Unlocking Victorian

An Inquiry into Victoria’s tourism industry

Final Report June 2011

© State of Victoria 2011

This final report is copyright. No part may be reproduced by any process except in accordance with the provisions of the Copyright Act 1968 (Cwlth), without prior written permission from the Victorian Competition and Efficiency Commission.

Cover images of Chefs in kitchen at Rockpool Bar & Grill, City Circle Tram outside Flinders Street Station and Lochiel Luxury Accommodation reproduced courtesy of the photographer, Mark Chew.

ISBN 978-1-921831-40-9 (paperback) ISBN 978-1-921831-41-6 (PDF)

Disclaimer The views expressed herein are those of the Victorian Competition and Efficiency Commission and do not purport to represent the position of the Victorian Government. The content of this final report is provided for information purposes only. Neither the Victorian Competition and Efficiency Commission nor the Victorian Government accepts any liability to any person for the information (or the use of such information) which is provided in this final report or incorporated into it by reference. The information in this final report is provided on the basis that all persons having access to this final report undertake responsibility for assessing the relevance and accuracy of its content.

Victorian Competition and Efficiency Commission GPO Box 4379 MELBOURNE VICTORIA 3001 AUSTRALIA Telephone: (03) 9092 5800 Facsimile: (03) 9092 5845 Website: www.vcec.vic.gov.au

An appropriate citation for this publication is: Victorian Competition and Efficiency Commission 2011, Unlocking Victorian Tourism: An Inquiry into Victoria’s tourism industry, final report, June.

About the Victorian Competition and Efficiency Commission

The Victorian Competition and Efficiency Commission, which is supported by a secretariat, provides the Victorian Government with independent advice on business regulation reform and opportunities for improving Victoria’s competitive position.

VCEC has three core functions: • reviewing regulatory impact statements, measurements of the administrative burden of regulation and business impact assessments of significant new legislation • undertaking inquiries referred to it by the Treasurer • operating Victoria’s Competitive Neutrality Unit.

For more information on the Victorian Competition and Efficiency Commission, visit our website at: www.vcec.vic.gov.au

Disclosure of interest

The Commissioners have declared to the Victorian Government all personal interests that could have a bearing on current and future work. The Commissioners confirm their belief that they have no personal conflicts of interest in regard to this inquiry.

1 June 2011

Mr Kim Wells MP Treasurer of Victoria 1 Treasury Place East Melbourne VIC 3002

Dear Treasurer

VCEC Inquiry into Victoria’s Tourism Industry

In accordance with the terms of reference received by the Commission on 23 September 2010, we have pleasure in submitting the Commission’s final report Unlocking Victorian Tourism: An Inquiry into Victoria’s tourism industry.

Yours sincerely

Dr Matthew Butlin Deborah Cope Bill Mountford Chair Commissioner Commissioner

Terms of reference I, John Lenders MP, Treasurer, pursuant to section 4 of the State Owned Enterprises (State Body — Victorian Competition and Efficiency Commission) Order (‘the Order’), hereby direct the Victorian Competition and Efficiency Commission (‘the Commission’) to conduct an inquiry into the Victorian Tourism Industry.

Background Tourism is a significant economic driver for Victoria. In 2007-08, directly and indirectly tourism contributed 5.9 per cent or $15.8 billion to the economy, it also employed 185 000 people. Victoria is a popular tourist destination for residents in other Australian States and Territories as well as international travellers. The past decade has witnessed periodic surges in tourist numbers from China and other Asian neighbours in particular. The industry has a key role to play in Victoria’s future economic development.

The Victorian Government plays a significant role in supporting the tourism industry, through the provision of quality infrastructure, good road and air access and strong marketing of Victoria’s attractions. An inquiry into Victoria’s tourism industry will assist in providing an improved information base on which to frame future State Government policy development for the tourism industry and will identify regulatory and other major impediments to the future development and growth of the industry through a consultative process that has regard to the community-wide impacts of regulatory and broader policies.

Scope of the inquiry The Commission is to inquire into and report on: 1) State and local regulatory barriers to the development of the tourism industry and the creation of new tourist infrastructure, particularly in localities with substantial growth potential; 2) opportunities to improve the management of state assets to better meet the needs of the tourism industry without compromising their primary management objectives; and 3) the impact of international and domestic aviation policy on the Victorian tourism industry and broader economy, and any implications for policy positions that the Victorian Government might adopt in its own right or present to the Commonwealth Government.

VI TERMS OF REFERENCE

In undertaking this inquiry, the Commission should take into account any substantive studies or developments by the Commonwealth and other States, and international best practice. In particular, the Commission’s Inquiry is meant to complement and not duplicate work undertaken by Commonwealth and State Tourism Ministers under the auspices of the Council of Australian Governments.

Inquiry process In undertaking this inquiry, the Commission is to have regard to the objectives and operating principles of the Commission, as set out in section 3 of the Order. The Commission must also conduct the inquiry in accordance with section 4 of the Order.

The Commission is to consult with key interest groups and affected parties, and may hold public hearings. The Commission should also draw on the knowledge and expertise of relevant Victorian Government departments and agencies.

The Commission is expected to produce the following documents: • an issues paper at the beginning of the inquiry process • a draft report containing analysis and draft recommendations after the receipt of public submissions; and • a final report to be provided to me as soon as possible, but not later than ten months after receipt of these terms of reference.

JOHN LENDERS MP Treasurer 23 September 2010

TERMS OF REFERENCE VII

Contents

Terms of reference VI Contents IX Abbreviations XIII Glossary XVII Key messages XXI Summary report XXIII Recommendations LI 1 Introduction 1 1.1 Background to the inquiry 1 1.2 The terms of reference 2 1.3 The Commission's approach 3 1.3.1 The diverse nature of the tourism industry 3 1.3.2 Focusing the inquiry 4 1.3.3 Setting tourism in a wider context 6 1.3.4 Capacity of Victoria to effect change 6 1.4 Recent reviews of the tourism industry 7 1.5 Conduct of the inquiry 8 1.6 Report structure 9 2 The Victorian tourism industry 11 2.1 Introduction 11 2.2 Key characteristics of the industry 14 2.2.1 Visitors 14 2.2.2 Attractions and activities 25 2.2.3 Businesses 29 2.3 Future opportunities and challenges 34 2.3.1 Exogenous factors and ‘mega-trends’ 34 2.3.2 Domestic and international visitation forecasts 36 2.3.3 The growth from China 37 2.3.4 Future strategic directions and priorities 39 2.3.5 Regional dispersal 41 2.3.6 Nature-based tourism 43 2.3.7 The Commission’s view 44 3 Land-use planning regulation 45 3.1 Victoria’s land-use planning system 45 3.1.1 State and local policies relevant to tourism 46 3.1.2 Zones affecting tourism activities 48 3.1.3 The permit application process 51

CONTENTS IX

3.2 Issues raised by participants 51 3.2.1 Regulatory barriers to the development of tourism in Victoria’s land-use planning regulations 52 3.2.2 Complexity and costs of land-use planning regulation 62 3.2.3 The Commission’s view 65 3.3 Opportunities for improvement 66 3.3.1 Improving strategic planning 68 3.3.2 Removing regulatory barriers to tourism-related investment 76 3.3.3 Improving the administration of land-use planning regulation 83 3.3.4 Systemic improvements to planning processes 86 4 Public land regulation 89 4.1 Introduction 89 4.2 Public land in Victoria 90 4.2.1 What is public land? 90 4.2.2 Importance of public land to Victoria’s tourism industry 91 4.3 The regulatory framework for public land 94 4.3.1 The broad structure of public land regulation 94 4.3.2 Regulatory requirements for new tourism developments 97 4.3.3 The licensing system 104 4.4 Participants’ views on Victoria’s public land system 105 4.4.1 Barriers to investment 105 4.4.2 Uncertainty for investment 106 4.4.3 Restrictive lease terms 107 4.4.4 Unclear roles and responsibilities 109 4.4.5 Impact on investment 112 4.5 Opportunities for improvement 114 4.6 Removing restrictions on private development in national parks 116 4.6.1 Demand for investment 118 4.6.2 Protecting environmental values 119 4.6.3 Confining investment to outside national parks 126 4.7 Removing other regulatory barriers 131 4.7.1 Maximum lease durations 131 4.7.2 Terms and conditions of leases 133 4.7.3 Other regulatory barriers 134 4.8 Improving the development approval process 135 4.8.1 Simplifying the development approval process 135 4.8.2 Improving decision-making guidelines 138 4.9 Roles and responsibilities 139 4.9.1 Roles of DSE and Parks Victoria 140 4.9.2 Managing private sector interest in tourism investment 142

X CONTENTS

5 Impacts of aviation policy 145 5.1 Importance of aviation to Victoria’s tourism industry 146 5.2 Importance of international aviation policy 147 5.3 Restrictions on international aviation capacity 148 5.3.1 Participants’ views 148 5.3.2 Is supply limited by air services agreements? 150 5.3.3 Future regulatory constraints? 152 5.4 Other impediments to the development of additional airport capacity in Victoria 156 5.4.1 status for Avalon airport 157 5.4.2 Planning controls 159 5.5 Other issues raised 160 6 Other regulatory and supply-side impediments 163 6.1 Introduction 163 6.2 Taxis 165 6.2.1 General concerns about taxis 166 6.2.2 Taxi services at Avalon airport 167 6.3 Short-term tourist accommodation 169 6.3.1 Building standards 169 6.3.2 Regulations affecting backpacker 173 6.4 Registration of tourist accommodation 175 6.5 Caravan park regulation 178 6.6 Occupational health and safety requirements for events 180 6.7 Liquor licensing 182 6.8 Cumulative regulatory burden in the tourism industry 184 6.9 Other regulations affecting the tourism sector 186 6.9.1 Regulation of and travel-related services industry 187 6.9.2 Food regulation 188 6.9.3 Award rates 189 6.9.4 Road signage 189 6.9.5 Traffic management plans 191 6.9.6 Accreditation and regulation of tour guides 192 6.9.7 Retail trading hours 193 6.9.8 Regional trams 194 6.10 Other supply-side issues 194 6.10.1 Educational exports 194 6.10.2 Skills and the availability of labour 196 6.10.3 Public and private infrastructure 197

CONTENTS XI

7 Cooperation and coordination 199 7.1 Introduction 199 7.2 Cooperation and coordination are increasingly important to the success of destinations 200 7.2.1 Why cooperation and coordination are constant challenges in tourism 200 7.2.2 Need to refocus on supply-side cooperation 201 7.3 Cooperation in Victoria 202 7.3.1 Cooperative arrangements are wide ranging 203 7.3.2 Many coordination arrangements work well 204 7.3.3 Some arrangements could be improved 207 7.3.4 Changes to improve cooperation and coordination in the industry 210 7.4 The contribution of coordination mechanisms to reform 212 7.4.1 Improving coordination structures and cooperative conduct 213 7.4.2 Role of government 216 Appendices A Consultation 219 A.1 Introduction 219 A.2 Submissions 219 A.3 Roundtables 224 A.4 Stakeholder consultations 226 B Top activities of international visitors to Victoria 229 C Tourism in Victoria’s land-use planning system 231 C.1 Introduction 231 C.2 References to tourism in the State Planning Policy Framework 231 C.3 References to tourism-related activities in land-use zones 234 D Business licences and regulations 245 References 251

XII CONTENTS

Abbreviations

AAG Annual average growth

AGM Annual general meeting

AiP Approval-in-Principle

ANZSIC Australian and New Zealand Standard Industrial Classification system

ASA Air Service Agreements

B&B accommodation

BCA Building Code of Australia

BITRE Bureau of Infrastructure, and Regional Economics

BRE Better Regulation Executive (UK)

CFA Country Fire Authority

COAG Council of Australian Governments

CoMs Committees of Management

CoM City of Melbourne

CRCST Cooperative Research Centre for

DIIRD Department of Innovation, Industry and Regional Development

DITRDLG Department of Infrastructure, Transport, Regional Development and Local Government

DOT Department of Transport

DPCD Department of Planning and Community Development

DRET Department of Resources, Energy and Tourism

DSE Department of Sustainability and Environment

EOI Expression of Interest

ABBREVIATIONS XIII

ESC Essential Services Commission

ESD Ecologically Sustainable Development

GOT Geelong Otways Tourism

GVA Gross Value Added

GWZ Green Wedge Zone

IVS International Visitor Survey

LPPF Local Planning Policy Framework

LTA Local Tourism Association

LTO Licensed Tour Operators

MCVB Melbourne and Visitor Bureau

MICE Meetings Incentives Convention Events

MOU Memoranda of Understanding

NBTS Nature-Based Tourism Strategy

NLTS National Long-Term Tourism Strategy

NPWS National Parks and Wildlife Service (NSW)

NSW New South Wales

PC Productivity Commission

PCRZ Public Conservation and Resource Zone

PPRZ Public Park and Recreation Zone

RAZ Rural Activity Zone

RIS Regulatory Impact Statement

RTA Regional Tourism Association

RTB Regional Tourism Board

RTO Regional Tourism Organisation

XIV ABBREVIATIONS

SPPF State Planning Policy Framework

TDP Tourism Development Plan

TIEV Total Inbound Economic Value

TOMS Tour Operator Management System

TRA Tourism Research Australia

TSA Tourism Satellite Accounts

TTF Tourism & Transport Forum

UNWTO United Nations World Tourism Organisation

VCAT Victorian Civil and Administrative Tribunal

VCEC Victorian Competition and Efficiency Commission

VECCI Victorian Employers’ Chamber of Commerce and Industry

VEIC Victorian Events Industry Council

VFF Visiting friends and family (same as VFR)

VFR Visiting friends and relatives (same as VFF)

VGR Victorian Guide to Regulation

VICs Visitor Information Centres

VTIC Victorian Tourism Industry Council

VU Victoria University

ABBREVIATIONS XV

Glossary

Air Services Airlines operating international air services do so Arrangements within capacity entitlements contained in air services arrangements. Air services arrangements are usually comprised of a treaty level Air Services Agreement supplemented by arrangements of less than treaty status between aeronautical authorities, such as Memorandums of Understanding and/or exchanges of letters. ANZSIC A classification developed by the Australian Bureau of Statistics and the New Zealand Department of Statistics which groups businesses that carry out similar economic activities. A business is assigned an appropriate industry category on the basis of its predominant activities. Includes business, work travel for transport crews, attendance at conferences, conventions, exhibitions and trade fairs, training and research related to employment. Day visitors Day visitors (or same day visitors) are those who travel for a round trip distance of at least 50 kilometres, are away from home for at least four hours and who do not spend a night away from home as part of their travel. Same day travel as part of overnight travel is excluded, as is routine travel such as commuting between work, school and home. Domestic overnight Overnight travel involves a stay away from home for visitor at least one night, at a place at least 40 kilometres from home. A person is an overnight visitor to a location if they stay one or more nights in the location while travelling. GVA Gross Value Added measures the value of tourism gross output at basic prices by all industries which supply tourism products, less the value of the inputs used in producing these tourism products. travel Holiday travel – includes holidays, travel for leisure, entertainment, sport as a participant and spectator, shopping, relaxation and just ‘getting away’.

GLOSSARY XVII

Inbound tourism Tourism within Australia by international visitors. Indirect effects Flow-on effects created by direct tourism consumption. They are the effects on businesses that supply to the direct providers of tourism goods and services. Examples include businesses that provide inputs required in the preparation of meals a sells to tourists, for example, food manufacturers, electricity companies and delivery services. International visitor International visitors are those who visit another country. As for overnight travel, only international travel where the respondent is away from home for less than 12 months is included. Interstate tourism A person is an interstate visitor when they visit a State or Territory other than that in which they reside. Intrastate tourism A person is an intrastate visitor when they visit a location in the State or Territory in which they reside. IVS The International Visitor Survey profiles the characteristics, travel behaviour and expenditure of international visitors to Australia. Summary information is published quarterly by Tourism Research Australia. NLTTS The National Long-Term Tourism Strategy (launched in December 2009) is the Commonwealth Government’s primary policy initiative in this area. The Strategy provides a policy framework to enable the tourism industry to grow and be flexible and resilient, capable of withstanding the challenges and capitalising on the opportunities that will arise over the longer term. NVS The National Visitor Survey profiles the characteristics, travel behaviour and expenditure of domestic travel in Australia. Summary information is published quarterly by Tourism Research Australia.

XVIII GLOSSARY

Overnight visitors Australians who undertake an overnight trip are referred to as overnight visitors or simply visitors. A person is a visitor to a location if they stay one or more nights in the location while travelling and they are said to have made a visit to the location. Therefore, a traveller may be a visitor to several different locations and consequently a trip may include multiple visits. Within each geographic region, net visitor numbers are reported. That is, a traveller is reported as only one visitor to a geographic region, irrespective of the number of places visited within the area. Purpose of visit The purpose of visit is the main purpose, or the major reason for visiting a particular location. TIEV Total Inbound Economic Value represents the total amount of money that flows to the Australian tourism industry from international visitor spending. Tourism A tourist is a short-term visitor travelling away from home for less than one year, not just for a leisure- based reason (that is for a holiday or travel to visit friends and relatives (or VFR)), but also for business, employment, education or even for medical reasons. This definition is based on international standards agreed by members of the UNWTO, of which Australia is a member. Tourism Businesses that would either cease to exist in their characteristic present form, or would be significantly affected if were to cease. In the Australian Tourism Satellite Account, for an industry to be ‘characteristic’, at least 25 per cent of its output must be consumed by visitors. Tourism connected Businesses other than tourism characteristic business businesses, for which a tourism related product is directly identifiable (primary) to, and where the products are consumed by visitors in volumes which are significant for the visitor and /or the producer.

GLOSSARY XIX

Tourism employment Persons employed in tourism related industries will generally provide services to both visitors and non- visitors. Tourism employed persons is derived by multiplying the number of employed persons in each industry by the proportion of total output of the industry which is related to tourism. Tourism expenditure Expenditure amounts include spending by and on behalf of, travellers during a trip. Measures are reported in NVS and the IVS including and excluding airfares and long distance transport costs, and package expenditure. Where appropriate, the Commission has adopted measures that exclude these items. Tourism output The value of goods and services, at basic prices, which are consumed by visitors and produced in Australia by industries in a relationship with visitors. Tourism related Tourism-related businesses include both ‘tourism business characteristic businesses’ and ‘tourism connected businesses’. TSA Tourism Satellite Accounts are an extension from the core national accounts to focus on the tourism sector. It identifies tourism activities within the national accounting framework and compiles a comprehensive set of economic data on tourism. Tourist facilities Refers to a built facility that enables visitors to enjoy a range of opportunities around natural attractions (for example, eco-lodges, chalets, demountable cabins, kiosks, ) VFR Visitors who nominate visiting friends or relatives as their main reason for travelling. Visiting friends and relatives includes travel to a friend’s or relative’s wedding or travel to attend a funeral. Visitor nights The number of nights spent in a location by domestic or international visitors in association with individual visits.

XX GLOSSARY Key messages

A review of potential regulatory and other barriers to the development of Victoria’s tourism industry is timely, given the challenges and opportunities facing the industry: • International competition is becoming more intense, a number of international markets, particularly China, are growing, and the market for domestic tourists is increasingly competitive. • To respond to these changes the industry will need adaptable entrepreneurs willing to take risks in developing new tourism products and services. • The situation is most challenging in regional Victoria because domestic tourists are the traditional market of the regions and only a small number of tourists from the growing markets travel outside of Melbourne and its environs. The ability of regional businesses to respond is being constrained by the way private and public lands are managed and regulated, which reflects a presumption that tourism development necessarily undermines environmental, heritage and other outcomes: • Poor development may create conflicts with existing land uses. Such conflicts can be productively managed, based on the experience of private developments in areas of high environmental value in Australia and internationally that have maintained or enhanced overall environmental outcomes. Planning controls on private land limit tourism investment in rural areas and in the green wedge zones bordering Melbourne: • Land-use controls in much of regional Victoria restrict tourism investment. For example, on land adjacent to national parks or attractions such as the Great Ocean Road. These restrictions undermine the policy that such investment should generally occur outside the national parks. • The Government should introduce a more flexible approach to tourism investment in regional and green wedge areas, supported by a more strategic approach to regional land-use planning for tourism and other issues. Features of the regulation and management of public land, especially national parks, further impede private investment in tourism: • A lack of facilities on or near national parks diminishes their value to the community and visitors. Victoria is one of only two Australian jurisdictions that prohibit private tourist facilities in national parks. • The Commission recommends Government remove the prohibition on private development of tourist facilities in national parks where they complement environmental, heritage and other values, and generate a net public benefit. Such a change would complement reforms to land-use planning. While most tourist facilities can be located outside national parks, for a small number of facilities that meet the required environmental credentials the park is a superior location. Finally, there are opportunities to improve the environment for tourism investment through changes to aviation policy, the taxi industry, building regulations, occupational health and safety regulations covering events, fire safety requirements for caravan parks and supply-side cooperation and coordination.

KEY MESSAGES XXI

Summary report Victoria’s tourism industry is an important part of the State’s economy. It faces intense competitive pressures from the appreciating Australian dollar and from other Australian and international destinations. Reflecting these pressures, Australian governments have been examining ways to strengthen the continued development of the industry. A key priority has been to improve the marketing of Victoria to the rest of Australia and the world. Another priority has been to build a strong calendar of cultural, business and sporting events, along with the infrastructure to support these events. These policies have succeeded in stimulating additional visits to Victoria, especially to Melbourne. The longer term success of the tourism industry will hinge on the industry’s capacity to supply the tourism experiences that match the marketing promises. This capacity, in turn depends on investment in new and improved tourist facilities such as attractions, accommodation, recreational facilities, conference and convention centres, and restaurants that will help retain domestic tourists and appeal to international visitors. State and local governments can influence the costs of starting, expanding and operating tourism businesses through how they design and administer regulation. The State Government also manages assets that are important attractions for visitors, such as Victoria’s national parks, visitor centres, sports grounds, galleries, commercial precincts such as Docklands, and cultural facilities. Unnecessarily burdensome regulations or poorly managed state assets can impede the development of Victoria’s tourism industry by imposing unnecessary costs on businesses. This inquiry is about ensuring regulation and its administration, as well as the management of state assets, do not unnecessarily impede private sector investment in new tourism facilities and services. A key theme is the marked divergence emerging in the patterns of tourism and industry investment between Melbourne and regional Victoria. The State Government, councils and the organisations that operate Melbourne’s sporting and cultural assets recognise the importance of tourism to the economy and how tourism adds to the vibrancy, diversity and liveability of Melbourne. As a result, the administration of regulation and the management of state assets in Melbourne generally do not impede tourism investment. Outside Melbourne, the regulatory frameworks and their administration often direct tourism investment to the towns and limit its encroachment on land on, or adjacent to, state and national parks, along the coastline, or that has historically been used for farming. This approach commonly assumes investment in tourism is incompatible with using rural land for agriculture, and with maintaining the environment, heritage, residential amenity and rural lifestyles.

SUMMARY REPORT XXIII

The Commission considers more creative approaches to tourism development can be compatible with, and often enhance, the other values of rural land. To deliver the marketing promise of Victoria being a great place to visit, there needs to be new private investment in tourism facilities and services across the state, not just in Melbourne. Securing this investment will require a significant shift in policy and regulation by State and local governments, to recognise tourism contributes to the economic, environmental and social values that policy and regulation are striving to enhance. It will also require efficient processes and checks to ensure these values are maintained.

Victoria’s tourism industry The tourism industry is essentially defined by the demand or consumer side of the market, rather than the supply or producer side. Standard definitions of ‘tourism’ are based on the activities of a visitor: A visitor is a traveller taking a trip to a main destination outside his/her usual environment, for less than a year, for any main purpose (business, leisure or other personal purpose) other than to be employed by a resident entity in the country or place visited. These trips taken by visitors qualify as tourism trips. Tourism refers to the activity of visitors. (United Nations World Tourism Organization 2010, para. 2.9) Accepted definitions of the tourism industry also include visitors for the purpose of education, highlighting the diverse nature of the tourism industry in Victoria. Businesses in the tourism industry are similarly diverse. They come from many sectors and may not perceive themselves as part of the tourism industry. Businesses in the industry provide a range of goods and services, including: • cultural and recreational services such as entertainment, sporting and cultural events and tours • transport services such as airlines, taxis, hire cars and river cruises • primary produce such as farm sales from wineries, orchards and farms • business convention, exhibition and catering services • accommodation, restaurants and retail services. These businesses are linked because most visitors to Victoria come to experience a range of attractions, and require transport and other services. For example, visitors to the Spring Racing Carnival in Melbourne experience a variety of accommodation, food and retail services that are available. The convergence of various attractions, transport, supporting services and other tourism infrastructure forms the tourism product—the total experience—or visitors to Victoria.

XXIV UNLOCKING VICTORIAN TOURISM

The tourism industry’s contribution to the Victorian economy Tourism is an important part of the Victorian economy. The latest available figures (for 2007-08)1 indicate: • the total value of the goods and services produced by the tourism industry is around 3.2 per cent (or $8.6 billion) of the total value of goods and services produced in Victoria • total employment in the tourism industry is around 105 000 people (four per cent of total Victorian employment). While direct effects are the most appropriate measure of the economic contribution of tourism, tourism also has indirect effects on other industries.2 Accounting for these indirect effects of tourism, the size of the sector’s overall contribution to the Victorian economy is significantly larger — around 5.9 per cent (or $15.8 billion) of the total value of goods and services produced in Victoria.

The composition and performance of the Victorian tourism industry Overall, tourism in Victoria grew over the past decade (figure 1), as did Victoria’s share of the total Australian tourism market (figure 2). These results mask significant differences between trends for Melbourne and regional Victoria in the past decade: • Victoria’s share of total visitor nights in Australia grew from around 18 per cent to almost 21 per cent. This is entirely made up of a larger share of international visitor nights. Melbourne’s share of international visitor nights (including education visitors) increased by around five per cent against other capital city destinations. Regional Victoria’s share rose by around three per cent against other regional destinations. • Almost all of Victoria’s growth in visitor nights can be attributed to the near doubling of international visitors and their stays in Melbourne. This increase more than offset a decline in domestic visitor nights in Victoria.

1 The Commission understands that these are the latest figures available for Victoria. Disaggregated figures for states and territories based on the latest Australian Tourism Satellite Accounts (2008-09) were not available at the time this report was finalised. 2 ‘Indirect effects occur through flow-on effects to industries which do not themselves have direct contact with the visitor but nonetheless supply goods and services attributable as tourism consumption. While direct effects are considered to be the most appropriate measure for comparing the economic contribution of tourism with other non-tourism industries, the aggregation of tourism’s direct and indirect effects contribute to a fuller understanding of flow-on effects of tourism to output and employment within other industries, and across the economy generally’ (Pambudi et al. 2009, p. 2).

SUMMARY REPORT XXV

Figure 1 Estimated visitor nights for Victoria, Melbourne and regions, 2000–10

100,000

90,000

80,000

70,000

60,000

50,000

40,000

30,000 Visitor nights('000)

20,000

10,000 Melbourne (int+dom) Victoria (int+dom) Regional Vic (int+dom) 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Tourism Forecasting Committee 2010a, pp. 3, 11.

Figure 2 Market shares of Australia, capital city, and regional visitor nights, 2000–10

30%

25%

20%

15%

10% Shareof visitor nights Melbourne/Total Capitals (%) 5% Victoria/Australia (%) Regional Vic/Regional Aust (%)

0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Tourism Forecasting Committee 2010a, pp. 3, 11.

• Victoria, like other destinations in Australia, experienced declining domestic overnight visitor numbers in the past decade. Regional Victoria relied heavily

XXVI UNLOCKING VICTORIAN TOURISM

on domestic visitors, which accounted for 90 per cent of their visitor nights. Although the number of international visitor nights also doubled over the decade, the rise was from a much smaller base. The net result was a slight fall in total visitor nights in the regions. There are several differences between Melbourne and regional Victoria: • Most expenditure by international visitors occurs in Melbourne. International visitors are relatively small in absolute numbers (only nine per cent of all overnight visitors), but are high spending (accounting for 35 per cent of total visitor expenditure in Victoria). In 2010, international visitors spent an estimated $3584 million in Melbourne, compared with $285 million in regional Victoria. • Melbourne is the primary destination for business tourists. In 2009, around 66 per cent of all domestic business visitor nights and 90 per cent of all international business visitor nights were in Melbourne. Business travel includes purposes such as meetings, company incentives for employees, conventions and business events. These visitors also tend to spend significantly more than international leisure tourists. • Melbourne is the dominant destination for international education visitors to Victoria. In 2010, students accounted for about nine per cent of all international visitors to Victoria. Because students tend to stay longer than other types of visitors, they account for about 40 per cent of total international visitor nights in Victoria. • Compared with Melbourne, the main purpose of visits to regional Victoria is domestic holidays, with nearly 80 per cent of total domestic holiday visitor nights in Victoria in 2009 spent in regional Victoria.

Influences on the future of the Victorian tourism industry The performance of the Victorian tourism industry is affected by the operating environment, such as international and domestic economic conditions, weather and natural disasters, currency movements, fuel prices and consumer preferences. It also faces ‘game changing’ trends in its operating environment. The relative contributions of the four most important source markets for international visitors to Victoria (New Zealand, the United Kingdom, the United States and China) have been changing (figure 3). China’s share of international visitors has been growing rapidly. This trend is significant partly because tourists from high growth markets such as China and India typically spend most of their time in Melbourne.

SUMMARY REPORT XXVII

Other key trends affecting tourism markets include: • changing consumer preferences, including increased demand for spas and wellbeing, walking and bike trails, food and wine, the arts, culture and heritage, and organised sports • the growing interest in nature-based tourism, which relies on experiences directly related to natural attractions such as eco-tourism, adventure tourism, extractive tourism and nature retreats • strong competition from interstate and international destinations that are vigorously promoting their tourism industries. Figure 3 Share of international visitors to Victoria, by major markets, 2000–10

20%

18%

16%

14%

12%

10%

8%

6%

4%

2% China New Zealand UK USA Share ofShare international overnight visitors 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: VCEC based on Tourism Victoria 2011a and Tourism Victoria correspondence 4/5/2011.

The development of Victoria’s tourism industry will depend on how new and existing businesses respond to changes in consumer demand (including domestic tourists), economic opportunities arising from growth in Asia, and vigorous competition from other destinations. State and local governments have an important role in ensuring regulatory processes intended to benefit communities do not unnecessarily and unintentionally stifle private initiative. This inquiry identifies opportunities to frame a regulatory environment that is more conducive to private investment in tourism facilities on areas of private and public land, while ensuring such developments complement other land values and are in the public interest.

XXVIII UNLOCKING VICTORIAN TOURISM

Impediments to the development of Victoria’s tourism industry For the State as a whole, the recent investment record in Victoria for tourism is positive, with a growing supply of tourism accommodation, especially in Melbourne. Inquiry participants and recent government reports identified, however, regulatory and other potential obstacles to the development of a more dynamic and competitive tourism sector, including: • land-use zoning provisions that restrict the development and diversification of restaurants, accommodation and recreational activities in regional areas and Melbourne’s Green Wedge areas • barriers to private investment in tourist facilities that are compatible with the environmental, heritage and other values of public land • aspects of aviation policy, including restrictions on the capacity of international airlines to fly to Victoria • cost burdens on tourism-related businesses, arising from the way in which building, public health, occupational health and safety, caravan parks, taxi industry and other areas of regulation are designed and administered. In addressing these and other potential impediments to the development of the tourism industry, the Commission has identified the outcomes that regulation and the management of state assets are intended to achieve, and examined whether greater flexibility in tourism investment can be accommodated without diminishing the intended outcomes. The Commission recognises that efficient regulation and well managed state assets contribute to the attractiveness of Victoria as a place to visit. The changing nature of domestic and means the Victorian industry needs to develop new products and services. These include new experiences for domestic tourists interested in experiencing the natural environment, food and wine, as well as experiences expected by tourists from particular countries. Ultimately, the continued viability of Victorian tourism depends on the industry’s ability to respond to these changing consumer demands. Regulation should enable industry adaptation, in ways that maintain or strengthen the economic, environmental and social outcomes that government is seeking.

SUMMARY REPORT XXIX

Land-use planning Tourism businesses need to adapt, take risks and innovate. Submissions and recent reviews of the tourism sector suggest that aspects of Victoria’s land-use planning framework and its administration impede the industry’s capacity to do so, particularly in regional Victoria and on Melbourne’s fringe. The Commission therefore examined how land-use planning regulation affects tourism investment and opportunities for improvement.

