Economic Impact Study of the
Sydney 2000 Olympic Games
Full Report
January 1999
ARTHUR
ANDERSEN
Centre for
Regional
Economic
Analysis
UNIVERSITY OF
TASMANIA
CONTENTS
SUMMARY OF FINDINGS.......................................................................................................... 1
1.
1.1
1.2
INTRODUCTION................................................................................................................. 2
STUDY APPROACH ............................................................................................................... 2
INTERPRETATION OF RESULTS ............................................................................................... 3
2.
THE PHASES OF THE OLYMPICS ................................................................................... 4
3.
METHOD OF ANALYSIS ................................................................................................... 7
3.1
3.2
3.3
3.4
OVERVIEW OF METHOD ........................................................................................................ 7
THE MMRF MODEL ............................................................................................................ 7
ADVANTAGES OF MMRF METHOD...................................................................................... 8
APPROACH TO OLYMPICS MODELLING ................................................................................. 8
4.
OLYMPICS-RELATED DIRECT EXPENDITURE ......................................................... 10
5.
ASSUMPTIONS UNDERLYING THE OLYMPIC SIMULATIONS ........................... 13
5.1
KEY ASSUMPTIONS ............................................................................................................. 13
5.2
FINANCING SCENARIOS ...................................................................................................... 14
5.3
SUMMARY OF MAIN ASSUMPTIONS .................................................................................... 15
5.3.1
Pre-Event Phase Assumptions................................................................................... 15
5.3.2
Event-year Phase Assumptions ................................................................................. 16
5.3.3
Post-Event Phase Assumptions ................................................................................. 16
6.
6.1
6.2
6.3
6.4
6.5
RESULTS ............................................................................................................................. 18
MACROECONOMIC EFFECTS OF THE OLYMPICS ................................................................... 18
EFFECTS OF OLYMPICS ON INDUSTRIES ................................................................................ 21
EFFECTS ON OCCUPATIONS................................................................................................. 24
EFFECTS ON NSW BUDGET ................................................................................................ 25
ALTERNATIVE SCENARIOS .................................................................................................. 26
REFERENCES ............................................................................................................................... 30
Summary of Findings
The Sydney 2000 Olympic Games will be the largest scale sporting event ever to have been
held in Australia. The economic effects of the Olympics will have broad ranging impacts on
the Australian economy, with resources being drawn from most sectors.
The Centre for Regional Economic Analysis at the University of Tasmania in collaboration
with the Economic Analysis Group of Arthur Andersen has undertaken the most in-depth
analysis of the economic effects of the Olympic Games to date. Using the most up-to-date
modelling techniques developed by CREA and detailed financial information available to
Arthur Andersen the most accurate measure of the benefits can be reported. The benefits of
the Olympics in Australia can be summarised as follows, along with a number of potential
downside risks:
• Over the twelve years ending in 2005/06 the Olympics is expected to increase NSW
Gross State Product (GSP) by almost $490 million (1996 prices) in an average year. The
present value of this increase is $5.1 billion.
• The present value of the impact of the Olympics on Australian Gross Domestic Product
(GDP) is estimated at $6.5 billion.
• Around two fifths of the increase in GSP is directed towards an increase in real
household consumption. The estimated present value of this increase for NSW is $2.0
billion. The corresponding figure for Australia as a whole is estimated at $2.5 billion.
• The Olympics are estimated to increase NSW and Australian employment by almost
5,300 and 7,500 jobs respectively in an average year over the 12 years to 2005/06.
• While the Games involves a significant increase to NSW Government expenditure, there
is also diversion from other (non-Olympic) current and capital expenditure by the State
Government towards Olympic expenditure. The present value of this diverted
expenditure is estimated at $685 million. This reflects an assumed scenario that the
Games will have no long-term effect on the State Government’s financial balance sheet.
• The success of the Olympics in generating increased economic activity and real
household consumption is to a significant degree dependent on the ability of the Games
to draw extra labour into the economy. The above results are predicated on a degree of
restraint on real wage rises flowing from the Olympics. Projections for a pessimistic
labour-market scenario would reduce the present value of the increase in NSW GSP to
$3.6 billion, and in Australian GDP to $1.5 billion. In this case there would be negative
spillovers to the other states, rather than the positive spillovers generated by our
standard scenario. The present value of the increase in NSW real consumption under this
labour market assumption was estimated at $1.2 billion, all of this amount being diverted
from other states.
• The results presented also are dependent on the estimated revenues from and costs of the
Olympics, and on the expected promotional effects of the Olympics on international
tourism and trade. Simulations were conducted to estimate the effects of a halving of
expected induced tourism expenditure, which is essentially the worst case scenario from
an extension of the Asian Crisis. Under this scenario the present value of the Olympics
on Australian and NSW GSP was $4.9 billion and $3.8 billion respectively. The
corresponding figures for real household consumption are estimated as $1.4 billion and
$1.2 billion.
1
1.
Introduction
The Sydney Olympics represents the largest hallmark event yet conducted in Australia. The
scale of the organisation, facilities and infrastructure required for such a huge undertaking
are such that the Games cannot but have substantial economic effects. This report provides
an up-to-date assessment of these effects on the New South Wales and Australian
economies.
The study reported here was undertaken by the Centre for Regional Economic Analysis
(CREA) at the University of Tasmania in collaboration with the Economic Analysis Group of
Arthur Andersen. It involved a detailed assessment of the direct economic impacts of the
Games, together with an estimation of the indirect impact using the most sophisticated
economic modelling techniques available.
Model simulations were designed and
implemented by CREA to provide results for a range of key variables, including impacts on:
•
•
•
•
•
•
•
employment by industry and occupation;
industry output;
real household consumption;
real investment;
exports;
government revenue; and
prices.
Results are reported for both the New South Wales economy and the national economy.
1.1
Study Approach
Two studies of the economic impacts of the Sydney Olympic Games have been completed to
date. The first by KPMG (1993) was completed prior to Sydney winning the Games, while
the second – a collaborative study between CREA and the NSW Treasury – was undertaken
prior to a number of important Olympic developments, in particular substantial revisions to
the Games construction and operating budgets, and the occurrence of the Asian economic
crisis.
The KPMG study employed the long-established input-output method to estimate the total
(direct and indirect) impacts of the Olympics. This method was also used in studying
previous Olympics such as Los Angeles (Economic Research Associates, 1984) and Atlanta
(Humphreys and Plummer, 1992). However, as explained in section 3.3, the input-output
method has severe limitations as it fails to take account of supply constraints and price
effects. A considerably more modern modelling methodology, computable general
equilibrium (CGE) analysis, overcomes these limitations.
CREA/NSW Treasury (1997) provided the first CGE analysis of a major hallmark event.1 It
developed a sophisticated technique using a multiregional CGE model. This has enabled the
analysis of the economic impacts of the Games for three phases of a 12-year period, under a
number of scenarios relating to labour supply constraints, the effect of the Asian Crisis and
more positively, the gains from increased export potential
A second important element of the present study was the meticulousness with which the
direct impacts were assessed. Arthur Andersen conducted detailed interviews with both the
1
The general approach to CGE modelling of hallmark events was first spelt out in Giesecke and
Madden (1996).
2
Sydney Organising Committee for the Olympic Games (SOCOG) and the Olympic Coordination Authority (OCA) in order to acquire all the information on direct costs and
expenditures required as input to a proper economic modelling of the Games. Such detailed
accurate data were not available to the two previous studies.
