THE IMPACT OF A BOOMING TOURISM INDUSTRY ON

COMPONENTS OF THE CIRCULAR FLOW

Australia is home to many great tourist attractions. In fact, they are so great that not only do
they bring people from all over the country to see them; they bring people from all over the
world to see them. Last year alone saw 6.45 million people from overseas holiday in Australia
(calculated from January 31 2013 through to January 31 2014). This is an increase of 7.2%
compared to the same time period as the previous year. This shows that Australias tourism
industry is thriving at this point in time and in on the rise. If thats not enough, in the January just
passed there has been an increase in overseas tourists of 15.5% compared to January 2013.
Tourism will continue to grow in Australia if recent trends are continued and the economy will therefore benefit and expand.
Australia is the holiday destination of choice for many countries, as shown through the number of people visiting each year.
In the period between the end of January 2013 to the same time in 2014, out of the 6.45 million people from overseas
countries that visited Australia around 1.2 million of them were from New Zealand. High numbers of visitors also came in
from China (750,000), the UK (660,000), the US (500,000), Singapore (350,000) and Japan (320,000). The majority of
these countries have experience growth in this area compared to the same period of time last year. China had the biggest
increase of 24.6%, New Zealand the lowest increase of 0.2% and Japan the only decrease being (-)7.2%. As far as continents
go; Asia has provided the most tourists in Australia with around 2.77 million people in the year, followed by Europe with 1.42
million and Oceania with 1.36 million people visiting Australia.
Australia is a great country to
visit
for
many reasons including: the
landscapes,
weather and structures; but
what
do
most people that holiday in
Australia
come to see? Some of the most
popular
naturally occurring places of interest for holiday-goers in Australia include Uluru, Kakadu National Park, the Great Barrier
Reef, the Kimberley, Bondi Beach, Frasier Island and the Twelve Apostles. Man-made features that are popular amongst
tourists include the Sydney Opera House, the Sydney Harbour Bridge, the Taronga Zoo, the Darling Harbour, Port Jackson and
the theme parks in Queensland. Popular areas and cities include Melbourne, Sydney, the Gold Coast and the Sunshine Coast
amongst others.

This advertisement was part of a $250 million marketing campaign done by Tourism Australia. It was released in China in as
part of a new up-market approach to advertise tourism in Australia And by the stats, it appears to have worked. It shows
off Australias natural beauty in the Bungle
Bungles and
the Great Barrier Reef as well as panoramic shots
of
the
outback, coastlines and vast bushland. It also
focussed on
the classier aspects of tourism in Australia shown
through a
couple playing chess at the exotic Saffire resort in
Tasmania
and five-star dining at Uluru in the Northern
Territory;
just to name a few.

The main reason why Tourism Australia put this ad out was to bring more people in to the country. This leads to more
spending by international tourists and therefore expands the economy; theyre in it for the money. The total expenditure by
tourists in the year ending September 2013, including pre-paid air-fares and packages, was up 4.6% to $28.4 billion. Tourists
spent $19.5 billion of this whilst actually in Australia, up 3.4% on the previous year. This extra spending has a positive impact
on the economy; this is shown by the $38.8 billion that the tourism industry contributed to the economy, after tax and
subsidies (GVA), up 3.8% on last year. This is the result of the influx of tourists coming to Australia and spending money.
More stats like this can be found here.
1

HOW DOES A BOOMING TOURISM INDUSTRY IMPACT THE CIRCULAR FLOW?

S AVINGS
Savings is defined as being income that is not consumed and is therefore a leakage from the circular flow. If Australias
tourism industry really took off all of a sudden, we would see more money being saved by Australian citizens. As the tourism
industry already provides 543,600 jobs to Australian people, if the popularity of tourism in Australia continued on its upwards
trend we would only see that number increase. More people with a job means more people with an income; and more
people with an income means more people with money to put towards savings. Previously unemployed or low income
workers would now not be so tight for cash and could start putting money aside to save.

I NVESTMENT
Investment can be stated as being the purchase of capital goods for the sole purpose of increasing and/or improving
production it is an injection. If Australias tourism industry really took off all of a sudden, we would see in increase in
investment by Australian businesses. Because more and more people would be coming into Australia, infrastructure such as
airports and roads would need to be improved or increased in number. This is the governments job but they would hire
contract workers and businesses to do the work. These companies would then increase their investment and get more
capital equipment to be able to do these jobs. If more people were coming into certain areas such as the Gold Coast, as
mentioned above, businesses in those areas would see the influx in people passing by as possible increased revenue. They
would invest in more capital in order to be able to produce enough to cover the needs of the increased number of tourists.

T AXATION
Taxation is a leakage in the circular flow. If Australias tourism industry really took off all of a sudden, we might see an in
increase in taxation to pay for the advertising of tourism in Australia. Tourism Australia spent around $250 million on the ad
in the hyperlink above as part of their marketing campaign. They would need funds in order to be able to make this ad. They
would possibly raise taxes for a short period in order to do this unless they had a spare $250 million in the budget
somewhere or already allocated to tourism. Money put towards taxation would increase as more people are receiving an
income, due to the increased number of jobs, so more people have to pay tax. Business revenue also being increased, due to
increased number of tourists, means that they pay more tax as they earned more.

G OVERNMENT S PENDING
Government spending can be split into two categories; G 1 and G2. G1 is recurrent expenditure such as social services whereas
G2 is capital expenditure such as infrastructure. Government spending as a whole is an injection and therefore expands the
economy. If Australias tourism industry really took off all of a sudden, we would see an in increase in government spending
in the form of G2. As mentioned before, they would have to increase and improve the airports and surrounding roads.
Although the government doesnt do the work, they must pay for the capital to do so as well as the wages of the workers. As
they would most likely be contract workers this shouldnt fall under G 1 as it is a one off thing and not recurrent. Government
spending could decrease (in the very unlikely scenario in this case) if S+M<I+X (Yes, it is a bit contradictory due to what else I
have written). This means that no matter how much tax there is, the government spending would not be as much as they
rake in to keep the flow in Equilibrium. This would be achieved by an increased number of exports (tourism) and investments
(businesses) and a steady or decreased number of imports (Australians holidaying elsewhere) and savings (people buying
more luxuries). This means that however much tax is collected, some of that will be wiped off by the excess in exports and
investment, meaning government spending can decrease and the flow will still be in equilibrium.

I MPORTS
Imports are defined as spending on other countrys goods and are also therefore leakages. If Australias tourism industry
really took off all of a sudden, we might see an increase in imports from other countries. As investment is up, meaning that
they are buying capital, most of that capital would have to be bought from overseas. This is due to the fact that Australia
does not manufacture anything compared to Asian countries like China and Taiwan. Businesses in popular tourist
destinations would want more capital and the only way that they could get it is by importing it from overseas. This results in
money leaving the flow but the resources that they want going to them.

E XPORTS
Exports are an injection to represent a new flow of funds into the circular flow. If Australias tourism industry really took off
all of a sudden, we would definitely see an increase in exports. This increase would be in the form of tourism. Many people
think that tourism is not an export because we are not shipping anything off whereas the truth is that exports can be goods
and/or services. More people visiting Australia means that they bring their money with them and spend it on Australian
businesses. This injects money into the Australian circular flow as we are providing services to them.

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http://www.tourism.australia.com/statistics/fact-sheets.aspx
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