How does land-use planning affect tourism investment? A proponent wishing to develop new tourism accommodation or other facilities in Victoria may be required to obtain a planning permit from the relevant council. Local planning schemes contain the rules for permissible land uses in a local area. To understand how the rules governing land use and development impact on the tourism industry, it is necessary to understand key features of planning schemes and the permit application process: • Planning schemes show the zones and overlays applying to land. Zones outline uses of land that are permitted. Table 1 shows whether certain types of tourism-related uses are allowed without a permit (‘as-of-right’), subject to obtaining a permit or prohibited in the three main zones applying to land in rural areas and the green wedge areas on Melbourne’s boundaries. The planning scheme may also show a piece of land has one or more overlays affecting it. Overlays usually apply to land with special features, such as heritage buildings, significant vegetation or flood risks. • Planning schemes contain statements of state and local policies and objectives. These policies identify the outcomes that state and local government expect from the administration of planning. The State Government’s relevant policy objectives outlined in the State Planning Policy Framework (SPPF) broadly support tourism development. The purpose of local policies is to apply the State’s objectives to local circumstances. In theory, local policies should be consistent with state objectives and policies, but some local policies seek to limit tourism development in farming and other areas outside the towns (box 1). • The planning permit process is the vehicle for assessing whether to allow a proposed tourism development and, if so, under what conditions. While councils usually decide on permit applications, the Planning Minister can ‘call in’ projects. The Minister may call in an application that: raises major policy issues; might have a substantial effect on the achievement of planning objectives; has been unreasonably delayed, to the disadvantage of the applicant; or would be facilitated by referral to the Minister (for example, when the Minister must also consider the development under another Act or regulation).

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Table 1 Permit requirements in the green wedge and rural zones Tourism-related activity Green wedge zone (GWZ) Rural conservation zone (RCZ) Farming zone (FZ) Bed & breakfast No permit required (max. 6 guests) No permit required (max. 6 guests) No permit required (max. 6 guests) Camping & caravan Permit required Prohibited Prohibited Host farm Permit required Permit required Permit required Group Permit required, ‘in conjunction with’ Permit required, ‘in conjunction with’ Permit required, ‘in conjunction with’ accommodation other activities (max. 40 dwellings) other activities (max. 6 dwellings) other activities (max. 6 dwellings) Residential building Permit required, ‘in conjunction with’ Prohibited Prohibited (e.g. backpackers’ other activities ) Residential Permit required, ‘in conjunction with’ Permit required, ‘in conjunction with’ Permit required, ‘in conjunction with’ (includes ) other activities (max. 80 bedrooms) other activities (max. 80 bedrooms) other activities Restaurant Permit required, ‘in conjunction with’ Permit required, ‘in conjunction with’ Permit required, ‘in conjunction with’ other activities (max. 150 patrons) other activities (max. 150 patrons) other activities Outdoor recreation Permit required Prohibited Permit required facility Exhibition centre Permit required Prohibited Permit required (must not be used for (e.g. art gallery) more than 10 days in a calendar year) Function centre Permit required, ‘in conjunction with’ Prohibited Permit required (must not be used for other activities (max. 150 patrons) more than 10 days in a calendar year)

Source: Victoria Planning Provisions, clauses 35.04, 35.06 and 35.07.

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Box 1 Local planning policies affecting tourism activities Some local policy requirements may impact directly or indirectly on tourism-related activities in regional areas, as in the following examples from planning schemes covering Corangamite and the Mornington Peninsula. Corangamite Shire The Shire’s Economic Development policy (cl. 22.03-1) states ‘Agricultural land will be protected as an economic and environmentally valuable resource. Conversion of land to non-soil based use and development will be strongly discouraged unless there is no other suitable site for the proposed use and development and overwhelming public benefit is demonstrated.’ This policy applies to all land in the rural zones. The Shire also has a Tourist Use and Development policy (cl. 22.03-4), with the following objectives: • to support quality tourist development in association with the landscape and the heritage values of rural and urban areas • to promote coastal-related use and development to be focused in the towns of Port Campbell and Princetown • to encourage tourism development related to agricultural and other rural based industries. Mornington Peninsula Shire The planning scheme states that key objectives of planning in the Shire are to: • protect and conserve the rural landscape and character of the Peninsula as a major recreational resource for both the local and wider metropolitan community • supporting the continued agricultural use of land by avoiding the establishment of uses that may exclude or limit legitimate rural activities and farm management practice • promote the growth of major and township activity centres and avoid inappropriate out-of-centre commercial developments (cl. 22.07-1). To give effect to these objectives, the local planning policy states ‘applicants for commercial development [in the Green Wedge or Farming Zones] must demonstrate that their proposal addresses a need or gap in the tourist industry and is not dependent on the development of other residential or commercial activities on the site or in the locality,’ and ‘Restaurant facilities in rural areas should generally avoid night time operation due to the potential impact on rural amenity from additional traffic, noise and light’ (cl. 22.07-3).

Source: Corangamite and Mornington Peninsula Shire planning schemes.

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Issues raised Submissions and recent reports on the tourism sector suggested aspects of Victoria’s land-use planning framework impede the development of tourism and related businesses. Tourism businesses across the State were concerned about the complexity, uncertainty, time and costs of obtaining planning approval. Participants also identified regulatory barriers to tourism investment in regional Victoria, including: • conflicting objectives of State and local government in relation to tourism development • restrictive zonings and overlays on private land suitable for tourism-related developments • other regulations applying to land use and development, such as the Victorian Coastal Strategy. Despite a number of State and regional tourism strategies being developed, the outcomes desired by the State Government are not well connected to the policies and planning controls in local planning schemes. For example, the State Government developed a Regional Tourism Action Plan in consultation with local government and the tourism industry, which outlines key priorities in each of Victoria’s regions. This strategy is not referenced directly in the SPPF or in local policies contained within planning schemes, so councils are not obliged to consider the strategy’s objectives when applying land-use controls such as zones or in assessing tourism-related planning applications. The impact of this disconnect between State and local policy objectives for tourism is compounded by the way land-use zones are used in regional Victoria. The land-use zones applying to much of regional Victoria are intended to achieve purposes such as protecting land for agricultural uses, conserving environmental assets, preserving the amenity and rural character of particular areas, and preventing urban encroachment into rural areas. In doing so, they inhibit the development of new tourism-related facilities and the expansion of existing tourism businesses: • The Farm and Rural Conservation zones are intended to encourage the retention of productive agricultural land and the conservation of environmental and landscape values. However, they prohibit or limit the scale of a wide variety of tourism activities in areas that could attract additional tourism investment, such as on coastal land along the Great Ocean Road. The impact of these zones on tourism investment is exacerbated by their broad application across the State.

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• Closer to Melbourne, the Green Wedge Zone allows a wider range of tourism activities but restricts the nature and scale of new businesses. The zone also limits the capacity of existing businesses to expand. • Although a primary purpose of the rural and Green Wedge zones is to retain productive agricultural land, the zones do not allow the range of uses increasingly associated with farming and agriculture, such as sales of processed farm produce. • To overcome these zoning barriers, businesses can seek to have land rezoned to a more flexible land-use zone, such as the Rural Activity Zone, through the planning scheme amendment process. But the rezoning process is time consuming, costly and uncertain, and small businesses in particular are not well placed to undertake them.

Impact on the tourism industry—the Commission’s view The Commission was unable to assess the overall impact of land-use planning regulation and its administration on investment by the tourism industry. Some projects have proceeded in the Green Wedge and Rural zones despite the process. Equally, some projects were proposed but did not proceed, because they were not approved or for other reasons. Also it is not easy to ascertain whether projects have not been put forward, or have gone ahead in other parts of Australia instead because of the costs of obtaining planning permission. Analysis of recent planning applications with a tourism-related component tends to support the industry’s view that land-use planning regulation has a significant effect on tourism development (figure 4). The Commission’s examination of large-scale projects (those with a value of $5 million or more) highlighted that applications with a tourism-related component are perceived by council planners as being more complex than other applications and also more likely to: • prompt a request to provide further information • be referred to one or more regulatory bodies • be notified to the public and to attract objections • end up at appeal to the Victorian Civil and Administrative Tribunal (VCAT). The median timeframe for determining high value tourism-related projects (229 days, or 32 weeks) was also greater than the median timeframe for all high-value applications (189 days, or 27 weeks). Overall, these data are supported by many examples presented to the Commission during the inquiry of new projects and modifications to existing businesses that faced complex, costly and time consuming application processes.

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Figure 3 Characteristics of tourism-related planning applications

100%

Tourism-related applications 90% All applications

80%

70%

60%

50%

40% Share of applications

30%

20%

10%

0% Complex application Referrals Further information Public notice VCAT appeal Objections

Source: Commission analysis of planning permit activity data.

Improvements Previously proposed changes to the Planning and Environment Act 1987 (Vic) and the recommendations in the Commission’s inquiry into local government regulation (VCEC 2010a) are intended to reduce uncertainty and improve the administration of land-use planning regulation to help reduce time delays and costs to business, including those in the tourism industry.3 To complement these broader reforms there is scope to address a number of specific barriers to the development of tourism, especially in regional areas. The Government could reduce the uncertainty, time and costs associated with the planning system, by adopting the following recommended changes: • Clarifying the State’s objectives for tourism development and reflecting them in the State Planning Policy Framework. The Government should indicate the outcomes for the tourism industry it expects from the administration of land-use planning

3 The Commission’s recommendations on council administration of the land-use planning system are outlined in the final report of the inquiry into local government regulation. That report was submitted to the Government in August 2010, and at the time of writing had not been publicly released. References in this report, therefore, are to the draft inquiry report, which was released for consultation in April 2010 (VCEC 2010a).

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regulation, such as encouraging tourism investment in particular areas of the State and/or in particular types of product (for example, nature-based tourism). A series of regional land-use plans currently being developed by State and local governments are potential vehicles for developing and identifying such an agreed set of tourism outcomes. To ensure the outcomes are widely understood and accepted, the plans should be developed in consultation with local communities and the tourism industry. Local planning policies (including the application of zones) should then be aligned with the agreed regional priorities. This work will take some time and will need to be reviewed regularly to deal with changing circumstances facing the tourism industry and the broader community. • Widening the range of permitted tourism-related investments in the Farming Zone, the Rural Conservation Zone and the Green Wedge Zone. These zones should not require tourism activities to be ‘in conjunction with’ agricultural activities, and should allow a wider range and larger scale of activities. Their requirements were introduced to protect agricultural land from residential encroachment, and limit conflicts between existing uses and tourism (such as noise and odours from farming activities). But there are also alternative ways to deal with residential encroachment and land-use conflicts — ways that do not restrict investment in tourism or limit the opportunities to diversify farm income (for example, using buffers and attaching specific conditions to development proposals). The options for dealing with these issues can be addressed in the planning permit process, and do not require uniform prohibitions or scale limits. • Providing guidance and other support to councils, to enable them to effectively and consistently implement the modified zones. This support may include guidance on the information that an application must provide, and model conditions to deal with issues such as residential encroachment, noise and other impacts of land use. • Clarifying the circumstances where the State Government will intervene to facilitate tourism developments. The Government previously indicated that it would review the process of Ministerial intervention in planning applications to, amongst other things, establish guidelines ‘for the use of intervention on the basis of state significance’. The Commission supports the use of an improved, broadly-applicable call-in process to deal with large, complex developments. The Commission has not supported an automatic call-in process for major tourism developments at this time. Since implementing the Commission’s recommendations will take some time, Tourism Victoria and the Department of Planning and Community Development (DPCD) could in the interim, consider giving increased priority to assisting tourism businesses work through the planning process.

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Making these changes would improve the climate for investment in tourist facilities in regional areas, including land adjacent to the coastline and national parks. Although the possible new investment in tourism projects cannot be quantified, the Commission’s proposed changes would enhance the economic contribution of tourism to regional Victoria, and contribute to the diversification of income in communities that have traditionally depended on agriculture, improving their resilience.

The management and regulation of public land Public land provides important environmental, heritage and social values for current and future generations of Victorians. It also has important value to the community by providing recreational and tourism opportunities for individuals and businesses. A number of participants argued that aspects of policy, regulation and the institutional arrangements governing public land management deter private sector investment in tourist facilities (such as accommodation, visitor centres and other infrastructure) on public land, including national parks. The term ‘public land’ covers a variety of land tenures, but most relevant from a tourism industry perspective is land reserved under the National Parks Act 1975 (Vic) and certain land reserved under the Crown Land (Reserves) Act 1978 (Vic), such as alpine , coastal reserves, state forest reserves, metropolitan parks and wildlife reserves. Public land comprises around 40 per cent of the State, and national parks and state forest reserves account for the bulk of this land (around 90 per cent). In this section the term ‘national parks’ specifically refers to land reserved under the National Parks Act, while the term ‘public land’ refers to all land areas referred to above, including national parks. Public land is an important tourism asset: • According to Parks Victoria, around 89 million visits were made to public land under its management in 2008-09, including 33 million visits to Victorian national parks. The most visited parks were at Port Campbell on the Great Ocean Road, the Yarra Valley and Dandenong Ranges, the Mornington Peninsula, the Otways, the Grampians, Wilsons Promontory and the Alpine region. This highlights the value people place on being able to visit areas of natural beauty. • Estimates of the economic value provided by some of these parks reflect their high economic value to the community. The Victorian Nature-based Tourism Strategy (Tourism Victoria 2008a) reported the combined annual economic value of Wilsons Promontory, Port Campbell and the Grampians was around $481 million per year. • A number of businesses provide facilities and services for tourists on public land. Approximately 450 commercial tour operators are licensed to operate

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tourism services on public land. Businesses have also entered into over 750 commercial leases to operate tourism-related assets on public land. Parks Victoria also operates accommodation, camping and other facilities for visitors at a number of locations. • Reflecting the growth in international overnight visitors to Victoria (see above), international visitation to national parks has also increased. While around 20 per cent of international tourists visited a national park, these were mostly day trips to locations such as Phillip Island, Port Campbell and the Mornington Peninsula.

The management of public land in Victoria Tourism industry participants identified features of the policy and regulatory frameworks for managing public land in Victoria that affect the climate for private investment in nature-based tourist facilities in locations with high natural values: • Some important elements of public land policy and regulation appear to assume private development is intrinsically incompatible with maintaining the environmental, heritage and conservation values of public land. This assumption has prohibited private investment in areas managed under the National Parks Act. • Low maximum lease terms are an additional barrier to private investment in tourist facilities in national parks. Participants argued the maximum lease terms for national parks are too low to encourage private investment and also undermine incentives to maintain the environment and physical assets. Other types of public land allow greater maximum lease terms. However, broader concerns on lease terms and conditions create other barriers and uncertainty for business. • The approval processes for proposed tourist developments on public land are challenging to understand, and involve many steps and dealings with multiple parties (each with a potential right of veto over a proposed development). While a rigorous assessment of proposals is warranted, some argued the approval process is administered in a way that only seeks to minimise environmental impacts, rather than looking to achieve innovative, win–win outcomes for the environment and the economy. • The Department of Sustainability and Environment (DSE) advises on policy relating to public land management and regulation. In practice, it delegates some of its regulatory responsibilities to other bodies, such as Parks Victoria and committees of management. However, some participants were concerned about conflicts of interest arising from DSE’s combined roles in developing policy and administering regulation.

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• Parks Victoria, in addition to managing land and regulating tour businesses, operates some tourist facilities, such as accommodation and camping facilities. Some participants were concerned about Parks Victoria’s conflict of interest between its role in regulating and providing some commercial activities on the land it manages. The impact on investment of these regulations and processes was contested among participants. In discussions with the Commission, DSE argued private development of tourist facilities is permitted on many types of public land, and there is little commercial interest in the development of large-scale nature-based tourist facilities on public land in Victoria. It noted it recently sought expressions of interest from the private sector to develop nature-based tourist accommodation at selected sites in state forest reserves but failed to elicit any proposals for these sites. Others argued the demand for nature-based tourism in Victoria exists and will grow. It was argued that there is commercial interest in developing nature-based tourist facilities at a range of sites, on private and public land, including within national parks. The industry considered development of business cases has not been forthcoming because of the policy of prohibiting private development of tourist facilities in national parks, together with other impediments. Tourism groups pointed to evidence of increasing consumer demand for nature-based experiences, and to forecasts for growth in such tourism. The Commission notes that this type of development in happening in other jurisdictions in Australia and internationally. On balance, the Commission considers the policy and regulatory framework surrounding public land regulation and its administration is not conducive to encouraging private investment in tourist facilities on public land. This is especially evident in national parks, where private investment is assumed to be contrary to environmental protection efforts.

Opportunities for improvement The Commission has proposed changes to the regulatory and institutional framework that are more enabling for private investment in tourist facilities in national parks where such investment is consistent with, or enhances, the environmental, heritage and other values of the park. To provide some certainty for business about where private developments may be permitted and the criteria for approval, the Government should publicly announce the change in policy and develop appropriate guidance, including identifying broad areas of the state where it would be willing to consider proposals for private tourist developments in national parks.

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Opposition to private investment in national parks has been based on views that: • any development would be incompatible with the objectives of national parks, namely, the preservation and protection of the natural environment • private tourist developments should be located on adjacent private land, given the size and shape of Victoria’s national parks • demand for private development in national parks does not exist. The available evidence indicates, however, that it is possible to protect the environmental and biodiversity values of national parks through effective management. This view has been informed by a number of credible reports, including by the International Union for the Conservation of Nature. There are examples in other states and territories, and overseas, of sensible and sensitive developments, which complement or enhance features of the natural environment (box 2). A combination of reforming unnecessary land-use planning restrictions and implementing appropriate controls on private development in national parks will both facilitate and encourage adjacent development. However, there are instances where investing in facilities inside park boundaries is required to provide particular tourism products. For example, huts along a long distance and remote walking trail, such as, the Cradle Huts along the Overland Track walk in Tasmania’s Cradle Mountain — Lake Saint Clair National Park. In general, the Commission considers that the best course is to develop tourism ventures outside the boundaries of a national park where this is practical. But, as noted above, for some types of investments the park may be a superior location. Those private tourism businesses seeking to invest in facilities in a national park should, however, expect to be subject to environmental controls that are not inappropriately burdensome but reflect the environmental sensitivity of the area. Again this may encourage some investors to develop facilities outside the park. Overall the Commission anticipates that only a small number of small-scale facilities with high environmental credentials are likely to be suited to be being located in Victoria’s national parks. Allowing private investment in tourist facilities in national parks would improve the investment climate for new tourism development in Victoria but realising the opportunities will also require the Government to increase the maximum duration of leases in national parks and review existing leasing requirements. These leases should be commercially realistic while also being used as a tool to ensure environmental protection and ecological sustainability is maintained, particularly for leases in national parks.

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Box 2 Examples of sensible and sensitive developments in other jurisdictions Karijini Eco Retreat, Karijini National Park, WA Located in Karijini National Park, Karijini Eco retreat has been operating since 2007 and offers luxury eco tents and camping for around 140 people. The site was originally a national park campground; however, after an expression of interest process found no willing operators, the site was then put out to tender for accommodation. Operating a campground was not a financially viable business. The Gumala Aboriginal Corporation was successful in obtaining the lease and owns the accommodation property. Sal Salis Ningaloo Reef, Cape Range National Park, WA Sal Salis Ningaloo Reef is an exclusive camp in Western Australia’s Cape Range National Park. Nine wilderness tents are metres from the water’s edge. Sal Salis’ ecological principles ensure minimal environmental footprints. Cradle Mountain Huts, Cradle Mountain—Lake Saint Clair National Park, Tasmania The 60km Overland Track, within Tasmania’s World Heritage Area, runs from Cradle Mountain to Lake Saint Clair. The walk is one of the most widely recognised and patronised walking tracks in Australia. Walkers can arrange their own itinerary, staying in public huts or campsites, or complete the track with the assistance of a private operator, Cradle Mountain Huts, who offer six-day guided walks, with guests staying in private hut accommodation. Ultimate Hikes, Fiordland National Park, NZ Ultimate Hikes runs the Milford Track Walk, which is a five-day, four-night hut- based bushwalking product through Fiordland National Park in New Zealand. Ultimate Hikes has the sole commercial licence from the Department of Conservation to operate this walk commercially. The walk offers accommodation and amenities at points along the walk. The accommodation is owned by a private company that contributes significantly to the conservation of the national park.

Source: Karijini Eco Retreat 2011; Sal Salis Ningaloo Reef 2011; Susan Moore et al. 2009, p. 12; Tourism Victoria 2008a, p. 56; Ultimate Hikes 2011.

Furthermore, the Government should review the leasing requirements for all public land and streamline the assessment of private sector proposals to develop tourist facilities on public land. While rigorously assessing potential environmental, heritage and other effects, a streamlined process should have the following characteristics: • Each stage of the assessment process should progressively reduce uncertainty for the proponents about the likely outcome, and sharpen the focus on key issues or areas of uncertainty.

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• Responsibility for developing policy and assessing proposals should rest with separate entities (both currently rest with DSE). • Proponents should have increased certainty about the timeframes for assessment. • The assessment and decision-making process should be more integrated, lessening the need for proponents to seek multiple approvals from different regulatory bodies. To address potential conflicts between the functions of the bodies that make policy, administer regulation, and manage public land, the Government should seek to clarify the roles and responsibilities of DSE and Parks Victoria. The Commission considers DSE should continue to advise the Environment Minister on policy and regulation relating to public land; DSE should develop regulation, regulatory process and the associated guidance, with input from Parks Victoria and other relevant agencies and land managers. But for land managed by Parks Victoria, responsibility for regulating private activities, including assessing proposed developments, should rest with Parks Victoria. The Government should also clarify the roles and responsibilities of Parks Victoria in regulating and managing private tourist facilities and activities on public land. To address the conflict between its regulatory and commercial functions, and to create a more effective environment for private investment, Parks Victoria should extend its role as a ‘sophisticated landlord’, supporting private business to identify opportunities for investment on relevant public land (including national parks), facilitating the assessment of applications to develop private tourist facilities, and regulating the activities of licensed tour operators. Parks Victoria should then wind down its own commercial operations and focus on providing facilities where there is an identified gap in the offerings of the private sector.

Aviation policy The capacity to meet the expected growth in international visitors to Victoria partly depends on the availability of adequate airport infrastructure and the costs of air travel. In this context, the terms of reference required the Commission to report on ‘the impact of international and domestic aviation policy on the Victorian tourism industry and the broader economy, and any implications for policy positions that the Victorian Government might adopt in its own right or present to the Commonwealth Government’. Aviation policy covers international, domestic and regional aviation. International policy includes issues that are largely outside the Victorian Government’s control, such as the arrangements that govern airlines’ access to international passenger markets. Domestic aviation policy covers issues such as

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government investment in, and regulation of, airports; it also covers safety and security regulations applying to international and domestic airlines operating in Australia. In both areas, the Victorian Government is largely limited to making representations to the Commonwealth Government. Recognising the broad scope of aviation policy and the Victorian Government’s limited direct role, the Commission focused on two areas of potential constraint: (1) the capacity of airlines to fly to Australia, and Melbourne in particular, especially from markets that are forecast to experience rapid growth (2) potential impediments to the development of additional airport infrastructure capacity in Melbourne.

Restrictions on capacity Victoria is considered to be well served by airport capacity, and has advantages as a destination compared with other major gateways. Unlike Sydney airport, for example, Melbourne airport does not have a curfew, it has access to future additional runway capacity, the location of the airport means noise is less of a constraint than for Sydney airport, and it also has relatively low airport fees and charges. In future, Avalon airport may add to the capacity to accommodate international flights. Some participants considered the system of bilateral air service agreements (ASAs) is the major threat to the continued growth in international arrivals in Victoria. Australia has 68 bilateral ASAs. The Commonwealth Government negotiates these agreements with other countries, and they generally set out the number of seats that the airlines of the two countries can provide to identified cities in each country, and the rights to operate to third countries. These agreements typically also include provisions on airline ownership and control, competition law, safety and security. Once an agreement is finalised, the capacity available to Australian carriers on these routes is allocated by the Australian Government’s International Air Services Commission. The ability to continue to increase international arrivals to Victoria partly depends on the available capacity under some of the ASAs. There are no capacity limits under Australia’s ASAs with several countries that are important sources of visitors to Victoria (the United Kingdom, the United States, New Zealand and Singapore). For inbound tourism markets such as China, Hong Kong, Indonesia, Malaysia and Vietnam, however, capacity limits exist that may affect the future growth in tourism demand from these markets if future additional capacity is not provided. Seat capacity entitlements between Australia and some key Asian markets are at or close to capacity. These include for example, Hong Kong, Indonesian and Malaysian airlines that currently operate at about 80 to 100 per

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cent of their current seat capacity entitlements. China was also at capacity, until a new Memoranda of Understanding was signed that increased the cap. The Commission understands airlines have the flexibility to use available capacity on inbound flights to Melbourne or other major gateways such as Sydney, Brisbane and Perth. In the majority of cases, therefore, commercial decisions rather than regulatory controls determine the likely entry point for tourists. While the Victorian Government does not have any direct role in the international negotiation of bilateral ASAs, it has several avenues to influence the Commonwealth Government’s position. One such avenue is Victoria’s membership of the Tourism Access Working Group. Consistent with Australia’s international aviation policy goal of an ‘an open and competitive international aviation market that serves the national interest’, the Victorian Government can constructively argue for an open skies agreement with countries that are major sources of tourists such as China, Hong Kong, Indonesia, and Malaysia. It can also seek to ensure negotiations for more liberalised air services are driven by a full understanding of the relative net benefits of preferred negotiated outcomes. To develop that understanding, the Commonwealth Government could estimate the expected costs and benefits of potential outcomes, and test these estimates through existing consultation mechanisms. To cater for growth in international visitation, some participants supported designating Avalon as a regional international airport. Foreign airlines could then access Victoria without affecting their government’s capacity agreements with Australia (under what is often referred to as the ‘regional package’). The Commission understands major infrastructure, customs and security issues would need to be addressed for Avalon to accept international flights and to compete effectively with Melbourne Airport. The private sector needs to ensure the expansion activities necessary to cater for international air services are commercially viable. Following the development of a business case and the preparedness of a private sector operator to invest in required airport upgrades, the Victorian Government should advocate for regional status for Avalon.

Other regulatory and supply-side issues Reflecting the diversity of the tourism industry, participants also identified the following regulatory and other potential barriers to industry development: • taxi industry regulation • short-term accommodation • other supply-side issues.

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The Commission examined each of these issues to determine whether it is within the scope of the inquiry and, if so, whether it can be addressed without having wider impacts on other industries. Some issues of major importance to the industry are beyond the scope of the inquiry—for example, the regulation of international students, skills and training, and perceived gaps in public infrastructure in areas such as transport (for example, airport rail and bus links), tourist attractions, and facilities for recreational vehicles.

Taxis Taxis are an important element in the experience of tourists, many of whom arrive at their travel destination without personal transportation. These tourists rely on taxis, public transport and rental vehicles for mobility, and the quality and price of transport services can therefore affect visitors’ experience. Tourists are also an important source of taxi industry revenue, with one study reporting tourism demand accounts for about 17 per cent of taxi industry revenue in Victoria (ESC 2009, p. 57). Bodies representing the tourism industry noted a perception of serious problems in the taxi industry: Poor customer service and driver knowledge, uncleanliness and poor availability and reliability continue to be major problems with the taxi industry. Of particular concern is the lack of competition in the industry. The major taxi companies in Victoria have holdings in a vast number of subsidiaries, including fare payment systems, resulting in poor service standards and general customer dissatisfaction. (Tourism and Transport Forum, sub. 44, p. 41) To address these issues and the impact on the tourism industry, participants called for a wide-ranging and comprehensive review of the taxi and hire car industry and its regulatory settings. These participants included, for example, the Department of Transport (sub. 54 p. 9). On 28 March 2011, after the release of the draft report, the Victorian State Government announced a major independent inquiry into the Victorian taxi and hire car industry (‘Taxi Industry Inquiry’). The Commission previously advocated for a public and independent review of the taxi industry and therefore welcomes this inquiry. The Commission understands that the Taxi Industry Inquiry intends to consider, as part of its comprehensive review of the taxi and hire car industry, the appropriateness of the zoning conditions under the current licences in Victoria (Taxi Industry Inquiry 2011, p. 14). The Commission heard that zoning restrictions affect the availability and cost of taxi services to and from Avalon Airport. Avalon Airport is in the Geelong zone for taxis. This means that Melbourne-based drivers are not permitted to pick up passengers at the Airport

SUMMARY REPORT XLV

for travel to Melbourne. Likewise, Geelong-based drivers who pick up passengers at Avalon Airport for travel to Melbourne cannot pick up customers in Melbourne for their return trip. Consequently, Melbourne and Geelong-based drivers ordinarily return to their respective zone with their taxis empty. Assuming that, prior to responding to this report the State Government has not made a decision on zoning at Avalon Airport, the Commission considers that a trial should be conducted to evaluate the impact of freeing up zoning arrangements preventing Melbourne-based drivers from picking up passengers at Avalon Airport. Such a trial would provide valuable information relevant to the consideration of broader taxi reforms.

Short-term accommodation Several participants argued national building standards and their administration in Victoria impede the development of major new hotel accommodation in Melbourne and regional Victoria. The problem arises when buildings originally constructed for residential purposes are offered as short-term accommodation without being modified to incorporate the higher standards required for purpose-built accommodation. According to participants, building standards for apartments operating in the short-term tourist market and differ in areas such as disability access and fire safety. These standards exist to improve access to accommodation for older people as well as those with a disability and to reduce risks and damage resulting from fires. It was argued, however, that the standards also impose costs, including: • lost revenue from the hotel floor space required for accessible rooms, which would otherwise have been used for additional non-accessible rooms with higher occupancy rates • higher costs of construction and greater lending requirements for hotels compared with serviced apartments • lost revenue to hotels competing in the short-term market with lower room rates because they do not have to cover the cost of providing accessible rooms. A survey by the Tourism and Transport Forum and Australian Hotels Association on the requirements for disability access reported the ‘average demand for accessible rooms was 0.47 per cent of rooms per night, per establishment’ and ‘occupancy for accessible rooms was 30.7 per cent compared to 71.4 per cent for other rooms’ (sub. 44, p. 38). There is, however, some debate about why the take up of these rooms is low.

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On balance, the Commission considers the DPCD, in consultation with the accommodation industry, should evaluate the accessibility ratio standards. The evaluation would assess the costs and benefits of this regulation, and their distortion on hotel supply, if any. This evaluation should inform Victoria’s position on the accessibility ratios and a decision to pursue potential changes to the accessibility ratios nationally.

Other issues Further supply-side issues raised by participants included: • regulations affecting backpacker hostels • the registration of tourist accommodation • caravan park regulation • occupational health and safety requirements for events • other supply-side issues, such as education exports and skills. Recent changes to regulation addressed some of these issues. Changes to liquor licensing, for example, dealt with concerns about excessive liquor licensing fees and requirements for low-risk tourism businesses such as bed and breakfast accommodation. The Government has scope, however, to reduce further unnecessary uncertainty, time and costs for tourism businesses by: • evaluating whether the installation of sprinklers in shared accommodation buildings has produced a net benefit, and using the results to inform policy • requiring council health inspections for visitor accommodation to focus on high-risk premises such as those that do not have a star rating or other accreditation through a recognised accommodation rating or accreditation body • reassessing the costs and benefits of complying with fire safety standards in caravan park regulation and the Country Fire Authority instituting an internal review process, for decisions on whether caravan park owners have satisfied these standards • WorkSafe, in consultation with the events industry, advocating for national guidelines for events that address the underlying occupational, health and safety issues in an effective and proportional way.

SUMMARY REPORT XLVII

Cooperation and coordination In the face of the tourism industry’s changing environment and growing competition, the quality of cooperative structures and cultures will be important to the industry’s success. Destinations that engage in sustained cooperation appear to be able to respond more effectively when opportunities emerge. Victoria already has a wide range of cooperative arrangements across the tourism industry. In Melbourne, for example, coordination seems to work well and contribute to the city’s overall success as a tourist destination. A recent study by the Cooperative Research Centre for Sustainable Tourism found: One of the issues commented upon by many people interviewed was that there is a sense of cooperation between major players in state and local government and industry that supports the effort in attracting tourists and tourism investment. (Driml et al. 2010, p. 38) But participants also suggested cooperative arrangements could be improved: • within and between levels of government • in some regions, such as south western Victoria • in some areas of Melbourne — that is, the City of Melbourne suggested bolstering coordination mechanisms for the Queen Victoria Markets, the Sturt Street Arts/Culture Precinct and Docklands. A number of the participants’ concerns have been recognised, and private and government bodies are implementing improvements such as: • government initiatives to promote the use of ‘destination management planning’ • re-organisation of ‘regional industry structures’, including the creation of a regional tourism board for each region to set the overarching strategic vision and direction for tourism • evolution and some rationalisation of private sector associations. If successfully implemented, these initiatives would improve cooperation and coordination in the industry. Given the importance of this issue for improving the competitiveness of the Victorian tourism industry as a whole, the Commission considers that the regional tourism boards and destination management planning should be monitored and evaluated for their effectiveness in, among other things, achieving more cooperative and coordinated outcomes.