1.2
Interpretation of Results
The aim of this report is to provide an estimate of the effect which staging the 2000 Olympics
in Sydney will have on the New South Wales economy and on the Australian economy as a
whole. The results provided are projections of the deviations in various measures of
economic activity from the values they would otherwise have attained. Thus none of the
results given in this report should be taken as unconditional forecasts for the economic
variables that are reported upon.
3
2.
The Phases of the Olympics
The Olympic Games itself will occupy just seventeen days starting from the Opening
Ceremony on 15 September 2000. The Paralympics will be staged over twelve days a little
over two weeks later. The economic effects of the Olympics commenced, however, in the
early nineties and could go on through much of the next decade.
An early task in the present project was to decide the time-period over which the effects of
the Olympics should be modelled. In order to do so it was necessary to examine the timing
of both direct Olympics spending, and spending directly induced by the Olympics. This in
turn meant that it was necessary to define what expenditure was associated with the
Olympics, and what expenditure was independent of the Olympics.
In Section 4 the details of what was included as direct or induced Olympics expenditure is
discussed. Following are the introductory classification of the immediate consequences of
the Olympics as expenditures related to:
• operation of the Games, both in the four weeks of Olympic and Paralympic events in
September/October 2000, and in the three years of intensive preparation leading up to
the Games;
• construction activity needed to assemble the infrastructure required for the staging of
the Games, including the construction of sporting venues, accommodation for
participants and facilities for officials and the media, together with the necessary
upgrading of transport infrastructure;
• visits to Sydney, from both interstate and overseas, by spectators, athletes, officials,
media and sponsors for the Games and Games-related activities;
• visits to Sydney, and other Australian destinations, generated by heightened
international awareness of Australia through coverage by the international media of the
Games and pre-Games stories.
The first three of the above expenditure classes can be considered as direct Olympics
expenditure, while the last class of expenditure is usually referred to as induced
expenditure. In general all four classes are referred to as direct effects of the Olympics,
distinguishing them from indirect expenditure which is generated as the economy reacts to
the new Olympics expenditure. Estimation of the total effects of the Olympics, accounting
for all indirect effects, is the task of the model simulations, the initial description of which
appears in the next section.
In Figure 1 the distribution of the direct and induced Olympics expenditure over time is
portrayed (in 1996 dollars). How these effects were calculated will be discussed in Section 4
of this report.
Figure 1 makes it clear that the Games involve very substantial direct and induced
expenditure over a twelve-year period. Around $8.4 billion (in 1996 prices) of direct
expenditure is estimated to occur over the entire period, or $0.7 billion in an average year.
The diagram also suggests that the twelve-year Olympics period can be divided into three
distinct phases. The first phase is the six years from 1994/95 to 1999/00, during which the
major Olympics-related activities are construction and Games operation, as Sydney prepares
for the Games. The second phase is the year of the event, 2000/01, during which the major
Olympics-related expenditures are on the operation of the Games, and by visitors to the
Games. The final phase is 2001/02 to 2005/06, during which expenditure by induced
4
international tourism, which has been building up over the previous two phases, becomes
effectively the sole type of Olympics-related expenditure.
Figure 1: Olympics-related Direct Expenditure
2,500
2,000
Games Visitors
1,500
Operation of Games
1,000
500
Construction
International Tourism
0
1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06
Figure 1 reveals the major features of the pattern of Olympics expenditure. With regard to
overall expenditure there are seven years in which expenditure on the Games grows rapidly,
with the vast bulk of expenditure to the end of the Event Phase being concentrated in the
years 1997/98 to 2000/01. However, after the Games, expenditure drops rapidly from its
2000/01 peak of $2 billion to just over $0.5 billion the following year.
Looking at the pattern of the four major expenditure types it can be seen that the peak year
for construction expenditure ($0.7 billion) is 1998/99. In the two subsequent years
decreased construction is more than replaced by Games Operations and tourism (including
Games visitors). While induced international tourism expenditure is estimated to reach its
peak of just over $0.5 billion in 2001/02, all other forms of Olympics-associated expenditure
will have virtually ceased by then.
It is clear that three of the four types of Olympics-related expenditures are sustained at
substantial levels. For instance, expenditure on the operation of the Games is projected to be
about $0.7 billion in a typical year of the four years to the end of 2000/01. Similarly, planned
Olympics construction expenditure in the four years ending in 1999/00 is well over $0.5
billion per year, with some construction expenditure in each of the first seven of the 12-year
Olympic period. Induced tourist expenditure is predicted to be around $225 million in a
typical year of the 12-year period, and to average well over $0.3 billion dollars in the six
years around the Games.
The division of the Olympics into the three phases plays an important role in the modelling
of the total effects of the Games. Assumptions regarding supply constraints, government
5
budgets, labour market conditions and foreign debt differ between the three phases. These
matters are taken up in Section 5.
In the rest of this report the three phases are referred to as:
• Pre-Event Phase;
• Event-year Phase; and
• Post-Event Phase.
6
3.
Method of Analysis
3.1
Overview of Method
The modelling of the impact of the Olympics proceeded in three main stages.
Stage 1: Estimate the direct impact of the Olympics;
Stage 2: Translate the direct impact estimates into detailed economic shocks; and
Stage 3: Conduct model simulations.
Stages 1 and 2 were major data-handling tasks. The first stage is described in Section 4.
Stage 2 involved decomposing the data obtained in Stage 1 into the direct effects on the
individual components of the sales and purchases by individual industries and other
economic agents. The data had then to be formatted so as to be suitable as inputs to a
multiregional CGE model of the Australian economy. Stage 2 tasks are described in Crowe
and Madden (1998).
The final stage involved conducting model simulations in order to estimate the total effects
of the Olympics. In the next sub-section a brief description of the model used is provided.
This is followed by a discussion of the advantages of using a model of this classand a brief
description is provided on how the model was adapted for use in simulating the effects of
the Olympics.
3.2
The MMRF Model
The multiregional model used for the analysis was the MONASH Multiregional Forecasting
(MMRF) model of the Australian economy. MMRF captures the behaviour of twelve
industries, a representative regional household, a State Government, the Federal
Government and investors in each of Australia’s eight states and territories. MMRF
recognises that the economies of the eight regions are linked via interstate movements of
commodities and factors of production (particularly labour).
The model used is composed of five modules. These are:
(i)
the core module which determines the outputs of regional industries and their
demand for commodity and factor inputs, international and interstate exports and
imports, regional household demands, demands by nine governments (federal and
eight states and territories) and factor and commodity prices;
(ii)
the government finance module which computes revenue and outlay accounts for
the Commonwealth Government and each of the eight State and Territory
governments. The module also determines the gross domestic products of the eight
regions from the income and expenditure side using variables determined in the
core module, together with regional household income;
(iii)
the capital and investment module which determines the relationship between
changes in the capital stock and annual investment;
(iv)
the foreign debt accumulation module which relates changes in foreign debt over the
solution/forecast period to changes in the average annual trade deficit;
7
(v)
the labour market and regional migration module which computes the changes in
population from natural growth and foreign and interregional migration and relates
it to labour supply.
For a fuller overview of the MMRF model, see Naqvi and Peter (1995), while a complete
description of the theoretical structure of the model is provided in Peter, et al. (1996).
