Australia is the only nation that escape from recession for a considerably long period and maintain steady pace of economic growth (Heijdra 2017). Increase in number of visitor support the growth of accommodation market especially the hotel market. Almost 50 percent investment in tourism industry have come from foreign investors (especially China). Two vital capital cities Sydney and Melbourne constituted strong performance in accommodation market. Steady increase in demand of tourism boosted new development in Sydney. The Australian economy faced a temporary downturn resulting from slow-down of the most prosperous mining sector. The situation however soon recovered. Growth of Chinese visitors has been attributed from less complex procedure of visa processing agreement of air service. The increase in visitation in terms of both domestic and international and domestic visitors imply fast growth in the tourism industry.

Impact of a Specific Tax on the Hotel Accommodation Market

The accommodation investment in the tourism industry include investment in stand-alone accommodation as well as accommodation used for mixed purpose. Mixed-use accommodation implies accommodation used for both tourism and non-tourism purpose.  Investment in the stand-alone accommodation accounted largest increase in the capital cities. Significant investments have also been made on projects comprising mixed-use accommodation.

In the report, there is a specific section discussing flow of foreign direct investment in Australia. Strong economic performance of Australia has made it hub for foreign investors. In 2016, foreign direct investment in Australia amounted to be USD 48bn. The commodity boom in the world market is a significant determinant of expansion of foreign investment. The resource rich nation successfully exploits the opportunity generated from the resource sector with mining one crucial sector of the economy (Uribe and Schmitt-Grohe 2017). The end of mining boom however caused a significant decline in foreign investment in the respective years of 2014 and 2015. The economy quickly recovered from this situation and successfully created opportunities for foreign investment.

Projects related to arts, recreation and business services contribute tourism expansion by arranging different events. Projects in this segment amounts to be $14.8bn. Another import part of tourism investment is the investment in aviation infrastructure. Some of the important aviation infrastructure projects include Brisbane Airport domestic terminal expansion and construction of parallel runway, Melbourne airport projects for construction of third way and Perth international and domestic terminal upgrades and development of third runway. Both capital cities and regional areas attract investment in aviation projects.

Tourism thus is a prosperous and progressive sector and experience an expansion in both supply and demand. The growth in tourism industry is supplemented by growth of other related industries.

2. a) Tax is a compulsory payment made to the government. It is source of government revenue. Government can impose a specific tax either on buyers or on sellers. The overall impact of tax is same in both the cases (Baumol and Blinder 2015). The only difference is in terms of its impact on respective supply and demand curve.

                                                                                

                                                  Figure 1: Impact of a specific tax on buyers of hotel accommodation

Figure 1 summarizes impact of specific tax on buyers of hotel accommodation. As the market of hotel accommodation is assumed to be perfectly competitive the demand and supply curve are of usual shape. The respective demand and supply curve for hotel accommodation is given as D₁D₁ and S₁S₁. In the perfectly competitive industry equilibrium is attained where demand and supply balanced together (Nguyen and Wait 2015). Before tax, OQ₁ amounts of hotel accommodation are available at a market price of OP_1. In the free market, consumer enjoys a surplus shown by the area a+b+c+d. The corresponding producers’ surplus is given as e+f+g+h. Total surplus obtained from the sum of consumer and producer surplus is obtained as a+b+c+d+e+f+g+h. Now, support government decides to impose a specific tax of t on buyers. As the tax is imposed on buyers, the immediate effect is on the demand curve. In response to the imposed tax, there is an immediate inward shift in the demand curve by the tax amount. The tax creates a divergence between price paid by buyers and that receives by the sellers (Friedman 2017). Buyers pay a higher price of P_B while sellers receive a lower price shown as P_S. The equilibrium quantity of hotel accommodation after tax falls to Q_T. Tax alters the surplus to consumers, producers and the total surplus. Consumers now receive a surplus equivalent to only area a. Producers surplus also falls to area f only. Part of the consumers and producers’ surplus are realized in the form of government revenue (Cowell 2018). Government revenue because of the tax equals to area b+c+e+g. There is net loss in total surplus shown by the area d+h. This indicates dead-weight loss due to tax.

