How important are tourism and education exports?

By Gareth Aird, senior economist at CBA

Key points:

  • Australia’s education and tourism exports have continued to rise substantially over the past year.
  • The monthly travel services trade surplus (which comprises business, education-related and other personal travel) pushed through $1 billion for the first time in September 2017.
  • We expect education and tourism exports to continue to lift over 2017/18.
  • A first quarterly services trade surplus since 2007 looks probable in Q4 2017.

Overview:

The turnaround in Australia’s trade balance over the past year has been quite profound.  After a run of solid trade deficits between April 2014 and October 2016, a lift in commodity prices, notably iron ore and coal, has helped deliver a welcome improvement in the monthly balance of goods and services (chart 1). The shift in the trade balance has seen the current account shrink over two years from 5.6% of GDP in Q2 2015 to 2.1% in Q2 2017.

However, the improvement in the trade balance is not just a commodity story.  Education and tourism exports have been growing at a solid rate, significantly outpacing import growth.  As a result, the travel services monthly trade balance (which is essentially money foreigners have spent in Australia in some capacity less money Australian’s have spent offshore) has steadily increased (chart 2).  In September, the travel services trade balance pushed through $1 billion for the first time.

In this note we look at recent trends in Australia’s services exports.  Our focus is on travel services and the significant lift in tourism and education exports.

Services sector exports and the importance of travel services

The Australian tradables services sector broadly comprises three groups: travel services (which are mainly tourism and education-related), transport and business services.  The latest national accounts indicate that services exports were worth around 20% of total exports in Q2 2017.  In the year to Q2 2017, services exports totalled $73.5bn (equivalent to 4.2% of GDP).

Services sector exports come largely from Australia’s two biggest states, NSW and Victoria.  This is in contrast to hard commodity exports which primarily come from the resource-rich states of WA and QLD.

Data on services exports is published by the ABS both monthly and quarterly (in the International Trade in Goods and Services and Balance of Payments releases respectively).   But the level of detail differs between the two publications.  In the monthly trade data there is no split between education and tourism exports.  As a result, we focus from here on the quarterly data.  But we note that the continued improvement in the monthly trade services balance suggest that education and tourism exports rose solidly in Q3 2017.

Travel Services

Travel services exports (as measured by the ABS) are an estimate of the spending by foreigners on goods and services while they are in Australia.  The three main components of travel services are education and tourism (i.e. personal travel) and business travel.  Travel services make up the bulk of services sector exports.  And they have been the primary driver of the improvement in services sector net exports (charts 3 & 4).   We cover the education and tourism export components below.

(i) Tourism

Tourism services exports essentially capture the income that the Australian economy generates directly from overseas holidaymakers visiting and consuming in Australia.  It includes the income that the economy receives from both the sale of goods and services to overseas holidaymakers in Australia.

Over the past year there has been a solid rise in tourism exports (chart 5).  The total money spent in Australia from overseas residents having a holiday in Australia rose by 8.8% (or $1.5bn) in 2016/17.  Tourists from Asia, and in particular China, have been behind the significant lift (chart 6).  In the year to August the number of short-term arrivals from China to Australia had risen to 1.33m (compared with 1.19m over the corresponding period a year earlier).  And the benefit to the economy is significant because tourists from China spend, on average, more than tourists from any other nation when they holiday in Australia.

The lift in holidaymakers from China to Australia is a structural story.  We believe current trends will be maintained which means that 1.6 million Chinese residents are likely to visit Australia in 2018.  It is worth noting that Australia is not the only country that is benefiting from the lift in Chinese household income and resultant increase in international travel.  The US, Europe, Japan, Korea and Thailand tourism markets have also seen a significant lift in holidaymakers from China.

The direct impact from a lift in tourism exports is measured in the ABS Balance of Payments.  But there are also second round impacts.  Employment multipliers for sectors exposed to tourism like retail (10.17) and accommodation (7.86) tend to be higher than most industries (CBA puts the average FTE employment multiplier at 6.35).

(ii) Education

Education exports measure the total expenditure of overseas students who are studying in Australia (i.e. not simply tuition fees).  There has been strong growth in the number of overseas students studying in Australia and this has generated a solid lift in the value of education-related services exports.  In the year to Q2 2017, education exports were worth 33% of total services exports. This makes education Australia’s third largest export after iron ore and coal.

There are significantly more students from China studying in Australia than any other nation (chart 7).  As a result, education exports to China are larger than to any other country (chart 8).  In 2016, Chinese students accounted for 30% of the expenditure of students studying in Australia – a record high share.  This was substantially more than the next largest group (students from India, representing 12% of total expenditure by students).

Around two-fifths of international students are enrolled in higher education (largely universities). A quarter are enrolled in vocational education and training and a quarter are enrolled in English Language Intensive Courses for Overseas Students (ELICOS).

Business Services

The business component of tradables services is the second largest. It consists primarily of consulting, financial and technical services firms.  There has been a fall in business services exports over the past year.  In the year to Q2 2017 they were down by 3.2%.  We suspect that the firmer AUD over the past year has weighed on business services exports.