3.3
Advantages of MMRF Method
The MMRF modelling approach has a number of distinct advantages over alternative
methods. Relative to the input-output method which has been a common form of analysing
the economic impact of past Olympics, the MMRF model has a much more sophisticated
structure. This provides:
• a superior theoretical framework which takes into account resource and balance-ofpayments constraints, and price responsive behaviour;
• results for a far wider range of variables.
It is for these reasons that a number of major Australian projects have been examined with
the aid of computable general equilibrium (CGE) models, the class of models to which
MMRF falls. Examples of such studies are:
•
•
•
•
•
The proposed Very Fast Train (Madden and Dixon, 1990);
The Multifunction Polis (Dixon, Horridge and Johnson, 1992);
Australia’s road investments (Allen, 1993);
The Melbourne Western Ring Road (Naqvi and Peter, 1995);
The World Expo 2002 (CREA, 1997).
Over the last two decades CGE models have become Australia’s major method of interindustry analysis. They are widely used by governments, industry and academics to
examine a very wide range of economic questions, with many hundreds of important
applications.
MMRF has a particular advantage for the present study since it is a multiregional CGE
model. This allows for the consistent computation of the impact of the Olympics on NSW
and the other states, as well as the nation as a whole.
3.4
Approach to Olympics Modelling
The Olympics involves a series of demand shocks to the Australian economy. For instance,
the publicly-funded building of Olympics facilities represents an increase in the demand for
the Construction industry by government. This is modelled simply by an upward shift to
NSW State Government demand for Construction. Implicit in this modelling approach is an
assumption that construction of Olympics facilities will require the same general pattern of
inputs as used by the existing Construction industry.
However, the modelling of the three other major types of Olympics direct (and induced)
expenditure is not so straightforward. None of the model’s existing twelve industries were
sufficiently akin to Olympics operations or Games visitors for a shock to established
industries’demands to be considered as an adequate modelling of Olympics demand.
8
The approach to simulating the non-construction Olympics demands involved the
introduction of three new industries into MMRF’s data base. These new industries were:
• International Tourism;
• Interstate Tourism;
• Olympics Operations.
The two tourism industries are what are sometimes called “dummy” industries. These
industries purchase direct commodities from conventional industries and on-sell them to
tourists. Their only costs are commodity inputs (including trade and transport margins) and
commodity taxes. They do not employ labour or use capital. The purpose of these
industries is largely a computing one. It means that once the industries are introduced, the
new Olympics and Olympics-related tourism demand can be simulated via a comparatively
small number of demand shocks.
The introduction of the International Tourism industry into the model was straightforward,
in the sense that it merely involved splitting out tourism exports from the existing vector of
commodity exports. However, for Interstate Tourism, a new pattern of domestic tourism
expenditure which was peculiar to spectators travelling to the Sydney Olympic Games was
required. The method used was to establish the sales and purchase patterns for the new
industry and enter it into the data base as a very small industry, making in effect near zero
sales in the data-base year. Interstate Tourism demand is then simulated by a very large
shock to that industry’s demand by households, of sufficient size to bring the industry to its
actual size in the period being simulated.2
The last of the three new industries, Olympic Operations, is constructed to have the sales
and expenditure pattern of the entire operations of SOCOG and the Sydney Paralympics
Organizing Committee (SPOC).
This involved a detailed decomposition of these
committees’ accounts. Unlike the first two new industries, Olympic Operations uses both
labour and capital and makes sales to other industries (e.g. sponsorship and tickets) as well
as final demands. However, like Interstate Tourism, this third new industry is introduced
into the MMRF data base as an “embryonic” industry.
The concept of modelling new projects as embryonic industries was first used in CGE model
simulations in the early nineties in studies by Dixon, Horridige and Johnson (1992) and
Madden and Dixon (1990). The use of this technique means that it is possible to model a
new project which has a sales and expenditure pattern which differs from all of the existing
industries in the model.
Further details of how the new industries are introduced into the model can be found in
Madden (1998) and in Crowe and Madden (1998).
2
While the percentage shock to the new industry is very large there are no problems of linearization
error. This is because the shock is designed to bring the new industry exactly to the desired size, and
the immediate “first round” effect on all other industries involves only small changes.
9
4.
Olympics-Related Direct Expenditure
In this section further detail is provided regarding the nature of the direct Olympics
expenditure depicted in Figure 1 of Section 2, broadly outlining the source of the data and
estimation procedures.
All construction data was obtained from OCA.3 The figures provided by the Authority
detailed expenditure by publicly-funded and privately-funded works. The former was also
divided into expenditure prior to 1993-94 and for each financial year thereafter. A time
profile was also provided for OCA’s own operating expenditure. In addition, OCA
provided aggregate figures for capital works expenditure by other government agencies,
which were considered by the NSW Government to be an integral part of Olympics
construction.
While OCA did not provide a complete pattern for this last type of expenditure, this
information could be obtained from Table 1.8 of the NSW 1998-99 Budget Papers. Each
category of privately-funded construction was decomposed into expenditure by financial
year in accordance with the pattern of publicly-funded expenditure on the same
construction item.
The total construction expenditure identified in the OCA information was around $3.5
billion of which a little over 30 per cent was listed as privately-funded. However, for the
purpose of this report, some of these expenditures were excluded because they were
considered not to have arisen primarily from Sydney’s winning the right to host the 2000
Games.
While only a few items were excluded the total amount of the exclusions was over $1.1
billion. Most of these were connected with Homebush Bay developments, such as the
relocation of the Show Grounds, which it was considered would have proceeded in the
absence of the Sydney Olympics. Also excluded were all capital expenditures incurred in
the year 1993-94 or prior, with the exception of the start-up operating expenditure for OCA.
The time profiles of what was finally accepted as genuinely Olympics-related capital projects
are shown in Figure 2. Also shown is the profile for excluded capital expenditure.
Data on Olympic Operations were taken entirely from the detailed SOCOG and SPOC
budgets. This budgetary information decomposed expenditure into individual years. A
major outcome of having such detailed information was that it revealed the significant
degree to which Olympics operating revenue and expenditure are spread over time. An
examination of the operating expenditure portion of Figure 1 (Section 2 above) makes this
clear.
The data revealed that only 29 per cent of the Olympic Operations expenditure of almost
$2.6 billion is to be incurred in 2000/01, the financial year in which the Olympics and
Paralympics are to be held. The bulk of expenditure required for the operation of the Games
is therefore on preparations made well in advance of the Games. The financial year for
which projected Games operational expenditure is largest is 1999/00, with total operating
expenses expected to be almost $0.87 billion. It will be noticed that expenditure in 1998/99
is smaller than for 1997/98. This is because of a large payment to the NSW Government by
SOCOG in the earlier year, which accounts for 40 per cent of the year’s total costs. When
costs are decomposed into fixed payments and expenses it is found that the build up to peak
Games operations in the year prior to the Event is much smoother.
3
The OCA-supplied data for publicly funded construction conformed with Table 1.8 of the NSW
1998-99 budget, but showed expenditures by a more detailed classification.
10
Figure 2: Olympics Capital Expenditure
1000
900
800
700
Excluded Construction
600
Private construction
500
Other capital works
OCA operating
400
Public construction
300
200
100
0
prior years
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
The time path of Olympic Operations expenditure is a very important consideration in the
correct modelling of the Olympics.. A major task was the decomposition of the very
detailed SOCOG and SPOC budget figures into the format required by the MMRF model.