Pros and Cons of Increasing Investments in the Tourism Industry as an Economic Policy

b) The above analysis of effect of buyer’s tax show that there is a net welfare loss resulting from misallocation of resources (Cowen and Tabarrok 2015). Any further increase in tax would increase the area of deadweight loss and thus would further reduce social welfare.

c) The revenue to the government equals size of the tax times units of good sold. An increase in tax shifts the demand curve to the left by a greater magnitude reducing demand by a larger quantity. As a result, there will be further decline in the equilibrium quantity of accommodation. The effect on government revenue depends on proportionate increase in tax rate and that of proportionate decrease in equilibrium quantity (Mochrie 2015). Government revenue increases if increase in tax rate is larger than the decline in equilibrium quantity. However, if government revenue declines by a larger magnitude than tax rate, there will be a decline in government revenue.

3. Tourism is one of most important industries in Australia having a massive impact on the social, economic and cultural environment. Growth in tourism industry is mostly driven by desire of people towards adventure and interest to explore places having natural and cultural significance, intrigue and beauty (Dwyer et al. 2018) The contribution of tourism industry in Australian economy can be evaluated in terms of its impact on Gross Domestic Product, employment, export and investment.

The tourism industry has both direct and indirect contribution to the economy. The direct contribution of the tourism corresponds to contribution to Gross Domestic Product of Australia. The share of tourism in Australian GDP shows the internal spending and the government spending in the concerned industry (Gardiner, Grace and King 2014). An important aspect of investment spending in tourism include both current and future activity such as investment in construction of new accommodation and investment in airlines (purchase of new aircraft).

Direct contribution of tourism in Australia’s GDP amounts to be AUD 49.7 billion in 2016. In percentage term, tourism contributes 2.9 percent in nation’s GDP. This was forecasted to increase by 4.0 percent in 2017 (wttc.org 2018). The contribution to GDP comes from associated growth several related sectors of tourism such as hotel accommodation, airline and other transportation and business of travel agents. Two other sectors receiving direct support from tourism are leisure and restaurant industries.

Tourism industry has significant contribution on employment. Tourism and related industries employ a considerably large number of people. The industry generated 545000 direct jobs in 2016. Tourism contribute 4.6 percent of total employment. The employment in the tourism industry include jobs in hotels, airlines, travel agent and other passengers’ transportation service (McLennan, Becken and Moyle 2017). With expansion of tourism sector, job opportunities also expand in activities related to leisure and restaurant industries.

Another direct economic contribution of tourism industry is in terms of visitors’ export. Australia generated nearly AUD 27.3bn from the visitors’ export in 2016.  This is expected to rise by 6.1 percent. The country is expected to attract 8813000 international tourists in the coming years. The number of tourist arrival is forecasted to reach 14, 250,000 (Dwyer et al. 2014). With this, the expenditure generated from tourists expected to increase to AUD40.9bn accounting an increase by 3.5% per annum.

Leading Countries in the Global Tourism Market

Tourism also attract significant capital investment. In sector attracts capital investment worth nearly AUD21.7bn. This is expected to increase in the next few years and reach to AUD 27.6bn by 2027.

Tourism though has a positive effect on Australian economy there are however several adverse impact on environment. The development of coastal strips creates ecological problems in many beautiful beaches in Australia. In order to avail space for walking trails many plants and shrubs are cleared from the rainforests (Ruhanen, Whitford and McLennan 2015). The recreational activities like four-wheel driving destroyed the many vegetation and sand dunes of Australia. The biodiversity of the Great Barriers Reef has been adversely affected by the recreational activities like bottom trawling in that place. Disposal of non-biodegradable wastes in the seaside affects ecological balance of aquatic life. Many marinas and seas walls are constructed for the benefits of tourists. This disrupts the capacity of natural soil erosion in the aqua and estuarine environment. Increased crowd by larger number of tourist visitors in Australia has generated significant waste management problem (Zhang 2015). Tourism industry thus has some negative effect on natural environment of Australia.

Considering the positive and negative impact of tourism industry in Australia from the previous literatures, it is cleared that tourism has a long-standing impact on macroeconomic environment of Australia. Increase in tourism investment thus might be considered as a prudent macroeconomic policy for Australia as it not only contributes to an increased earning for tourism and related industries but also creates employment in these industries (Woo, Kim and Uysal 2015). When tourism and other related industry expand then the economy expands as well. The macroeconomic impact of investment in tourism industry is described in the following figure.

                                                       

                                                                   Figure 2: Effect of tourism investment in Australia

The figure above demonstrates impact of tourism investment using AD-AS framework. The equilibrium in the economy occurs at the intersection of aggregate demand and aggregate supply. Initially the economy is in equilibrium at point E. Corresponding to the equilibrium, GDP and price level are determined as Y* and P* respectively. If additional investment is made in the tourism industry, then the aggregate demand curve shifts rightward to AD_1. The new equilibrium is at E₁ yielding a higher GDP and price level (Johnson 2017). The expansion of tourism though is helpful for the economy but one should not ignore long term negative effect of tourism on environment. The expansion of tourism should therefore be undertaken in an eco-friendly manner.

