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Appendix 1: Conceptual framework

Definitions

Tourism Satellite Account: 2016 is based on the methodology produced by the United Nations World Tourism Organization (UNWTO) in its publication Tourism satellite account: Recommended methodological framework 2008. This method is approved by the United Nations Statistical Commission and the methodological publications of the Organisation for Economic Co-operation and Development (OECD). These organisations have collaborated to produce guidelines for tourism satellite accounts (TSAs). Although the organisations may differ slightly in their recommended treatment of some conceptual issues, they generally take a similar approach that is based on the international standard System of National Accounts 2008. Definitions used in Tourism Satellite Account: 2016 are based on the recommendations of the UNWTO, with some modification for New Zealand purposes.

Tourist

A tourist is any person travelling to a place other than their usual environment for less than 12 months and whose main purpose is other than the exercise of an activity remunerated from within the place visited.

Not all travellers (people moving from one place to another) are tourists. To be defined as a tourist, a person must also be travelling to places outside their usual environment (defined below) for a limited time. The 12-month time limit is consistent with the guideline in System of National Accounts 2008, which is that a person staying in a country for longer than 12 months is a resident. A place becomes part of a tourist's usual environment after the tourist has spent more than 12 months there.

The following people are not considered tourists:

  • those, such as travelling salespeople, for whom travel is an intrinsic part of their job
  • those who travel for the purpose of being admitted to, or detained in, a residential facility, such as a hospital, prison, or long-stay care
  • those travelling as part of a shift to a new permanent location
  • those undertaking military duties
  • those travelling between two parts of their usual environment.

The New Zealand TSA covers only tourists who travel to or within New Zealand. These are classified as either domestic or international tourists. The domestic tourist group is further broken down according to household, business, or government travel.

Domestic tourist

A domestic tourist is a New Zealand resident who travels within New Zealand but outside their usual environment. While travelling, they do not stay in any one place for more than 12 months.

  • A domestic household tourist is a domestic tourist whose purpose of visiting is other than to carry out a business activity.
  • A domestic business tourist is a domestic tourist and an employee of a private sector enterprise whose purpose of travel is to carry out a business activity and whose expenses are met either in full or in part by their employer.
  • A domestic government tourist is a domestic tourist and an employee of a central or local government sector enterprise whose purpose of travel is to carry out a business activity and whose expenses are met either in full or in part by their employer.

International tourist

An international tourist is a person who travels to a country other than that in which they have their usual residence, and outside their usual environment. While travelling, they do not stay in any one place for more than 12 months.

For the purposes of a TSA, international tourists are exclusively inbound travellers (non-residents travelling in New Zealand). International students studying in New Zealand for less than 12 months are included in the scope of the TSA. All their expenditure – airfares, tuition fees, and accommodation and living expenses – are included in international tourism expenditure. International students studying in New Zealand for more than 12 months are excluded from the TSA because they are considered to be residing in their usual environment within New Zealand. Such students are treated as tourists only if they travel outside their usual environment within New Zealand. However, in practice, it is difficult to estimate this expenditure, and it is therefore excluded.

Usual environment

Usual environment is the place or places a person occupies within their regular routine of life (except places visited for leisure or recreational activities only).

It is the concept of 'usual environment' that defines a tourist. Individuals must be travelling outside their usual environment for their expenditure to be considered tourism.

A particular destination will benefit from the goods and services purchased by tourists travelling outside their usual environment, by the amount spent by the tourist at that location, excluding imports. The important link between usual environment and tourism is that tourists, in purchasing goods and services outside their usual environment, have a positive economic impact on that destination. This benefit would not have occurred without tourism. This is the basis of tourism expenditure and is the reason a TSA excludes expenditure by outbound New Zealand travellers on foreign-produced goods and services. In other words, the economic benefits that accrue from these travellers do not benefit New Zealand.

However, expenditure by outbound tourists on domestically produced services (for example, international flights on New Zealand carriers, New Zealand travel agents' booking fees, or travel insurance for outbound trips) is included within the TSA because it is a form of tourism and provides economic benefit to the New Zealand economy.

The concept of usual environment is difficult to define because it depends on the nature of the country in question. For this reason, the UNWTO does not give a definitive definition. Instead, it suggests possible criteria to be used by countries to establish their own definition.

In New Zealand, for a tourist to be outside their usual environment they must, subject to previously stated exclusions, satisfy at least one of the following conditions:

  • travel by a scheduled flight or inter-island ferry service
  • travel more than 40 kilometres from their residence (one way) and outside the area they commute to for work or visit daily
  • travel as an international tourist.

Tourism expenditure

Tourism expenditure is spending by, or on behalf of, a tourist before, during, and after a trip. This expenditure occurs either on the trip (eg meals or souvenirs), or is travel related (eg pre-booked airfares, luggage, or other tourism-specific durables). The trip must be taken outside the usual environment of the tourist. This expenditure includes goods and services tax (GST).