Outlook

In the very near term, the continued lift in the more timely travel services monthly trade balance means that we expect to see a further solid lift in tourism and education exports when the Q3 Balance of Payments print on 5 December.  Beyond that, the recent trends in travel services exports point to a first quarterly services sector trade surplus in Q4 2017.

The solid growth is services sector exports is commendable and expected to continue.  But perspective is always important.  Any big swings in commodity prices will remain the dominant driver of the trade balance, the terms-of-trade and the AUD.

Comments

  1. I am sure China is doing something about this and in the next few years we will experience decline in Chinese numbers.

    • I agree. Will definitely will be serious headwinds to. Chinese tourist and international student numbers in coming years.
      It is not only politically undesirable but China doesn’t want to bear the FX requirements required to fund all this tourism and education ‘imports’.

      • Recently had a social discussion with someone working in China for more than 10 years in international finance( American).
        They appear to have excellent and powerful China political contacts.
        Their comment was that China was going to;
        -close housing investment in Australia.
        -close education in Australia( building and improving standards rapidly within China, so vastly increased access and quality).
        Still the feeling that some very,very wealthy people are nervous and wish to relocate,but this seems to becoming more difficult( particularly if you want to bring assets with you).
        Xi is increasing and consolidating control.

      • There are structural risks to education exports (to China)
        -Chinese student age population is shrinking
        -Chinese universities are improving.
        -Foreign university graduates are no longer rare in China, and don’t command a premium salary.

        Some less quantifiable negatives being discussed recently on social media:
        -China-Australia relations and “incidents” involving students.
        -Chinese parents worry about their kids not returning
        -Chinese students only meet other Chinese, no cultural exchange.

        To the upside the USA is become less popular due to Trump, fears about gun violence etc, Australia could attract a greater share.

      • All good points.
        Major political and structural risks to Chinese tourist and education numbers going foward.

        Also add in there geo-political risks. China will retaliate against Australia if we don’t support them r.e. South China Sea etc. If you want an example find out about what China has done to South Korea because of the THAAD missile defense system. There has been a 70% reduction in Chinese tourist numbers to South Korea as punishment for not doing what China wants.

    • Not so sure. Many of the PRC visitors coming here as ‘tourists’ (or at least on tourist visas) come here to work illegally. It’s not only the case in Australia, though, I’ve met some in Singapore and Malaysia. So, for us it also contributes to our imports.

    • yeah ‘service’ exports actually aren’t ‘exports’ as commonly understood. i.e. not consumed in Australia.
      Scam terminology to placate us as our access to health, education, and other services for Australians is degraded and costs increase.

    • Yep. Education is not an export. Just look at how much petrol the “skilled” students will import along with clothes and electronic goods.

      And if dumbing down degrees is such a fantastic idea, why do not Britain and Japan dumb down their degrees?

  2. Brisbane would be stuffed without them. Pretty much the only thing holding up small retail/food purchases, inner city construction, occupancy rates, and the pool of Uber drivers.

  3. @Costly
    I reckon exact same thing in maribyrnong area west Melbourne. 90% patronage at highpoint is foreign students, $457 from everywhere, visiting family to see their ‘student’ children. Seems they buy a house, car & massage chair for their stay!

  4. Maybe we can encourage foreign investors to consume all healthcare here. A viola – healthcare becomes a primary export. This will increase the demand for healthcare, which will increase supply, thereby providing Australians with plentiful affordable healthcare. Sincerely, ScoMo.

  5. I have no problem with Education as an export service industry, we just need to report the income side of things properly.
    I’d suggest the following adjustments
    – subtract the average cost of Residency obtained by non students from the educational export income per student, so it is clear what is being sold (this income belongs in a separate category for sale of residency)
    – only include Tuition and maybe some living expenses that are clearly paid for with externally sourced income ( many of these students work so the income they earn in Australia is hardly export income)
    I won’t hold my breath waiting for these changes.

  6. The Australian dollar still has further to fall.

    The lower our dollar gets, the better value our ‘export services’ get.


  7. This article is a total crock.
    1. Let’s look at what really comes in.
    2. the real economic & social impact in these so called ‘export education & tourism services’ to Australia and all Australians.

    1. What comes in :

    * Sunil Ranjip. Indian unskilled Punjab fake funds via ‘an uncle’ (fake) , 4 year student visa after the 457 manager racket shutdown. Successive low level courses at $110 week ($6,000 year) works at 711 x 60 hours $10 hour. Owes $18k to money lender who will harm the family unless they get repaid and Sunil gets others in (PR then partner visa racket).

    * Tse Xuan china unskilled factory worker fake partner visa to an international student, organised by the Chinese syndicate, sleeps in 10 bunk sublet slum share cash in hand, works as labourer cash in hand fake ID owes syndicate $25k

    * Moi ‘candy’ Nanapathron Thai unskilled on 4 year visa / $105 week ELT 8 year old English course or $5,800 a year – recruited for brothel $2,000 a week cash no tax. Owes $15 k to Thai crime syndicate who organise everything.