SOCOG provided data on over fifty expenditure items and the major types of revenue for
their own budget for each year from 1997-98. The Committee also provided detailed
information on the SPOC budget. For each item of revenue and expenditure SOCOG
provided information on how the expenditure for that item could be decomposed into
classes of expenditure (materials by commodity, labour, returns to capital, returns to NSW
government, etc.) or types of sales (type of buyer by industry or class of final demander).
Information was also provided to enable decomposition of materials purchased by origin
(Australian state or overseas) and output sold by region of destination. This produced a
large amount of information which was then reformatted to MMRF specifications.
The quite detailed data was available on the capital and operating expenditure effects, a
more limited amount of information was available on likely visitor/tourism effects of the
Games.
Estimates for each calendar year from 1997 of the number of international visitors to
Australia, were obtained from a media release by the Commonwealth Minister for Sport and
Tourism, Andrew Thomson. The media release provided tables on both those visiting the
Games and Games-related activities, and those who were visiting due to the promotion
effect of the Olympics (induced tourists). These figures are from research undertaken for the
11
Tourism Forecasting Council (TFC) and represent the first estimate of Olympics tourism
released since the onset of the Asian economic crisis.4
The forecast international visitor numbers associated with the Olympics is for an extra 1.6
million visitors over an eight-year period. Of these, 132,000 overseas visitors are expected to
make Games and Games-related visits. On converting the TFC estimates to financial years,
it was seen that almost 85 per cent of Games and Games-related visitors could be expected
to arrive in the Games year (2000/01), with a further 9 per cent in the preceding year. The
figures released also indicate that almost 1.5 million extra tourists would visit Australia as a
result of the promotional effect of the Games. On the TFC’s calendar year basis, the peak
years for induced visitors are 2001 and 2002 when they represent an increase of almost 7 per
cent on the TFC’s base (without the Olympics) forecast for international tourism to
Australia. However, the promotional effect is expected to have a limited life with Olympics
tourism falling to less than 2 per cent of the base international tourism forecast by 2004.
The figures above do not provide forecasts of Olympics tourism numbers prior to 1997 and
these had to be estimated. This was done largely on the basis of the previous CREA/NSW
Treasury estimates.
Just over $2.9 billion of extra tourism foreign exports is expected to result from Olympics
direct or induced visitations from overseas over the 12-year Olympics period. Of this, over
$2.7 billion is associated with induced international tourism. Figure 1 shows this form of
tourism beginning to emerge quite strongly immediately after Sydney winning the Games.
However, after reaching a level of $138 million (1996 prices) by 1995/96, estimated induced
tourism is seen to fall back to only $74 million by 1997/98 due to the economic slowdown in
Asia, before beginning to grow steadily from 1998/99 ($187 million) to a peak of $527 million
in the first post-games year (2001/02).
Only very limited information was available on the number of interstate spectators who
might travel to Sydney to watch the Olympics and Paralympics. An estimation of numbers
was made on the basis of a survey of intentions by Sweeney Sports Australia. The Sweeney
figures suggest over one and a half million interstate visitors intend to attend the Games.
Assuming interstate visitors stayed a week on average, there would be an extra 700,000
visitors in Sydney on an average day of the Olympic Games.5 This figure was then used to
estimate expenditure by commodity by these visitors in the Event year.
4
For details of the methodology underlying the estimated tourism figures, see Tourism Forecasting
Council (1998).
5
Only a modest number of interstate visitors were assumed to attend the Paralympics.
12
5.
Assumptions Underlying the Olympic Simulations
5.1
Key Assumptions
The results from the MMRF simulations of the Olympics are determined not only by the
nature and size of the direct expenditure increases fed into the model, but also by the
various assumptions made about the economic environment in which the expenditure
increases occur.
The extent to which the Olympics will provide a stimulus to Australian output and
employment will be largely determined by the extent to which Olympics-generated activity
is able to draw new or unused resources into the economy. Key assumptions to be
considered for each phase relate to:
• capital constraints on individual industries;
• constraints on the overall supply of labour.
It will be recalled from Figure 1 in Section 2 that expenditure on all items does not approach
$0.5 billion until 1996/97, three years after it was announced that Sydney had won the
Games. Given three years of advance notice, it is unlikely that the three major Olympics
activities, including flow-on effects, will face a capital constraint. That is, there should be
sufficient time to put capital in place so that industries are able to meet most of the
additional Olympics demand without facing any capacity constraints.
On the basis of this reasoning only the Event-year Phase simulation was conducted under
assumptions which recognised some inflexibility in adjusting industry capital. Much of the
direct expenditure of the visitors in the Event year will be concentrated into a few weeks in
the spring of 2000, and it is unlikely that very much additional capital will be put in place to
meet this transient surge in demand. It may be, for instance, that some accommodation
facilities are constructed slightly earlier than would have been the case in the absence of the
Olympics, but in general it can be expected that during the event itself scarce output is
rationed among consumers mostly through price rises.
With respect to the labour market, it is likely that the reverse to the pattern for capital is
true. During the few weeks of the Event itself, increased demand for labour is likely to be
met by an increase in employment with little if any effect on wage rates. However for the
rest of the 12-year period, the increased demand for labour resulting from Olympics-related
expenditure is likely to be principally met at the national level by a reallocation of labour
from other activities, with a rise in real wages largely choking off any increase in the national
level of employment.
The assumptions regarding labour market adjustments to the Olympics turned out to be
more complex than those normally used in CGE analyses of large investment projects. Only
in the Post-event phase is the standard long-run assumption of fixed employment at the
nation-wide level used, with the extra demand for labour dissipating via adjustments in the
national real wage. This is the best labour-market assumption for a period which is quite a
number of years in the future, and where the increased expenditure is anticipated well in
advance. For the Pre-event phase it was assumed that Olympics-generated labour demand
would mainly act on the national real-wage, but that the increase in real wage levels would
be insufficient to prevent some increase in national employment. The basis for this
13
assumption is to take into account lags in wage adjustments.6 The Event-year phase
represents the most complicated of the labour-market scenarios. In this phase simulations
are undertaken for the expenditure on Construction, Games Operations and (induced)
International Tourism that continues on from previous years, as occurring under basically
the same labour-market assumptions made for the previous phase and flexible capital.
However, expenditure by intrastate, interstate and international Games visitors, including
those tickets purchased in 2000-01, is simulated under the standard short run closure of
fixed capital (in all but Olympics Operations) and a slack labour market nationally.
5.2
Financing Scenarios
Other important assumptions in simulating the Olympics relate to the way in which the
Games are financed by governments (both Federal and States) as well as by the private
sector domestically and offshore.
For private expenditures, it is assumed that the change in national investment expenditure
resulting from the country gearing up for the Olympics in the Pre-Event phase is met largely
out of domestic savings. The justification for this assumption is that the pre-Games phase is
sufficiently long for the Commonwealth Government to anticipate the increased demand for
overseas borrowing and act to constrain changes in the trade balance. Thus any increase in
Australia’s external liabilities generated by the Olympics are constrained. Note that any
increase in overseas debt accumulated in the Pre-Games phase is assumed to be repaid (with
interest) by the end of the Post-Games phase.