The contribution of coordination mechanisms to reform Effective cooperation and coordination processes can enhance the ability of industry to inform regulatory reform decisions. Several of the recommendations in this report would require substantial input from the tourism industry—for

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example, explicitly factoring tourism growth into strategic land-use planning. Other examples include drawing on the private sector to help identify public land sites that may suit the development of tourist facilities, and having local government use industry ratings and accreditation schemes to inform their risk assessment of tourism accommodation providers. The consultation needed to feed into these reforms would be less costly and more effective if it can call on existing, well functioning coordination processes. Other recommendations require coordination among government agencies. In this case, the Commission noted scope for government agencies to improve cooperation, communication and the clarity of their various roles and responsibilities. Already, government support for systems that encourage cooperation and coordination is common. This role is consistent with recognised barriers to businesses achieving sufficient coordination on their own. It is also supported by industry. The Victorian Tourism Industry Council argued: … we need a strong Tourism Victoria, with a strong marketing focus, that works in partnership with industry to maximise strong cooperative marketing and development. (sub. 40, p. 31) But the role of government needs to be approached cautiously, so it does not extend into areas that the private sector could manage.

Conclusion Victoria’s tourism industry is facing challenges and opportunities. International competition is intensifying, is gradually declining and several international markets are growing. To capitalise on these changes the industry will need adaptable private entrepreneurs who are willing to take risks and develop new tourism products and services. Melbourne’s tourism industry has grown recently and that growth is expected to continue. While the regulatory environment in Melbourne could be improved, the industry, and state and local governments are already tackling the challenges of coordinating their approach to tourism development. Capturing these opportunities will be most challenging in regional Victoria because the regions’ traditional market — domestic tourists — is declining and few tourists from the growing international markets travel beyond Melbourne. Regional businesses’ ability to respond is also constrained by the way public and private lands, in particular, are managed and regulated. These constraints appear to be based on an assumption that tourism development is intrinsically incompatible with the community’s environmental and social goals. The Commission does not accept this view. Elsewhere in Australia and internationally there are many instances of private sector

SUMMARY REPORT XLIX

developments, even in areas of high environmental value, that are sensitive to community values and enhance environmental outcomes. Similarly, constraints on development in some farming areas limit the capacity to diversify farm incomes and strengthen communities. While poor development can create conflicts with existing land uses, such conflicts are not automatic and could be managed. It is difficult to predict the outcomes of easing constraints on developing public land, particularly national parks, and private land in rural areas. Given the market environment for tourism, particularly in regional Victoria, large numbers of major projects are unlikely. In national parks, the Commission considers that the most likely outcome of its recommendations would be only a small number of small-scale facilities with high environmental credentials, with larger scale development being located adjacent to national parks. Without regulatory reforms and a shift in focus to how tourism can enhance the environment and regional goals, the Victorian tourism industry is likely to stagnate.

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Recommendations

The 17 recommendations are listed in the order they appear in the full report, and they need to be understood in the context of the discussion in the chapters.

Land-use planning regulation Recommendation 3.1 That the Victorian Government revise its objectives for tourism development and incorporate them in the State Planning Policy Framework. The Victorian Government’s role is to clearly indicate the outcomes it expects from the administration of land-use planning regulation for the tourism industry, such as the facilitation of tourism investment in particular areas of the State and/or particular types of product (such as nature-based tourism). Local government is accountable for ensuring that their planning schemes are capable of delivering the State’s objectives for tourism through approaches that have regard to the objectives of the communities they represent. Recommendation 3.2 That the Victorian Government implement a strategic approach to land-use planning for tourism, so as to: • address tourism issues in developing regional land-use plans • engage the tourism industry in the development of regional strategic land- use plans • ensure local planning objectives are clarified and consistent with the State’s objectives • revise the application of land-use controls and approval processes to identify opportunities to proactively rezone land • indicate the circumstances and processes whereby the State will intervene to ensure that local councils’ planning schemes are capable of delivering the State’s objectives. Recommendation 3.3 That by 1 July 2012, the Victorian Government provide more flexibility for tourism investment in the Farming Zone, the Rural Conservation Zone and the Green Wedge Zones by: • expanding the purpose of the zones to recognise the potential compatibility of tourism uses with a zone’s agricultural and environmental purposes • removing the requirement that tourism activities are undertaken ‘in conjunction with’ agricultural and other activities • allowing a wider range and scale of activities in the zone.

RECOMMENDATIONS LI

Recommendation 3.4 That the Department of Planning and Community Development, in giving effect to recommendation 3.3, encourage a consistent approach to administering the new zones, by providing guidance and other support for councils to effectively and consistently implement the modified zones. This guidance may include the information required in an application, as well as model conditions.

Public land regulation Recommendation 4.1 That the Victorian Government remove regulatory obstacles to private sector investment in tourism infrastructure in Victoria’s national parks so that from 1 January 2012 private sector investment is permitted and businesses are allowed to: • propose sensible and sensitive developments in national parks provided they complement environmental, heritage and other values and generate a net public benefit • lease land within a national park for this development, provided they meet a set of guidelines and agree to a standard operating contract that includes incentives for the conservation and biodiversity protection of the national park (see recommendation 4.2). The Victorian Government should publicly announce this new policy approach. Recommendation 4.2 That the Victorian Government: • increase the maximum duration of leases on land managed under the National Parks Act, based on an appropriate incentive scheme • identify and address any provisions in public land leasing requirements and practice that undermine commercial interests without also delivering substantial offsetting benefits to land managers • identify and address any other regulatory barriers that exist in land-use planning and public land regulation that may be inconsistent with private investment. Recommendation 4.3 That the Victorian Government introduce a streamlined development approval process for public land, which: • progressively reduces uncertainty about the overall outcome, and sharpens the focus on key issues of uncertainty • separates responsibility for developing policy and administering the approval process

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• provides more certain timeframes for assessment, such as binding or negotiated time limits, and public reporting against these limits • provides a more integrated decision-making process. Also, that the Department of Sustainability and Environment release revised guidelines that identify: • the steps involved in any revised development approval process • the relevant contacts at each stage of the development approval process • criteria for assessing proposals. The Department of Sustainability and Environment develop the approval process and associated guidance material in consultation with the tourism industry, Parks Victoria, Tourism Victoria, local government, the Department of Planning and Community Development, and any other relevant stakeholders. Recommendation 4.4 That the Victorian Government clarify the roles and responsibilities of the Department of Sustainability and Environment in developing and administering public land regulation. The Department would take the lead on: • advising the Minister on policy and regulation for private tourism investment in facilities and operations on public land, in consultation with other bodies such as Parks Victoria • developing processes and guidance for assessing proposals to develop private facilities on public land (associated with recommendation 4.3) • monitoring the administration of the development approvals and licensed tour operator systems. Responsibility for regulating private sector investment on public land should rest with Parks Victoria and, where relevant, with Committees of Management. Recommendation 4.5 That the Victorian Government clarify the roles and responsibilities of Parks Victoria for the administration of relevant public land regulation and private sector access to national parks. Parks Victoria’s role as a sophisticated landlord for the parks would be extended to take the lead on: • supporting private business to identify opportunities for private investment in tourist facilities in national parks • facilitating the assessment of applications to develop private tourist facilities in national parks through the approvals process • regulating private activities on public land to ensure compliance with the Licensed Tour Operator system and leasing policy.

RECOMMENDATIONS LIII

As part of these changes, Parks Victoria would divest its own commercial operations and focus on providing facilities where there is an identified gap in the offerings of the private sector.

Aviation policy Recommendation 5.1 That the Victorian Government seek agreement from the Commonwealth Government that, in the lead-up to future air service negotiations, the Commonwealth would develop estimates of the potential costs and benefits of potential outcomes and test these in discussions with stakeholders (including state governments) through existing consultation mechanisms. This would ensure that negotiations for more liberalised air services are driven by a full understanding of the relative net benefits of preferred negotiated outcomes.

Other issues Recommendation 6.1 That the Department of Transport conduct a twelve-month trial to evaluate the impact of freeing up zoning restrictions that prevent Melbourne-based taxi drivers from accepting fares (that have not been pre-booked) from Avalon Airport. Recommendation 6.2 That the Department of Planning and Community Development, in consultation with the accommodation industry, evaluate the accessibility ratio standards. The evaluation would assess the costs and benefits of the standards, and their impact on hotel supply. This evaluation should inform Victoria’s position on the accessibility ratios and a decision to pursue potential changes to the accessibility ratios nationally. Recommendation 6.3 That the Department of Planning and Community Development evaluate the operation of fire safety standards for sprinkler systems in shared accommodation buildings, ensuring that information gaps in the regulatory impact statement are addressed in the evaluation. The evaluation would consult with the relevant stakeholders and be released with recommendations on appropriate fire safety standards for backpacker hostels within 12 months. Recommendation 6.4 To better target non-compliant operators, that the Victorian Government require councils to adopt a risk-based inspection program, whilst maintaining the current system of registration. In determining the risk profile of accommodation

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providers, regulators should draw on star rating and other accreditation schemes administered by recognised ratings and accreditation bodies, and concentrate their attention on those areas that are of high risk. Recommendation 6.5 That the Department of Planning and Community Development review the Residential Tenancies (Caravan Parks and Movable Dwellings Registration and Standards) Regulations 2010 (Vic) to reassess the costs and benefits of fire safety standards required by regulations 20 and 21. That the Country Fire Authority establish an internal review process for decisions about compliance with regulations 20 and 21 of Residential Tenancies (Caravan Parks and Movable Dwellings Registration and Standards) Regulations 2010 (Vic) and referenced Country Fire Authority Caravan Park Fire Safety Guidelines. This would allow caravan park owners to request that adverse findings about compliance with fire safety standards, be reviewed against the performance measures contained in the CFA Guidelines. Recommendation 6.6 That WorkSafe, in consultation with the events industry, advocate for national guidelines for events that address the underlying occupational, health and safety issues in an effective and proportional way. If the development of national guidance for the events sector has not been progressed within one year of harmonisation, discussions between the industry and WorkSafe on the development of such guidance in Victoria should recommence.

Cooperation and coordination Recommendation 7.1 That Tourism Victoria undertake and publish an evaluation, by 2014, of: • the performance and impact of the Regional Tourism Boards (RTBs) established in Victoria • the performance and impact of the Destination Management Plans (DMPs) developed and implemented in different Victorian tourism destinations or regions. This evaluation would: • determine the extent to which the intended benefits from these reforms were achieved, including: an integrated tourism experience, coordinated approach to tourism, minimisation of research duplication, clear roles, better value for money from local council tourism investment, a representative and coordinated voice on tourism issues, and regional ownership

RECOMMENDATIONS LV

• consider the impact of RTBs and DMPs on key demand indicators (such as, visitor numbers, nights, and expenditure, return visits) and supply side indicators (for example, investment in tourism infrastructure, new attractions and supporting coordination mechanisms) in the relevant destination or region • highlight case examples of where cooperation and coordination have added value to the overall tourism offering at the destination • identify any persisting coordination failures and opportunities for stronger cooperation and/or coordination mechanisms to improve the competitiveness of the destination in domestic and global tourism markets.

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1 Introduction

1.1 Background to the inquiry Victoria’s tourism industry has become a key part of the Victorian economy. While the tourism industry is hard to define, recent estimates suggest that it may account for around 5.9 per cent of the State output and four per cent of total employment (Pambudi et al. 2009, p. 4). Despite its recent growth and opportunities in the future, the Victorian tourism industry faces intense competition from other destinations, both in Australia and overseas. Strong growth in demand for Australia's commodity exports has led to a sustained appreciation in the value of the Australian dollar, which has pushed up the cost to overseas travellers of a holiday, work or study trip in Victoria, whilst also reducing the cost of overseas travel for Australians. At the same time, the growing wealth in Asia (especially China and India) has produced strong growth in inbound tourism to Australia and Victoria from these destinations, thus creating opportunities for tourism-related businesses in Victoria. As a result the tourism market is changing. To maintain its share of domestic visitors and capitalise on new opportunities that arise from market changes tourism businesses need to be able to respond and adapt. How Victoria's tourism industry responds to these challenges and opportunities depends on factors that influence the overall competitiveness of Victoria as a destination for local, interstate and international visitors. The competitiveness of Victoria's tourism industry will depend on the overall quality of the experience of visiting Victoria and its perceived value for money. This in turn, is influenced by the quality and accessibility of Victoria's attractions, the availability and cost of transport, and the quality and cost of the goods and services visitors consume, such as accommodation and food. The Victorian Government has several levers to enhance the competitiveness of Victoria’s tourism industry. Historically, the focus has been on encouraging industry investment by providing direct financial support for special events and marketing Victoria as a tourism destination. Governments have also invested in attractions such as major cultural and other infrastructure. Recognising that much of the investment needed to sustain and grow Victoria's industry ultimately must come from the private sector, the attention of governments has turned to identifying regulatory and other barriers to private investment in tourism. In October 2006, the Government released a Victorian tourism and events strategy that, amongst other things, identified a need to address impediments to the development of the Victorian tourism industry in

INTRODUCTION 1

areas such as regulation, aviation and the management of state assets, including public land and physical infrastructure. While there have been some actions to address these impediments, by and large, many of them remain. More recently, the Commonwealth Government also moved to identify and address potential impediments to private investment in the tourism industry. In 2009, the Commonwealth Government released a National Long-Term Tourism Strategy (DRET 2009) which outlined a set of policy initiatives designed to facilitate growth of the tourism industry. This Strategy identified facilitating investment and regulatory reform as one of several priority issues for federal, state and territory governments. The Victorian Government can directly influence the competitiveness of tourism-related businesses in Victoria through the way it manages state-owned attractions such as the national parks, forests and sporting and cultural facilities. Reflecting the diversity of the industry, businesses that serve visitors to Victoria may need to comply with a variety of regulations,1 depending on their activities. For example, developers of new tourist accommodation need to comply with regulations covering land-use and development, building design and safety, signage, waste management, and public health and safety. Tour operators on public land or on state-managed waters need to comply with regulations for public land, transport and occupational health and safety. Poorly designed and administered state and local government regulations can also impede the development of Victoria’s tourism industry by imposing unnecessary costs on businesses. This inquiry focuses on identifying and addressing such barriers to the future development of Victoria’s tourism industry.

1.2 The terms of reference The terms of reference direct the Commission to focus on three key areas: (1) State and local regulatory barriers to the development of the tourism industry and the creation of new tourist infrastructure. (2) Opportunities to improve the management of state assets to better meet the needs of the tourism industry without compromising their primary management objectives. (3) The impact of international and domestic aviation policy on the Victorian tourism industry and broader economy.

1 In this report, the term ‘regulation’ encompasses government-sanctioned rules and instruments that affect the behaviour of businesses and individuals. Regulations include primary legislation (Act) and subordinate legislation (Regulation), but codes of practice, guidelines and standards or procedures set by regulators are also important forms of regulation.

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The Commission understands that these terms of reference require a focus on impediments to the supply of tourism services, underpinned by an understanding of the demand for those services. Thus, where participants suggested measures such as providing additional industry assistance in the form of financial support for marketing and events, or for the development of infrastructure, the Commission's approach has been to note these views but not to make specific recommendations (chapter 6).

1.3 The Commission's approach In addressing the terms of reference, the Commission’s approach recognises: • the diverse nature of the tourism industry (section 1.3.1) • the need to focus the inquiry on the major regulatory barriers and opportunities to improve the management of state assets (section 1.3.2) • the general nature of much of the regulation applying to the tourism industry and thus the need to take an economy-wide approach to some issues (section 1.3.3) • the capacity of Victoria to effect changes in some regulatory arrangements, such as international aviation policy, where the responsibility rests with the Commonwealth Government (section 1.3.4).

1.3.1 The diverse nature of the tourism industry In approaching the issues, the Commission has sought to understand the basic characteristics of the tourism industry and the way in which regulation affects the activities of businesses involved in the tourism value-chain. The tourism industry is, however, extremely diverse with a complex structure, reflecting the many different types of attractions and services consumed by international and domestic visitors to Victoria. The diversity of the industry can affect how it is viewed by governments and regulators. The economic importance of an industry can affect the way that regulations and other policies are designed and implemented. Some segments of the tourism industry argued that there is an inadequate understanding of the tourism industry and its characteristics within state and local governments, and the community. The industry considers a key misunderstanding to be the impact of tourism on amenity, the environment, agriculture and other aspects of liveability, with tourism often perceived as diminishing these values rather than enhancing them. According to some in the industry, blanket assumptions about tourism and its adverse impacts often underpin some of the policies and regulations that are impeding the further development of the industry.

INTRODUCTION 3

The diversity of the tourism industry is also reflected in how segments of the industry view themselves. Many businesses that serve visitors to Victoria do not consider themselves to be part of a tourism ‘industry’. Some businesses, such as restaurants, cafes and retailers, for example, may view themselves as part of the food or retail industries rather than the tourism industry, depending on the make-up of their clientele. This may also apply to the education sector. It has been estimated that in 2010 around 9 per cent of international visitors to Victoria arrived for the primary purpose of undertaking education (chapter 2). Although businesses that provide education and training to these visitors are unlikely to view themselves as part of the tourism industry, students are nevertheless an important to Victoria’s tourism industry. They tend to stay longer than other types of visitors, accounting for 40 per cent of total international visitor nights. Longer stays translates to larger expenditures. They engage in activities as leisure tourists in and outside their place of study, attract visiting friends and relatives, are a source of labour and skills and often return as leisure tourists after their studies are complete. Some issues raised with the Commission relating to students—including visas and work permits, regulation of the vocational education sector, and workforce development in the tourism industry—are discussed in chapter 6. However, the Commission considers these issues to be connected to but not the core focus of this inquiry, as they have much broader implications than tourism.

1.3.2 Focusing the inquiry Reflecting the broad nature of the terms of reference, the Commission focused the inquiry on major regulatory barriers and the management of state assets that are important to tourism. A variety of state and local government regulations apply to the operation and development of tourism businesses in Victoria. The Commission identified nearly 50 state Acts that may apply to tourism businesses. These cover areas such as land-use planning, development and use of public land, public health and safety, and transport. The Commission's issues paper (VCEC 2010d), released shortly after the terms of reference, identified potential regulatory hotspots, based on a review of tourism industry literature and recent Government policy statements. The areas identified were: • land-use planning regulation and administration • regulations relating to the use of public land, especially state and national parks • building standards applying to hotel accommodation and serviced apartments

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• regulations applying to the accommodation, cafe and restaurant sectors such as food safety, liquor licensing, signage and outdoor dining regulations • transport regulation such as taxi and hire car regulation. Key areas of regulation and state assets were also identified through examining the tourism value-chain and how regulation, the management of state assets and aviation policy intersect with business operations (chapter 2). This research, together with submissions and consultations with key stakeholders tended to suggested that there are major differences in the regulatory and other issues affecting the tourism industry between those centred on Melbourne, and in other parts of the State. Melbourne has been successful in recent years in attracting a larger share of international visitors than other capital cities in Australia. In the last decade Melbourne's share of total international visitor nights in all capital cities increased by around five per cent (chapter 2). Melbourne is estimated to have attracted in the year to 31 December 2010, about 43 per cent of all visitors, 60 per cent of all visitor nights, and 64 per cent of all visitor expenditure in Victoria (chapter 2). The investment in tourism accommodation and other related services has been occurring in response to this growth in visitors to Melbourne. But the ability to continue to grow visitation to Melbourne will depend on improving the end-to- end experience of visitors, particularly those from rapidly growing origins such as China and India. It also depends on close cooperation and innovation in service delivery by the operators of Melbourne’s events and major attractions such as Federation Square, Queen Victoria Market, National Gallery of Victoria, Southbank, Crown Casino, Docklands, Melbourne Museum, the Yarra River, Port Phillip Bay and other assets. In regional areas, the challenge facing the industry is to increase the number of overnight visitors and the length of stay. Domestic visitation in regional Victoria has been declining slowly. This may be a troubling trend because of the regions’ reliance on the declining domestic tourism sector—domestic visitors account for about 90 per cent of visitor nights in the regions. Unlike Melbourne, the decline in domestic tourism in the regions has not been offset by the growth of international visitors to Victoria. International visitors have tended to stay in Melbourne and do day trips to regional Victoria. The industry considers that attracting a larger share of Victoria's international visitors and the reinvigoration of domestic tourism requires a major change in the nature of the tourism product offered in regional Victoria. For this reason, businesses in regional Victoria were primarily concerned about the effect restrictions in the land-use planning system have on private investment in accommodation and related services, and regulatory barriers to private investment in national parks.

INTRODUCTION 5

1.3.3 Setting tourism in a wider context The major areas of regulation applying to tourism-related activities such as land-use planning and public land regulation are intended to deliver a wide range of benefits to the community, and they also apply to any business activity, not just tourism. Likewise, state assets are managed to deliver a range of benefits to all Victorians, and not just visitors to Victoria and selected areas are held as public land to protect their biodiversity and environmental assets for future generations. In seeking ways to address industry concerns about regulation and the management of state assets, the Commission has taken these wider issues into account. For example, many of Victoria's major visitor attractions are managed by the State for economic, environmental, cultural and social purposes. Ensuring that Melbourne's galleries, sporting facilities and tourism precincts are managed to benefit all users, not just a particular group, is probably the best way to enhance Melbourne’s liveability and its attractiveness to visitors. That said, it is important that the managers of these assets recognise that their decisions can impact on the experience of visitors, and coordinate their efforts to enhance the overall visitor experience in Melbourne. Wider issues also arose in assessing ways to address regulatory and other barriers identified by participants. In the area of land-use planning regulation, for example, some of the controls affecting the tourism industry were put in place to protect local amenity, or environmental and agricultural assets. Consequently, changes to regulation that benefit tourism may affect other community objectives and values. The Commission has looked for options that reduce impacts on tourism without undermining these other objectives. Similar issues also arose in the management and regulation of public land. Public land is managed and regulated to protect the environmental, heritage and conservation value of the land, whilst also providing economic benefits from recreation and use of the land. In considering potential regulatory barriers, the Commission's approach was to clarify the objectives of public land regulation and look for ways to improve the efficiency of public land management and regulation without compromising the primary land management objectives.

1.3.4 Capacity of Victoria to effect change The terms of reference also require the Commission to examine policy in areas where other levels of government have primary responsibility, such as aviation. Reflecting the importance of efficient aviation markets to the Victorian tourism industry, the terms of reference specifically required the Commission to examine the impact of international and domestic aviation policy on the Victorian tourism industry and broader economy. The Commonwealth Government has primary

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responsibility for international and domestic aviation policy, including negotiating agreements with foreign governments on airline access to Australian markets, and safety and security arrangements on international and domestic flights. Where the Commonwealth Government carries the primary responsibility for policy, the Commission's approach was to focus on the impact of policy on Victoria's tourism industry and the advocacy positions that the Victorian Government could take to address any adverse impacts.

1.4 Recent reviews of the tourism industry In undertaking this inquiry, the Commission has taken account of relevant policy statements and reviews of tourism-related issues. The recent policy documents include: • 10 Year Tourism and Events Industry Strategy (DIIRD 2006) • Victoria’s Tourism and Events Industry Strategy 2020 (VTIC and VEIC 2010) • Victoria’s Nature-Based Tourism Strategy 2008-2012 (Tourism Victoria 2008a) • Tourism Victoria Business Plan 2008-2011 (Tourism Victoria 2009c) • City of Melbourne Tourism Plan 2007-2012 (City of Melbourne) • Victorian Arts, Theatre & Cultural Action Plan 2010-2014 (Tourism Victoria 2010c) • Backpacker Tourism Action Plan 2009-2013 (Tourism Victoria 2009a) • Victoria’s Food and Wine Plan 2004-2007 (Tourism Victoria 2004) As well as these policy statements, a number of recent reviews have touched on relevant issues: • Review into Tourism in New South Wales (O’Neill 2008) • Queensland Tourism Network Review (The Stafford Group 2008) • Inquiry into Rural and Regional Tourism (Victoria Parliament Rural and Regional Committee 2008) • Tasmania Regional Tourism Review (KPMG 2010) • Review of Consumer Protection in the Travel and Travel Related Services Market (PWC 2010a) The terms of reference state that the Commission’s Inquiry is meant to complement and not duplicate work undertaken by Commonwealth and state Tourism Ministers under the auspices of the Council of Australian Governments (COAG). During the inquiry, the Commission met with representatives of the Commonwealth Departments of Infrastructure and Transport, and Resources,

INTRODUCTION 7

Environment and Tourism to discuss work underway at the national level to identify and address regulatory impediments to tourism investment. Given that land-use planning regulation was raised by the tourism industry as a regulatory impediment to new investment, the Commission also drew on its inquiry into Local Government Regulation, which covered the broader impact on business of the land-use planning system. The Commission released, in May 2010, a draft report and where applicable that draft report is referred to in discussing the impact of land-use planning regulation on the tourism industry.

1.5 Conduct of the inquiry The Commission received the terms of reference to hold an inquiry into Victoria’s tourism industry on 23 September 2010. In keeping with its charter to consult extensively during public inquiries, the Commission advertised the inquiry in The Age newspaper in November 2010. The Commission also notified stakeholders through articles published in a number of industry newsletters of Tourism Victoria and Victoria Tourism Industry Council/Victoria Events Industry Council. These were emailed to their subscribers and tourism industry contact lists and distributed through online media. The Commission also made direct contact with interested parties including environmental groups, inviting them to make submissions. The terms of reference and inquiry particulars were also listed on the Commission’s website (www.vcec.vic.gov.au). The Commission published an issues paper in October 2010, and subsequently released a draft report, Unlocking Victorian Tourism, in March 2011, which outlined: • the issues expressed by participants • the Commission’s research and investigation of these issues • the Commission’s initial views and recommendations to address the relevant issues • the inquiry timetable and instructions for providing further submissions. In all, 111 written submissions were received by the Commission throughout the inquiry process (appendix A.2). The Commission held three roundtables at Mornington, Colac and Wangaratta, prior to the release of the draft report. The roundtables included participants from a range of state and regional tourism bodies. A fourth roundtable was held with Department of Sustainability and Environment staff following the draft report (appendix A.2). The Commission undertook an extensive program of meetings and visits with businesses, environmental groups, academics, associations and individuals, including a targeted program of meetings after the release of the draft report (appendix A.3).

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The Commission took account of the Charter of Human Rights and Responsibilities Act 2006 (Vic) in undertaking this inquiry and considers that this report is consistent with the human rights set out in the Charter.

1.6 Report structure Following this introductory chapter, Chapter 2 outlines the key components of the tourism value-chain and the size and structure of the Victorian tourism industry. The chapter highlights some of the ‘game changing’ trends affecting the industry and perceived opportunities and challenges for future growth. This informs the Commission's analysis of the key opportunities and impediments relevant to this inquiry and where reforms might have the largest impact on the industry in the future. Chapters 3 and 4 focus on specific regulatory and other barriers to investment in tourist facilities on private and public land respectively. Reflecting feedback about the importance of the planning system to tourism, chapter 3 examines how the development and administration of land-use planning regulation affects the tourism industry. The chapter examines a range of general and specific opportunities to reduce the uncertainty, time and cost of obtaining planning permission to undertake tourism development. Chapter 4 focuses on the regulation of public land (particularly national parks). These assets are important attractions and hence how they are regulated and managed can affect future investment by Victoria's tourism industry. Chapter 5 addresses the terms of reference relating to aviation policy. It examines the impact of international and domestic aviation policy on the Victorian tourism industry and broader economy, and the implications for policy positions that the Victorian Government might adopt in its own right or present to the Commonwealth Government. Chapter 6 identifies other areas of regulation affecting the development of the tourism industry such as building and transport regulations. It identifies participants’ views on a wide variety of specific regulatory and other issues. The chapter also discusses the problem of cumulative regulatory burdens in the tourism industry. Finally, chapter 7 examines the challenge of cooperation and coordination between and within the private and public sector in the Victorian tourism industry. There is increasing recognition of the need to improve cooperation and coordination beyond destination marketing to overcome supply-side impediments to growth and to meet intensifying competition from international destinations. The chapter identifies examples of where cooperation is working well in Victoria and where it is struggling, and highlights some opportunities for improvement.

INTRODUCTION 9

2 The Victorian tourism industry

2.1 Introduction The economic value of tourism results from the coming together of visitors, the attractions and activities that draw them to Victoria, and the businesses that provide the services needed to support those experiences. It is a significant source of income and employment for Victoria. In 2007-08,1 the tourism industry was estimated to account directly for: • 3.2 per cent (or $8.6 billion) of the total value of goods and services produced in Victoria • direct employment of around four per cent of total Victorian employment (105 300 jobs) (Pambudi et al. 2009, p. 4). It is estimated that tourism indirectly2 contributed a further $7.2 billion in 2007-08 to the Victorian economy and 79 500 additional jobs. This brings the total contribution to $15.8 billion, representing 5.9 per cent of the total value of goods and services produced in Victoria, and 184 800 jobs (Pambudi et al. 2009, p. 27). This makes tourism’s economic contribution to the Victorian economy larger than industries such as agriculture and utilities (electricity/gas/water supply) (Ho et al. 2008, p. 10). The tourism industry covers a diverse but interlinked set of activities, markets and participants and is difficult to define in practice. This is illustrated in the standard definition of ‘tourism’ which is based around the visitor: A visitor is a traveller taking a trip to a main destination outside his/her usual environment, for less than a year, for any main purpose (business, leisure or other personal purpose) other than to be employed by a resident entity in the country or place visited. These trips taken by visitors qualify as tourism trips. Tourism refers to the activity of visitors. (United Nations World Tourism Organization 2010, para. 2.9) This has practical implications for government policy and businesses seeking to coordinate themselves in producing Victoria’s tourism product and ‘experiences’.

1 The Commission understands that these are the latest figures available for Victoria. Disaggregated figures for states and territories based on the latest Australian Tourism Satellite Accounts (2008-09) were not available at the time this final report was published. 2 ‘Indirect effects occur through flow-on effects to industries which do not themselves have direct contact with the visitor but nonetheless supply goods and services attributable as tourism consumption. While direct effects are considered to be the most appropriate measure for comparing the economic contribution of tourism with other non-tourism industries, the aggregation of tourism’s direct and indirect effects contribute to a fuller understanding of flow-on effects of tourism to output and employment within other industries, and across the economy generally’ (Pambudi et al. 2009, p. 2).

THE VICTORIAN TOURISM INDUSTRY 11

Many businesses provide goods and services that are bought by both tourists and residents. Businesses that primarily serve locals, but are still important to tourists, may not associate themselves with the tourism industry. People also visit Victoria for a range of reasons, which are not mutually exclusive (for example, business, leisure, visiting friends and family, and education). The interconnectedness and pervasiveness of the tourism industry can be seen in the tourism ‘value chain’ (figure 2.1). The tourism industry is based around ‘the destination’ where demand and supply come together. The value chain recognises that tourism begins with a visitor deciding to come to Victoria for some primary purpose. Once in Victoria, tourists often visit a range of attractions and buy goods and services from many suppliers, including transport operators, accommodation providers, restaurants and retail stores. It is the convergence of attractions, transport, supporting services and other tourism infrastructure that forms the tourism product for visitors to Victoria. The future of the Victorian tourism industry is uncertain. The industry is sensitive to a myriad of factors that are outside its control. These include economic conditions in other countries, weather and natural disasters, exchange rates, changing consumer preferences, increasing consumer mobility, increasing consumer choices for discretionary spending, technology creating better informed consumers, the emergence of low cost airlines and increased global aviation capacity. Some of these trends are ‘game changing’, fundamentally altering the industry’s operating environment. Increasing competition, especially from international destinations, will place increasing pressure on Victorian destinations to focus not only on attracting visitors (the demand side) but also on delivering the experiences visitors want (the supply side of tourism). To avoid the risks and capitalise on new opportunities arising from the changes, tourism businesses will need to be responsive and adaptable, and regulations will need to provide sufficient flexibility for businesses to adapt. Cooperation and coordination within and between private and public entities will need to be efficient and effective to meet the competition and respond to future challenges. This chapter examines: • characteristics of the industry and provides a ‘snapshot’ of the status of each component of the tourism value chain namely: visitors, attractions and activities, and businesses (section 2.2) • future opportunities and challenges, including key drivers of change, growth trends, aspirations and strategic directions for the industry (section 2.3).