Since tourists are defined based on their relationship to their usual environment, expenditure on a product may constitute tourism expenditure, depending on who is purchasing the product. Tourism expenditure is defined from the perspective of the tourist.

On-trip tourism expenditure is tourism expenditure occurring during a trip. Off-trip tourism expenditure is expenditure that occurs outside of a trip but relates to goods and services purchased specifically for use while on a trip.

Tourism demand

Tourism demand is GST-exclusive expenditure made by, or on behalf of, a tourist before, during, and after a trip. This expenditure occurs either on the trip or is travel related, and the trip must be taken outside the usual environment of the tourist. In other words, tourism demand is equivalent to tourism expenditure, excluding GST.

Tourism output

Tourism output is the value of goods and services purchased by tourists, excluding imports sold directly to tourists. It is derived from tourism demand by removing the imports sold directly to tourists by retailers and comprises the following components:

  • tourism intermediate consumption – the goods and services used in the process of production of products sold to tourists
  • tourism value added – the 'value' a producer adds to the raw material goods and services and/or transformed goods it purchases in the process of production.

Tourism intermediate consumption

Tourism intermediate consumption consists of goods and services used in the process of producing products sold to tourists.

Travel agents' commissions, even where these are paid by transport or accommodation providers to travel agents, are not included in tourism intermediate consumption. Instead, this expenditure is included in tourism demand (and in business travel expenditure) because it is assumed these commissions are paid to travel agents by transport or accommodation providers on behalf of tourists. Travel agents' commissions received directly from fares booked are also included in tourism demand.

Goods for resale

Goods for resale are goods acquired for the purpose of reselling and without further processing or transformation.

Valuation basis used in tourism satellite accounts

Tourism expenditure in TSAs is initially measured in purchasers' prices (market prices). Essentially, purchasers' prices are the amounts paid by tourists for products. Tourism expenditure is then converted into producers' prices and incorporated into the supply and use framework of the TSA. Producers' prices are the amounts producers receive for selling their products. For this reason, they are exclusive of GST. All monetary aggregates presented in a TSA are in producers' prices, unless otherwise stated.

Some valuation issues exist in comparing the New Zealand TSA with those of other countries. This is because the New Zealand System of National Accounts (NZSNA) and the TSA measure industry value added in producers' prices, while Australia and other countries measure industry value added in basic prices, or at factor cost. Consequently, international comparisons can be slightly misleading, as industry value added estimates can have a different valuation basis. (For definitions of basic, producers', and purchasers' prices, see the glossary.)

It is important to emphasise that the direct tourism value added valuation is consistent with the value added generated by industries in the NZSNA, as direct tourism value added valuation is also measured in producers' prices.

Tourism products

The tourism product ratio

The tourism product ratio is the proportion of the total supply of a product or service that is consumed by tourists. It provides the means of classifying tourism products as outlined below.

Classifying products sold to tourists

TSAs make a distinction between three categories of products:

  • A tourism-characteristic product is one that would cease to exist in meaningful quantity, or for which the level of consumption would be significantly reduced, in the absence of tourists. A product is classified as a tourism-characteristic product if at least 25 percent of its production is purchased by tourists.
  • A tourism-related product is distinct from a tourism-characteristic product in that tourists consume a smaller proportion of the total supply of the product. For a product to be classified as a tourism-related product, tourists must purchase up to 25 percent of its production. However, ‘Retail sales – clothing and footwear’, which exceeds the 25 percent of production threshold, is categorised alongside fellow tourism-related retail commodities, because the activity undertaken specifically relates to retail.
    Note: a tourism-specific product is either a tourism-characteristic product or a tourism related product.
  • A non-tourism-related product is a product that is not tourism-specific. It is assumed in the New Zealand TSA that none of these products are purchased by tourists.

A full list of tourism-characteristic and tourism-related products is found in table 17, appendix 3 ‘Tourism product classification’.

The criteria for categorising products are derived from the UNWTO's recommended treatment, while the product classification used is based on the Australian and New Zealand Standard Commodity Classification.

When looking at product classifications, the following points are important to consider:

  • The main purpose of making the distinction between categories of products is for presentational and analytical purposes. It allows analysis to be specifically focused on products that make up the majority of tourism expenditure.
  • Tourism products are not exclusively consumed by tourists. A non-tourist can consume a tourism-characteristic product. Rather than providing a robust set of products consumed exclusively by tourists, tourism product classifications provide a way of identifying an industry's supply of products consumed by tourists.

Note that constraints on the availability of input data for provisional accounts mean that a regrouping of tourism-characteristic and tourism-related products is necessary. (See table 17 in appendix 3 ‘Tourism product classification’.)

Industries producing tourism products

The tourism industry ratio

The tourism industry ratio is the proportion of an industry's output that is consumed by tourists. It provides the means of classifying industries, as outlined below.