The public financing of Olympics construction can occur through a number of avenues,
including:
• Profit from Olympics Operations. While SOCOG is expected to return only a small
profit of $30 million, the Committee will also pay a substantial amount for venue hire to
the government (as well as to private firms);
• Grants from the Commonwealth Government. An amount of $150 million is shown in
the 1998-99 NSW Government Budget as an inflow from the Commonwealth to the State
Government;
• Other earnings such as interest on Olympics investments and sales of assets. Almost $98
million is anticipated to fall into this category in the NSW Budget;
• Increased tax revenue flowing from the larger revenue base that the new Olympicsactivity generates;
• Increased tax revenues by increasing State tax rates;
• Reductions in expenditure on capital works not associated with the Olympics;
• Reductions in current NSW Government consumption expenditure.
6
Some readers may feel that the temporary nature of the Olympics expenditures might lead workers
to not seek wage increases, as this might lead to job losses once the expenditure surge ceases.
However, general growth in the productivity of the economy should replace the Olympics as a source
of higher labour demand. Thus, the Olympics are likely to see future wage increases brought forward.
For further discussion of the labour market assumptions, see Madden (1998).
14
The degree to which the first four sources of funds are used is reasonably straightforward.
Official figures are employed in our simulations for the first three items, while the model
itself computes the value for the fourth item. However these four sources are insufficient to
cover the total construction costs. The way the outstanding amount should be split across
the remaining three sources is problematic.
In its 1998-99 Budget, the NSW Government indicated that the Olympics will not be
financed from sources 5 to 7, but rather the outstanding amount will come from the eighth
source. The year most affected will be 1998-99, for which the NSW Government has a
forecast surplus of $45 million. According to the Budget this would have been a surplus of
$522 million in the absence of the Olympics. However, the Budget papers specify that by
2000-01 the NSW annual budget surplus is expected to be only a little less than the noOlympics case. No forecasts are provided beyond that year.
In order to model the Olympics in a proper context it is important to take into account in
some way the negative effect of the Games on the NSW Government’s bottom line. This is
done by assuming that the NSW Government pays off the full cost of the Olympics over the
twelve years of the Games, effectively bringing the Budget Surplus back in line. That is, it is
assumed that by the end of the Olympic period, the NSW Government’s financial asset
position would be the same as would have been the case if Sydney had not hosted the
Olympics.
5.3
Summary of Main Assumptions
In conducting simulations with a large computer model of the economy such as MMRF, it is
necessary to make many assumptions regarding aspects of the Australian and State
economies. In the previous two sections we have concentrated on those assumptions which
are the most important in the determination of results. In this section we summarise the
assumptions employed in each of the three phases of the Olympics.
5.3.1
Pre-Event Phase Assumptions
There are a number of key assumptions underlying the pre-Games simulations. They are:
• The pre-Games activities have only a limited impact on regional unemployment rates.
Three quarters of the increased demand for labour generated by the activities is met by a
real wage rise, with only one quarter of the demand acting to increase employment;
• No change in participation rates, or Australia’s population growth rate. This, and the
previous assumption, imply that changes in national unemployment are severely
circumscribed;
• Direct and indirect activities have no effect on interstate wage differentials, with persons
moving between states to remove any initial disturbance to differentials;
• No change in real rate of return on capital – together with the above labour market
assumptions this determines the change in the national capital stock;
• The rate of technical change is unaffected by the pre-Games activities;
• Australia’s nominal exchange rate is unaffected (all three phases);
• Governments (with the exception of the NSW Government dealt with below) keep their
real borrowing requirement constant by allowing tax rates to vary; and
• Australia’s trade balance is constrained due to the Commonwealth Government setting
its own consumption expenditure at a level necessary to meet a set target for the balance
of trade.
Two aspects of the above assumptions are in need of further explanation. The first relates to
the assumed NSW government’s budget policy. As stated above it is assumed that the State
government adopts a fiscal stance aimed at paying off the unfunded portion of the Olympics
budget over the 12-year period of the Games. It is assumed each form of fiscal policy bears
15
close to an equal burden in the funding operation. The policies are set at a level to allow the
Olympics to add around $500 million to the State Government’s bottom line by the end of
the Pre-Event phase compared with what would have been the case for a policy of allowing
the full Olympics’ debt to accumulate. It is assumed that fiscal policies continue into the
Post-Games phase to enable all Olympics-related effects on the NSW Government’s balance
sheet to be discharged by the end of the phase.
The second aspect to be further explained relates to the ownership of returns to capital. In
the case of the new Olympics capital, careful account has been taken of the cost of
constructing the new capital and the availability of capital in Australia. Due to constraints
on the availability of capital needed to fund the significant expansion associated with the
Games the model projections are on the basis that the cost of assembling the new capital in
the indirectly-affected industries is met out of overseas borrowings. As a consequence the
returns on this capital should not be modelled as being available to fund domestic
absorption. To do so would be to overestimate the multiplier effects of the Olympics.7 In
order to avoid this outcome, we conduct the Pre-Event simulations under the assumption
that for the most part the increased returns to capital, for industries other than the Olympics,
is diverted from household consumption to net exports in order to pay the foreign owners of
the new capital.
5.3.2
Event-year Phase Assumptions
This phase of the Olympics is run under a mixed mode. For the modelling of the effects of
Olympics expenditure that is simply a continuance of Pre-Event phase expenditure, such as
induced tourism, Games Operations and Construction, simulations were conducted under
basically the same assumptions as the Pre-Event phase. The only difference related to the
labour market assumption. For the Event-year it was assumed that only one-fifth of the
increased labour demand acted to increase employment. For the modelling of the impact of
other expenditure which pertains more to the few weeks of the Olympics and Paralympics
events themselves, different assumptions were employed. These expenditures consisted
mainly of travel expenditure by Games visitors including those ticketing costs paid in the
Event year. The major assumptions of this component of the phase are:
• Fixed capital stocks in all non-Olympic industries with rates of return adjusting to reflect
changes in demands for capital services;
• Nominal wages fixed with aggregate employment changing in line with the change in
labour demand;
• Governments keep all tax rates constant with changes in revenue and expenditure
impacting on their borrowing requirements;
• The trade balance is allowed to vary in line with changes in domestic savings and
investment;
• Expenditure during the Event itself impacts on the exports performance of the Olympics
industry and the International Tourism industries only.
5.3.3
Post-Event Phase Assumptions
The post-Games simulations are conducted under a similar economic environment to that
used for the pre-Games simulations (described in section 5.3.1) but with some important
differences. These are:
7
It may be argued that the indirect effects on the use of capital stocks generated by the Olympics are
met out of excess capacity. This is the approach of CREA/NSW Treasury, on the basis that the
required increase in capital stocks are relatively small and transitory. However, this approach would
seem to provide an estimate that is very much an upper band. An approach that is likely to be more
widely accepted as a truer estimate of the Olympic impacts is one in which the increase in the services
of capital is largely met out of additions to the capital stock.
16
• The unemployment rate is completely unaffected by the post-Games phase, with all
labour-market adjustment at the national level falling on the real wage;
• Fiscal policy in New South Wales adjusts to achieve the level of revenue required to
fully offset Pre-Event phase reductions in the Budget surplus; and
• Tax rates adjust in all other states to ensure that State government borrowing
requirements remain constant in real terms.
The assumptions outlined above underlie the main results that are reported in the next
section. However a number of simulations were conducted under some alternative
assumptions to check the sensitivity of the results to the adoption of other possible Olympics
scenarios.
17
6.