12 UNLOCKING VICTORIAN TOURISM

Figure 2.1 The Tourism Industry Value Chain

Value Visitors Attractions Access Supporting Services (Melbourne & Regions) (transport) created for Victoria Public Air Accommodation Food & drinks Transport ƒ Parks (along the Great ƒ International ƒ Hotels ƒ Restaurants ƒ Public Ocean Road, Royal $16 billion to ƒ Domestic ƒ ƒ Cafes transport Botanic Gardens, Phillip the economy Origin ƒ Regional ƒ Guesthouses ƒ Take-away ƒ Tourist ƒ International Island, Grampians, ƒ Serviced ƒ Markets trains (direct + Wilsons Promontory) indirect) ƒ Domestic – apartments ƒ Supermarkets ƒ Air services ƒ Markets (Queen Vic Rail ƒ B&Bs ƒ Bars/ pubs/ ƒ Tour buses Interstate Market) ƒ Interstate ƒ Backpackers nightclubs ƒ Rental cars 184 800 jobs ƒ Precincts (Fed Square, ƒ Intrastate/ ƒ Caravan parks ƒ Wineries and ƒ Taxis (direct + ƒ Domestic – Docklands, Southbank) Intrastate regional ƒ Campsites vineyards ƒ Travel indirect) ƒ Galleries & museums ƒ Holiday houses agencies (NGV, Melb Museum) ƒ Specialist ƒ Heritage (incl Indigenous) accommodation

ƒ Other (MCG, Melb Zoo, (e.g. eco-lodges) Melb Aquarium) Purpose ƒ Events (cultural/ sport/ ƒ Leisure business) Road Entertainment/experiences/shopping/ ƒ Business Private ƒ Interstate other

ƒ Visiting ƒ Crown casino/ ƒ Intrastate/ ƒ Tour guides & interpreters friends & entertainment complex regional ƒ Tours & experiences (e.g. adventure tourism, eco-

relatives ƒ Resorts (ski, spa, golf, tourism, indigenous tourism, dolphin swims, balloon nature-based) rides, river cruises) Export revenue (VFR) ƒ Wineries Water ƒ Retail/ shops ƒ Education ƒ Shops/ retail/ restaurants ƒ International ƒ Casinos and other gambling services ƒ Other ƒ Theatre (cruise ships) ƒ Concerts/ theatre/ shows Direct & ƒ Events (cultural/ sport/ ƒ Domestic ƒ Sports (spectator, corporate hospitality) indirect business) ƒ Sports (participant, equipment hire) benefits for the community

Source: VCEC.

THE VICTORIAN TOURISM INDUSTRY 13

2.2 Key characteristics of the industry This section examines the state of the Victorian tourism industry today. Following the tourism value chain, the key components of the tourism industry are: • the visitors to Victoria (section 2.2.1) • the attractions, activities and experiences in Victoria (section 2.2.2) • the businesses in Victoria (section 2.2.3). The Commission considers that the Melbourne tourism market, and Victoria’s regional tourism markets, have different supply and demand characteristics, and are therefore usefully analysed separately. Differences include the distribution of visitor types and origins, tourism activities, and expenditure patterns. These suggest that the two key markets may differ in their future growth prospects and constraints, and the relative impact of different regulatory and other factors on competitiveness.

2.2.1 Visitors Businesses in the Victorian tourism industry cater to visitors with different origins, purpose of visit, length of stay, interests and, hence, activities they engage in during their stay.

Some trends in Victoria’s visitation growth and market share Overall, tourism in Victoria has been growing as has Victoria’s share of the total Australian tourism market. There are however, some key differences between Melbourne and regional Victoria that can be seen in the growth and changes in the composition of visitor nights over the last decade (figure 2.2 (a), (b) and (c)). Melbourne has been responsible for virtually all of the overall increase in Victoria’s total visitor nights over the last decade (figure 2.2 (a)). This has been driven by the growth in international visitor nights, which almost doubled over the same period (figure 2.2 (c)). This has more than offset the slight decline in domestic visitor nights (figure 2.2 (b)). Regional Victoria relies heavily on domestic visitors, which account for 90 per cent of all visitor nights in the regions (figure 2.2 (b) and (c)). Although the number of international visitor nights has also doubled in the decade, it was from a much smaller base. The net result was a slight fall in total visitor nights in the regions (figure 2.2 (a)). Absolute growth however, does not imply competitiveness. Competitiveness is better illustrated by comparing Victoria’s market share of total visitor nights in Australia (figure 2.3 (a), (b) and (c)):

14 UNLOCKING VICTORIAN TOURISM

• In 2000 Victoria, Melbourne and regional Victoria each held market shares of around 18 per cent of all visitor nights (international and domestic) in Australia, in capital cities, and in regional destinations respectively (figure 2.3 (a)). • However, by 2009 their respective shares have diverged, with Melbourne gaining market share against all other capitals (rising to 23 per cent), and regional Victoria retaining its 18 per cent share against regional destinations in other states and territories (figure 2.3 (a)). • This is likely to reflect the zero or negative growth in domestic tourism not only in Victoria but across Australia. For example, domestic visitor nights fell by -0.6 per cent a year in Victoria compared with -0.8 per cent a year nationally from 2000–2010. This broader trend can be seen in the static shares of both Melbourne and regional Victoria in domestic visitor nights— both oscillating under 20 per cent over the past decade (figure 2.3 (b)). • By comparison, Victoria has been successful in winning a larger share of international visitor nights. Melbourne gained around five per cent and regional Victoria around three per cent, against other capitals and regional destinations respectively, over the decade (figure 2.3 (c)). Given the growth in Victoria’s market share in international visitors, it seems that Victoria, and particularly Melbourne, might have a competitive advantage in this area. This may have implications for considering the weaknesses and opportunities for the Victorian tourism industry.

THE VICTORIAN TOURISM INDUSTRY 15

Figure 2.2 Domestic and international visitor night estimates in Victoria, Melbourne and Regions, 2000-2010

(a) All visitors 100,000

90,000

80,000

70,000

60,000

50,000

40,000

30,000 Visitor nights ('000)

20,000

10,000 Melbourne (int+dom) Victoria (int+dom) Regional Vic (int+dom) 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

(b) Domestic 100,000 90,000 Melbourne (dom) Victoria (dom) Regional Vic (dom)

80,000

70,000

60,000

50,000

40,000

30,000 Visitor nights ('000)

20,000

10,000

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

(c) International 100,000

90,000 Melbourne (int) Victoria (int) Regional Vic (int)

80,000

70,000

60,000

50,000

40,000

30,000 Visitor nights ('000)

20,000

10,000

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Tourism Forecasting Committee 2010a, pp. 3, 11.

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Figure 2.3 Market shares of Australia, capital city, and regional visitor nights, 2000-2010

(a) All visitors 30%

25%

20%

15%

10% Share ofShare visitor nights Melbourne/Total Capitals (%) 5% Victoria/Australia (%) Regional Vic/Regional Aust (%)

0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

(b) Domestic 30%

25%

20%

15%

10% Share of Share visitor nights Melbourne/Total Capitals (%) 5% Victoria/Australia (%) Regional Vic/Regional Aust (%)

0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

(c) International 30%

25%

20%

15%

10% Share of visitor nights nights of visitor Share Melbourne/Total Capitals (%) 5% Victoria/Australia (%) Regional Vic/Regional Aust (%)

0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Tourism Forecasting Committee 2010a, pp. 3, 11.

THE VICTORIAN TOURISM INDUSTRY 17

Expenditure patterns Visitors to Victoria come from different origins—international, interstate or within Victoria. These different types of visitors stay for different lengths of time and spend varying amounts of money during their stay. This is of interest to the tourism industry as profitability can increase by increasing the number of high yield visitors. Figure 2.4 illustrates that: • Around one-third of all overnight visitors to Victoria are interstate3 or international visitors, yet they account for two-thirds of total expenditure.4 The majority of visitors are Victorian (almost two-thirds of total overnight visitors), and they are particularly important for the regional economy, but they contribute much less to expenditure (about one-third of the total). • International visitors are small both in absolute numbers and proportion of all overnight visitors in Victoria (only nine per cent) but they accounted for a much higher proportion of total visitor nights (45 per cent) and expenditure (35 per cent). While international tourists are high spending, they concentrate this spending in Melbourne. In the year to 31 December 2010, it is estimated that 93 per cent of Victoria’s total expenditure from international visitors (or $3584 million) was in Melbourne (TRA 2010e, table 26). This was the widest split in international visitor expenditure between a capital city and its regions in Australia. The average capital city share of international visitor expenditure across Australia is 83 per cent. By contrast, expenditure by domestic overnight visitors is dispersed more widely to regional Victoria. They were estimated to have spent, in the year to 31 December 2010, $3639 million or 49 per cent of this expenditure in Melbourne and $3793 million or 51 per cent in the regions (TRA 2010d, table 26). Domestic day visitors are a separate group. The total expenditure of this group was estimated to be $3 524 million with 42 per cent and 58 per cent of this spent in Melbourne and regional Victoria respectively (TRA 2010d, table 21).

3 Of the interstate overnight visitors the majority were from NSW (2435), Queensland (962), and South Australia (890) (TRA 2010a, table 7). 4 Based on modelled expenditures for domestic overnight visitors (excluding airfares and long distance transport costs) and international visitors (excluding package expenditure).

18 UNLOCKING VICTORIAN TOURISM

Figure 2.4 Estimated overnight visitors, nights and expenditure by visitor origin and destination, year to 31 December 2010

Visitors ('000, % Vic) Visitors ('000, % Vic)

Internat. 1,657 9%

Interstate 5,273 30% Melb 7,812 Regional 43% Vic 10,341 Intrastate 57% 10,539 61%

Visitor nights ('000, % Vic) Visitor nights ('000, % Vic)

Interstate 21,422 24% Regional Internat. Vic 40,662 36,230 45% 40% Melb 53,838 Intrastate 60% 27,984 31%

Expenditure ($m, %Vic) Expenditure ($m, %Vic)

Internat. Interstate Regional $3,870 $3,561 Vic 35% 33% $4,078 36% Melb $7,223 64% Intrastate $3,513 32%

Source: VCEC based on TRA 2010e, tables 21, 25, 26, 27; TRA 2010d, tables 2, 3, 26, 27.

THE VICTORIAN TOURISM INDUSTRY 19

Thus, domestic visitors (overnight and day visitors) continue to be very important to tourism in regional Victoria. A key challenge for regional tourism is to offer experiences that continue to attract domestic tourists in a very tight competitive market. Not only is Melbourne increasing its market share of visitor nights for international visitors, these visitors have high expenditures. In the year to December 2010, Melbourne recorded the second highest expenditure per international visitor ($2353) in Australia (higher than Sydney with $2059, but lower than ‘Experience Perth’ with $2541) (TRA 2010e, p. 5). Increasing share of international visitor nights and high spends per visitor implies that Melbourne is capturing a large share of the export dollars from tourism in Australia. Figure 2.5 Domestic (interstate and intrastate) overnight visitors and international visitors to Victoria by purpose of visit (year ended 31 Dec 2010)

100% 100% 100% 2% Other 5% 4% 2% Employment

10% 9% Education

29% 17% Busine ss

34%

Visiting friends 24% & relatives

30%

52% 46% Holiday

36%

Interstate Intrastate International

Source: VCEC based on TRA 2010e, table 9; TRA 2010d, table 4.

20 UNLOCKING VICTORIAN TOURISM

Differences between Melbourne and regional Victoria also show up in the primary purpose of domestic and international visits to Victoria. People can travel to Victoria for holidays, to visit friends and relatives, or for business and education. For Victoria as a whole, the main purpose of visit for interstate, intrastate and international visitors was for holidays (figure 2.5). In the year to 31 December 2010, holiday makers accounted for 52 per cent of intrastate, 36 per cent of interstate, and 46 per cent of international overnight visitors to Victoria. At a more disaggregated level certain types of travel are concentrated in Melbourne and regions (figure 2.6): • Melbourne is the primary destination for business tourists. Around 66 per cent of all domestic business visitor nights and 90 per cent of all international business visitor nights were in Melbourne. Business travel includes purposes such as meetings, company incentives for employees, conventions and business events. These visitors also tend to spend much more than international leisure tourists. • Regional Victoria attracts more domestic holiday visitor nights than Melbourne. Melbourne’s large population also feeds tourism into regional Victoria. Domestic holiday visitors spent around 77 per cent of their nights in regional Victoria. In contrast, international holiday makers spent 81 per cent of their nights in Melbourne. • Regional Victoria and Melbourne both receive a similar number of visitor nights from domestic travellers visiting friends and relatives (VFR) in Victoria. International VFR visitors however spent 86 per cent of their nights in Melbourne. • Melbourne is the dominant destination for international education visitors to Victoria (classified within ‘Other’).5 Students account for about nine per cent of all international visitors to Victoria (figure 2.5). But because students tend to stay longer than other types of visitors, they account for 40 per cent of total international visitor nights in Victoria (TRA 2011b). Almost all of these visitor nights were in Melbourne.6 This visitor segment is discussed below.

5 Education visitors included in the International Visitor Survey are those that stay for less than 12 months during a visit. 6 Around 96 per cent of international student nights were in Melbourne. Based on tables 12 and 13 in TRA 2010b.

THE VICTORIAN TOURISM INDUSTRY 21

Figure 2.6 Domestic and international visitor nights by purpose, Melbourne and regions (2009 actual)

10 0 % 929 242 1, 4 17 1, 54 3

2,164 80% Regional

) Victoria 8,803 1, 54 2

60% 18,839

16 , 6 2 4 2,138 8,717 40% 6,758

4,206

% Total visitor nights (Vic Melbourne

7,075 20% 1,049

5,772

0% Bus DOM Bus INT Holiday DOM Holiday INT VFR DOM VFR INT Other DOM Other INT Purpose of visit, Domestic (DOM) or International (INT) visitors

Note: ‘Bus’ (business), ‘VFR’ (Visiting Friends and Relatives).

Source: VCEC based on Tourism Forecasting Committee 2010b.

International education sector Tourism & Transport Forum (TTF), Victorian Tourism Industry Council (VTIC) and Victoria University (VU) emphasised the impact that the international education sector and overseas student visitors have on the demand side (visitation) and supply side (labour force) of the tourism industry. On the demand side, VU noted that ‘Travel by students and their visiting friends and relatives has been one of the few growth segments of inbound tourism to Australia in recent years, but has been under-researched and under-estimated’ (VU, sub. 51, p. 2). Despite their relatively smaller numbers, their average length of stay is considerable. The Tourism Forecasting Committee stated that: As such, any movements in their visitation patterns can be significant … In addition, there are close links between education and VFR travel as many international students are visited by family and/or friends while in Australia. (Tourism Forecasting Committee 2010a, p. 6) On the supply side, international students are an important source of labour and skills to the tourism industry: ‘While investment in accommodation and aviation is important, it is the availability, or lack, of labour and skills that represents the greatest supply side challenge’ (VTIC, sub. 40, p. 53).

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Recent changes to migration regulations are expected to affect this sector, and in response the Tourism Forecasting Committee revised down the forecasts for inbound visitors: Coinciding with implementation of measures to improve the integrity of processing student visa applications, Department of Immigration and Citizenship (DIAC) data shows there was a sharp fall in grants in the 2009-10 financial year, particularly from India and to a lesser extent Thailand, Malaysia and South Korea. In recent times, international education visitors have also started to decline. As a result, there has been a downward revision (from 7.5% to 2.7%) in the growth forecast for inbound arrivals for ‘other’ reasons (which includes those visiting for education and employment) in 2011. The longer term annual average growth forecast has also been reduced from 6.4% to 5.1%. (Tourism Forecasting Committee 2010a, p. 6) According to VU, ‘Many of the migration issues are more Commonwealth related, but the impact is felt strongly in Victoria which attracts a disproportionate share of international students’ (sub. 51, p. 2). TTF expressed similar views (sub. 44, p.5). TTF went on to suggest that to recover lost competitiveness against rival destinations, the Victorian Government should actively participate in the Commonwealth Government’s review of education export policy measures (including visa processing fees) and introduce transport concessions for international students (sub. 44, p. 14). The Commission acknowledges that visiting students are important to Victoria’s tourism industry. They engage in activities as leisure tourists in and outside their place of study (Davidson et al. 2010); attract visiting friends and relatives; are a source of labour and skills; and often return as leisure tourists after their studies are complete. However, the regulatory issues relating to students (such as visas and work permits), the competitiveness of the international education sector, and workforce development in the tourism industry are considered by the Commission to be connected to, but not the core focus of, this inquiry.

Changing composition of international visitors to Victoria As illustrated above, growth in Victoria’s market share has been driven by growth in international visitors. This is in turn driven in a large part by the growth of Asian visitors, particularly from China. The most important source markets for international visitors to Victoria are New Zealand, United Kingdom, United States and China (or ‘Tier 1’ countries). In the last decade these four countries accounted for 43 to 51 per cent of all international visitors, and 35 to 41 per cent of international visitor nights in Victoria (Tourism Victoria 2011a). However, as illustrated in figure 2.7, their relative contributions to total visitations and stays have been changing.

THE VICTORIAN TOURISM INDUSTRY 23

China’s importance as a source of visitors has grown rapidly, overtaking the United States in 2006, and more recently the United Kingdom, to become the second largest source of visitors in Victoria. The growth in China’s contribution to international visitor nights has been even more dramatic, rising from around 625 000 nights (three per cent share of total international visitor nights in Victoria) in 2000, to 7.8 million nights (19 per cent share of total international visitor nights in Victoria) in 2010 which represents an average annual growth rate of 29 per cent over the decade. Expenditure by this group has also increased by an average of 19.8 per cent a year in Australia between 2000–2010. In Victoria, Chinese visitor expenditure reached $685 million in 2010 (17.4 per cent of international expenditure in Victoria) (Tourism Victoria 2011b, p. 5). China now contributes, by far, the largest share of international expenditure in Victoria. Figure 2.7 Share of international visitors and visitor nights in Victoria, by Tier 1 countries, 2000-2010

20%

18%

16%

14%

12%

10%

8%

6%

4%

2% China New Zealand UK USA Share ofShare international overnight visitors 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

20%

18%

16%

14%

12%

10%

8%

6%

4% Share of international visitor nights nights visitor of international Share 2% China New Zealand UK USA

0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: VCEC based on Tourism Victoria 2011a and Tourism Victoria correspondence 4/5/2011.

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The tremendous growth in China’s share of visitors and visitor nights overshadows somewhat the impressive annual growth of visitors from other Asian countries. Between 2006–2010: • Malaysia—average annual growth of 18 per cent in visitor numbers and 12 per cent in visitor nights • India—average annual growth of 20 per cent in visitor numbers and 25 per cent in visitor nights • Indonesia—average annual growth of 14 per cent in visitor numbers and eight per cent in visitor nights (Tourism Victoria 2011a). Prospects for the tourism industry in the China market is further discussed in section 2.3.3.

2.2.2 Attractions and activities Tourism is a discretionary spending item. Victoria is competing with numerous destinations in Australia and globally to attract domestic and international visitors. While attractions based on well-known natural and built assets are important, it is notable that the Government also cited that Victoria’s tourism ‘assets are our sophistication, diversity and reputation for cosmopolitan and cultural experiences’ (DIIRD 2006, p. 12). In its 10 Year Tourism and Events Industry Strategy the State Government identified the following key strengths of the Victoria tourism industry: • distinctive, consistent and well-targeted advertising highlighting Victoria’s diversity within a compact area • lifestyle experiences associated with Melbourne’s theatres, shopping, world class restaurants, cafes, bars and nightlife; as well as Victoria’s ranking as a ‘great place to tour by car’, and for ‘boutique wineries’ • regional tourism opportunities arising from Victoria’s diversity, compactness and good road networks • attractions such as major sporting, cultural and business events • capacity on direct inbound flights and recent increases in the number of international airlines flying directly to Melbourne • a strong tertiary education sector which has helped to attract large numbers of international students (DIIRD 2006, p. 12). The policy settings to enhance the competitiveness of Victoria’s tourism industry should take into account these advantages. The Government’s strategic directions for the industry are further discussed in section 2.3.4.

THE VICTORIAN TOURISM INDUSTRY 25

Where do tourists go in Victoria? Table 2.1 ranks the top attractions for domestic and international overnight visitors. Melbourne-based attractions dominate the patronage of overnight visitors to Victoria, more so for international visitors (with seven of the top 10 within walking distance of Melbourne’s CBD). This is broadly consistent with other surveys undertaken of Victoria’s top attractions.7 Many of these are ‘state assets’ in the sense that they involve state or local government-owned or managed land, buildings or other tourism infrastructure. Attractions such as the Queen Victoria Market, Federation Square, Crown Casino, Southbank, and Docklands rank highly for both international and domestic visitors. Top regional attractions include: the Great Ocean Road; /Sovereign Hill; Mornington Peninsula; Phillip Island; and Bendigo. Table 2.1 Top attractions in Victoria by visitor numbers, year ending December 2010 Domestic Overnight International Overnight Attraction Rank Visitors Rank Visitors (,000) (,000) Federation Square * 1 1,418 2 738 Southbank/Southgate * 2 1,345 4 485 Crown Casino/entertainment complex * 3 1,082 3 529 Docklands/Telstra Dome/Etihad Stadium* 4 1,002 6 436 Great Ocean Road or Twelve Apostles 5 978 5 484 Queen Victoria Market * 6 946 1 756 Ballarat Sovereign Hill 7 744 13 164 Mornington Peninsula 8 729 14 138 Bendigo 9 703 15 66 Phillip Island penguin parade 10 538 8 297 Melbourne Cricket Ground (MCG) * 11 485 12 171 Melbourne Museum/Royal Exhibition Building* 12 407 7 356 National Gallery of Victoria (NGV) * 13 373 9 254 Daylesford Hepburn Springs Macedon 14 360 16 25 Yarra Valley 15 299 11 181 Dandenongs/Puffing Billy/Healesville Sanctuary 16 172 10 198

* Melbourne-based attractions

Note: Data is based on attractions captured in the NVS and IVS questionnaire, not a comprehensive list of attractions. It does not capture some attractions (such as the aquarium, zoo).

Source: VCEC based on Tourism Victoria correspondence 4/5/11 and data based on the National Visitor Survey and the International Visitor Survey. Year ending December 2010.

7 For example, Only Melbourne and the City of Melbourne’s survey of users of their visitor services (sub. 53, p. 13). By comparison, visitors on RACV’s ‘Victorian 101 things to do’ campaign (sub. 51, p. 9) voted all regional Victorian locations and events as their top 10.

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What do visitors like to do in Victoria? The activities that are most popular with domestic and international visitors are presented in table 2.2. Eating out and shopping are popular with both domestic and international visitors. Appendix B, table B.1 provides a further breakdown of the most popular activities for visitors of different nationalities. The top three activities enjoyed by visitors from different countries to Victoria tend to be the same. These include: eating out, sightseeing/looking around, and shopping for pleasure. There are also some activities that frequently make the top five of many nationalities such as: going to the beach; visiting pubs/clubs/discos; and markets. Table 2.2 Top 15 trip activities of overnight visitors to Victoria (% of visitors), year ending December 2010 Rank Domestic Overnight Visitors % International Visitors % 1 Eat out at restaurants 56 Eat out/dine at a restaurant 87 and/or cafe 2 Visit friends and relatives 47 Go shopping for pleasure 77 3 Go shopping (pleasure) 30 Sightseeing/looking around 71 4 General sight seeing 27 Go to the beach (incl swimming, 58 surfing, diving) 5 Pubs clubs discos etc 17 Go to markets 54 6 Go to the beach (including 16 Visit national parks/state parks 48 swimming) 7 Bushwalking or rainforest walks 8 Visit botanical or other public 44 gardens 8 Going to markets (street, 8 Pubs, clubs, discos etc 42 weekend or art craft) 9 Visit national parks or state parks 8 Visit museums or art galleries 41 10 Visit museums or art galleries 7 Visit wildlife parks/zoos/ 38 aquariums 11 None of these 7 Visit history/heritage buildings, 38 sites or monuments 12 Attend an organised sporting 6 Bushwalking/rainforest walks 27 event 13 Picnics or BBQs 5 Charter boat/cruise/ferry 27 14 Go on a daytrip to another place 5 Visit casinos 25 15 Attend theatre concerts or other 5 Go on guided tours or 25 performing arts

Source: Tourism Victoria correspondence 4/5/2011.

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However, there are also differences between nationalities. For example, Chinese visitors to Victoria were much more likely than the average international visitor (and notably, visitors from the traditional markets of the UK, New Zealand, and USA) to have visited national parks, historic buildings and sites, and casinos. However, they are less likely than the average international visitor to eat out and visit markets. Compared to the international visitors to Australia generally, visitors to Victoria were more likely to visit markets, museums or art galleries, history or heritage buildings, sites or monuments, botanical or other public gardens and go to the casino (Tourism Victoria 2009b, p. 5). Understanding the interests of international visitors from countries where the market is growing is important for considering how Victoria might respond to this growth. A challenge for industry will be in responding to the fact that the preferences of international visitors from the high growth markets may be significantly different from visitors from traditional markets. New approaches, tourism products and infrastructure may need to be developed to ensure these visitors enjoy their stay, stay longer, and want to return.

The Business Events Sector While many visitors are drawn by existing attractions and experiences, effort is also dedicated to design one-off attractions, such as events. Business events are a good example. The business events (or the Meetings Incentives Convention Events) sector is important to Victoria for a range of reasons, not least because of the significantly higher yields of its visitors, but also for its positive effects on accompanying (leisure) visitors, regional dispersal, and repeat visitations (box 2.1). In addition, it is suggested that business events can enhance Melbourne’s profile as the capital for events (sporting, cultural and business) and build the city’s reputation as a place for innovation, attract international business leaders and investors, and provide opportunities for Victorians to build their knowledge and capabilities (Melbourne Convention & Visitors Bureau). This type of tourism also contributes to developing business, scientific and educational networks. There has been substantial growth in business events, but there is also increasing competition from other states and countries.

28 UNLOCKING VICTORIAN TOURISM

Box 2.1 Business convention sector facts and figures According to the Melbourne Convention & Visitor Bureau (MCVB), the business events industry (conferences, incentive travel, meetings, conventions, exhibitions) is the highest yielding sector of the tourism industry. MCVB suggests that the benefits of the business events sector are far reaching, including: Convention Yield • international convention delegates spend (on average) five to six times that of the international leisure tourist • 28 per cent of international delegates also bring a partner. Convention Delegate Dispersal • 46 per cent of international convention delegates participate in pre or post- touring to other parts of regional Victoria and Australia • 58 per cent of international convention delegates indicate that they will come back to Australia for a holiday within the next five years after the convention has been held. Economic Impact to Victoria • business events are directly responsible for more than 22 000 jobs in Victoria • business events generate $1.2 billion annually for the Victorian economy • more than 192 000 room nights were secured by MCVB in the last financial year (2009–10) • in 2009–10, MCVB’s activities attracted in excess of 70 000 delegates and their partners and families to Victoria, injecting AUD$269 million into the State economy.

Source: Melbourne Convention & Visitors Bureau nd.

2.2.3 Businesses On the supply-side many different products and services are produced along the tourism value chain. Tourism industry output and employment are therefore distributed across many sectors. Figure 2.8 shows the composition of tourism output for 18 product sectors. Major supplier sectors include long-distance transport, takeaway and restaurant meals, accommodation, and shopping. Services growth has been an important part of the Victorian economy, and a substantial portion of the tourism industry is highly service oriented (labour intensive). Major employment sectors are therefore in retail, accommodation, cafes and restaurants, and education, which together account for about 58 per cent of the jobs in the tourism industry (Pambudi et al. 2009).

THE VICTORIAN TOURISM INDUSTRY 29

Businesses that contribute to the tourism industry vary in the degree to which their business relies on tourists. According to its latest Tourism Businesses in Australia report, Tourism Research Australia (TRA) estimated that in June 2007: ‘around 29 per cent (or 586,000) of the two million actively trading businesses in Australia were tourism-related … around 20 per cent of these businesses depend on tourism for their survival’ (TRA 2010a, p. 22). Figure 2.8 Composition of Victorian tourism output 2007–08

Travel agency services 2% Gambling and betting 2% Recreation, culture, sports 3%

Long distance transport 15% Rent on holiday houses 4%

Other 4%

Other transport 5%

Education 5%

Shopping 15%

Fuel 7%

Food products & Beverages 13% Takeaw ay and restaurant meals 15%

Accommodation services 10%

Source: Based on Tourism Victoria 2010a, p. 6 and Pambudi et al. 2009. Nb. ‘Other transport’ includes local transport, motor vehicle hire, motor vehicle maintenance, taxi fares and vehicles.

Figure 2.9 illustrates the significance of various industries (by ANZSIC industry division) to the Victorian tourism industry, and conversely, the significance of tourism to each industry—in terms of the extent to which tourism accounts for each industry’s total Gross Value Added (GVA) and employment respectively. Industries that are further away from the origin (lower left corner of the chart) are relatively more reliant on tourists for their business. The following observations can be drawn from this chart: • The Accommodation, Cafes & Restaurant sector and the Transport sector— industries that are strongly connected to and reliant on tourism—clearly

30 UNLOCKING VICTORIAN TOURISM

generate a lot of economic value from tourism. However, a lot of value is also extracted by the Retail Trade; Education and Manufacturing sectors despite being relatively less reliant on tourism. More than half of the GVA and employment in the tourism industry is produced in sectors that are less reliant on tourism. Specifically, ANZSIC industries that attribute less than eight per cent of their industry’s GVA and employment to tourism generate 56 per cent and 59 per cent of the total GVA and employment in the tourism industry respectively. • The Cultural & Recreational Services sector relies on tourism for only about six per cent of its employment and five per cent of its GVA but this sector is also a crucial driver of the tourism dollars derived by the other sectors because it provides tourist attractions, activities, and ‘draw-cards’. Similarly, the indirect value to the tourism industry of public assets, including those with historical, natural and indigenous heritage used for ‘sight seeing’ or as backdrops for other tourist activities, may not show up in national accounts. This illustrates the difference between ‘attractions’ and supporting services in the tourism value chain. Figure 2.9 therefore underscores: the diversity and complexity in the ‘tourism industry’ and problems in recognising ‘tourism businesses’; what sector(s) would be particularly sensitive to changes affecting Victorian tourism; where the tourism dollars are being extracted; and why coordination could be more important and difficult in the tourism industry compared with other industries.

THE VICTORIAN TOURISM INDUSTRY 31

Figure 2.9 Tourism GVA by ANZSIC industry division, and tourism’s share of each industry’s total GVA and employment, Victoria 2007-08

50.0%

Accommodation, cafes & restaurants

40.0%

30.0%

20.0% Transport & storage Tourism share of industry total GVA total of industry share Tourism Retail trade 10.0%

0.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% Tourism share of industry total employment Selected area magnified... 8.0%

Retail trade 7.0%

6.0% Education

5.0% Cultural & recreation services

4.0%

Communication services Personal & other services Manufacturing 3.0%

Tourism share of industry total GVA total of industry share Tourism 2.0% Health & community services

1.0% Property & business services Finance & insurance Government administration & 0.0% defence 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% Tourism share of industry total employment

Source: VCEC based on data from Pambudi et al. 2009, pp. 14, 19. The size of each circle represents the size of the economic contribution ($million GVA) generated by each industry division attributed to tourism.

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Tourism Research Australia estimated that there were 150 000 ‘tourism-related’8 businesses in Victoria (TRA 2010b). Of this, two-thirds (101 000 businesses) were in Melbourne, with the remaining one-third in the regions (figure 2.10) (TRA 2010c). This split in the location of tourism businesses between capital cities and regions is similar to that for the whole of Australia. The distribution of businesses presented in the map in figure 2.10 illustrates that tourism has a presence in every region of Victoria. Many of Victoria’s tourism-related businesses are small—51 per cent of these were non-employing, and 42 per cent were micro or small businesses (TRA 2010b). Figure 2.10 Number and distribution of tourism-related businesses in Victoria, June 2007

2,148

543 1,803

3,249 1,473 2,826 1,917 609 444 1,002 1,260 468 2,166 101,142 1,719

4,866 3,705 7,068

4,425

6,669

717

Source: VCEC compiled from Regional Tourism Profiles 2009/10 (TRA 2011a).

8 The Australian Bureau of Statistics makes a distinction between ‘tourism characteristic’ and ‘tourism connected’ businesses, both of which are ‘tourism-related’ businesses. See glossary.