4. The three global leaders in the world tourism market in terms of highest number of visitors are France, Spain and United States.

France is one of the leafing destination of global tourism. The number of visitors in France in 2014 was 83.7 million. In 2017, the number of visitors in France increased to 86.9 million. The objective of tourism ministry of France is to increase the number to 100 million visitors by 2020 (Corne 2015). In the gross domestic product of France tourism, contribute nearly 77.7 billion euros. Of this, the contribution of international visitors is 30 percent. Rest of the 70 percent is contributed from spending in domestic tourism (thelocal.fr 2018). The industry has significant contribution in the employment generation of France. The industry generates more than 2 million jobs in France. This accounts 10.9 percent of employment in France. The earnings from tourists also contribute to balance of payment of France. The major tourist attractions of France are Paris, French Riviera, Provence, Loire Valley, French Alps, Corsica and others. Realizing the importance of tourism for economic growth and an important source of government revenue, government of France gives considerable attention in development of strategy that can promote tourism in the country (gouvernement.fr 2018). Several attempts of government in this direction include improvement of reception facilities, adaption of a coherent tourism promotion strategy, development of digital technology, encouragement of occupation in the tourism industry, adaption of strategy to promote tourism investment and support towards policies that can support in showcasing product and regional diversity.

In Spain, tourism is a well-established sector in the economy. The latest research on tourism industry reveals that, the sector alone contributes nearly 16 percent of nation’s GDP. In 2016, the number of visitors in Spain was over 75 million. This number increased to 81.8 million in 2017. Tourism is considered as one of the vital sectors of the economy in terms of both size and buoyancy (Vila, Darcy and Gonzalez 2015). The sector also has ability to affect other economic activities. The dynamic expansion of tourism in Spain has outstripped the tourism growth of the global economy. The direct contribution of tourism in Spanish GDP increased from 5.9 percent in 2010 to 6.4 percent in 2015. Besides this, businesses directly or indirectly related to tourism create additional economic impact of the concerned industry (Albalate and Fageda 2016). The economic contribution of Spanish tourism stands out even higher than European average. Tourism has major implication for employment. The direct and indirect employment amount to 2.5 million in 2015 accounting 13 percent of national employment. Tourism in Spain is one of the most competitive industries in the world (Hernandez, Suarez-Vega and Santana-Jiménez 2016). The key strengths of country’s tourism sector include combination of cultural and natural beauty along with a good infrastructure of transport and tourism service.

In the United State, tourism industry is a large sector serving several domestic and international tourists on yearly basis. Foreigners visit United State to view natural wonders, historic landmark, cities and entertainment venues. Travel and tourism account 2.7 percent of US GDP.  The tourism industry of United State experienced rapid growth in terms of expansion of urban tourism in the late nineteenth and early twentieth century (Aitchison et al. 2014). Tourism was established as a well-developed industry by 1850. The industry progressed rapidly and recorded a marked shift in the same way as Americans organized, perceived and moved. The growth of tourism industry was supported by significant development of automobile and air travel (Peiro-Signes et al. 2015). The sectors however badly affected by the attacks in September 11, 2001. The industry soon recovered and remained as a leading industry of United State. Tourism is the largest employers in the 29 States of US. The sector employed 5.4 million people in 2013 (Otgaar, Van Den Berg and Feng 2016). Tourism industry also received great importance in terms of its contribution in government revenue and that of trade.

Tourism in Australia is an important economic sector contributing to national income, employment and export earnings. There is however scope for further improvement to promote Australia’s tourism in global market (Athanasopoulos et al. 2014).

The growth of tourism is subject to volume of investment in product, marketing and infrastructure. Development of private investment in this regard needs a clear strategy, quantifiable targets and accountability for associated performances. The tourism council in Australia should develop should develop an appropriate business strategy and should take a proper planning approach to fulfill tourism goals.

In the most frequently visited tourism regions, the tourism council should develop destination plans through increasing efforts and investment priorities. Australia must focus on its competitive advantage in tourism products and the source markets. Destinations that are in the top priority requires development in terms of integrating marketing, branding, labor markets, product development and infrastructural provision. The efforts in this areas also need integration among Federal, State, Industry and Local efforts.

Combined effort of private and government agents can promote Australia as a highly sought destination in global tourism.

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