Results
6.1
Macroeconomic Effects of the Olympics
It is important to note when interpreting the results that the estimates presented are not
growth forecasts for the NSW and Australian economies. Rather the results provided are
projections of the deviations from the values key economic variables would have otherwise
attained. If one considers that the economy, without the Olympics, would have moved
along a particular growth path, then the results presented represent adjustments to that path
as a result of staging the Olympic Games.
Figure 3 shows the effects of the Olympics on New South Wales and Australian outputs over
the 12-year period from 1994-95 to 2005-06.
Figure 3: Olympics Impact on GDP/GSP
$2,500
$2,000
$1,500
Australia
$1,000
NSW
$500
$1994/95
1995/96
1996/97
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
-$500
It can be seen that there is a strong impact on both the New South Wales and national
economies particularly in the four years ending in the Event Year. In an average year of the
period 1997/98 to 2000/01 NSW Gross State Product is estimated to be $1.4 billion higher (in
1996 prices) than would have been the case without the Olympics.
For Australia as a whole it is estimated that Gross National Product will be, on average,
almost $1.7 billion higher than would otherwise have been the case.
For the Pre-Event phase as a whole the estimated impact on GSP/GDP for NSW and the
nation as a whole is almost $750 million and around $860 million respectively in an average
year of the phase. Thus during the Pre-Event phase a portion (about an eighth) of the extra
activity generated by the Olympics is projected to occur in other states.
18
It should be recalled that the simulations were conducted for typical (average) years of each
phase. The pattern of impacts for the Pre-Event phase is made on the assumption that total
impacts will follow the same pattern as that of the direct impacts. While this may not be the
case, it is likely to be approximately so. However for the Post-Event phase, which is
characterised by substantial debt repayment, as well as the direct impact of induced
tourism, there is no guide as to the pattern of total impacts. We have therefore assumed that
the total impacts are uniform in percentage change terms for this phase. It can be seen that
there is only a negligible impact on the total Australian economy in the final phase of the
Olympics. However, NSW gross state product is estimated to be around $77 million less
than without the Olympics, as the State government is assumed to set its fiscal policies such
that the Games impact on the NSW State Government budget is revenue neutral over the
twelve year period.
In Figures 4 and 5 the effects of the Olympics on real consumption and employment are
shown.
It can be seen from Figure 4 that the effects on real household consumption are far more
subdued (except in the Post-Event phase when the projected decrease in real consumption in
NSW is about equal in dollar terms to the State’s projected GSP decline).
Figure 4: Olympics Impact on Real Household Consumption
$1,200
$1,000
$800
Australia
$600
NSW
$400
$200
$1994/95
1995/96
1996/97
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
-$200
Over the six years of the Pre-Event phase NSW real household consumption is estimated at
a little over $0.3 billion higher in an average year as a result of the Olympics. For Australia
as a whole, the estimated impact on real consumption is just over $350 million in an average
year of the phase. Over the entire 12-year period of the Games the effect on NSW real
19
household consumption is $189 million in an average year.8 The corresponding figure for
Australia as a whole is around $240 million.
The Event year represents the peak year for the economic impact of the Olympics. This is to
be expected given that this is the year in which the largest direct effects occur. The
multiplier effect is also somewhat higher, due to the assumption of a degree of greater
slackness in the labour market. It will be recalled that, for the transitory demand increases
at the time of the actual Event, it is assumed that the brevity of the direct impacts will inhibit
any increase in the nominal wage.9 However, it should also be remembered that for the
more long-term direct impacts a somewhat tighter labour market than for the previous
phase is assumed. The latter only partially offsets the effects of the former in determining
the total effects of the Event-year phase.
30.000
25.000
20.000
Australia
15.000
NSW
10.000
5.000
0.000
1994/95
1995/96
1996/97
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
-5.000
Figure 5: Olympics Impact on Employment
Turning to the estimated effect on employment presented in Figure 4, there is a projected
increase in NSW jobs in an average year of the twelve-year Olympics period of almost 5,300.
For the peak four years of the Olympics there is estimated to be over 15,600 extra jobs in
NSW in a typical year of the period as a consequence of the Games being staged in Sydney.
8
In 1996 undiscounted dollars.
Note that it is the fixity of capital stocks in the non-Olympic industries which forms the major
constraint on the multiplier effects from the very brief increase in demand at the time of the Games.
This will act to increase returns to capital, and in turn put upward pressure on prices during the time
around the Event.
9
20
Table 1 shows the effects of the Olympics in an average year of each of the three phases.
Looking at the Pre-Event phase it can be seen that the main type of expenditure to receive a
boost is real investment. On the other hand the impact on real consumption is quite
subdued, with no upward pressure on prices. This is a consequence of the high level of
investment, coupled with the partial control of the balance of trade. This leads to some
crowding out of real consumption.
It can be seen that the Olympics is modelled as increasing the NSW Government real budget
deficit in the first two phases, particularly the Pre-Event phase. However, this is offset by a
budgetary improvement in the final phase. Details of the State Government’s budget are
outlined in section 6.4.
The Games are projected to have little impact on price levels. For instance, in the Event-Year
prices in NSW are projected to be only 0.21 per cent higher for the year as a whole, than
would have been the case without the Games. Much of this annual price impact can be
expected to arise as a result of temporary price increases for the immediate period
surrounding the Games.
Table 1: Macroeconomic Effects of the Olympics
Percentage Change
Real GDP
Employment
Capital Stock
Real Consumption
Real Investment
Real Deficit ($b)
Australian Export Volume
Australian Import Volume
Australian Trade Balance ($b)
Consumer Price Index
- NSW
- Aust
- NSW
- Aust
- NSW
- Aust
- NSW
- Aust
- NSW
- Aust
- NSW
- Aust
- NSW
- Aust
National Real Wage
6.2
Pre-Event
0.40
0.16
0.37
0.16
0.46
0.16
0.25
0.11
1.18
0.48
0.08
0.00
0.16
0.24
-0.05
0.02
0.05
0.04
Phase
Event-Year
0.90
0.39
0.89
0.41
0.91
0.39
0.63
0.32
0.71
0.37
0.04
-0.03
0.80
0.54
0.77
0.21
0.13
0.10
Post-Event
-0.03
0.01
-0.06
0.00
0.00
0.01
-0.05
-0.02
0.01
0.03
-0.13
0.00
0.25
0.10
0.23
0.11
0.11
0.03
Effects of Olympics on Industries
The effect of Sydney hosting the Games on individual industries in each phase of the
Olympics is shown in Table 2.
The left hand column of Table 2 shows the industry effects of the Pre-Event phase. Olympic
construction, as would be expected, is projected to have a strong stimulatory effect on the
construction industry. In an average year of the Pre-Event phase, the NSW Construction
industry is estimated to be around 1.6 per cent larger than it would have been in the absence
21
of the Sydney Olympics. The Construction industry is estimated to expand at a slightly
faster rate than real investment, which it will be recalled is projected to increase by about 1.2
per cent in New South Wales, due to the construction-intensity of Olympic investment.
The Pre-Event impact on the Construction industry is much greater than on other industries.
This is also true at the national level, where the industry is estimated to be around 0.6 per
cent larger in an average year of the phase compared with what otherwise would have been
the case. The next most affected industry is Transport and Communication. This industry is
one of the more important suppliers to Olympics Operation, and its output makes up the
largest component of the international tourists’budget.