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2.3 Future opportunities and challenges This section outlines the key trends, future aspirations, and challenges facing the Victoria tourism industry, and the strategic directions identified by government for the industry. This includes: • the exogenous factors and ‘mega-trends’ impacting on the industry • domestic and international visitor trends and forecasts • the growth from China • future strategic directions and priorities identified by government including, among other things, ‘regional dispersal’ and ‘nature-based’ tourism. This informs the Commission of opportunities and constraints relevant to this inquiry and where reforms might have the largest impact on the industry in the future.

2.3.1 Exogenous factors and ‘mega-trends’ The terms of reference note that the Victorian Government plays a significant role in supporting the tourism industry. However, some critical determinants of industry performance are beyond the influence of state or local governments. Tourism is a risky business, which faces uncertainties that make the feasibility of certain business cases difficult to predict. In its recent State of the Industry 2010 report, TRA listed ‘mega-trends’ that will affect the tourism industry, these included: • increased world wealth (especially Asia) • increased integration of the world economy • increased role of the entrepreneur/greater innovation • demographic changes—ageing populations • increased urbanisation • increased female participation in the workplace • climate change and changes in consumer behaviour • increased technology intensity and sophistication (including information and technology transfers) (TRA 2010a, p. 27). Global economic and other conditions, changing demographics and consumer preferences, and evolving technology and business models are discussed in more detail below. The challenge for the Victorian tourism industry is how to effectively respond to these changes, which can represent productivity growth opportunities or, as the TRA suggest, ‘if ignored, could adversely impact on the competitiveness of the industry’ (TRA 2010a, p. 27).

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Global economic and other conditions The tourism industry can be highly sensitive to external factors including global economic volatility (such as the Global Financial Crisis), exchange rates, security and terrorism (such as September 11), fuel prices, health scares (such as SARs and swine flu), and other crises (such as drought, bushfires and floods). These can all have dramatic effects on visitor numbers and business profitability. Global economic growth will continue to be a driver of domestic and international tourism. The expectation is that there will be: stronger economic growth in 2011, particularly in Asia and Australia, but remaining patchy in Europe and the United States, a continuation of the strong Australian dollar and solid growth in international aviation capacity in 2011 and 2012 (particularly from China and South East Asia). (TRA 2010a, p. 18) According to TRA, ‘Asia is expected to contribute the majority of the growth in inbound arrivals in the period to 2020’ (TRA 2010a, p. 18). A stronger Australian dollar however represents a double threat to the Victorian tourism industry: (1) there would be some downward pressure on inbound visitors; and (2) domestic (especially regional) tourism will have to compete more vigorously against overseas destinations for intrastate and interstate visitors. The combination of a strong currency, increased international air capacity and a strong Australian economy ‘has increased opportunities for Australians to travel overseas, while at the same time reducing the competitiveness of Australia as a destination for international visitors’ (TRA 2010a, p. 3). The challenge for the industry will be to maintain and improve Victoria’s share of the global tourism market given these uncertainties and macro conditions.

Changing demographics and consumer preferences The Victorian Government has stated that: … competition for the tourism and events dollar is fierce and tourists are becoming increasingly discerning, constantly in search of new experiences and better standards of service. (DIIRD 2006) The demand for tourism will continue to shift from changes in visitor demographics and preferences—domestic and international. It is said that demographic shifts are intensifying the demand for new and exciting tourism experiences: The Generation Y and new Generation Z segments will also influence the future of the tourism sector. Although these segments value holidays highly, they are also more discerning and typically seek very unique travel experiences. They are also more mobile and casual in their approach to life and work, creating challenges for tourism marketing. (Tourism Victoria 2008c, p. 6)

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Australia’s ageing population will also have an impact on the tourism industry: ‘driven by the Baby Boomer generation entering retirement. This may create greater demand for appropriate travel experiences for this segment: e.g. Grey Nomads’ (Tourism Victoria 2008c, p. 6). Changing consumer preferences are also driving business re-orientation, for example, increasing specialisation in the accommodation and hospitality markets, such as growth in niche accommodation, food and entertainment offerings (IBISWorld 2010, pp. 11-12).

Evolving business models and technology The introduction of low-cost airlines and cut-price domestic airline tickets has also made interstate and international travel more affordable, increasing access by non-Victorians to Victoria’s tourism offerings but also travel by Victorians to other destinations. New online technologies are giving consumers more information, empowering them to purchase directly when selecting destinations and booking travel, making quality and value for money more transparent and important for businesses (Tourism Victoria 2008c, p. 6). These trends suggest that the tourism industry will need to respond to fiercer competition with tourists being better informed and more mobile in switching among destinations. Sophisticated marketing will need to be backed by products and experiences that deliver on visitors’ expectations.

2.3.2 Domestic and international visitation forecasts The trends in domestic and international visitation have implications for the approach to developing Melbourne and regional tourism destinations. Forecasts by the Tourism Forecasting Committee (2010) suggest that the growth in domestic overnight visits to Victoria will be minimal with little or no change in the shares of the various segments (for example, between metropolitan and regional, and between visitor purposes): • The forecast predicts almost zero growth in domestic visitor nights in Melbourne or the rest of the state, with compound annual growth in the next five years (2009–2014) of 0.9 per cent (1.5 per cent in Melbourne, 0.5 per cent in the rest of the state) and in the next 10 years (2009–2020) of only 0.5 per cent (0.8 per cent in Melbourne, 0.3 per cent in the rest of the state) (Tourism Forecasting Committee 2010b, table 12). • The ratio of domestic visitor nights between the capital city and the rest of the State has roughly stayed the same for the last 10 years, and the forecast suggests that this is expected to continue. This implies that little additional ‘regional dispersal’ is likely to come from domestic visitors, although focussed marketing may seek to shift this outcome.

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By comparison, the outlook is that international (inbound) visitor nights will continue to grow more quickly than domestic visitors: • The forecast predicts growth in international visitor nights in Victoria both in Melbourne and the rest of the state, with a compound annual growth in the next five years (2009–2014) of 5.6 per cent (5.4 per cent in Melbourne, 7.1 per cent in the rest of the State) and in the next 10 years (2009–2020) of 4.4 per cent (4.3 per cent in Melbourne, 4.7 per cent in the rest of the State) (Tourism Forecasting Committee 2010b, table 3). • Over the 10 year period, the ratio of international visitor nights between the capital city and the rest of the State is forecasted to remain roughly the same. This also implies little ‘regional dispersal’ of international visitors. Attracting international visitors to Victoria is seen as important due to their relatively higher expenditures and longer stays. There appears to be overwhelming evidence and a broad consensus among industry and government participants that a driver of growth and key source market for Victoria’s tourism industry in the future will be China.

2.3.3 The growth from China Forecasts for the next 10 years are consistent with the trend over the last 10 years in that Asia (excluding the Middle East) is expected to be the growing source market for international visitors to Victoria. In the case of China, both the number of visitor arrivals and their Total Inbound Economic Value (TIEV)9 are forecasted to grow rapidly, with a compound growth rate in the next 10 years (2009–2020) of 8.5 per cent and 7.5 per cent respectively (figure 2.11). China alone is expected to contribute almost 28 per cent of the total growth in tourism exports for Australia to 2020 (figure 2.12). One of the challenges for the Victorian tourism industry will be to respond and tap into this demand from China and other Asian economies. Different approaches, products and infrastructure may be needed that better cater for different consumer preferences. The aviation industry, capacity, access, and aviation policy will also need to be responsive to the changes in the market demand. Having regard to this key source of growth however, the State Government and industry should also be wary of over reliance on any one market which can expose the industry to increased risk.

9 Represents the total amount of money that flows to the Australian tourism industry from international visitor spending.

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Figure 2.11 China: International visitor nights and Total Inbound Economic Value (TIEV)

Source: Tourism Forecasting Committee 2010a, table 19.

Figure 2.12 Contribution to growth in tourism export dollars (Australia), from 2009 to 2020 (forecast), %

% 0 5 10 15 20 25 30

China 27.9 Other World 6.8 Middle Eas t 5.2 Other Asia 5.0 Indonesia 4.9 South Korea 4.6 United Kingdom 4.6 India 4.4 United States 4.2 Malay s ia 3.7 New Zealand 3.3 Singapore 3.3 Other Europe 2.7 Canada 2.5 France 2.5 Hong Kong 2.3 Germany 2.2 Japan 2.1 Nordic Countries 1.7 Italy 1.3 Taiw an 1.2 Thailand 1.1 South Africa 0.7 Ireland 0.6 Netherlands 0.6 Sw itzerland 0.5

Source: TRA 2010a, p. 19.

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2.3.4 Future strategic directions and priorities The Victorian Government and others have considered many of the implications of these trends for the tourism industry. A wide array of tourism strategies and action plans have been promulgated by all levels of government. These documents identify opportunities and challenges for the tourism industry and set out strategic directions for responding to these. Box 2.2 outlines some of the guiding documents.

Box 2.2 Key tourism industry strategies and plans at each level of government National level: • National Long-Term Tourism Strategy 2009 • National Tourism Investment Strategy (March 2006) State level: • 10 year Tourism and Events Industry Strategy (October 2006) • Victorian Tourism Workforce Development Plan 2010–2016 • Victoria’s Arts, Theatre & Cultural Heritage Tourism Action Plan 2010–2014 • Regional Tourism Action Plan 2009–2012 • Victoria’s Nature-Based Tourism Strategy 2008–2012 • Backpacker Tourism Action Plan 2009–2013 • Victoria’s Golf Tourism Action Plan 2009–2012 • Victorian Trails Strategy 2005–2010 • Victoria’s Spa and Action Plan 2005–2010 ª • Victoria’s Aboriginal Tourism Development Plan 2006–2009 ª • Food and Wine Plan 2004–2007 ª Capital city level: • City of Melbourne Tourism Plan 2007–2012

ª These plans are due to be updated in 2011.

Note: Regional tourism organisations and councils may also have strategies and plans for tourism, as will various industry and business associations.

Source: VCEC.

It is not the role of the Commission to comment on these planning documents individually, or to predict what tourism opportunities will be profitable and what this might mean for Victoria. The Commission takes into consideration, however, existing government policy, research and other work done in identifying priority opportunities and threats for the Victorian tourism industry and uses this as background in considering the implications of aviation policy and regulatory impediments for the future development of tourism.

THE VICTORIAN TOURISM INDUSTRY 39

The Commonwealth Government in its National Long-Term Tourism Strategy 2009 (NLTTS) identified the following overarching issues and priorities for the Australian tourism industry: • positioning for long-term growth—stimulating consumer demand and securing jobs • leadership—strategic and coordinated leadership that will drive the national tourism agenda • informing industry and government—a research and development agenda that will inform industry and government • facilitating investment and regulatory reform—investment that will ensure Australian tourism product remains competitive in a global marketplace • labour and skills—labour and skills development that will support tourism industry needs • responding to challenges—tourism businesses that will adapt to the impact of change, climate change and other external shocks • excellence in product and service delivery—product quality and service delivery that will ensure Australia is a high-value destination • strengthening our competitiveness with industry and product development—destinations and tourism product that will make the most of our unique attributes • measuring our performance—performance indicators that will track progress and support strategic priorities (DRET 2009). The 10 year Tourism and Events Industry Strategy and other strategies and action plans developed by the Victorian Government focus on state priorities. These cover opportunities in specific product, visitor or destination categories (for example, nature-based tourism, backpacker tourism, tourism in regional Victoria) and industry development priorities (for example, tourism workforce, regional industry structures, and the supply and quality of tourism experiences). An underlying theme of the various strategic directions is that the future of the tourism industry in Victoria (and Australia generally) depends not only on demand conditions and actions, but also on addressing supply side constraints. Addressing the supply side involves, among other things, removing unnecessary regulatory barriers to investment in tourism infrastructure (chapters 3 and 4), constraints in aviation capacity (chapter 5) and improving other tourism-related regulations (chapter 6). This coincides with a gradual shift in the emphasis of many government and non-government tourism bodies, from a mostly destination marketing focus to broader destination planning and management. There is growing recognition that effective industry and government cooperation and coordination is an increasingly important source of competitive advantage for destinations in a competitive market (chapter 7).

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The Commission’s consultations with stakeholders suggested two future priority areas of particular relevance to this inquiry: (1) ambitions for greater ‘regional dispersal’; and (2) the potential to better utilise Victoria’s natural assets to grow nature-based tourism. These are discussed in more detail below.

2.3.5 Regional dispersal An aspiration shared by industry and the Government is to attract higher numbers of visitors, including growing and higher-yielding international visitors, to regional Victoria, and to encourage them to spend more nights (and hence, money) outside Melbourne. This is referred to as ‘regional dispersal’.10 A parliamentary inquiry in 2008 into rural and regional tourism found that tourism had ‘the potential to contribute to the economic viability and sustainability of many towns and communities’ (Victoria Parliament Rural and Regional Committee 2008, p. 244). The overall thrust of the report was the need to consider sustainable destinations and communities in rural and regional Victoria using a ‘three pillars’ approach ‘where economic social and environmental values are balanced’ (Victoria Parliament Rural and Regional Committee 2008, p. 224). This relies on focussing on the foundations of tourism businesses, host communities and the environment. Such an approach is particularly important given the strong link between nature-based tourism and regional tourism.11 In the long run the capacity of regional Victoria to attract more tourists will depend on its accessibility and whether it offers the experiences tourists want. According to Tourism Victoria: ‘Visitation results indicate that the performance of regional Victoria in attracting visitors varies depending on key factors such as proximity to Melbourne and access to facilities such as airports’ (Tourism Victoria 2008c, p. 8). As noted above (section 2.3.5), the regional market is currently reliant on domestic visitors and growth in domestic tourism has been stagnant or negative in the last decade. The forecasts also suggest that the current trends will continue. International tourists are seen as a potential growth driver in the regions but, as illustrated above, it is starting from a very low level. The future challenge for regional dispersal is likely to be particularly difficult for the growing Asian visitor market: Attracting inbound tourists is a significant challenge for regional Victoria as international visitors, especially from high growth markets such as China and

10 Regional dispersal relates to the percentage of nights that are spent in regional Victoria. It is suggested that many international visitors do day trips to Phillip Island and the Great Ocean Road / Twelve Apostles but do not necessarily stay overnight. This means less of the tourism expenditure is captured in the region. 11 Regional tourism is also closely linked to other segments identified including spa and well-being, trails, food and wine, alpine , arts, theatre and cultural heritage, and golf tourism.

THE VICTORIAN TOURISM INDUSTRY 41

India typically have lower levels of regional dispersal. (Tourism Victoria 2008c, p. 9) This is further illustrated in figure 2.13 which shows that visitors from Asia tend to stay and spend in Melbourne rather than regional Victoria. This includes the market with the largest total expenditure—China—which has one of the lowest rates of regional dispersal of any country. Traditionally, visitors from western markets have the greatest propensity to stay in regional Victoria. Figure 2.13 Total expenditure, Regional Dispersal and Visitor Volumes, year ending December 2010

$800

$700 China

$600

$500

$400

New Zealand Total Expenditure($, million) Malaysia United $300 Singapore Kingdom

India USA $200 Indonesia Hong Kong Thailand Germany $100 Korea Japan Scandinavia Canada Middle East France Netherlands Italy South Africa Switzerland Taiwan $0 0% 5% 10% 15% 20% 25% 30% 35% 40% Regional Dispersal (% of nights)

Note: Visitor volume of Victoria’s key international markets are depicted by the size of the circles (that is, the larger the circle the higher the volume).

Source: Tourism Victoria correspondence 4/5/2011.

More detailed studies of regional dispersal behaviour of international tourists have suggested that, for most nationalities, dispersal does not change quickly over time (Allcock 1996, p. 3). The study showed that, from 1989–1994, markets with high distribution indexes (higher regional and economic dispersal) were all based in Europe, while low distribution markets were predominantly Asian countries (Allcock 1996, p. 3). This suggests that, at least in the medium term, regions will continue to face a challenge in trying to tap into the emerging Asian markets. The extent of dispersal will depend on the product that is being sold in the source markets (for example, bus tours in China). The Commission considers however, that the focus on increasing the dispersal of international visitors does

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not imply the exclusion of complementary efforts to reinvigorate domestic visitation to regional Victoria, as domestic visitors are and will be the dominant source of regional tourists.

2.3.6 Nature-based tourism Both government and industry identified nature-based tourism as a growth sector for Victoria’s tourism industry. Nature-based tourism is tourism that relies on experiences directly related to natural attractions including: , adventure tourism, extractive tourism (for example, fishing), and nature retreats (Tourism Victoria 2008a, p. 4). Victoria’s Nature-Based Tourism Strategy 2008–2012 is an interagency strategy that sought to provide ‘a coordinated approach to policy, planning, sustainable development and marketing of the nature-based tourism sector’ (Tourism Victoria 2008a). According to this Strategy: For Victoria, the strongest nature-based tourism growth from 2006 to 2016 is forecast to come from international markets. Visitation is expected to grow from 1.11 million nature-based tourism visitors in 2006 to 1.61 million in 2016, with China being the largest source market. (Tourism Victoria 2008a, p. 4) Some key impediments identified in the Strategy included: • lack of an integrated policy and planning framework to enable private investment (‘enabling environment’) • low consumer awareness and perception of Victoria as a nature-based tourism destination • limited coordination and focus on sustainable destination planning • development and management of key nature-based tourism destinations • climatic events affecting travel behaviour and industry viability • lack of a unique brand to position Victoria in a competitive marketplace • failure of Victoria’s national parks to capture yield, despite high visitor numbers (Tourism Victoria 2008a, p. 5). More recently, investment attraction and facilitation was identified as a priority for progressing nature-based and regional tourism. This included: • funding assistance programs to leverage new major tourism investment to Victoria • attracting new investment in iconic accommodation and facilities (for high- yield tourism markets at priority destinations) • facilitating appropriate changes to the State Planning Framework to assist the development of new regional tourism investment (Tourism Victoria, p. 19).

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2.3.7 The Commission’s view This chapter has highlighted the key trends and factors that are driving Victoria’s tourism industry. It is an industry that faces many uncertainties and is dealing with some ‘game-changing’ business trends. It is exposed to global, economic, climatic and other events that are largely beyond the control of national, state and local governments. The historical and forecasted trends in domestic and international visitation point squarely at Asia, most notably China, as the driver of future growth in the industry. Traditionally Asian tourists, including the Chinese, spend most of their time in Melbourne. This predisposition is likely to continue. Governments at all levels have highlighted opportunities and challenges for the industry. For Victoria, regional dispersal and nature-based tourism have been highlighted as strategic priorities, where the biggest tourism infrastructure gaps might be, but also where the challenge of investment attraction is especially difficult. This includes overcoming the investor perceptions and experience that planning and regulatory processes, on private and public land, are complex and not conducive to investment (Tourism Victoria 2008c, p. 14). Competition, especially from international destinations, will place increasing pressure on Victoria to focus not only on the demand side but also the supply side of tourism. Regulatory processes need to be considered and integrated with the move towards more supply side focused destination planning and management. This requires some rethinking around what is efficient and effective competition, cooperation and coordination for the industry. The nature of tourism industries around the world is such that better coordinated destinations will more efficiently and effectively align the demand and supply sides with have a competitive advantage (chapter 7). A refocus on the impediments to the supply of tourism services is important. These can inhibit the industry’s capacity to respond and adapt to the challenges brought about by the rapidly changing operating and competitive environment. The ways of minimising these impediments are discussed in the following chapters.

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3 Land-use planning regulation

Chapter 2 highlighted the diverse nature of the tourism industry and the industry’s challenges from intensifying competition and the changing preferences of domestic and international travellers. To meet these challenges, tourism businesses will need to adapt, take risks and innovate by offering new products and services. In turn, regulation and its administration should enable such adaptation, risk-taking and innovation, while protecting the public interest. This chapter examines: • the relevance of land-use planning regulation (and its administration) to the tourism industry (section 3.1) • participants’ views on the impact of such regulation and its administration on industry adaptation, risk-taking and innovation (section 3.2) • opportunities to improve land-use planning and its administration to enable adaptation, risk-taking and innovation by tourism businesses, without undermining the public interest (section 3.3). The next section provides an overview of Victoria’s planning system, focusing on provisions related to the tourism industry.

3.1 Victoria’s land-use planning system Land-use planning regulation comprises the complex rules controlling the use and development of land. The Planning and Environment Act 1987 (Vic) lays out the objectives of land-use planning regulation, the regulatory tools and accountability for administration. Other Victorian regulations such as the Subdivision Act 1988 (Vic), the Heritage Act 1995 (Vic) and the Planning and Environment (Fees) Regulations 2000 (Vic) provide complementary controls and provisions. Land-use planning regulation is a general type of regulation that applies to a variety of industries and activities, not just the tourism industry. Reflecting the diverse nature of the tourism industry, land-use planning regulation may affect tourism activities such as accommodation, food service, retail, recreational activities and facilities, and other activities catering to both local residents and visitors. The relevant objectives of the Planning and Environment Act, referring to visitors to Victoria, include: • to provide for the fair, orderly, economic and sustainable use, and development of land

LAND-USE PLANNING REGULATION 45

• to provide for the protection of natural and man-made resources and the maintenance of ecological processes and genetic diversity • to secure a pleasant, efficient and safe working, living and recreational environment for all Victorians and visitors to Victoria • to conserve and enhance those buildings, areas or other places which are of scientific, aesthetic, architectural or historical interest, or otherwise of special cultural value • to balance the present and future interests of all Victorians. To understand how planning regulation affects land use, consider the process of applying for a planning permit from the perspective of a tourism business (figure 3.1). A planning permit is a legal document that gives permission for a use or development on a particular piece of land. To obtain a permit, the party must apply to the council. If the council agrees with the proposal, it will grant a planning permit. The first step in applying for a planning permit is to examine the local planning scheme. Each municipality in Victoria must have a planning scheme containing maps that show the zones and overlays that apply to land covered by the scheme. The purpose of a zone is to outline uses of the land that are permitted without a permit (‘as-of-right’), or permitted with a permit, or prohibited. The planning scheme map may also show that a piece of land has one or more overlays affecting it. Overlays usually apply to land with special features such as heritage buildings, significant vegetation or flood risks. The planning scheme also details state and local planning policies that guide decision making, as well as the requirements of the different types of zone and overlay. Each of these components of a planning scheme is discussed in turn.

3.1.1 State and local policies relevant to tourism Policies identify matters that applicants, councils, objectors and the Victorian Civil and Administrative Tribunal (VCAT) must consider in applying for a permit, considering objections, making decisions or hearing appeals. The two broad policy categories in planning schemes are: (1) state-wide policies contained in the State Planning Policy Framework (SPPF) (2) local policies outlined in the Local Planning Policy Framework (LPPF).

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Figure 3.1 The planning permit process

Source: DPCD 2008, p. 7.

LAND-USE PLANNING REGULATION 47

The SPPF lays out state government planning objectives, policies and principles, and is identical in each planning scheme. For tourism activities, relevant objectives in the SPPF include: • to encourage tourism development to maximise the employment and long-term economic, social and cultural benefits of developing the State as a competitive domestic and international tourist destination • to encourage development of well designed and sited tourist facilities, including integrated resorts, motel accommodation and smaller scale operations (such as retail, host farms, and B&Bs) • to maintain and build on the central business district’s role as Victoria’s tourist centre, and encourage development of the Yarra River precinct for tourism activities. The LPPF contains locally applicable planning objectives (set out in the LPPF’s Municipal Strategic Statement), and specific policies and requirements. It aims to apply the SPPF to local circumstances. In theory, it should be consistent with state objectives and policies, and should guide applicants and council staff on how to assess competing objectives in a local context. Section 7(4) of the Planning and Environment Act states the Victorian Planning Provisions prevail over local planning provisions when the two are inconsistent.

3.1.2 Zones affecting tourism activities Zones set out the land uses that are exempt from the planning permit requirement, allowable with a permit, or prohibited; they also set out conditions and decision guidelines. The state-wide suite of zones covers residential, rural, industrial, business and other special purposes. Councils can apply relevant zones from the suite to areas of land within their municipalities. For a business considering a tourism investment, a number of specific zones may be relevant, depending on the location. Each zone has specific purposes and requirements: • Within the City of Melbourne, relevant zones include the Capital City Zone and the Docklands Zone, which both provide flexibility for the development of hotels, motels, hostels and other commercial accommodation, theatres, galleries, museums and similar attractions. Outside the Central Business District, relevant zones include residential and business zones. These provide for the construction of dwellings and other commercial buildings. Tourism activities such as restaurants and short-term accommodation require a planning permit in residential zones and some business zones. A B&B that can accommodate up to six people does not require a planning permit in the residential zones. A restaurant does not need a permit in the Business 1 Zone.

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• On Melbourne’s fringe, the Green Wedge zones apply across large areas, including the Yarra Valley and the Mornington Peninsula. The purposes of the Green Wedge zones include: to recognise, protect and conserve green wedge land for its agricultural, environmental, historic, landscape, recreational and tourism opportunities; and to protect, conserve and enhance the cultural heritage significance and the character of open rural and scenic non-urban landscapes. • In much of regional Victoria, land outside towns is mainly covered by the Farming Zone and the Rural Conservation Zone. The purposes of the Farming Zone include: to encourage the retention of productive agricultural land; and to ensure non-agricultural uses (particularly dwellings) do not adversely affect the use of land for agriculture. The purposes of the Rural Conservation Zone include: to protect the natural environment and the biodiversity of the area; to provide for agricultural use consistent with the conservation of environmental and landscape values; and to conserve the cultural significance and character of rural landscapes. Some areas are covered by the Rural Activity Zone, which is a more flexible and amenable zone for tourism uses. • Reflecting their differing purposes, the Green Wedge, Farming and Rural Conservation zones vary in the degree to which they allow tourism attractions such as hotels, motels, B&B accommodation, exhibition and function centres, restaurants and retail premises (table 3.1). Essentially, these zones indicate the types of activity for which a permit is not required (such as a B&B accommodating fewer than six people), the types of activity requiring a permit (such as group accommodation that is ‘in conjunction with’ agriculture, rural industry or a winery) and prohibited activities (such as a retail shop and any other activity that is not specifically referenced). • The Green Wedge, Farming and Rural Conservation zones also specify the minimum size of subdivisions allowed and restrictions on subleasing. For example, the minimum sub-division in these zones is 40 hectares (or 8 hectares for Green Wedge Zone A) unless otherwise stated. • The Green Wedge and Rural Conservation zones also specify that a permit is required to lease (or license) a portion of a lot for use as accommodation for a period of more than ten years.

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Table 3.1 Permit requirements in the green wedge and rural zones Tourism activity Green wedge zone (GWZ) Rural conservation zone (RCZ) Farming zone (FZ) Bed & breakfast No permit required (max. 6 guests) No permit required (max. 6 guests) No permit required (max. 6 guests) Camping & caravan Permit required Prohibited Prohibited Host farm Permit required Permit required Permit required Group Permit required, ‘in conjunction with’ Permit required, ‘in conjunction with’ Permit required, ‘in conjunction with’ accommodation other activities (max. 40 dwellings) other activities (max. 6 dwellings) other activities (max. 6 dwellings) Residential building Permit required, ‘in conjunction with’ Prohibited Prohibited (e.g. backpackers’ other activities hostel) Residential hotel Permit required, ‘in conjunction with’ Permit required, ‘in conjunction with’ Permit required, ‘in conjunction with’ (includes motel) other activities (max. 80 bedrooms) other activities (max. 80 bedrooms) other activities Restaurant Permit required, ‘in conjunction with’ Permit required, ‘in conjunction with’ Permit required, ‘in conjunction with’ other activities (max. 150 patrons) other activities (max. 150 patrons) other activities Outdoor recreation Permit required Prohibited Permit required facility Exhibition centre Permit required Prohibited Permit required (must not be used for (e.g. art gallery) more than 10 days in a calendar year) Function centre Permit required, ‘in conjunction with’ Prohibited Permit required (must not be used for other activities (max. 150 patrons) more than 10 days in a calendar year)

Source: Victoria Planning Provisions, clauses 35.04, 35.06 and 35.07.

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3.1.3 The permit application process Having reviewed the local planning scheme, a business thinking of investing in a tourism enterprise may need to apply for a planning permit. Figure 3.1 shows the required steps and possible outcomes of this process. In some cases, the business may find its proposed use is prohibited under the applicable zone; it could then apply to the council to amend the planning scheme to allow the proposed use. If, for example, the council supports a proposed large-scale accommodation and conference centre on land zoned Farming Zone, it could amend the scheme to apply a more appropriate zone to the land, such as the Rural Activity Zone or a Special Use Zone. Councils may also review their planning schemes occasionally to finetune or add to their local policies, or to alter the application of zones and overlays. This chapter distinguishes between statutory and strategic planning. Statutory planning refers to the processes of assessing permit applications and amending planning schemes. Strategic planning refers to the process of reviewing and formulating changes to planning schemes. These processes are closely linked— for example, if strategic planning work is not done well or not done at all, then councils may add unclear or misguided local policies to planning schemes, or fail to adapt local policies to changing land-use patterns or community expectations. In turn, councils may then apply the wrong zones and overlays to land, thereby creating problems in the administration of planning regulation (statutory planning). Also important to the planning system are the ‘call in’ powers of the Minister for Planning. The Minister has broad powers to call in a permit application before VCAT, or one being considered by a council. The Minister may call in an application that: • raises major policy issues and might have a substantial effect on the achievement of planning objectives • has been unreasonably delayed to the disadvantage of the applicant • would be facilitated by its referral to the Minister (for example, when the development must also be considered by the Minister under another Act or regulation).

3.2 Issues raised by participants Some participants considered that land-use planning regulation and its administration are impeding the development of Victoria’s tourism industry. Their concerns fall into two broad groups:

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(1) Provisions in some council planning schemes, and their implementation by some councils, unnecessarily restrict worthwhile tourism activities in regional areas and on Melbourne’s urban fringe. (2) Many councils’ administration of planning regulation is unnecessarily uncertain, time consuming and administratively costly, with a disproportionate effect on the tourism industry. This section examines the nature and extent of these concerns.

3.2.1 Regulatory barriers to the development of tourism in Victoria’s land-use planning regulations Submissions, as well as recent reports on the tourism sector, identified several barriers to investment in tourism and related activities on Melbourne’s fringe and in regional Victoria, including: • restrictive zonings and overlays on private land suitable for tourism developments • local opposition (or a lack of support for) tourism developments • other regulations that apply to land use and development, such as the Victorian Coastal Strategy. Participants identified several examples where adaptation, risk-taking and innovation in the development of tourism activities had been impeded by features of Victoria’s planning system and its administration, both by councils and the State Government (box 3.1). The Commission did not challenge the validity of each of these examples but the number and nature of them, along with the findings of other studies, such as the review of rural planning by the Rural Planning Group (2009) demonstrate how elements of Victoria’s land-use planning system and its administration can impede the development of the tourism industry in parts of regional Victoria and in Green Wedge Zone areas.

Restrictive land-use zones As illustrated above, during the inquiry the Commission heard of a number of examples where land-use zones impeded investment in new or existing tourism activities. In particular, some participants argued land-use zones such as the Green Wedge Zone, the Farming Zone and the Rural Conservation Zone are excessively restrictive and have been applied too widely in areas that are prospective for tourism. According to the (Rural Planning Group 2009, p. 17), the Farming Zone is the most widely applied zone in Victoria’s regional municipalities.