    * Kim Lee : Korean ‘tourist visa’ staying with relatives, 10 in a squalid sublet, works illegally in restaurant and ‘beautician’. Owes $8k to Korean syndicate who organise visa, bunk & illegal work.

    * Bula Rongaronga Fiji ‘visitor visa’ sleeps in farmshed with 12 others $5 hour fruit picking, cash back to farmer & labor racket. Owes $10k loan debt to agent procurers. Will apply for protection visa to extend his stay.

    * Nareeta Pandjapium – Indian on long stay tourist family visa as a purchased bonded slave to an Indian family as unpaid nanny & cook. Fake funds and no income. Will apply for constant visa renewal then be a student then get a PR.

    The article assumes that education is a $22 billion export industry with income from ‘700,000’ international students.

    That’s $34,000 per year per international student as a ‘net income’ contribution.

    That figure is totally false.
    That is nothing like the international student average (only a small proportion are Post grad higher level, the vast bulk are doing very low level inexpensive fake courses. So that figure must include expenditure on non education, travel, housing or consumption not directly related to education.

    And the income to pay for that by these migrant guestworker is earned here.
    Illegally !

    It also headlines Tourism as a export industry with $15 billion per year in a million or so tourist/visitor arrivals or $15,000 each.
    Same – the figure is false and assumes consumption and activity not related to tourism services. We also know 5% (ABF) and probably many more are only here to work illegally.

    And a simple proof point shows the reality.

    The total amount of ‘declared funds’ by international students and visitors coming into Australia in 2016-2017 was $4.5 billion. (Austrade:Tourist Australia/ABF).

    Averaged over the 1.7 million temporary visa or tourist arrivals that $2,642 each.

    The true economic impact.

    The international students, temporary visa holders and a large % of the tourists coming here to work illegally now form a 2.6 million migrant guestworker sub economy of some $105 billion.

    They pay little or no tax – fake ID and earn income in Australia, and their remittances & money xfer back to a foreign agent procurer or families now exceeds $36 billion. The rest is spent on housing, food, travel & consumption.

    So there is immediately a $29 billion outflow (net) against $4.5 billion in.

    Education services and a lot of the tourism are just the ‘fee takers’ for the third world migrant visa alibi.

    Additional economic impacts.
    They lower wages. Billions in impact.

    They create unemployment ;1.1 million) and unemployment (1.1 million) let’s say 500,000 displaced or another $7.5 billion.

    They occupy some 350,000 Australian dwellings creating contention, subletting, higher rent & dwelling costs so that’s conservatively another $10 billion to Australians. And we now have 50,000 homeless and displaced..

    They have destroyed education – cost and quality – Australia dropped 10 places.
    That’s tens of billions in Australian impact.

    Then we have crowding, congestion, infrastructure issues and massive public works programs (no contribution from the illegally working international students: tourists etc – many tens of billions.

    => When you add it all up.

    International students & other temporary visa holders plus illegally working tourists are collectively costing Australia well in excess of $30-40 billion.
    Easily. Possible double that.

    They are costing each Australian tax payer at least some $3,000 each and each average Australian household $5-7,000 in lowered wages, increased housing costs, congestion, higher cost education & public infrastructure & other costs.

    Finally a reminder of the grim stupid reality of the world’s most out of control and uneconomic migrant guestworker visa racket.
    We have 2.5 million unemployed or selling work. 1 for 1 Australians unemployed or seeking work for every temporary or tourist visa holder let in to work illegally.

    Roy Morgan YTY
    Sept 2017
    2,498,000 total seeking work.
    1,202,000 or 9.1-% are unemployed
    =>Yty 101,000 worse than 2016
    1,296,000 or 9.8% are underemployed
    =>Yty 294,000 worse than 2016.
    =>Yty total = 395,000 worse than 2016.

    The Australian migrant temporary visa & fake tourist visa racket is economically & socially destructive.

    =>Time to expose the real economics & social reality – and shut it down.

    • Correct Mike. I would go further and add that most of the overseas students studying vocational subjects in Australia are here to gain PR legally or illegally. DIBP fraud reports indicate fraud in the student visa program in India is out of control. Most arriving do not have the required funds to support their studies. There is an industry in India loaning money to student visa applicants so that they can show evidence of sufficient funds to support staying and studying in Australia. On arrival, these students then work wherever they can. These students are exploited by employers who pay them less than the award rate in exchange for allowing them to work in excess of their allowed 20 hours a week. The nationality of fruit and vegetable pickers detained by ABF Compliance teams are primarily Malaysian Chinese working illegally. The extra year stay granted to Working Holiday Makers employed in rural areas is being rorted. The whole system is f*****.

    • St JacquesMEMBER

      Yup. Have actually seen it with my own eyes. And as a result wages get ever soggier and young people or long term unemployed have trouble getting their foot on the bottom wrungs of the workforce.. Meanwhile in Cancera we have the defence of the three monkeys: See Nothing. Hear Nothing. Know Nothing.
      And the Circus goes on.