It can be seen that except for the primary industries, all industries at the Australia-wide level
are estimated to receive a small positive boost from the Olympics in the years leading up to
the event. Both in New South Wales and nationally, Public Services and Community
Services are estimated to receive only a very minor boost from the Olympics. This results
from the Commonwealth and particularly the NSW Governments holding down their
current expenditure. The former does so to contain the projected Olympics-generated
deterioration in Australia’s trade balance, while the latter does so because it is assumed that
the NSW Government wants to contain Olympics-induced reductions in its planned
surpluses. The Finance industry is projected to expand by about two thirds as much as State
GSP for NSW. The industry gains from its direct use by the Olympics, but loses by an
assumed redistribution of funds away from the industry towards Olympics sponsorship.
The projected percentage increase for the Finance industry Australia-wide is around a third
of the increase for GDP. This mainly reflects the Olympics Operations use of the Finance
industry being in New South Wales, while the redirection of sponsorship dollars is spread
reasonably evenly across the country.
Table 2: Effects of Olympics on New South Wales
and Australian Output by Industry
Percentage Change
Phase
Pre-Event
Event-Year
Post-Event
New South Wales
1 Rural
2 Mining
3 Manufacturing
4 Public Utilities
5 Construction
6 Domestic Trade
7 Transport & Communication
8 Finance
9 Housing
10 Public Services
11 Community Services
12 Personal Services
0.04
-0.10
0.20
0.26
1.60
0.29
0.44
0.27
0.34
0.08
0.09
0.40
0.05
0.01
0.36
0.71
1.26
0.73
1.43
0.89
0.70
0.38
0.47
1.95
-0.13
-0.58
-0.10
-0.04
-0.18
-0.02
0.33
-0.03
-0.02
-0.11
-0.14
0.26
Australia
1 Rural
2 Mining
3 Manufacturing
4 Public Utilities
5 Construction
6 Domestic Trade
-0.01
-0.09
0.10
0.10
0.58
0.12
-0.05
-0.13
0.19
0.26
0.56
0.25
-0.12
-0.25
-0.07
-0.01
-0.04
0.02
22
7
8
9
10
11
12
Transport & Communication
Finance
Housing
Public Services
Community Services
Personal Services
0.27
0.05
0.18
0.08
0.07
0.29
1.09
0.34
0.40
0.30
0.22
1.04
0.36
-0.01
0.00
-0.04
-0.05
0.31
Turning to the Event-year estimates shown in the second column, it can be seen that the
same three industries projected to do best in the Pre-Event phase make up the group of three
projected to expand most in the middle phase. It is Personal Services which is expected to
increase the most. It benefits from the strong international and domestic travel boom
associated with the period of the Event. Construction is projected to be not that much less
positively-affected in the Event year as the previous phase, due mainly to some residual
construction expenditure involved with Olympic capital works and the fact that about 10
per cent of estimated Olympics Operations materials are expected to be sourced from that
industry. However, Transport and Communication is estimated to expand by the second
greatest amount. Its projected Olympics effect is around three times as much in NSW as for
the previous phase (four times for the nation as a whole). Transport and Communication
benefits from two sources. Its output is a major tourist purchase and it contributes 20 per
cent of Olympics Operations material purchases. While all industries are projected to
expand in this phase, Rural and Mining are the least well-affected industries, with the
Olympics tourism boom making it more difficult for these industries to attract resources.
In the Post-Event phase, most industries are projected to be negatively affected by the
Olympics. However, the net effect on national GDP is slightly positive, with tourism-related
industries pulling resources from other industries, particularly in the traded sector. The net
effect on NSW industries on average is slightly negative, due to the assumed contractionary
effects of Government fiscal policy.
Table 3: Effects on Industry Employment
Percentage Change
Pre-Event
Phase
Event-Year
New South Wales
1 Rural
2 Mining
3 Manufacturing
4 Public Utilities
5 Construction
6 Domestic Trade
7 Transport & Communication
8 Finance & Business Services
9 Housing
10 Public Services
11 Community Services
12 Personal Services
0.00
-0.22
0.16
0.15
1.70
0.27
0.43
0.20
0.00
0.06
0.07
0.38
-0.02
-0.17
0.30
0.74
1.31
0.73
1.65
1.01
0.00
0.35
0.46
2.47
-0.20
-0.70
-0.12
-0.08
-0.20
-0.02
0.38
-0.06
0.00
-0.11
-0.15
0.32
Australia
1 Rural
2 Mining
3 Manufacturing
4 Public Utilities
5 Construction
-0.04
-0.19
0.09
0.07
0.62
-0.12
-0.33
0.16
0.20
0.57
-0.19
-0.46
-0.09
-0.03
-0.05
Post-Event
23
6
7
8
9
10
11
12
Domestic Trade
Transport & Communication
Finance & Business Services
Housing
Public Services
Community Services
Personal Services
0.11
0.28
0.02
0.00
0.08
0.07
0.32
0.23
1.33
0.37
0.00
0.29
0.21
1.30
0.02
0.42
-0.03
0.00
-0.04
-0.06
0.39
Table 3 shows the effects on Olympics employment by industry for the three phases. In
general, these results follow reasonably closely that for output.
6.3
Effects on Occupations
In Table 4 the effects of the Olympics on broad occupational categories can be seen. It can be
seen that, for the Pre-Event phase, the demand for skill classes in NSW is much closer to the
projected State employment increase of 0.37 per cent than was the case for industries in
Table 3. The only occupational group to show a substantially greater estimated increase is
Tradespersons which is projected to expand in NSW by 0.65 per cent, and nationally by 0.26
per cent. This results from Construction being an intensive user of Tradespersons, that skill
class making up 45 per cent of Constructions industry workers, compared to comprising
under 16 per cent of all workers.
Table 4: Effects on Employment by Occupation
Percentage Change
Pre-Event
Phase
Event-Year
New South Wales
1 Managers & Administrators
2 Professionals
3 Para-professionals
4 Tradespersons
5 Clerks
6 Salespersons & Personal Service Workers
7 Plant & Machinery Operators & Drivers
8 Labourers
0.40
0.23
0.32
0.65
0.29
0.27
0.35
0.39
0.96
0.83
0.87
0.94
0.90
1.00
0.90
0.78
-0.06
-0.10
-0.09
-0.09
-0.04
0.02
0.02
-0.07
Australia
1 Managers & Administrators
2 Professionals
3 Para-professionals
4 Tradespersons
5 Clerks
6 Salespersons & Personal Service Workers
7 Plant & Machinery Operators & Drivers
8 Labourers
0.16
0.10
0.14
0.26
0.12
0.13
0.17
0.17
0.39
0.34
0.39
0.42
0.42
0.45
0.55
0.37
-0.02
-0.03
-0.02
-0.02
0.01
0.06
0.06
-0.01
Post-Event
For the Event-phase the effects on skill classes are even more evenly spread. The reason for
this is that while particular industries may be intensive users of certain skill classes, no
individual industry has even half of all the workers in any particular skill class employed in
its industry. For instance, less than 30 per cent of Tradespersons are employed in the
24
Construction industry. This means that particularly at the broad level of skill aggregation,
positive impacts on demand for a skill class through increased output by one industry which
is intensive in the use of that skill may be reduced or offset by reduced output by other
industries.