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Box 3.1 Examples of problems with the planning system raised in submissions Approval to use a rural produce store as a cafe on a Woori Yallock orchard was refused because the property is less than 40 hectares. Council indicated that an application for a site-specific planning scheme amendment would be opposed. However, it stated that the serving of light meals may be permissible—subject to significant restrictions—as an ancillary use to existing Farm Educational Tours (VTIC, sub. 40). An international hotel group experienced uncertainty, delays and high costs in seeking approval for development of a major hotel and convention centre in the Mornington Peninsula Green Wedge Zone. Faced with local opposition and the prospects of an uncertain, costly and protracted planning process, the company decided to develop a similar complex in another state (personal communication). Different interpretations of the planning requirements of the Green Wedge Zone have led to uncertainty for the owners of Noel's Gallery, a restaurant on the Mornington Peninsula (Roger Stuart-Andrews sub. 7). The process of obtaining approval for a small café in Beech Forest took ten months, holding up settlement on the property (The Ridge Café, sub. 39). A accommodation and hiking business on a site near the Great Ocean Road needed to prove 15 years of continuous use of pre-existing commercial buildings on the site in order to override the zoning prohibition on commercial buildings that do not meet ‘in conjunction with’ criteria (VTIC, sub. 40). Restrictions on farm gate sales in the Green Wedge Zone hinder the Bunyip Food Belt Project. The Project involves using recycled water for agricultural purposes in the Cardinia, Casey and Mornington Peninsula regions (Cardinia Shire Council, sub. 1). A lengthy and costly process of obtaining planning approval caused uncertainty, delays and costs for the developer of a major resort adjacent to the Wilson’s Promontory National Park (Tom Tootell, sub. DR76). Restrictive planning controls have inhibited Johanna Seaside Cottages’ ability to develop and expand tourist accommodation on the Great Ocean Road (Johanna Seaside Cottages, sub. DR86). Efforts to develop a sculpture park on a small rural property in the Rural Conservation Zone are impeded by zoning controls (Elizabeth & Ken Jacka, sub. DR93). A proposal to expand the T’Gallant winery in the Mornington Green Wedge Zone, was scaled-back due to the ‘in conjunction with’ requirement, the minimum subdivision requirement (Foster’s Group, sub. DR97). (continued next page)

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Box 3.1 Examples of problems with the planning system raised in submissions (continued) The developer of a tree top recreational facility on an existing site experienced a lengthy and costly approvals process that involved multiple referral bodies, large costs for consultancies and lost revenue as a result of delays (personal communication). The RACV reported a number of problems in the administration of land-use planning regulations that affected work on new and existing resorts, including those at Inverloch, Healesville, Cobram, Torquay and Cape Schanck (in progress). The problems included significant costs due to delays in council assessing applications, lack of community understanding of the economic value of tourism developments, the length and costs of the planning scheme amendment process, blanket application of planning controls and overlays without sufficient consideration of the implications, Green Wedge Zone requirements and restraints on development, and planning appeals processes (sub. 52).

Source: VCEC consultations and submissions.

A number of councils and tourism development bodies argued that restrictive zoning provisions have impeded the development and growth of tourism. Colac Otway Shire, for example, stated: A typical Colac Otway Shire scenario is a landowner of a bush block or property that is no longer being used for agricultural purposes. Often this is due to the failing viability of agricultural pursuits in some areas of our Shire. Subsequently the farmer determines that he or she could supplement their farm income with small scale tourism in the form of group accommodation (i.e. self contained cabins for persons away from their normal place of residence). Due to the restrictive provisions of the state standard Farming and Rural Conservation Zones this use is effectively prohibited given the requirements that such uses are ‘in conjunction with’ a limited range of uses including agricultural. There is also no opportunity to consider an application for a bed and breakfast beyond the limited scale use (i.e. no more than 6 persons accommodated) that is ‘as-of-right’ and does not require a planning permit. This is a particular issue in sensitive coastal properties such as those in the vicinity of the Great Ocean Walk, where property owners may be more interested in land conservation and revegetation along with small scale tourism than persisting with full time agriculture. (sub. 45, p. 2) Likewise, East Gippsland Shire stated: Tourism developments such as accommodation, resorts etc. are generally not allowed in Farm Zone 1 or Rural Conservation Zone. For example, on the Banksia Peninsula in East Gippsland there are a number of tourist accommodation/developments. The zones are usually Farming or Rural Conservation Zone. Council has been able to allow some minor

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upgrades/expansion as the uses enjoy existing use rights, however these zones limit the existing developments from substantially expanding. (sub. 11, pp. 1–2) A recent report for the South Gippsland Shire stated: The Farming Zone places significant limitations on tourism use and this is the predominant rural zone in South Gippsland Shire. [And] These limitations make it difficult to address the key tourism infrastructure gaps identified for South Gippsland Shire, including the need for more large scale, quality accommodation establishments and backpacker/caravan parks. (Urban Enterprises 2010, p. 2) Tourism businesses also identified restrictive land-use zones as an impediment to tourism investment in Victoria. Lorne Bush House Cottages submitted: … we recently made application to the Surf Coast Shire to erect a large free fly aviary on our property and associated wildlife education, as a tourism attraction for both local and international visitors to our area. The concept had the support of the councillors, the Surf Coast tourism board, the Surf Coast economic development committee and our local visitor information centre yet the Surf Coast Shire planning office refused the application as it was not an allowable use in a rural conservation zone. (sub. 35, pp. 3–4) Fosters Group submitted that the provisions of the Green Wedge Zone, specifically the limits on restaurant seating (150 patrons) and minimum subdivision requirements had impeded its ability to expand the operations of a winery in the Mornington Peninsula (sub. DR97, p. 2). Several previous reports on aspects of Victoria’s land-use planning system have identified similar concerns about the provisions and application of the Farming, Rural Conservation and Green Wedge zones. A recent review of the impact of the planning system on rural land use also identified concerns about inflexible land-use zones. The 2009 report of the Rural Planning Group was commissioned under the Future Farming Strategy, to examine rural land-use planning in the context of long-term trends in agriculture. The Group reported the results of a confidential study for the Department of Industry, Innovation and Regional Development (now the Department of Business and Innovation), which concluded the implementation of the rural zones had unnecessarily impeded tourism investment. That study found the issues impacting on tourism included: • the structure and strategic adoption and implementation of the rural zones and uses associated with natural systems • inflexibility and limited discretion particularly related to primary produce sales, places of assembly and interpretation centres, and the status of innominate uses • ancillary tourism uses that require a nexus with the Farming Zone (the ‘in conjunction with’ clause). For example, tourism uses in conjunction with

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agriculture, a winery or other rural industry can require forced linkages, which are open to significant interpretation and challenge. • thresholds for uses in zones which can limit commercial viability of proposed uses such as restaurants and accommodation. Minimum lot sizes and buffers can also have an impact. (Rural Planning Group 2009, p. 28) The Commission also heard from participants that the provisions of the Green Wedge and rural zones have prevented the growth and diversification of existing tourism businesses. These zones limit the scale of activities, such as the limits on bedroom numbers and restaurant patrons in the Green Wedge Zone. Further, a planning permit is required for a change of use, such as for expanding a restaurant into a functions centre. At the Commission’s roundtable meetings with regional businesses, several established businesses advised they had been refused permission to expand their businesses or had experienced difficulties obtaining permission. Several submissions also indicated the restrictive provisions of the Farming and Rural Conservation zones and the Green Wedge Zone impede diversification and adaptation in the agricultural sector. According to the Cardinia Shire Council: Current restrictive legislation on farm gate sales in the Green Wedge hinders the success of Bunyip Food Belt project. It limits opportunities for development of produce/food co-operatives, business clusters, local produce branding, regional produce showcasing and major event centred around local produce production. This would create destination tourism opportunities and more business development in culinary and agri-tourism. (sub. 41, p. 7) Likewise, the Interface Councils—a body representing the nine councils on the outer edge of metropolitan Melbourne—submitted that: [The] Green Wedge zones restrict the ability of farmers to diversify (as noted on page 64 of the [draft] report) and Interface Councils agree that this is the case. For example, the sale of value-added products in the Green Wedge Zone may be prohibited. With the exception of wineries, agricultural producers may not be permitted to sell value-added products on site. Interface Councils understand there is a large and growing market for fresh produce and associated homemade products that growers are unable to capitalise on. (sub. DR111, p. 5) The report of the Rural Planning Group also found the rural zones restrict agriculture-related activities: The zones that apply to rural land are generally too restrictive to allow the range of uses that are increasingly associated with farming and agriculture. For example, in the Farming (FZ), Rural Activity (RAZ) and Rural Conservation Zones (RCZ), any use that is defined as ‘industry’ and cannot be defined as ‘rural

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industry’ … is prohibited. Primary produce sales in rural zones are restricted to unprocessed products sourced from the same property or adjacent land. (Rural Planning Group 2009, p. 27) Concerns about the restrictive nature of the Farm and Rural Conservation zones appear to stem from the development and introduction of new rural zones in 2004. The Rural and Regional Committee of Parliament report on rural and regional tourism found: A ‘blanket’ translation of the ‘rural land’ category into the new ‘Farming Zone’ has failed to account for the changing needs of tourism businesses operating from properties now zoned as farms. As a matter of urgency, the Committee recommends that the State Government investigate the impact of the new Farming Zone regime and its implementation, with a view to facilitating and speeding up the process of review and rezoning of Rural Activity zones. (Victoria Parliament Rural and Regional Committee 2008, p. 121) Similarly, Victoria’s Nature-Based Tourism Strategy 2008–2012 stated: The transition to the new zones has presented a barrier to private investment into nature-based tourism experiences on land adjacent to national parks, as most private land around Victoria’s key nature-based tourism attractions is primarily Farming Zone, providing mostly for farming and conservation of natural values. (Tourism Victoria 2008a, p. 39) Since the introduction of the new zones, some councils have reviewed their planning schemes to better tailor the zones (section 3.3.1). These reviews may not have helped reduce the barriers to tourism activities, however, Geelong Otways Tourism stated: The Rural Activity Zone is very flexible and has the capacity to support all manner of activities including developments that are not related to agricultural land use. We would encourage the allocation of this zone in areas around coastal townships and areas of other tourist activity. It should be noted that the City of Greater Geelong has no Rural Activity Zones (RAZ) as part of its Rural Land Use Strategy, which is currently in draft stage. This means that for any tourism development of size to be considered, it will require the cumbersome task of having parcels of land rezoned from either RFZ or RCZ. I believe that this also identifies that there is no clear vision for where the City would prefer to direct tourism growth in the future and that the strategy of non declaration of any RAZ’s means that the City will be reactive and not take a leadership role. (sub. 9, p. 4) While some participant concerns arose because the new rural zones were applied in a broad way, other concerns appear to reflect either council reluctance or inertia in applying more flexible zones to a wider area of land suitable for tourism activities. The reluctance to apply more flexible zonings (such as the Rural Activity Zone) may reflect several factors:

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• an assumption that potential conflicts between agricultural land and non- agricultural land uses are best managed by prohibiting non-agricultural developments in areas where agriculture is the primary or traditional land- use • concerns that approving tourism developments in rural areas could set an undesirable precedent for landholders who would like to subdivide agricultural land for residential purposes • views that new tourism developments should be located within existing town centres to minimise potential land-use conflicts and make best use of existing community infrastructure • concerns that allowing further tourism developments would degrade the ‘character’ of small towns and rural areas, particularly in areas popular with visitors. The Victorian Farmers Federation (VFF) considered that that pattern of current land-use zoning may reflect the specific preferences of local communities: The Rural Activity Zone does provide greater flexibility over use of land for other purposes in conjunction with agriculture. It does however appear that there has been a reasonably clear message sent from municipal councils that they do not wish this level of flexibility within their Shires otherwise uptake of this zone would have been greater than what it currently is. (sub. DR105, p. 12) Some councils also do not have the financial capacity or staff to review and amend their planning schemes so more appropriate zones apply to areas of private land suitable for tourism developments. To assist councils, the previous government developed a rural land-use planning program: The Government has funded the Rural Land-Use Planning Program so that councils can advance necessary strategic planning work to better apply the new rural zones, and hence facilitate nature-based tourism developments. (Tourism Victoria 2008a, p. 39) Despite the widespread use of restrictive land-use zones, applicants for a tourism related development could seek permission to rezone land. Rezoning would require an amendment to the local planning scheme, which is extremely costly and time consuming for applicants and councils, and thus only a realistic option for a few large-scale tourism developments. The Corangamite Shire noted a study for the Shire on tourism opportunities indicated the private sector was unwilling to go through the planning scheme amendment process to rezone land. The study thus sought to identify strategic sites that could be rezoned to facilitate tourism (sub. 50, p. 2). The costs to business of seeking to amend a planning scheme were highlighted in a study for the Commission’s inquiry into local government regulation. The Allen Consulting Group estimated the administrative costs to applicants of seeking

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approval to amend a planning scheme could average between $100 000 and $320 000, depending on the complexity of the issues (Allen Consulting Group 2010, p. 15). Some of these costs were due to the lengthy delays in the approval of an amendment, with some reports indicating the average elapsed time for an amendment is two to three years.

Local policies and tourism Many participants identified the provisions of the Green Wedge, Farming and Rural Conservation zones as the major regulatory barrier to the development of the tourism industry. However, participants also identified local policies that guide council implementation of municipal planning schemes as a potential barrier. Local policies exist to benefit local communities and visitors—such as by protecting amenity and views in scenic or rural locations—and in doing so may constrain the scale or nature of activities needed to achieve these objectives. They may thus end up discouraging tourism developments. The Victorian Caravan Parks Association submitted some local policies impede the development of new tourism infrastructure. It gave the example of a proposed planning scheme amendment in the Mornington Shire that would set restrictive conditions on the development of new caravan parks in the Green Wedge Zone: ... [the] proposed Mornington Planning amendment C133 … seeks to redefine what should be the nature of a caravan park situated in the Green Wedge Zone. It proposes limits on the number of sites (100); the number of ‘built form’ (cabins, annuals & residents) to 15; maximum cabin size of 60 m2; minimum land size of 40 hectares; distance from urban boundary of at least 2 km. (sub. 26, p. 4) To look at the possible impact of local policies, the Commission reviewed a number of council planning schemes to identify relevant planning objectives and controls (box 3.2). This review identified that objectives relevant to tourism range from encouraging tourism development, to discouraging non-agricultural activities such as tourism in the rural zones. The sample of local policies highlights how tourism developments in an area depend not only on how the land is zoned, but also on the local policies that guide councils in assessing permit applications.

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Box 3.2 Local planning policies affecting tourism activities Some local policy requirements may impact directly or indirectly on tourism activities in regional areas, as in the following examples from planning schemes covering Corangamite, Mornington Peninsula, Casey and Greater Geelong. Corangamite Shire The Shire’s Economic Development policy (cl. 22.03-1) states ‘Agricultural land will be protected as an economic and environmentally valuable resource. Conversion of land to non-soil based use and development will be strongly discouraged unless there is no other suitable site for the proposed use and development and overwhelming public benefit is demonstrated.’ This policy applies to all land in the rural zones. The Shire also has a Tourist Use and Development policy (cl. 22.03-4), with the following objectives: • to support quality tourist development in association with the landscape and the heritage values of rural and urban areas • to promote coastal related use and development to be focused in the towns of Port Campbell and Princetown • to encourage tourism development related to agricultural and other rural based industries. Mornington Peninsula Shire The LPPF states that key objectives of planning in the Shire are to: • protect and conserve the rural landscape and character of the Peninsula as a major recreational resource for both the local and wider metropolitan community • supporting the continued agricultural use of land by avoiding the establishment of uses that may exclude or limit legitimate rural activities and farm management practice • promote the growth of major and township activity centres and avoid inappropriate out-of-centre commercial developments (cl. 22.07-1). To give effect to these objectives, the local planning policy states ‘applicants for commercial development [in the Green Wedge or Farming Zones] must demonstrate that their proposal addresses a need or gap in the tourist industry and is not dependent on the development of other residential or commercial activities on the site or in the locality,’ and ‘Restaurant facilities in rural areas should generally avoid night time operation due to the potential impact on rural amenity from additional traffic, noise and light’ (cl. 22.07-3). (continued next page)

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Box 3.2 Local planning policies affecting tourism activities (continued) City of Casey The Non-Agricultural Uses in Green Wedge Areas policy (cl. 22.21) applies to all land in a Green Wedge, Green Wedge A and Rural Conservation zones, where a permit is required to establish a non-agricultural use. It is policy that: • Green Wedge areas be used predominantly for sustainable agricultural production and related purposes • non-agricultural uses, except those uses that operate in conjunction with related agricultural activities on the land, be located adjacent or close to urban or township areas, to reduce car dependency and maximise accessibility to public transport (clause 22.21-3). City of Greater Geelong The Tourism Development in Rural Areas policy (clause 22.06) applies to all land zoned Farming, Rural Activity and Rural Conservation, and states: Council recognises that there are opportunities to enhance the tourism industry in the region through the provision of a small number of rural based, larger scale, high quality tourism developments that are ancillary to or associated with the farming or rural use of the land. These developments can be facilitated by the strategic application of an appropriate zone.

Source: Various planning schemes.

Other regulations applying to land use and development While this chapter focuses on land-use planning controls that may restrict tourism development on private land, a number of submissions identified potential barriers to investment on Crown land. Several submissions identified policy and regulation as a major barrier to private investment in national parks (chapter 4). In addition, some submissions identified the State Government’s Coastal Strategy as a potential impediment to development on, or adjacent to, Crown coastal foreshore land. The Colac Otway Shire considered the Victorian Coastal Strategy’s principles for deciding on the use of coastal Crown land could be interpreted quite strictly to block developments that benefit local communities and the State economy (sub. 45, pp. 3-4).

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3.2.2 Complexity and costs of land-use planning regulation Several participants considered planning regulation generally is excessively complex and uncertain, and councils’ administration of the regulations has imposed unnecessary delays and unreasonable cost burdens on business. These more general concerns about the land-use planning system have been raised in previous Commission inquiries. The recent inquiry into local government regulation, for example, examined councils’ administration of land-use planning regulation. Commissioned research for the inquiry found: • paperwork for preparing planning permit applications costs Victorian businesses $179 million per year, along with a further $183 million per year in costs arising from unexpected delays in planning processes • over half of all businesses that had dealt with local government on land-use planning issues reported their most recent dealing had a negative impact on their business (VCEC 2010a). The inquiry examined ways to tackle business concerns about the uncertainty, time and costs resulting from the administration of the land-use planning system. At the time this report was finalised, the Government had not released the Commission’s final report or responded to the recommendations. In the draft report into local government regulation, the Commission considered improving: • strategic planning to clarify state and local government objectives for land- use and development, resolve tensions between the objectives of these two levels of government, and simplify the SPPF • councils’ processes by means such as allowing private assessors to decide on simple planning permits, and improving internal processes (for example, using more pre-application and pre-lodgement certification) • councils’ incentives to administer planning more efficiently, by introducing more comprehensive performance reporting and evaluation of the system’s performance • resources and skills, by easing restrictions on fee setting and supporting training (VCEC 2010a). Tackling the generic issues of uncertainty, time delays and costs through systemic changes to the planning system can benefit all users of the planning system, including those relating to tourism. Some submissions, however, also advocated targeted measures to reduce uncertainty, time and costs for tourism developments. Examples included creating tourism-specific zones and state-led project facilitation (section 3.3.2). Submissions noted such a targeted approach may be justified because permit applications for tourism developments such as accommodation are often more complex than other types of application. The Tourism and Transport Forum (TTF) (sub. 44, pp. 22–3) submitted proposed

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tourism investments often raise complex policy and technical issues. These complexities may arise from the proposed location (along coastlines or in environmentally sensitive areas), the size and complexity of the proposed development (which may involve a mix of uses catering to tourists as well as permanent residents), or local fears about the loss of local amenity from increases in visitor numbers. To test the view that tourism permit applications differ from other types of applications, the Commission examined recent data on the administration of planning regulation. The Department of Planning and Community Development (DPCD) collects statistics for all planning permit applications lodged in Victoria. The statistics include: • a description of the proposed development • the estimated value of the project • the complexity of the application (simple, average or complex), based on a planning officer assessment of the amount of time required to assess the proposal • information on various process steps, such as whether the responsible authority requested further information, referred the application to one or more referral authorities, or required public notification of the proposal • whether there were objections to the proposal • whether the appeals tribunal (VCAT) considered the application • the outcome of the assessment (such as whether the application was approved or rejected) • the number of elapsed days between lodgement of the application and a final decision. The Commission obtained this information for 248 recent planning permit applications with a project value greater than $5 million and with a tourism- related component. These applications contained one of a number of tourism- related terms in the description of the permit application.1 While the Commission could not identify applications with complete confidence, it compared the assessment process and outcomes for these tourism-related projects with all large ($5 million or more) developments. A comparison of the characteristics of high-value permit applications for tourism-related projects and all high-value projects somewhat supports the view that tourism-related projects tend to be more complex than other types of applications (figure 3.2). The evidence indicates tourism-related planning

1 The terms used were: Tourist accommodation, Short-term accommodation, Residential hotel, Group accommodation, Serviced apartments, Bed & breakfast, Host farm, Camping and caravan park, Exhibition centre, Function centre, Hall, Recreation facility, Market, Restaurant, Café and Retail premises.

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applications, compared with all high-value applications, are perceived by council planners as being more complex and are more likely to: • require referral to one or more regulatory bodies • require the provision of further information • be notified to the public and to attract objections • to end up at appeal to VCAT.

Figure 3.2 Characteristics of tourism-related planning applications

100%

Tourism-related applications 90% All applications 80%

70%

60%

50%

40%

30%

20%

10%

0% Complex Referrals Further Public notice VCAT appeal Objections application information

a This figure compares the characteristics and process steps for planning permit applications that involved an estimated cost of work of $5 million or above. ‘All applications’ cover all planning permit application decided in 2008-09; ‘Tourism-related applications’ include all applications identified in a keyword search of the description of the application. The sample of tourism-related applications covers those decided since 1 July 2008, not just those decided in 2008-09.

Source: Commission analysis of planning permit activity data collected by the DPCD.

The median timeframe for determining high-value tourism-related projects (229 days or 32 weeks) is greater than the median timeframe for all high-value applications (189 days or 27 weeks). However, a comparison of the average timeframes suggests the timeframes for tourism-related applications are more variable, averaging 305 days compared with an average 239 days for all high- value projects.

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These results and the findings are subject to important qualifications: • It was difficult to identify applications that were predominantly tourism- related. A large number of the applications were for multi-purpose developments comprising a mix of residential apartments, serviced apartments, and space for retailing and restaurants. In most cases, the Commission could not assess whether the development was designed for short-term or residential accommodation. • Different time periods were used in the comparison, with details available for all applications decided in 2008-09. The tourism-related applications covered a longer period (all those lodged since 1 July 2008). • It was difficult to determine the reasons for differing average levels of complexity, notification and so on—better data and more detailed analysis would be required to determine whether the differences shown in figure 3.2 are statistically significant.

3.2.3 The Commission’s view The submissions, other recent reports and the Commission’s discussions and research indicate elements of Victoria’s land-use planning system are impeding the development of the tourism industry in parts of regional Victoria and in Green Wedge Zone areas. The feedback and evidence also suggest the administration of land-use planning regulation is imposing unnecessary uncertainty, time delays and costs on Victorian tourism businesses. The Farming and Rural Conservation zones effectively prohibit a variety of tourism activities in areas that could attract additional tourism investment, such as South and East Gippsland and areas along the Great Ocean Road. The impact of these zones on tourism investment is exacerbated by the broad way in which they have been applied across the State. The option of applying for a planning scheme amendment to rezone land is a slow, costly and uncertain process for businesses. Closer to Melbourne, the Green Wedge Zone, while allowing a wider range of tourism activities, also restricts the nature and scale of tourism activities. It limits the capacity of existing tourism businesses to expand, and discourages new investment in tourist facilities such as accommodation and recreational facilities. Further, a noted purpose of the Green Wedge and Rural Conservation zones is to protect agriculture, but the zones restrict the ability of farmers to diversify. In the rural zones, farmers are currently restricted to selling produce, in the form of unprocessed products, sourced from their property or adjacent land (Rural Planning Group 2009, p. 27).

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The local policies of some councils may also impede tourism investment. Some council policies discourage tourism developments outside town centres, or place stringent conditions on the size of buildings and other matters that affect the viability and cost of such developments. The extent of the impact of land-use planning regulation and its administration on the tourism industry is difficult to quantify, mainly because it is hard to identify investment that did not occur because land-use controls, local policies and/or the administration of land-use planning regulation prevented it. The Commission also acknowledges the zones and local policies are intended to benefit local communities, such as by maintaining the amenity and environmental and heritage values that are important to residents and visitors alike. In this context, the challenge is to reduce barriers to tourism activities without undermining the values that contribute to the ‘attractiveness’ of locations.

3.3 Opportunities for improvement Participants suggested ways to remove the investment barriers created by land- use planning regulation and its administration, and to reduce the uncertainty, time and costs to tourism businesses in navigating the planning system. The suggested improvements can be grouped into four main categories: (1) improving strategic planning to provide clearer guidance on the opportunities and constraints facing tourism-related land uses (section 3.3.1) (2) removing specific barriers to worthwhile tourism activities in the planning regulations, especially in key land-use zones (section 3.3.2) (3) improving processes for assessing permit applications for tourism-related activities (section 3.3.3) (4) reducing the complexity of planning regulation more generally (section 3.3.4). The Commission identified criteria for assessing the advantages and disadvantages of these options (table 3.2).

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Table 3.2 Criteria for evaluating improvements to land-use planning regulations Criteria Comment Allows higher valued Options should not prevent a higher valued use of land if there use of land are alternative ways to deal with infrastructure constraints and spillover impacts of land uses. Is simple The change should reduce the complexity of the land-use planning system rather than adding to an already extremely complex set of objectives and requirements. Increases certainty Reflecting the value to business of an early ‘no’, the process should progressively reduce uncertainty to business. Is capable of council Options ideally would simplify councils’ tasks. Previous studies, implementation using including some by the Commission, found gaps in councils’ existing resources incentives and resources (staff and funding) to efficiently and effectively administer planning regulation.

A key criterion for assessing options is whether the approach facilitates land-use change to higher valued uses. An important caveat is that the private and social values of land-use may differ, given spillovers from particular uses (such as odours and noise from farming activities, or the loss of environmentally significant native vegetation). These values may also differ as a result of the way basic infrastructure and other services are provided to residents and businesses. For equity reasons, some infrastructure services (for example, roads, emergency services, healthcare and schools) are funded predominantly through rates and taxes, as opposed to use charges. This approach weakens incentives to locate housing and businesses close to existing infrastructure, resulting in greater dispersal than is socially desirable. Restrictions on activities such as rural subdivision and the development of more intensive forms of land use (such as tourism accommodation) are one method of dealing with the spillover effects of farming activities and incentives for dispersal. However, such restrictions may prevent or slow the conversion of land from a low-valued use (for example, farming in an area with poor soils or lack of water) to a higher valued use (such as tourism accommodation or recreation facilities). In evaluating options, the Commission thus considered whether incentives for dispersal and spillover effects can be managed in other ways, to allow land uses to shift to higher valued uses. It considered, for example, whether issues such as noise or odours can be managed through existing industry codes (such as those applying to intensive animal industries) or conditions on a council permit (such as buffers to separate conflicting uses, or the installation of double-glazed windows). Likewise, the Commission considered whether incentives for

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dispersal, especially of housing, can be managed through both the planning permit process and pricing mechanisms such as development contributions. The Commission also assessed whether the options enhance or reduce certainty for investment. Previous work by the Commission highlighted the value that business attaches to receiving a clear ‘no’ or ‘go’ in the early stages of development approval processes. An early ‘no’ helps the business avoid spending unnecessary time and effort on proposals unlikely to be permitted under any circumstances; likewise, an early ‘go’ gives business the confidence to plan based on an understanding that council will support a project subject to specific conditions. The prohibition on certain tourism activities in some rural zones is consistent with council providing an early ‘no’, but it assumes existing agricultural land uses and tourism-related land uses are necessarily incompatible, and spillover effects and dispersal cannot be managed in other ways. This assumption leads to a waste of opportunities. Consistent with this approach, the Commission also assessed whether options provide increased certainty to business by better clarifying the policy outcomes and objectives that state and local governments want to achieve. Such clarity benefits applicants (including those in the tourism sector) by assisting the early identification of development constraints, encouraging better targeting of council and applicant resources at managing the impacts of a proposed development, and facilitating fast-track assessment of relatively simple matters.

3.3.1 Improving strategic planning Several participants suggested addressing the impediments to tourism investment by improving the strategic framework that guides the administration of land-use planning controls. The TTF (sub. 44) advocated strengthening strategic planning by: • developing forecasts for visitor night growth and short-term accommodation supply needs • encouraging councils to make more use of the more flexible Rural Activity Zone • encouraging councils to improve their strategies for directing future growth in their tourism industries (but in a way that does not limit development to existing townships). Similarly, VTIC (sub. 40) advocated: • developing a state-wide tourism development master plan that identifies key areas predisposed to tourism infrastructure development • identifying ‘as-of-right’ use provisions for tourism developments in locations predisposed to tourism infrastructure development.

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The strategic framework currently involves a number of elements, including the SPPF and public strategies such as: • 10 Year Tourism and Events Industry Strategy (DIIRD 2006) • Concept Proposals for Tourism Development in Victoria (Tourism Victoria 2005) • Victoria’s Nature-based Tourism Strategy 2008–2012 (Tourism Victoria 2008a) • Regional Tourism Action Plan 2009–2012 (Tourism Victoria 2008b). These strategies identified broad actions and priority projects in each major region, as well as actions to address the barriers to development of the identified projects. In particular, the Regional Tourism Action Plan identified priority private and public sector projects for each tourism campaign region (table 3.3) and performance targets (covering indicators such as visitation to each region and visitor spend).

Table 3.3 Priority tourism infrastructure projects in regional Victoria Campaign region Priority projects Daylesford and Accommodation based on spa, food, wine and wellbeing products. Macedon Ranges Gippsland Boating infrastructure and accommodation, including nature-based tourism product linked to the walks on public land. Goldfields Hotel accommodation, conference and golf facilities, boutique accommodation associated with heritage, culture, arts, and food and wine product, and accommodation to support the Goldfields Track. Grampians Accommodation to support the proposed Grampians Peak Trail, accommodation associated with food and wine product, and climbing (Mount Arapiles). Great Ocean Investment in a range of products, including high-end, large-scale and Road boutique accommodation at key locations along the Great Ocean Road to induce overnight visitation and capitalise on the natural assets of the region; accommodation to support the Great Otway National Park and Great Ocean Walk; development at existing harbours (for example, Apollo Bay, Portarlington and Geelong Waterfront); convention facilities; dive site attractions; and interpretative centres. Mornington Boat harbours and facilities, large-scale accommodation and conference facility, Stony Point Passenger Car Ferry project and accommodation, conferencing and marine infrastructure at Point Nepean. (continued next page)

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Table 3.3 Priority tourism infrastructure projects in regional Victoria (continued) Campaign region Priority projects Murray Large-scale accommodation and conference facility (Mildura, Wodonga and Yarrawonga), nature-based visitor accommodation and a river trail, and accommodation and other facilities at Port of Echuca, Swan Hill Pioneer Settlement, Mildura and the Bonegilla Migrant Centre. Phillip Island Accommodation linked to golf and racetrack facilities and the Cowes to Stony Point passenger–car ferry. High Country Redevelopment of the Mount Buffalo Chalet, nature-based accommodation linked to the alpine trail, accommodation in the resorts and surrounds, a High Altitude Training Centre at Falls Creek, and tourism projects along rail trails. Yarra Valley Accommodation and regional conference facility, development of the and Puffing Billy Railway, tourism projects along the Lilydale – Healesville Dandenongs Rail Corridor, nature-based and adventure tourism and product, accommodation associated with nature-based attractions and food and wine products.

Source: Tourism Victoria 2008c.

Despite a number of state and regional tourism strategies being developed, the outcomes desired by the State Government are not well connected to the local policies and planning controls in local planning schemes. For example, the Regional Tourism Action Plan does not appear to be referenced in local planning schemes. As a result, councils are not obliged to consider the strategy’s objectives when applying land-use controls such as zones or in assessing applications for tourism investment.

