Australia’s closure of its international border has no firm end date. Indeed, even as the federal government initiated its phased plan to start winding down domestic restrictions, it further tightened the rules for getting an exemption for outbound travel. This leaves Australian citizens residing outside the country – I am one of them – even more doubtful about coming back any time in the next six months. So now, not only can’t the serfs run away from the manor, but also those who did es
cape before March 2020 are left to contemplate what an unexpectedly long-term exile looks like. For the retail industry, however, the big picture isn’t nearly so bleak. On balance, it is probably better off if the border stays shut and the government continues giving people like me the middle finger. How is that possible when visitors to Australia spend so much? Tourism’s loss, retail’s gain Souvenir sellers at Bondi Beach will not be happy with me for saying this and neither will the luxury retailers and high-end restaurants operating out of five-star hotels, but retail trade has benefited from Australia’s closed-door policy. As long as no one can come or go, much more money is being corralled inside the country than is being kept out. Under Tourism Research Australia’s (TRA) most pessimistic scenario published about a year ago, Australia could expect 1.5 million international visitors in 2021. Yes, that was the pessimistic scenario. However, in the first half of the year, the Australian Bureau of Statistics recorded fewer than 100,000 international arrivals, not including returning Australian citizens, Australian permanent residents and New Zealanders. So as of now, even TRA’s pessimistic scenario is looking highly optimistic, if not completely unattainable. We could be looking at 1.5 million international visitors as a target for 2022 instead. This translates to a sizeable annual loss in tourism revenue. In 2019, again according to TRA, international visitors spent $31 billion in Australia, representing 1.6 per cent of GDP. Since shopping and dining by international visitors in top global destinations is typically about half of their travel budget, we can estimate the loss to Australian retail at approximately $15 billion annually. Of equal interest from a retail industry perspective is the handcuffing of Australians who want to get out and can’t. Estimated tourism expenditure by Australians overseas was US$41 billion in 2019, or about $59 billion. This represented 3.0 per cent of GDP. Figuring out the net effect of these changes on retail is tricky because we don’t know how much of that $59 billion is being diverted to domestic shopping. But roughly speaking, if just $15 billion of it is going to retail, then that offsets the loss from international tourism. And the actual amount diverted to domestic retail spending is probably much more than $15 billion – possibly twice as much. So there is a clear net benefit to Australian retail of keeping the country zipped up tight. Of course, the benefits of the international border closure to retail overall are highly redistributive. International visitors come for a relatively short time and condense a lot of spending into it, often at higher-end shopping, leisure and food service destinations. The spending is highly discretionary. Lost domestic travel has less impact In contrast, many Australian residents forced to stay home will spend the money on a combination of everyday basics, household goods and perhaps a domestic holiday, though the sporadic and unpredictable closure of interstate borders makes interstate travel highly problematic. Australians spent $107 billion (5.4 per cent of GDP) on domestic trips in 2019. This suggests state border closures can potentially be more of a blow to tourism spending than the international border closure. But not so much to retail itself. Australians don’t do much shopping when they travel interstate. Only 18 per cent of domestic overnight travellers shop, compared with 77 per cent of international travellers. They do spend a lot of money on dining out but they do that at home, too. The net result is that any offset to lost international tourism by domestic tourists will not have a huge positive effect on retail. Really, as far as most retailers are concerned, state borders can stay shut, too, no problem. Political pressure to open borders will mount Given the current political climate it seems highly unlikely that Australia will show any leadership on border openings. In fact, all indications so far are that state and federal governments are happy with the status quo. This is not just for public health reasons but for political reasons as well: border closures play well to state chauvinism, exemplified by recent clashes between state political leaders along the Eastern seaboard. There are clearly forces at work, however, that will exert pressure to liberalise more quickly. One source of pressure will be what other countries do. If others in the region open their borders, then Australia’s hand will be forced. Australians are extremely sensitive about the country’s image abroad and don’t want to be singled out as a bunch of slow learners. Already, the country is becoming a figure of fun in overseas media channels for being a laggard and a hermit, and ordinary Australians are taking notice. Anyway, there will be an awful lot of people not wanting to forgo their Bali or other overseas holiday again. Australians will not like seeing other people having fun while they’re prevented from sharing in it. Envy will be a powerful engine for change. Another source of pressure will come from other economic sectors, such as the desire to reboot education export income by welcoming back foreign students. All this means the international border situation could be significantly liberalised by mid-2022, regardless of how things look right now, so any net advantage domestic retail enjoys will be petering out at that point. Australian holiday-makers will be off looking for freedom and fun again, and retailers will be hoping for an influx of foreign visitors to compensate for it.