At the broad level of aggregation, there appears to be little likelihood of an Olympic-induced
skill shortage. On the basis of Centre of Policy Studies forecasts for skill groups cited in
CREA/NSW Treasury (1997, page 22) the forecast growth in demand from Tradespersons is
comparatively low. The Olympics demand for that skill is unlikely to alter this significantly
at the broad Tradespersons level. However, our model is not well-equipped to handle the
question of skill-shortages at the detailed occupation level. This is because we do not have
detailed skill data on Olympics construction and organisation.
6.4
Effects on NSW Budget
Table 5 traces the budgetary effects of the Olympics. The first column of the table shows the
effects on the NSW budget in an average year of the Pre-Event phase. It can be seen that the
phase has a positive impact on both the revenue and expenditure sides of the budget.
However, the increase in NSW Government expenditure is around half as much again as the
increase in revenues, leaving an increase in the Government’s borrowing requirement of
around $83 million in an average year of the phase.
Around two fifths of the increased revenue comes by way of returns on capital from SOCOG
and increased Commonwealth Grants. The latter involves an amount of $150 million
promised by the Commonwealth and being paid over a three-year period. The returns from
SOCOG, by way of a construction fee and rental fee to OCA, are estimated at just over $40
million in an average year of the Pre-Event phase, or just under $250 million over the 6-year
phase.
Table 5: Effects of Olympics on NSW Budget ($1996 million)
Direct taxes
SOCOG revenue
Indirect taxes
Commonwealth Commitment
Other Revenue
Total Revenue
Financing Requirement
NSW Govt Olympics Capital Exp.
NSW Govt Olympics Current Exp.
Other NSW Government Expenditure
Interest
Total NSW Government Expenditure
Pre-Event
(average year)
Event-Year
Post-Event
(average year)
7
41
57
25
26
156
16
106
17
0
27
167
0
0
25
0
-5
20
83
41
-108
278
12
-63
12
239
93
249
-156
21
208
0
0
-88
1
-88
25
The Event-year is estimated again to have a substantial impact on both sides of the budget,
again in the same direction. For this phase the estimated impact on the Government’s net
financing requirement is $41 million. The NSW Government expenditure is estimated to
expand by $208 million in this phase. However, over $340 million is spent on the Olympics,
meaning that the Government is again assumed to show restraint on other types of
expenditure in order to keep pressure off its budget.
It should be recalled, however, from the discussion in sections 5.2 and 5.3 that the NSW
Government’s budgetary policy is not to make such expenditure cuts, but rather to allow for
a reduction in a planned budget surplus. The assumptions made in this report therefore do
not reflect this position. The reason is that this study has chosen to model the Olympics
over a 12-year period in a budget neutral context.
In the last phase, the NSW Government improves its budgetary position by almost $110
million in an average year, sufficient to pay off the remaining debt (including accumulated
interest) of over half a billion dollars by the end of the 2005/06 financial year. While the
positive impact on the revenue side of the budget is less than in the two previous phases, the
expenditure side is projected to assist in providing a budget surplus in this phase.
It should be borne in mind that the reductions in NSW current and capital government
expenditure estimated for the Post-Event phase are only around 0.3 per cent of the total
projected NSW Government’s expenditure on goods and services for 2003/04.
6.5
Alternative Scenarios
A number of alternative scenarios have been modelled, one in relation to the Asian Crisis,
the second in relation to the effect of a tight labour market and finally and export boom
scenario. The purpose of these scenarios is to capture the magnitude of the risks associated
with the benefits estimated to arise from the Olympics. Note that the way in which the first
two alternatives are modelled they provide a “worst case” scenario. This type of sensitivity
analysis is the best way to capture the direction and quantum of the potential risks to the
economic impact of the games.
The first scenario examined is labelled the “Asian Crisis” scenario. Under this scenario it is
assumed that only half of the estimated induced tourist expenditure modelled in the
standard simulations occurs. It will be remembered that the standard scenario only took
limited cognizance of the downturn in Asia. However, it is unlikely that this downturn
would be sufficient to cut our estimate in half.10 Thus the Asian-crisis scenario should be
broadly interpreted simply as a much weaker outcome for Olympic-induced international
tourism than is assumed for our standard scenario.
Under the “Wage-Rise” scenario, a very much tighter labour market is assumed to exist with
respect to Olympics-induced labour demand, than was the case in the standard simulations
reported above. Instead of one-quarter of the Olympics-induced labour demand increasing
employment as in the standard simulation, under the Wage-Rise scenario, only 5 per cent of
the extra labour demand acts to increase national employment. It is thus implicitly assumed
that the Olympics acts to increase real wages at an earlier stage than under the standard
scenario. Accordingly it is assumed that on-going types of Olympics direct expenditure are
modelled for the Event-year phase as leaving regional unemployment rates unaltered, with
10
Asian tourists account for half of the induced tourism effect. Consequently, the alternative scenario
is equivalent to assuming that estimated non-Asian tourist numbers (and spending) stay steady while
all Asian-induced tourism ceases. Such a severe outcome would seem very unlikely.
26
the increased labour demand being met entirely by real wage rises for the on-going
component of the Event-year phase.
The final scenario differs from the standard scenario only in that in the Post-Event phase it is
assumed that foreigners will exhibit an increased preference for Australian goods as a result
of the promotional effects of the Olympics. This is modelled as a half a per cent rise in the
volume of Australia’s international exports of manufactured products.
Looking at Figure 6 it can be seen that the Asian-crisis scenario is projected to give a
significantly smaller increase in GDP than under the standard scenario. However, the GDP
impact of the wage rise scenario is very much smaller still. This is despite the wage-rise
scenario containing the standard tourism estimates. With the economy unable to draw in
very much in the way of extra resources under the tighter labour market scenario, the
present value of the GDP impact of the Olympics is only about a quarter of that of the
standard scenario. It will be noticed that in the Post-Event phase the results are very similar,
as a resource constraint holds GDP almost unaffected under all three scenarios.
Figure 6: Effects of Alternative Scenarios on GDP
$2,500
$2,000
$1,500
Standard
Asia crisis
Wage growth
Export
$1,000
$500
$0
1994/95
1995/96
1996/97
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
It can be seen in Figure 7 that the GSP gap between the “Wage-rise” and the “Standard”
scenario is considerably less for NSW than the case for the projected national GDP impact.
This is because NSW is able to overcome some of the constraint of a tighter labour market by
pulling resources from the other states.
Figure 8 shows that for the nation as a whole, the wage-rise scenario would bring a
noticeable rise in real household consumption only in the Event-year phase. This reflects the
labour-market assumptions which only allow additional labour to be drawn from the
unemployed pool in the brief period surrounding the Games themselves in September 2000.
However, for New South Wales (see Figure 9), real household consumption is estimated to
receive a substantial Pre-Event boost even under the wage-rise scenario, due to that State
drawing labour resources from the other states.
27
Figure 7: Effect on NSW GSP
$2,000
$1,500
$1,000
Standard
Asia crisis
Wage growth
Export
$500
$0
1994/95
1995/96
1996/97
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
($500)
Figure 8: Effects of Alternative Olympic Scenarios
on Australian Real Household Consumption
$1,200
$1,000
$800
$600
Standard
Asia crisis
$400
Wage growth
Export
$200
$0
1994/95
1995/96
1996/97
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
($200)
($400)
28
Figure 9: Effects of Alternative Olympic Scenarios
on NSW Real Household Consumption
$1,000
$800
$600
$400
Standard
Asia crisis
Wage growth
Export
$200
$0
1994/95
1995/96
1996/97
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
($200)
($400)
29
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31