The Commission’s view Strategic planning is important for managing the development of tourism attractions. It provides an avenue to clarify state and local government objectives for the tourism industry, and resolve any major tensions between state and local objectives, so these tensions are not left to applicants and councils to resolve through the process of developing investment proposals and applying for planning permission. Strategic planning also provides for reviewing land-use controls such as zones and overlays, to ensure they reflect state and local objectives but also impose the minimum control necessary to achieve these objectives. The draft report of the Commission’s inquiry into local government regulation argued many of the perceived problems of land-use planning arose because state

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government and council objectives for land-use and development often fundamentally diverge (VCEC 2010a). The key divergence is the relative priority accorded to protecting neighbourhood character and encouraging more intensive residential development in Melbourne and the regions. In the current inquiry, a similar divergence exists between the State Government and some councils: • One objective of the SPPF is ‘To encourage tourism development to maximise the employment and long-term economic, social and cultural benefits of developing the state as a competitive domestic and international tourist destination’. • Some councils give higher priority to preserving the landscape and natural values of peri-urban and coastal areas than to encouraging some types of tourism development. Some local policies thus concentrate new developments in existing towns, require applicants to demonstrate a tourism need or gap in the market, and limit the scale of activities (such as caravan parks). The local government regulation inquiry found a failure of strategic planning (at the State, regional and local levels) to resolve these tensions adequately results in conflicting objectives being resolved case-by-case through the land-use planning permit process, which can lead to uncertainty, inconsistency, lengthy delays and high costs to both applicants and councils (VCEC 2010a, p. xxxii). To address some of these issues, the State Government recently initiated development of state-wide and regional strategic plans. The intent is to develop a state-wide blueprint and corresponding regional land-use plans for managing future population growth in regional Victoria. Regional groups, with representation from Commonwealth, state and local governments, are to develop regional land-use plans. The early focus is on the major regional centres (Geelong, Ballarat and Bendigo) and coastal areas and it is expected that one of the outcomes of this process will be to identify sites that are suitable for rezoning to the more permissive Rural Activity Zone. The process of developing regional strategic land-use plans should help to address the regulatory barriers to tourism investment in regional areas if state and local objectives for tourism are better aligned and significant areas of land are rezoned to more flexible zones such as the Rural Activity Zone. In its draft report, the Commission stated that the development of regional strategic land-use plans could assist in addressing some barriers to tourism development along side other important land-use issues. Focusing on tourism, the Commission indicated that the process of developing regional strategic land- use plans should involve: • reviewing and clarifying state and local government objectives and desired outcomes for tourism, such as facilitating tourism investment in particular

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areas and/or particular types of product (such as nature-based tourism) subject to the project meeting environmental, social and other objectives • obtaining direct input from the tourism industry to identify suitable locations for tourism investments and how to improve regulatory controls and permit assessment processes (by, for example, using more flexible zones such as the Rural Activity Zone) • identifying opportunities to simplify approval processes (for example, the development of appropriate zones that provide ‘as-of-right’ development rights for uses such as accommodation and restaurants, and standard conditions for fast-tracking assessment (through a process such as the code assess track as discussed below) • ensuring councils have the skills and resources to develop land-use plans, review local policies, and identify and apply appropriate controls such as zones and overlays. A number of participants supported improved strategic planning as a means for identifying and addressing specific barriers to tourism development in regional Victoria. Some also noted that some councils have already commenced the process of revising their planning schemes to update local policies and identify opportunities to rezone land to allow tourism-related uses. For example, Corangamite Shire Council recently undertook a tourism opportunities study and has proposed a planning scheme amendment that would rezone 20 sites to facilitate the development or expansion of a variety of tourism developments (Corangamite Shire nd). The VTIC supported revision of the State Government’s objectives for tourism, and indicated that this should involve a review of existing plans, and an assessment of the status of their implementation. This review would cover the 10-Year Tourism and Events Strategy, regional tourism strategies and the report on Concept Proposals for Tourism Development in Victoria (sub. DR98, p. 2). Colac Otway Shire stated: As a member of the G21 Region Alliance Colac Otway Shire is represented on the Steering Group for the development of the Regional Land Use Plan. This will be an appropriate forum to explore the restrictive nature of land use planning zones in relation to the development of the Tourism Industry as all participating Shires [Colac Otway, and Surf Coast Shires, Borough of Queenscliffe and City of Greater Geelong]. These are all areas where the restrictive nature of the current State Planning Scheme holds back the development of tourism investment that would provide direct and indirect income and/or employment for local people. (sub. DR66, p. 3)

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The Victorian National Parks Association (VNPA) also supported a more strategic approach as a means for addressing impediments to the development of tourism facilities on private land adjacent to national parks. It stated: VNPA supports the need for clarity within the State Planning Policy Framework to facilitate tourism uses on private land. However, this needs to be done with care as there may be perverse outcomes if one use is favoured over the other without good reason - e.g. farming vs tourism. We are aware of a number of examples whereby significant tourism development adjacent to national parks has failed due to impediments in the planning process. A classic Victorian example is a proposed private development immediately outside the entrance to Wilsons Promontory National Park. Despite years of planning for the Wilsons Promontory Nature Retreat, and considerable private investment in rehabilitating coastal wetlands on the property concerned, planning regulations have stymied construction of the proposed tourist accommodation. (sub. DR110, p. 9) Some participants believe existing strategic frameworks are adequate for addressing the challenges facing the Victorian tourism industry or cautioned against providing preferential treatment for the tourism industry over other forms of land use, such as agriculture. The Mornington Peninsula Shire, for example, stated: The VCEC [draft] report recommends a regional land-use planning approach in Victoria, however for the Mornington Peninsula, at least, this already exists through the current mechanisms (i.e. the State Planning Policy Framework (SPPF) with reference to the Metropolitan Strategy, Melbourne 2030 and other regional plans such as Coastal Action Plans, Regional Catchment Strategies and the Planning Scheme itself which is required to undergo a four yearly review. The strategic planning issues identified in initially identified in the 1970s, particularly the demand pressures from increasing population growth in the Melbourne region and the need to recognise the special long term values of the Peninsula, are still highly relevant and the VCEC report presents no new evidence that would justify a change in the current strategic planning approach to tilt the balance towards modifying current planning provisions to allow additional scope for tourist related investments “at any cost”. (sub. DR61, p. 6) Notwithstanding this view, the conclusion that existing strategic frameworks are failing to adequately address the challenges facing the Victorian tourism industry is supported by several types of evidence. The evidence includes the lack of clear connection between state objectives for tourism as set out in the SPPF and the various tourism strategies, the findings of the review of rural planning (Rural Planning Group 2009), the commencement of work on regional strategic land-use plans, and submissions to this inquiry.

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Improving strategic planning is an important step in better aligning state and local objectives for the development of the tourism industry, providing greater certainty for business, and simplifying approval processes. Strategic planning can also support the effective implementation of other reforms to land-use planning arrangements. The Commission therefore considers that the Victorian Government should review its objectives for tourism, as set out in state planning policy and various tourism strategies, and incorporate its revised objectives and strategies in planning provisions. A possible avenue for reviewing the State’s objectives for tourism is through the review of Victoria’s planning provisions flagged in the Victorian Liberal Nationals Coalition Plan for Planning. The policy proposed a full review of Victoria’s planning zones to ensure they are functioning correctly and their schedules are still relevant (Liberal National Coalition 2010, p. 14).

A number of implementation issues will need to be addressed to deliver a more effective strategic framework for tourism development in regional Victoria. Once the State has clarified its objectives for the tourism industry, it will be necessary to also review local planning policy objectives and planning schemes to ensure they are consistent with the State objectives. While the State Government is responsible for ensuring its objectives for the industry are clearly specified, local councils have a responsibility to ensure that their planning schemes are capable of delivering the desired outcomes. To deal with potential conflicts between state and local objectives for tourism, the State Government will need to be clear about the processes for intervening to ensure its objectives are reflected in regional land-use plans. Regional land-use plans also provide an opportunity to address barriers to tourism developments in the planning system, such as inappropriate application of rural zones, the permit requirements in the Farm, Rural Conservation, Rural Activity and Green Wedge zones. To ensure that commercial considerations are reflected in the application of zones, the process of developing regional land-use plans should consult extensively with the tourism industry.

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Recommendation 3.1 That the Victorian Government revise its objectives for tourism development and incorporate them in the State Planning Policy Framework. The Victorian Government’s role is to clearly indicate the outcomes it expects from the administration of land-use planning regulation for the tourism industry, such as the facilitation of tourism investment in particular areas of the State and/or particular types of product (such as nature-based tourism). Local government is accountable for ensuring that their planning schemes are capable of delivering the State’s objectives for tourism through approaches that have regard to the objectives of the communities they represent.

Recommendation 3.2 That the Victorian Government implement a strategic approach to land-use planning for tourism, so as to: • address tourism issues in developing regional land-use plans • engage the tourism industry in the development of regional strategic land-use plans • ensure local planning objectives are clarified and consistent with the State’s objectives • revise the application of land-use controls and approval processes to identify opportunities to proactively rezone land • indicate the circumstances and processes whereby the State will intervene to ensure that local councils’ planning schemes are capable of delivering the State’s objectives.

Improved strategic planning would assist in addressing some of the barriers to adaptation, risk-taking and innovation by the tourism industry but by itself, it is not likely to be sufficient to address these barriers. The processes of reviewing and clarifying state planning objectives for tourism and developing and applying regional land-use plans would take a considerable period of time. Even then, such plans would need to be reviewed periodically to ensure they remain current. The Commission has previously expressed the view that many councils lack the financial resources and skilled staff to undertake strategic planning. Reflecting these issues, the next section examines complementary reforms of land-use planning regulation, which may allow for improved outcomes in a shorter period than needed to improve strategic planning.

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3.3.2 Removing regulatory barriers to tourism investment As discussed, participants representing the State Government, councils and the tourism industry consider changing land-use zones could address the major planning impediments to investment in tourism activities. Two broad approaches were suggested: (1) Provide more flexibility for tourism activities in current zonings and local policies. (2) Create tourism-specific zonings and apply these to land considered to be attractive to tourism investors.

More flexible land-use controls As discussed, the provisions of the Farming, Rural Conservation and Green Wedge zones, and the administration of land-use planning regulation more generally, have impeded adaptation, risk-taking and innovation by the Victorian tourism industry. Participants suggested that changes to the zones and to planning processes for tourism activities are needed to address these barriers. A number of specific changes could be made to the Farming, Rural Conservation and Green Wedge zones: • Remove or raise the limits on the scale of tourism activities, such as the limits on patron and guest numbers in restaurants, function centres and residential accommodation. This could involve allowing B&Bs accommodating more than six guests to be built without a permit, reducing the minimum lot size requirements for various retail and accommodation uses below the current minimum of 40 hectares, increasing the maximum numbers of restaurant patrons and number of bedrooms/dwellings for residential hotels/group accommodation. • Remove from the Farming, Rural Conservation and Green Wedge zones the requirements to undertake tourism activities ‘in conjunction with’ specific activities such as agriculture, rural industry, an outdoor recreation facility, or a winery. • Allowing a wider range of tourism activities such as tourist accommodation, function centres, recreation facilities and restaurants. This could include allowing camping and caravan parks, hostels and backpackers’ lodges in the Rural Conservation and Farming zones, as well as retail activities that are associated with tourism developments. • Amending the Green Wedge and Rural Conservation Zones to remove or modify the requirement that a permit be obtained to lease or licence a portion of a lot for more than 10 years, for accommodation purposes.

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In essence, these changes would provide more flexibility to landholders and more discretion to councils about the scale and type of facilities permitted in existing zones. The appropriate form of changes to existing zones would require careful design and consideration of alternative ways of dealing with the specific issues that some of the existing provisions are intended to address, such as urban encroachment and land-use conflicts.

Participants argued a more flexible approach to Rural and Green Wedge zones could provide the following benefits: • Barriers to tourism activities would be removed, allowing land to move into higher valued uses, while ensuring spillovers and infrastructure issues are addressed case-by-case through the planning approvals process. • New investment could occur in activities such as nature-based tourism and in the redevelopment and expansion of existing tourism businesses in areas adjacent to national parks, on coastal and rural land, and in low-density areas close to Melbourne (such as the Yarra Valley and Mornington Peninsula). • The planning process would be streamlined, no longer requiring a demonstrated nexus between primary production (such as agriculture) and the proposed tourism activities. • Councils and applicants would avoid the expense and time of attempting to rezone land as more flexible zones such as the Rural Activity Zone. Introducing more flexibility into the Farming, Rural Conservation and Green Wedge zones would raise issues, however, including the following: • Some councils may need to review their local policies to ensure they complement the modified zones by removing requirements, such as that tourism proposals demonstrate a need, or that new development occur in town centres. • The changes may affect the ability of local communities to achieve objectives such as ‘protecting’ agricultural land and ‘preserving landscape and environmental values’, although tourism development can also help achieve these objectives when, for example, it involves work to repair or enhance the quality of local environmental assets. • Councils and applicants would need greater guidance on how proposals should seek to achieve the purposes of the revised zones, including how to deal with proposals that could lead to residential encroachment or major commercial and industrial activities. • The number of permit applications and the workload of councils could increase (to the extent that the current provisions have deterred investors from trying to obtain approvals).

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Introducing more flexibility in the rural zones could have wider benefits, particularly for the agricultural sector. A recent report on rural land use identified impediments to farm diversification or vertical integration into the processing and retailing of primary produce. According to the report: At Clause 17.05–2 [of the SPPF], it is stated that ‘Planning should support effective agricultural production and processing infrastructure’, however beyond that there is no reference to processing: the definition of ‘Agriculture’ does not refer to associated processing of goods. The zones that apply to rural land are generally too restrictive to allow the range of uses that are increasingly associated with farming and agriculture. For example, in the Farming (FZ), Rural Activity (RAZ) and Rural Conservation Zones (RCZ), any use that is defined as ‘industry’ and cannot be defined as ‘rural industry’ (according to the VPP land use definitions) is prohibited. Primary produce sales in rural zones are restricted to unprocessed products sourced from the same property or adjacent land. (Rural Planning Group 2009, p. 27) More flexibility in the zones could, however, also have adverse consequences, such as increased potential for conflict between agricultural and tourism land uses. The (Rural Planning Group 2009) report on improving rural planning noted the risk that land use conflicts pose to an increasingly capital-intensive agricultural sector. The report noted: In order to protect significant investment in agriculture, planning needs to provide some certainty that the policy intention is for the land to be used for agriculture in the long term. (Rural Planning Group 2009, p. 26) It is possible to address these risks to agriculture by a combination of strategic planning and council discretion in assessing applications to develop tourism facilities in rural zones. The development of regional strategic land-use plans provides an opportunity to better target how strict controls on non-agricultural land use are applied to those areas where investment in large-scale agricultural activities is occurring. In addition, many issues with tourism development in agricultural areas—such as noise and odours from farming activities, the risks of housing dispersal, and infrastructure constraints—can be addressed through the normal planning process.

Dedicated tourism zones To deal with some disadvantages of changing current land-use zones, some participants advocated introducing special zones for tourism. The State Government could introduce a new zone for tourism activities in the Victorian Planning Provisions, or councils could rezone land to a more flexible zone such as the Rural Activity Zone or a Special Use Zone. The main argument for this approach is that tourism-related activities are somehow different from other forms of economic activity. Participants argued tourism developments raise more

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planning issues than do many other types of proposed development. While data on planning approvals tend to support this view, it can be hard to identify developments that are predominantly tourism related and thus to apply standard definitions of tourism activities (such as those advocated by the TTF, sub. 44, p. 24). Applicants and councils would face uncertainty about whether a proposed activity fits the purposes of a tourism zone. Further disadvantages are that this approach may: • prevent changes in the use of land to higher valued uses, which are not tourism-related • add to the complexity of planning by increasing the number of zones and definitions • increase council time and costs in undertaking the strategic work necessary to identify locations where the new zone should apply • require councils to judge the commercial viability of particular sites when they are not well placed to do so • result in little or no reduction in the regulatory barriers to tourism investment, if councils are unwilling to identify and apply the new zones.

The Commission’s view In the draft report, the Commission indicated that it supported more flexibility in the Farming, Rural Conservation and Green Wedge zones to allow a wider variety of larger scale tourism activities. It therefore proposed that the Victorian Government provide more flexibility for tourism investment in the Farming Zone, the Rural Conservation Zone and the Green Wedge Zones by: • clarifying the purpose of the zones • removing the requirement that tourism activities are undertaken ‘in conjunction with’ agricultural activities • allowing a wider range and scale of activities in the zone. The Commission argued that such changes to the zones would increase opportunities for tourism investment, enable existing tourism and agricultural businesses to expand and diversify, and allows business to avoid the costs of applying to rezone land. Participants’ responses to these proposals were mixed. Broadly, the tourism industry supported the proposed changes. The VTIC, for instance, submitted: [the] recommendation to remove the requirement that tourism activities are undertaken ‘in conjunction with’ agricultural activities is strongly endorsed by VTIC as a relatively straightforward reform which will have a broad and immediate application, particularly amongst small and medium tourism enterprises. (sub. DR98, p. 4)

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Likewise, Fosters Group submitted: … it is recognised that to support existing and potential tourist ventures in the Green Wedge Zones, greater flexibility is required and we support this. This should include a stronger recognition that the Green Wedge Zone is in fact a multi-purpose zone, and not just an agriculture based zone which in current practice is how it is being treated. (sub. DR97, p. 2) Some councils supported increased flexibility in the Farming and Rural Conservation Zones. For example, Colac Otway Shire stated it: … supports these recommendations because we believe that the current provisions of Farming Zone and the Rural Conservation Zone in particular, are overly restrictive in limiting tourist related ventures that would not have a significant impact on agricultural activities. (sub. DR66, p. 3) Mansfield Shire Council also broadly supported the draft recommendations to increase flexibility in planning zones but noted that while removing the requirement that tourism-related activities are undertaken ‘in conjunction with agricultural activities’ would provide more flexibility for tourism development, there also needs to be surety for established agricultural activities or development of appropriate agricultural activities (sub. DR92, p. 3). Councils in Green Wedge areas expressed concerns that changes to existing land- use zones would lead to adverse impacts including over-development of sensitive locations (some with an already high level of tourism activities), increased risks of residential development in the guise of tourism development, and increased complaints about and restrictions on farming practices. The Interface Councils indicated it supports ‘the current State Planning Framework regarding what is allowed in the Green Wedge zones.’ It argued that the major issue with planning for tourism is instead the: … excessive procedures and involvement of multiple departments [which] has made the timeframes and costs associated with processing the applications of some tourist facilities too lengthy and complex, making it a deterrent for some organisations to undertake expansion or development opportunities. (sub. DR111, p. 5) The Mornington Peninsula Shire opposed changes to the relevant zones, particularly the Green Wedge Zone: The land-use planning system in Victoria, and in particular the State and local values of the Mornington Peninsula, would be irreversibly compromised if changes were made as suggested by the VCEC [draft] report as they do not balance market demand with the capacity of the natural resource base, which is fundamental to maintaining the attraction and values of areas such as the Mornington Peninsula. (sub. DR67, pp. 1-2)

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The Shire also argued that the changes proposed by the Commission could result in ‘pressures to develop “tourism facilities” which are then converted to more permanent occupancy or at best holiday home accommodation, which provides no real tourism benefit’ (sub. DR67, p. 7). Several other participants opposed changes to existing land use zones. The VFF, for example, stated: The VFF is concerned that a broad scale move to provide more flexibility within the Farming, Rural Conservation and Green Wedge zone could have a detrimental impact to agriculture and the natural amenity of a region. These zones have been enacted to ensure that there is a level of protection for agriculture among other valued qualities as listed in the Purpose of the Zone. (sub. DR105, p. 7) Likewise, the Green Wedge Protection Group opposed changes to the Green Wedge Zone provisions, arguing that they already provide sufficient scope for the development of accommodation such as B&Bs (sub. DR96, p. 2). Given the challenges facing the Victorian tourism industry and the consequent need to take-risks, adapt and innovative, the Commission considers the current suite of zones goes too far in presuming stand-alone and larger tourism developments are incompatible with local environmental concerns and existing agricultural land-use. Local community concerns about land-use conflicts, risks of over-development in sensitive locations and residential encroachment through the permit process and strategic land use planning can be addressed through statutory and strategic planning processes. The changes to zones proposed by the Commission are intended to complement the strategic approach to regional development being pursued through the development of strategic land-use plans. Given the reluctance of some communities to approve new tourism investment outside towns, regional strategic land-use plans would need to identify areas where tourism uses are to be facilitated or discouraged. The DPCD would thus need to work through the detail of recasting zones, with the involvement of councils, Tourism Victoria and representatives of the agricultural and tourism sectors. The effect of altering the zones would be to allow a greater scale and range of uses in the Farming, Rural Conservation and Green Wedge zones, but subject to receiving planning permission from a council. Instead of prohibiting certain types of development or larger scale developments outright, the changes would enable councils to consider applications on their merits, taking into account local issues and risks such as over-development of sensitive locations, potential for residential conversion of tourism accommodation, and potential effects on existing farming practices.

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On balance, the Commission considers the Farming, Rural Conservation and Green Wedge zones should be modified to: • expand the purpose of the zones, to recognise the potential compatibility of tourism uses with a zone’s agricultural and environmental purposes • remove the requirement that tourism activities are undertaken ‘in conjunction with’ agricultural and other activities • allow a wider range of larger scale activities in the zones. To facilitate the introduction of modified zones, DPCD would also need to develop and provide guidance and other support for councils and applicants to understand and efficiently and effectively implement the modified zones. Such guidance would complement the strategic land-use plans discussed in the previous section, and could cover the information required in an application, as well as model conditions to deal with the issues of potential land-use conflicts, risks of over-development in sensitive locations and residential encroachment.

Recommendation 3.3 That by 1 July 2012, the Victorian Government provide more flexibility for tourism investment in the Farming Zone, the Rural Conservation Zone and the Green Wedge Zones by: • expanding the purpose of the zones to recognise the potential compatibility of tourism uses with a zone’s agricultural and environmental purposes • removing the requirement that tourism activities are undertaken ‘in conjunction with’ agricultural and other activities • allowing a wider range and scale of activities in the zone.

Recommendation 3.4 That the Department of Planning and Community Development, in giving effect to recommendation 3.3, encourage a consistent approach to administering the new zones, by providing guidance and other support for councils to effectively and consistently implement the modified zones. This guidance may include the information required in an application, as well as model conditions.

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3.3.3 Improving the administration of land-use planning regulation Participants also expressed concerns that the administration of land-use planning regulation is having a disproportionately large effect on the tourism industry. The broad problems include: uncertainty about how councils will assess proposals, the reluctance of some council staff to engage in pre-application discussions, the inconsistent approaches of councils, the potential for objectors to delay and unduly influence decisions, the costs and delays resulting from appeals to VCAT, the time and costs of dealing with multiple referral and other agencies, and uncertainty about when the Government will call in an application. Participants argued these specific problems cause unnecessary uncertainty, time delays and compliance costs for tourism businesses. Reflecting these broader concerns, participants suggested ways to improve planning processes (table 3.4). The following sections consider three types of improvement to land-use planning: (1) state government assessment of major tourism projects (2) systemic improvements to planning processes (3) improved policy analysis in the planning system.

Table 3.4 Suggested improvements to council planning processes Improvement option Streamlining the regulatory processes under which local councils assess and approve development applications (for example, following the example of harmonisation of hearings for planning and liquor licensing) Making greater use of deemed-to-comply (that is, if a proposal meets the planning requirements, then a permit should be issued immediately) Improving processes for dealing with objections and appeals without merit Simplifying referral processes by allowing local government to make decisions based on strategic objectives rather than on the narrow requirements imposed by referral agencies Improving the transparency and timeliness of applications and reducing the administration and related business ‘search’ costs Establishing a central authority to coordinate investment approvals (a Tourism Investment Authority) Amending the Minister for Planning’s call in powers to provide a $5 million investment threshold to trigger the ‘calling in’ of tourism infrastructure development applications Requiring local government and VCAT to provide regular progress reports to applicants on the status of applications

Source: Various submissions.

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State government assessment of major projects To address the broader concerns about the performance of the planning system, participants proposed greater state government involvement in the assessment of major tourism proposals. The VTIC (sub. 40) and the TTF (sub. 44), for example, both proposed a $5 million investment threshold to trigger the ‘calling in’ of tourism infrastructure development applications. The need for state government involvement in land-use planning arises from the nature of some major projects and from the local focus of councils. The economic benefits of major projects are often felt across a wide area, which may not coincide with council boundaries. Locally elected councillors have weak incentives to consistently make decisions that are in the interests of the State but locally unpopular. Such situations may need a higher level of government to intervene in the decision-making. In arguing for state intervention in the assessment of major tourism projects, participants also noted: • the limited resources and capacity of councils to deal with complex applications • the complexity of the task of assessing the benefits and impacts of some tourism proposals, the number of referral bodies, and the high incidence of appeals to VCAT. Current legislation and programs have some capacity to deal with the challenges posed by large and complex tourism developments. In the past state agencies such as Tourism Victoria and the DPCD have played a project facilitation role, or the Minister for Planning has called in projects (for example, the Minister has broad powers to call in a permit application that is before a council or VCAT— section 3.1.3). Major projects of state significance may also be assessed under the Environmental Effects Act 1978, although assessments under this Act are only usually undertaken for only very large and complex projects with major potential environmental or other impacts. The Commission’s draft report outlined options to facilitate efficient approvals for complex tourism developments. The options considered were: • modifying the existing call-in process to encourage early intervention for projects of state significance and improve transparency and accountability • establishing a tailored process for tourism projects (such as creating a body such as a Development Assessment Committee2 to assess or advise the

2 A development assessment committee is a body (comprising an independent chair, two State Government representatives and two local government representatives) established to consider and determine projects of

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Planning Minister on applications meeting certain characteristics such as a threshold dollar value). In the draft report, the Commission indicated that it did not support development of a new approval process for large and complex tourism developments. Instead, the Commission supported relying on existing processes to deal with all types of large and complex projects, such as the use of the existing call-in powers. The draft report noted that previous Commission research, including in its inquiry into local government regulation, highlighted the importance of a development’s location and scale in determining the timeframe and complexity of planning assessment processes, rather than the type of development (VCEC 2010a). The draft report also noted that the capacity to facilitate tourism projects in a consistent, efficient and transparent manner depends on the capacity to identify such projects. Yet in practice, many major projects involve a mix of accommodation, retail and other uses that cater to local people as well as tourists. It is difficult, therefore, to define whether many developments are predominantly for tourism. In response to the draft report, the VTIC argued that relying on the call-in process is an inadequate response because Ministerial call-in usually occurs only after problems in the permit assessment process. It argued ‘it would be better for the call in to take place much earlier in the process, so that the applicant does not first have to experience what are later deemed to be unreasonable or unnecessary delays’ (sub. DR98, p. 4). The VTIC also supported forming a Ministerial Advisory Group of tourism specialists from industry and government that could assist the Minister in the event of a tourism project being called in (sub. DR98, p. 5). Notwithstanding that the Minister could call in a permit application that is before a council, the Commission accepts the early exercise of call-in powers is unlikely if there are no clear criteria or guidelines on early intervention. As noted, the current call-in criteria are very broad. They state the Minister may call in an application that: • raises major policy issues and might have a substantial effect on the achievement of planning objectives • has been unreasonably delayed to the disadvantage of the applicant • would be facilitated by its referral to the Minister (for example, when the development must also be considered by the Minister under another Act or regulation).

state significance. Such committees were established to make planning decisions in Melbourne’s major activity centres, but similar committees could be created to determine tourism-related planning applications.

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On balance, the Commission supports continuing a broadly applicable call in process, but with clearer guidance on when the process will be used. The Commission has previously commented on the administration of call in powers in Victoria and the broad nature of the criteria for whether the Minister exercises this power. The Commission’s report on liveability, for example, commented: … reasons cited for calling in a decision often provide limited insight into specific actions that local governments can implement to improve their processes—the reasons cited are often couched in broad terms with reference to policy statements and election commitments. The Commission … suggests that more information is required to address this issue. Uncertainty about the use of call in powers is best addressed by developing more specific criteria for calling in projects. The current criteria are extremely broad, referring to whether a project raises major policy issues or whether it might have a substantial effect on the achievement of planning objectives. Additional criteria could cover the scale of the project, the number of state government referral bodies involved, and whether the relevant municipality has implemented a best practice planning permit assessment model. (VCEC 2008, p. 149) During the recent state election, the Coalition also indicated that it would review the process of Ministerial intervention in planning applications to, amongst other things, establish guidelines ‘for the use of intervention on the basis of state significance’ (Ted Baillieu MP 2010, p. 2). Finally, implementing the Commission’s recommendations is likely to take some time. During the transition, Tourism Victoria, in conjunction with DPCD, could consider giving increased priority to assisting tourism businesses experiencing difficulty and delay in working through planning processes.

3.3.4 Systemic improvements to planning processes Participants’ concerns about the administration of land-use planning regulation were raised in recent reviews, including: • Cutting the Red Tape in Planning: 15 Recommended Actions for a Better Victorian Planning System (Carbines 2006) • the review of the Planning and Environment Act (DPCD 2009) • the Commission’s inquiry into local government regulation (VCEC 2010c) • the permit process improvement project being implemented by the (Municipal Association of Victoria 2010). These and other reviews of the land-use planning system have identified many improvement options, including some listed in table 3.4. The Commission’s inquiry into local government regulation considered additional changes to land-

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use planning regulation to improve the overall efficiency and effectiveness of the regulations. Options examined in the draft inquiry report included: • improving performance reporting by extending the current reporting regime to cover the planning scheme amendment process and the State Government’s role in land-use planning (such as authorising and approving planning scheme amendments, and using the ‘call in’ process) • the State Government, in collaboration with councils, developing and reporting on the implementation of a best practice permit assessment model • developing a regime to permit private assessors to assess relatively simple planning permits • making better use of pre-application meetings and pre-lodgement certification to speed up the assessment of planning permits • encouraging councils to adopt a consistent and high level of delegation of decision-making on planning permits • encouraging more councils and applicants to use online tools for lodging planning permits • streamlining the referral of planning applications for technical assessment by state agencies (VCEC 2010c). According to the local government inquiry draft report, implementing these planning process improvements could yield large cost savings to Victorian businesses (including the tourism industry), with additional gains possible from adopting a more strategic approach to land-use planning at the State, regional and local levels (VCEC 2010b). The Government is considering the Commission’s final recommendations on these issues. The Commission considers that the recommendations made in this report are entirely consistent with the final recommendations of the inquiry into local government regulation.

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4 Public land regulation

4.1 Introduction From a tourism industry perspective, Victoria’s national parks, coastal crown land and other types of public land are major attractions for international and domestic visitors to Victoria. Many tourism businesses also consider particular attractions such as the Great Ocean Road, the Grampians, Wilson’s Promontory, Mornington Peninsula and the Victorian Alps can become even more significant contributors to nature-based tourism. Some participants argued, however, the regulation and management of access to public land is holding back Victoria’s nature-based tourism industry. This chapter examines these concerns, and whether the regulation and management of public land should be changed. As discussed below, public land covers a broad range of state-owned land used for varied purposes. Therefore, government objectives for managing this land are also varied. For some of the most sensitive areas of public land, such as those covered under the National Parks Act 1975 (Vic), the objectives include: • preserving and protecting the natural environment • encouraging the responsible management of the land • and subject to conservation objectives, use of parks for enjoyment, recreation or education and encouraging and controlling that use. It is within this context that the Commission has considered the ways in which public land is managed and regulated for tourism. The values and purpose of public land are important not just for industries like tourism but also for the Victorian community and future generations. Recent reports1 highlighted worrying trends in public land environments such as the loss of native vegetation and biodiversity, and continuing threats from climate change, drought, bushfires, weeds and pests. These reports note government investment in landscape maintenance and repair is insufficient to address these continuing threats, and that, as a result, Victoria is running down its natural capital. This trend is leading governments in Victoria and around the world to explore how they can raise awareness of environmental and biodiversity issues and better harness private sector entrepreneurship and resources to meet the threats to future environmental sustainability. Victoria’s Nature-Based Tourism Strategy 2008-2012 (NBTS) highlights some of these challenges and is Victoria’s strategy for nature-based tourism (box 4.1).

1 For example, the Land and Biodiversity White Paper (DSE 2011) and the State of the Environment report (Commissioner for Environmental Sustainability 2008).

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Before examining these issues, the next section provides an overview of Victoria’s public land assets and their significance to tourism.

Box 4.1 Victoria’s NBTS objectives The NBTS provides a long-term, coordinated approach to policy, planning, sustainable development and marketing of the nature-based tourism sector. It aims to stimulate and grow nature-based tourism sustainably by: • addressing barriers to growth to attract public and private investment • increasing the sustainability and viability of the nature-based tourism industry • encouraging the industry to limit its carbon footprint • raising visitor expenditure and tourism yield for provincial Victoria • heightening nature-based tourism consumer awareness of Victoria • maintaining the principle of equity of access to public land • contributing to a healthy environment.

Source: Tourism Victoria 2008a, p. 11.

4.2 Public land in Victoria

4.2.1 What is public land? Broadly, public land is all state-owned land, including parks, land reserved for roads, hospitals, schools and other public purposes and land vested in public authorities. The term can also apply to land owned by municipal councils and the Commonwealth Government. In total, 40 per cent of Victoria is public land (DSE 2010a). In this inquiry, the Commission focused on public land that relates to tourism activity—namely, land reserved under: (1) the Crown Land (Reserves) Act 1978 (Vic), covering alpine resorts, coastal reserves, state forest reserves, metropolitan parks or wildlife reserves (2) the National Parks Act, covering national parks, state parks, wilderness parks, marine national parks and marine sanctuaries. References to ‘national parks’ in this chapter include all these land areas. The main types of public land and their extent are as follows: • national parks covering 3.6 million hectares or 46 per cent of public land • state forest reserves covering 3.5 million hectares or 43 per cent of public land • alpine resorts covering 105 000 hectares or 1.3 per cent of public land

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• coastal reserves covering 65 000 hectares or less than one per cent of public land • metropolitan parks, such as the Royal Botanical Gardens, covering 5000 hectares, or less than 0.1 per cent of public land (Department of Natural Resources and Environment 2002, p. 2). These different types of public land range from highly natural environments to areas that have been highly modified (figure 4.1). Therefore, the environmental, heritage and other impacts of tourism-related activities on public land can vary depending on the condition of the public land and the type of tourism activity. Figure 4.1 Types of public land for recreation and tourism

Source: Department of Natural Resources and Environment 2002, p. 1.