Categorising industries producing tourism products

A tourism-characteristic industry is one where either:

  • at least 25 percent of the industry's output is purchased by tourists, or
  • the industry's output includes a tourism-characteristic product. For example, less than 25 percent of the water transport industry's output is consumed by tourists, but its characteristic outputs are water freight transport and water passenger transport. Water passenger transport is a tourism-characteristic product, so the water transport industry is classified as a tourism-characteristic industry, and a direct physical contact occurs between the industry and the tourist buying its products.

Therefore, manufacturing and wholesaling industries are not tourism-characteristic industries.

A tourism-related industry is one where:

  • the industry is not a tourism-characteristic industry
  • between 5 percent and 25 percent of the industry's output is purchased by tourists
  • a direct physical contact occurs between the industry and the tourist buying its products.

Therefore, manufacturing and wholesaling industries are not tourism-related industries.

A non-tourism-specific industry is any industry that is not a tourism-characteristic industry or a tourism-related industry. However, a non-tourism-specific industry may still sell some of its products to tourists.

The following points relate to the TSA industry classification:

  • The industries are consistent with the published industries within the NZSNA.
  • The classification of industries outlined above has no effect on the value of direct tourism value added. This is because direct tourism value added is determined by the scope of total tourism expenditure regardless of the classification of the industry. We identify the tourism-characteristic and tourism-related industries for extra emphasis in this TSA because they are involved significantly in tourism.

Note that constraints on the availability of input data for provisional accounts mean that supply by product and value added are shown only for tourism-characteristic industries and for all other industries.

Value added

Value added is the 'value' that a producer adds to the raw material goods and services and/or transformed goods it purchases in the process of production. This can be shown as:

   Output (produced goods and services)
 less  intermediate consumption (purchased goods and services required to produce outputs)
 equals  value added.

The value added of a business is less than the value of its output.

Value added has several components:

  • compensation of employees – the cost of employing labour used to produce output
  • gross operating surplus – the surplus or deficit accruing from production before taking account of any interest or rent payable on financial or tangible non-produced assets borrowed or rented by the enterprise, any interest or rent receivable on financial or tangible non-produced assets owned by the enterprise, or the depreciation of capital used in production (ie, consumption of fixed capital)
  • net taxes on production and imports – taxes payable (less subsidies receivable) on goods and services (excluding GST) when they are produced, plus taxes and duties on imports that become payable (less subsidies receivable) when goods enter the country.

Direct tourism value added

Direct tourism value added is the value added by producers from the production of goods and services that are sold directly to tourists. This results in a measure of the contribution of tourism to GDP that is consistent with that measured for other industries in the economy.

These goods and services (products) can be produced through the involvement of a manufacturer and a wholesaler before being supplied to retailers to sell to tourists. During this process, a producer can apply both an amount to recover costs associated with providing the goods or services, and a profit component. This amount can take the form of:

  • the margin a retailer applies to selling a product to a tourist
  • the margin charged by the wholesaler
  • the price received by the manufacturer.

The margin represents the mark-up, or the difference between the value at which goods or services are acquired and the value for which they are sold.

For the product to be sold directly to a tourist there needs to be a strong economic link between the tourist and the supplier of the goods or services. This is best represented in the form of a direct or physical contact between the parties, for example a tourist purchasing a souvenir from a retail outlet.

Through selling the souvenir to the tourist, the producer (a retail outlet in this case) will have applied their margin (or ‘mark-up’) over and above the costs associated with selling this souvenir. It is solely this margin that direct tourism value added is then derived from.

Indirect tourism value added

Indirect tourism value added is generated from the purchase of goods that are subsequently resold to tourists, or the purchase of goods and services used in producing products that are sold directly to tourists. Producers of both these products have no direct relationship with the tourist.

Using the example above, the manufacturer’s purchase of raw materials and services used in producing the souvenir, and the margin applied by the wholesaler, represent the components from which indirect tourism value added is derived – for industries that have no direct contact with the tourist.

Relating direct tourism value added and tourism expenditure

It is important to distinguish between two related concepts: total tourism expenditure and direct tourism value added. The two differ in both concept and scope.

Total tourism expenditure comprises output sold to tourists, imported goods directly purchased by tourists, and GST on purchases by tourists. Direct tourism value added equals the value of goods and services produced domestically and consumed by tourists, less the value of purchased goods and services required to produce these goods and services (outputs).

The relationship between these concepts is as follows:

   Total tourism expenditure
 less  GST
 equals  tourism demand
 less  imports sold directly to tourists by retailers
 equals  tourism output
 less  tourism intermediate consumption (including goods for resale)
 equals  direct tourism value added
   
   Tourism intermediate consumption (including goods for resale)
 less  imports used in production of goods and services sold to tourists
 equals  indirect tourism value added.

 

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