4.2.2 Importance of public land to Victoria’s tourism industry Visitors to Victoria’s public land estate have diverse needs, ranging from very low requirements for accompanying services (self-sufficient visitors) through to demand for a range of educational, accommodation and other facilities. Victoria’s NBTS acknowledges this diversity, stating land managers need to take ‘a holistic landscape approach [that] balances the provision of access, activities, amenities and accommodation for a range of tourism, education and recreational visitors against natural and cultural conservation outcomes’ (Tourism Victoria 2008a, p. 30). An estimated 89 million visits were made in 2008–09 to public land managed by Parks Victoria, including 33 million visits to national parks, 40 million visits to piers and jetties, and 16 million visits to metropolitan parks. In addition, around 18 million on-water recreation visits were made to the bays (Parks Victoria 2010a). The most visited national parks were Port Campbell (on the Great Ocean Road), the Yarra Valley and Dandenong Ranges and the Mornington Peninsula

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(figure 4.2). While Victorians account for many of these visits, visiting public land is also a popular activity for international visitors, with around 20 per cent visiting a national park during their stay in Victoria.

Figure 4.2 Visitation to major national parks in Victoria (million)

3.3 3.0 2.5

1.1 1.0 0.6

Port Campbell Yarra Mornington Great Otway Grampians (2009) Alpine (2007) (2002) Valley/Dandenong Peninsula (2009) (2006) Ranges (2009)

Source: Provided by Parks Victoria.

In addition, approximately 450 commercial tour operators are licensed to operate tourism services on public land. Businesses have also entered into over 750 commercial leases to operate tourism related assets on public land, for example, the Cape Otway lighthouse and various ski assets in the Victorian Alps. Parks Victoria also operates many tourism-related businesses on public land, including Tidal river accommodation at Wilsons Promontory, Buchan Caves and Wilderness retreats, the Great Ocean Walk and over 200 campgrounds throughout regional Victoria. A significant share of public land’s contribution to the tourism industry is in the form of nature-based tourism, which uses natural resources to offer tourism products while meeting conservation objectives. The NBTS reported the following estimates of the economic value of key parts of the public land estate: • Wilsons Promontory, Port Campbell and the Grampians ($481 million per year) • state forests (between $12.8 and $39.9 million per year) • Victoria’s alpine resorts ($505 million per year) • visits to beaches and coastline ($734 million per year) (Tourism Victoria 2008a, p. 11).

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While the economic and social values generated by visits to public land are already significant, there may be scope to increase this value. According to the Tourism and Transport Forum (TTF), the number of domestic overnight visitors to national parks fell in Victoria between 2004–05 and 2009–10, compared with a 20 per cent increase in New South Wales (NSW). At the same time, surveys show the number of international visitors to natural attractions has grown faster in Victoria than in NSW and Queensland (sub. 44, pp. 42–3). This decline appears symptomatic of general stagnation in the number of domestic tourists travelling to regional Victoria. To halt these trends regional tourism operators will need to be more innovative in the products and experiences they offer domestic tourists. The NBTS states: … tourism is a major economic driver for the State, [but] growth is not being realised equally for all tourism sectors. Consumers perceive Victoria to be the leading destination in Australia for regional food and wine, touring and events; however, the perception of Victoria as having world-class natural attractions is low. (Tourism Victoria 2008a, p. 10) Going forward, international visitors are expected to be an important part of nature-based tourism growth. International nature-based tourism visitor nights are forecast to account for two-thirds of the nature-based tourism market in Victoria (Tourism Victoria 2008a, p. 23). However, one issue for regional Victoria is a ‘failure of Victoria’s national parks to capture yield, despite high visitor numbers’ (Tourism Victoria 2008a, p. 5). The importance of capturing yield is highlighted by the Phillip Island Nature Park (box 4.2). Within this context the Commission has considered whether the framework governing public land in Victoria creates an enabling environment for further investment in tourist facilities on public land.

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Box 4.2 Yield in Phillip Island Nature Park Phillip Island Nature Park is an important nature-based tourism attraction for Victoria, particularly for Asian markets (including China). By offering premium penguin viewing products, for example, the park has concurrently expanded its appeal to European visitor markets and increased yield. The addition of a photography unit has also increased yield through the in-house production of postcards, key rings, magnets and visitor photographs with a penguin. Visitors can purchase a photograph with a digitally imposed penguin. The park is also committed to having a high standard of product, by certifying all of its products to Advanced Ecotourism—the highest level of ecotourism certification available from Ecotourism Australia. Phillip Island as a destination has had limited opportunities to extract higher yield from most of the 730 561 visitors, because many park visitors do not stay on the island overnight.

Source: Tourism Victoria 2008a, p. 55; PINP 2010.

4.3 The regulatory framework for public land The regulatory framework for managing public land in Victoria was mostly developed in the 1970s. It has evolved into a complex and interrelated body of legislation, regulation, policy statements and guidance material. Aspects of this regulatory framework are relevant to understanding the issues raised by participants about the management and regulation of public land for tourism. This section summarises the following features of the regulatory framework: (1) The broad structure of public land regulation, which impacts on the ability of those managing and operating within it to understand the system (section 4.3.1). (2) The relevant legislative and policy requirements facing businesses wishing to develop and operate tourist facilities on public land (section 4.3.2). (3) The process for licensing businesses that wish to conduct tours and other activities for tourists on public land (section 4.3.3).

4.3.1 The broad structure of public land regulation The proponent of a tourism development on public land, such as nature-based accommodation, must consider the requirements of different pieces of state and federal legislation and interact with multiple bodies, depending on the nature of the proposal, the location and the type of public land. The Acts of most relevance to nature-based tourism are the Crown Land (Reserves) Act and the National Parks Act. These Acts provide the framework for reserving national

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parks, and a range of crown land reserves, and for regulating the management and use of public land (figure 4.3). As well as public land legislation, a proponent must obtain a planning permit under the provisions of the Planning and Environment Act 1987 (Vic), so will need to consider controls outlined in a municipal planning scheme (chapter 3). Further, proposed developments in environmentally sensitive locations may be required to undergo an environmental impact assessment under either the Environmental Effects Act 1978 (Vic) or the Environmental Protection and Biodiversity Conservation Act 1999 (Cth). Figure 4.3 The structure of public land legislation

Source: VCEC.

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Table 4.1 Public land management bodies Category of public land Managing body/bodies National parks Parks Victoria Alpine resorts Alpine Resort Management Boards Coastal reserves Committees of Management State forest reserves Department of Sustainability and Environment Wildlife reserves Committees of Management Other Crown land reserves Parks Victoria, Committees of Management, councils and other agencies

Source: VCEC.

A number of groups administer public land regulation and assess and approve proposals to develop or undertake tourism-related activities on public land (table 4.1): • The Department of Sustainability and Environment (DSE) has overarching management responsibility for Victoria’s public land estate. It develops policy and advises the Minister, and oversees the management of national parks and other Crown land reserves. This responsibility includes assessing and approving proposals to undertake tourism-related activities on public land. In practice, DSE delegates much of its responsibility for land management to other bodies such as Parks Victoria. • Parks Victoria’s primary role is to manage Victoria’s national parks estate, which represents nearly half of all public land in Victoria (Parks Victoria 2010b). Parks Victoria also licenses tourism operators (under delegation from DSE), and operates and maintains park facilities, including camping grounds and roofed accommodation (Parks Victoria 2010c). • Committees of Management (CoMs), appointed under the Crown Land (Reserves) Act, perform similar roles to Parks Victoria but on Crown land reserves such as foreshore reserves, historic buildings on public land and some parks. The several thousand CoMs in Victoria are made up of individuals, community groups, councils and statutory bodies (DSE 2010b). • Six Alpine Resort Management Boards manage individual resorts in the Victorian Alps. The Alpine Resorts Co-ordinating Council coordinates these boards (Alpine Resorts Co-ordinating Council 2010). In addition, other bodies may influence how public land is managed and regulated. The Victorian Coastal Council, for example, is responsible for strategic planning and for advising the Environment Minister on the development and use of Victoria’s coast (Victorian Coastal Council 2009, p. 78). Furthermore, the

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National Parks Advisory Council advises the Minister on the administration of the National Parks Act, particular matters on which its advice is sought, any proposed excision from a park referred to it by the Minister and certain leases and consents (NPAC 2010, p. 3). Finally, the Reference Areas Advisory Committee advises the Minister on the protection, control and management of reference areas2 on public land (Reference Areas Act 1978 (Vic) s 5).

4.3.2 Regulatory requirements for new tourism developments Businesses need to consider many legislative and policy requirements when preparing proposals for new tourist facilities on public land. These requirements dictate where facilities built and operated by the tourism industry can and cannot be developed, the terms and conditions (including the duration of leases), and the approval and assessment processes to be followed (figure 4.4).

2 Reference Areas include areas reserved for their ecological significance to allow natural processes to continue undisturbed.

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Figure 4.4 Potential approvals needed to develop infrastructure on public land

Source: VCEC.

The development process The process of obtaining approval to develop new tourist facilities involves multiple steps, including demonstrating the proposed development meets the requirements of land-use planning regulation and other relevant approvals. The steps can include the following:

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• A land manager (potentially DSE, Parks Victoria or a CoM) must provide pre-approval that the proposal is consistent with the objectives of legislation and relevant policy requirements (table 4.2). • The land manager or the proponent must then apply to the Environment Minister for approval-in-principle (AiP) of a lease proposal. The application must address leasing principles set out in the leasing policy statement3 (DSE 2010c) (see below). • If the Minister provides an AiP, then the land manager and the proponent can negotiate the terms and conditions of a lease. The lessee must also meet any requirements of the AiP. • Before the Minister approves the lease, the proponent must obtain all relevant approvals under land-use planning, heritage, building and other regulations. The proponent may need to deal with a number of other approval processes and agencies to obtain the relevant permits and consents, including those listed in figure 4.4. One other aspect that a potential developer will need to consider is the park management plan. Prepared by the land manager as delegated by the Minister under the relevant act, management plans establish how the land manager will protect the park’s natural and cultural values. Management plans are prepared in consultation with the community and approved by the Secretary of DSE and the Minister. The plan provides the basis for formally setting aside specific areas of the park for various permitted uses or activities. It is used as a strategic guide for the management of a park and describes the approach to inform the community about the park, encourage interested groups to become involved in park management programs, and encourages co-operative land management and participation in community-based programs. The plan is reviewed every 10 years.

Pre-approval requirements The Commission understands the criteria for assessing a proposal for a tourist facility on public land (table 4.2), are being reviewed and updated, but they illustrate how a proponent must consider a wide range of legislation, policy and guidance material. From a policy perspective, relevant features of these criteria are that they: • require consideration of the benefits and the environmental and other costs of a proposal to determine whether leasing public land has a net community benefit

3 This policy does not apply to national parks (as they are governed by a separate Act (National Parks Act) and are considered on a case by case basis) or alpine resorts (which are governed through separate policy — the Alpine Resorts Leasing Policy (Victorian Government 2002)).

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• exclude privately owned and operated development in national parks even if such investment is consistent with park objectives (only the Government can develop such facilities) • require stakeholder and community support for development in a national park but not for development on other types of public land • provide broad discretion about whether a lease will be considered and approved. Table 4.2 Decision making criteria to assist public land managers in assessing proposed tourism developmentsa Development proposals must: Be consistent with Victoria Planning Provisions Be consistent with legislative objectives of public land category Be consistent with park/forest management plans Be consistent with Crown land leasing policy Be consistent with National Competition Policy principles Demonstrate need to be sited on public land or national park Demonstrate no restrictions to community access Demonstrate a net community benefit (short and long term) Be owned and developed by governmentb Demonstrate stakeholder and community supportb a The criteria apply to new tourism infrastructure developments only, not to redevelopments of existing infrastructure or redevelopments of sites already covered by leases or where leases are specified in legislation (for example, Mount Buffalo Chalet, Point Nepean National Park). These criteria also apply to any new non-tourism development proposals on Crown Land. b Applies only to development in national parks.

Source: Department of Natural Resources and Environment 2002, summarised by DSE.

To examine the issues raised by participants, and the opportunities for improvement, the Commission considered aspects of policy, legislation and guidance that underpin the criteria listed in table 4.2, including: • the legislative objectives of public land • requirements set out in the Sustainable Recreation and Tourism on Victoria’s Public Land policy (Department of Natural Resources and Environment 2002) • leasing requirements set out in legislation and the Leasing Policy for Crown Land in Victoria (DSE 2010c)

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• other guidelines, such as the Draft Design Guidelines for Nature-Based Tourism (DSE 2009). Legislative objectives for public land Generally, the objectives of public land legislation emphasise the importance of protecting and preserving the environmental, heritage and conservation values of public land as well as encouraging its use for recreation (or tourism): • The objectives of the National Parks Act include: preserving and protecting the natural environment; encouraging the responsible management of the land; and subject to conservation objectives, encouraging the use of parks for enjoyment, recreation or education and encouraging and controlling that use. • The Crown Land (Reserves) Act has no specific objectives. The Act provides for the reservation of Crown land for a range of public purposes including conservation, recreation, community and tourism. • The Alpine Resorts (Management) Act 1997 (Vic) has a different approach, with the objective to encourage the ‘development, promotion, management and use of resorts on a sustainable basis’. • The objectives of the Coastal Management Act 1995 (Vic) refer to sustainable planning and management, protecting and maintaining areas of environmental significance, while facilitating the development of facilities for improved recreation and tourism in appropriate areas. • The Forests Act 1958 (Vic) has no specific objectives, the Act allows for multiple uses including timber harvesting, conservation, water production, public recreation and tourism. Developing tourist facilities on public land can provide community benefits (such as increased use and enjoyment of public land), economic benefits to businesses and local communities, and raise awareness of the beauty and environmental values of these areas. These benefits need to be considered along with any environmental, heritage, social and other impacts of development and use of public land. How such benefits should be weighted is driven by the type of land under consideration. For example, for land such as national parks—where maintaining biodiversity and conservation values are vital—it would be inappropriate to permit investment proposals that undermine those values. Sustainable recreation and tourism on Victoria’s public land Currently, the legislation governing public land emphasises the objectives of protecting public land values while encouraging the use of land for a range of purposes, including the development of tourist services and facilities on public land.

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An important feature of the Sustainable Recreation and Tourism on Victoria’s Public Land policy is that private development or investment in major new tourist facilities is prohibited on land managed under the National Parks Act. This policy committed to ‘provide and maintain appropriate recreation and tourism services and facilities on public land to foster visitor enjoyment and education and to ensure visitor safety’ (Department of Natural Resources and Environment 2002, p. 7). However, policy statement 3.6 (box 4.3) restricts private sector development of major new tourist facilities on land managed under the National Parks Act, stating ‘any such facilities within national parks will be owned and developed by the Government’ (Department of Natural Resources and Environment 2002, p. 10).4 Furthermore, the NBTS states ‘private investment into any new large scale facility, particularly accommodation…should be sited outside of the park’ (Tourism Victoria 2008a, p. 37). However, there are strong planning controls surrounding most national park areas that inhibit the development of nature-based tourist facilities (see chapter 3), further restricting private investment.

Box 4.3 Private investment on land managed under the National Parks Act The Sustainable Recreation and Tourism on Victoria’s Public Land policy states: The Government will establish and implement transparent processes for managing major recreation and tourism development proposals on public land, particularly for aspects outside the scope of the Victorian Planning Provisions such as tendering, leasing and management arrangements. This process will be informed by the following principles: – Meet the criteria for ‘appropriate recreation and tourism use’ as defined in this policy (as outlined in table 4.2); – Be managed to protect the Crown and community interest where tenancy rights are granted to others; and – Observe the principles underlying the National Competition Policy. Major new tourism facilities to service visitors to national parks and other areas managed under the National Parks Act 1975 will be sited outside the parks except where the above principles are met and there is community and stakeholder support. Any such facilities within national parks will be owned and developed by the Government.

Source: Department of Natural Resources and Environment 2002, p. 10.

4 This policy is currently under review following a commitment in the NBTS to create a more enabling policy environment for nature-based tourism (Tourism Victoria 2008a, p. 42).

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Leasing provisions of legislation and the Crown land leasing policy Depending on the type of public land, the applicant for a lease needs to consider the lease durations of the National Parks Act, the Crown Land (Reserves) Act or specific crown land reserve Acts (table 4.3). Generally crown land reserves face fewer restrictions than land covered by the National Parks Act. Table 4.3 Lease durations under public land legislation Act Lease lengths National Leases may be granted for up to 20 years, for an area up to one hectare, Parks Act for a kiosk, café, store, research or ski tow. Leases may be granted for up to seven years for a camping ground or building. Leases may be granted for up to 50 years in particular parks, as specified in the Act. Alpine Leases may be granted for up to 99 years for Alpine Ski Infrastructure. Resorts Act Other alpine developments have maximum lease durations of up to 51 years. Coastal Leases may be granted for a specific term that is more than 21 years, but Management not more than 65 years if the development is of a substantial nature and a Acta longer lease is in the public interest. Forests Act Leases may be granted for a period for up to 21 years or up to 65 years if the development is of a substantial nature and a longer lease is in the public interest. a Lease durations for coastal reserves are provided directly through the Crown Land (Reserves) Act.

Source: Relevant Victorian Acts.

The success of the application will also depend on its alignment with the Government’s leasing policy, which is based on three key principles: (1) To provide benefits to the public through leasing. This principle requires the proponent to show how the proposal achieves a net community benefit, considering the social, economic and environmental impacts. (2) To ensure consistency and transparency in leasing. This principle relates to the competitive allocation of leases and the transparency of the process to obtain a lease. In addition, this principle creates the terms and conditions of a lease, which should align with the intended use of that type of public land. (3) To manage leased Crown land in an ecologically sustainable manner. This principle requires proponents to outline how they will demonstrate environmentally sustainable management principles (DSE 2010c).

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Other guidance The proponent of a tourist facility on public land may also need to consider policy and guidance material additional to the legislation, depending on the type of public land. Relevant policy and guidance are set out in: • Draft Design Guidelines for Nature-Based Tourism (DSE 2009) • the Alpine Planning Information Kit (DPCD 2010) • Tourism Investment Guidelines (Tourism Victoria 2008b).

4.3.3 The tour operator licensing system A person (or organisation) wishing to operate a commercial tour on public land must obtain a licence from the responsible public land manager. This is called a Tour Operator licence. Around 450 Licensed Tour Operators (LTOs) are issued with licences in Victoria for a range of operations including walking, horse riding, four-wheel driving tours, and dolphin and whale watching in marine parks. The legislative instruments governing the need to obtain a licence to operate a tour on public land include the: • National Parks Act • Forests Act • Crown Land (Reserves) Act • Wildlife Act 1975 (Vic) • Land Act 1958 (Vic) (Parks Victoria 2010d, p. 2). A prospective tour operator must submit an application to Parks Victoria or a CoM to obtain an LTO licence. While DSE has legislative and policy responsibility for the LTO system, it delegates responsibility to operate the system to Parks Victoria and other land managers. Recent changes to the licensing system are relevant to assessing the issues raised by participants. The changes are intended to improve the efficiency of the licensing system and align the licence requirements of Parks Victoria and individual CoMs. The new licensing system, to commence from 1 July 2011, will: • set a consistent state-wide fee framework established under regulation • raise the maximum licence term from three years to up to 10 years • introduce an offence for conducting organised tours or recreational activities without a licence • introduce a power to suspend, modify or cancel licences • allow more flexibility for tour operator reporting (allowing the option of annual reporting as well as the current quarterly reporting requirements) (DSE 2008).

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4.4 Participants’ views on Victoria’s public land system Segments of the tourism industry suggested Victoria’s natural assets make it an attractive location for the development of nature-based tourism built around different styles of accommodation, ranging from sensitive, small-scale cabin accommodation up to larger nature-based tourism resorts. Several participants argued there are opportunities to develop a variety of nature-based tourist facilities at locations such as the Great Ocean Road, Victorian Alps, the Otway Ranges, the Grampians and Gippsland. According to these participants, aspects of the management and regulation of private sector access to public land have discouraged businesses from investigating and developing concrete proposals. Most concern was centred on the management and regulation of national parks. When viewed alongside the industry’s concerns about land-use planning regulations (chapter 3), these concerns create the impression of a regulatory environment in Victoria that stifles private investment in tourist facilities in locations with high natural values. Several participants, including those in the tourism industry, argued that regulating the use of public assets, such as national parks, is vital to ensuring their ongoing sustainability. Nature-based tourism operators, for example, noted regulation of activities on public land is essential to protect the natural values that make these areas appealing, and the biodiversity, Aboriginal cultural, heritage and other values of public land. But some participants also considered the following features of the regulatory framework unnecessarily impede the development of nature-based tourism: (1) barriers to private investment in tourist facilities in national parks (2) investment uncertainty arising from complex approval processes (3) unviable leasing arrangements in some areas (4) the unclear roles and responsibilities of DSE and Parks Victoria, and concerns about the tour operator licensing process.

4.4.1 Barriers to investment Participants argued a major barrier to investment is the policy prohibiting private sector development of new tourist facilities to service visitors to national parks and other areas managed under the National Parks Act (box 4.3).5 Some argued current policy prohibiting private investment in national parks competitively

5 See, for example, East Gippsland Shire Council (sub. 11), Surf Coast Shire (sub. 23), VTIC (sub. 40), Mansfield Shire Council (sub. 47), TTF (sub. 44) and Shipwreck Coast Marketing (sub. 14).

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disadvantages Victoria when compared to other Australian jurisdictions such as NSW and Tasmania (TTF, sub. 44, p. 45). Likewise, East Gippsland Shire stated the prohibition makes ‘it hard for East Gippsland … to compete with product in other states and internationally’ (sub. 11, p. 1). Parks Victoria has developed several low-impact accommodation facilities in national parks, and scope exists for the private sector to operate these facilities. It was argued, however, the private sector would be unwilling to commit significant resources to such developments unless it has more input into site selection and the scale, design and operation of the facilities. In response to the Commission’s draft report, which suggested lifting restrictions on private investment in tourist facilities in national parks, participants were divided in their views. While these views are considered by the Commission in section 4.6, concerns about the draft recommendation were expressed by a number of participants.6 Other participants supported the draft recommendation.7

4.4.2 Uncertainty for investment Participants in favour of greater private sector investment on public land argued that a key reason for limited investment in nature-based tourism facilities in Victoria is the uncertainty arising from complex and unclear approval processes (described above) for building on public land. Submissions received in response to the Commission’s draft report were supportive of the draft recommendation to provide a more streamlined development approval process (these included: Horsham Rural City Council Tourism Advisory Committee (sub. DR81), Mansfield Shire Council (sub. DR92) and the VNPA (sub. DR110)). Some also argued the administration of this process assumes private investment in tourist facilities on public land can only diminish the environmental, heritage and conservation values of the land. They considered the potential benefits of private investment in tourist facilities on public land are not fully appreciated. According to some participants, the culture of both DSE and Parks Victoria emphasises environmental protection and views the development of tourist facilities as contrary to this primary goal. At the Wangaratta roundtable meeting,

6 See, for example, Peter Lalor (sub. DR58), Mornington Peninsula Shire (sub. DR67), Adrian Infanti (sub. DR70), Gary Ardern (sub. DR72), Richard Hughes (sub. DR74), Bernard Slattery (sub. DR75), Geoff Wescott (sub. DR77), Friends of the Koala (sub. DR82), Paul Caine (sub. DR87), Jim Walker (sub. DR88), Green Wedge Protection Group (sub. DR96) and the Victorian National Parks Association (VNPA) (sub. DR110). 7 See, for example, Colac Otway Shire (sub. DR66), TTF (sub. DR78), Destination Gippsland (sub. DR79), Horsham Rural City Council Tourism Advisory Committee (sub. DR81), Bothfeet (sub. DR84), Murray Regional Tourism Board (sub. DR89), Mansfield Shire Council (sub. DR92), VTIC (sub. DR98) and Nillumbik Tourism Association (sub. DR107).

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participants argued this perceived culture has led to a limited focus on the contribution of tourism to the management of public land. They argued DSE focuses on identifying and managing risks to the environment rather than appreciating the potential benefits from proposals.

4.4.3 Restrictive lease terms Some participants argued maximum lease durations and lease terms and conditions continue to be a major barrier to investment in the tourism industry despite recent increases in the maximum lease durations for reserved Crown land.8 They submitted the maximum lease durations in legislation are too short. A number of tourism businesses indicated the maximum lease durations provided in the National Parks Act make investment in tourist facilities largely unviable.9 The TTF argued lease durations for public land in Victoria are uncompetitive compared with those in other states: Restricted leasing terms present a substantial business risk to potential investors and operators in park infrastructure and accommodation. As possession reverts back to the Crown as landowner at the end of a lease term, the cost of finance and loss of capital and capital gain with short lease terms are considerable barriers to private investment in national parks in Victoria. Short term leases also encourage a lesser focus on environmentally sustainable management. (TTF, sub. 44, p. 47) Participants also suggested short leases reduce the incentives for private businesses operating on public land to maintain facilities and surrounding environmental assets. Apart from the maximum duration of leases, concerns were raised about other commercial aspects of public land leases and inconsistent administration by land managers. Participants suggested lease terms and conditions provide flexibility for the State but thus produce uncertainty about the security of tenure for business.10 Issues raised included a lack of options to renew, the ability of the Crown to terminate a lease at short notice and without adequate reasons, and a general concern about the lack of commercial understanding of business requirements and timeframes for lease renewal. The

8 See, for example, submissions by Surf Coast Shire (sub. 23), Shipwreck Coast Marketing (sub. 14), Mount Alexander Shire (sub. 18), TTF (sub. 44) and Geelong Otways Tourism (sub. 9). 9 See, for example, submissions by TTF (sub. 44) and Geelong Otways Tourism (sub. 9). 10 The Australian Ski Areas Association submitted ‘lease conditions are heavily weighted in favour of the Crown … most leases have no genuine option to renew (although current leaseholders may be granted the first right to renegotiate), and in fact most leases require the occupier to vacate the land and clear off all improvements at the end of the lease. While the land manager may countenance a renewal of the lease, often this is on vastly different terms and conditions from the original lease and generally always requires a substantial investment in new assets and facilities, whether affordable or not’ (sub. 46, p. 5).

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Victorian Tourism Industry Council (VTIC) also submitted the administration of leasing arrangements can vary: … whilst the approach [to leasing] may be uniform, the reality of the implementation and operation of the lease, and the experience of the lessee, varies considerably. (sub. 40, p. 42) Box 4.4 contains a submission from a small business operating on a ‘lease designed for national parks’, which is typical of businesses’ concerns about current leasing practices.

Box 4.4 Case study: Pippies by the Bay Pippies by the Bay (Pippies) operates with a lease designed for national parks, on Crown land managed by the local council. The lease is structured in two terms, six years plus seven years, with the seventh year of the second term being the period of open tender to find the next tenant. Pippies argued its lease is not a standard commercial lease designed for small business; the lease creates problems because there is no single landlord in the traditional sense, being the person who owns the building and makes decisions about the building. These problems include: • inability to make decisions within a commercial timeframe • inability to cut through red tape • inability to fast track ideas and initiatives • inability to extend a lease • discouragement of financial investment • inability to commit to commercial partnership within a commercial timeframe. Pippies aims to develop a business that has longevity, has a good reputation, is readily maintainable, maximises profits, minimises costs and is saleable. The lease has affected how Pippies operates because the business faces: • diminishing owner investment • minimal to zero refinancing opportunities • heightened financial risk without finance sector support • no expansion or redevelopment opportunity • lack of owner commitment or focus • diminishing maintenance investment • a lack of confidence and passion from owner and staff. Without a guaranteed future, Pippies is considering shutting down to pursue business interests elsewhere. Even with greater certainty on the lease duration, Pippies argued other restrictions will inevitably lead to a drop in standards and product quality, leading to the potential loss of key long-term staff and market position.

Source: Pippies by the Bay, sub. 37, pp. 1–2; Pippies by the Bay, sub. DR68, p. 1.

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In response to the Commission’s draft report, which suggested three elements for change to the leasing system for public land, participants had varied views. Two submissions opposed changes to the current leasing arrangements: Adrian Infanti (sub. DR70) and the VNPA (sub. DR110), while others supported improvements: Rod Lambert (sub. DR59), Horsham Rural City Council Tourism Advisory Committee (sub. DR81), Friends of Nillumbik (sub. DR91) and Mansfield Shire Council (sub. DR92).

4.4.4 Unclear roles and responsibilities Several participants noted confusion about the roles and responsibilities of some organisations involved in managing public land. This is leading to increased uncertainty for investment and additional costs to businesses seeking approval from multiple bodies for tourist developments. Three issues were raised by participants: (1) DSE is responsible for developing and advising on policy and for the administration of that policy. Participants had concerns about a possible conflict between these two roles. (2) No organisation is clearly charged with encouraging commercial tourism development on public land, within the organisational architecture for public land policy and management. (3) DSE, Parks Victoria and CoMs are inconsistent in their administration of leasing requirements and licensing of tour operators.

The role of DSE Participants suggested concerns about the management and regulation of public land reflect features of the institutional architecture. The TTF acknowledged the importance of the institutional framework governing public land, but indicated ‘lack of certainty over parks management can be a barrier to investment’. The TTF stated this inquiry provides an opportunity for reforms that ‘will aid [the] formation of constructive natural tourism partnerships’ (sub. 44, p. 7). The Commission’s previous inquiries acknowledged the importance of institutional arrangements to how regulation is developed and administered. The inquiry into environmental regulation, for example, commented on the role of regulatory bodies in developing policy (VCEC 2009, pp. 292-295). It argued the practice of combining policy-making and regulatory functions can lead to risks that include the following: • Regulatory creep will occur when the regulator has an institutional interest to maintain and expand its role, by adding new regulation and a bias towards regulatory over non-regulatory options (for example, expenditure programs). This can also lead to increasingly complex regulation.

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• Incentives for regulators to set clear objectives against which their performance can be assessed will be weakened, reducing accountability. • Regulators may be ‘captured’ by particular interest groups. • Regulators will be drawn into political debates about policy issues, compromising their actual or perceived independence (VCEC 2009, p. 293). Participants indicated some of these risks may exist in relation to national park management and regulation. The TTF observed: … investors in nature-based tourism development in Victoria must navigate complex approval and assessment matrixes and balance multiple objectives and community expectations … this process has created considerable investor uncertainty and limited tourism investment…. (sub. 44, pp. 47–48) In its draft report, the Commission suggested the division of policy and regulatory roles for DSE and in response, participants’ views have been mixed. While most supported the Commission’s direction, views on the details of specific roles was varied. Additional commentary on participants’ response to the draft report is provided in section 4.9.

Advocacy for tourism Several participants argued the prohibition on private investment in tourist facilities in national parks, combined with the absence of a body charged with advocating the interests of the tourism industry in public land policy and management has forced Parks Victoria to assume this role. According to participants, Parks Victoria has taken on this role by advocating for, and developing a range of, commercial activities on public land (such as nature-based tourist accommodation). Some submissions contained a strong view that the private sector would better provide the commercial activities of Parks Victoria and that those activities detract from Parks Victoria’s primary responsibility of managing parks. The VTIC stated: [Parks Victoria]…actively promotes visitation to Victoria’s parks … in both a recreational and tourism context … [which] could also be perceived to be in conflict with Parks Victoria’s stated purpose of protecting the environment and the nature and heritage values of the state’s public lands … (sub. 40, p. 33) The VTIC called for Parks Victoria to be restructured to ‘become an agency [which is] primarily focused on the facilitation of activity, either recreation or tourism-related, within all public lands’ and for its ‘reporting line within government … [to] be realigned from within the Department of Sustainability and Environment to the Department of Business and Innovation’ (sub. 40, p. 34). The TTF considered:

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… [responsibility for] management of tourism on state public land should remain under the auspices of a single organisation like Parks Victoria that has a proven track record working in partnership with industry, government and the community to facilitate appropriate and sustainable tourism development. (sub. 44, p. 44) As with the section on clarifying DSE’s role, participants’ views were mixed on the Commission’s draft report’s suggestion that Parks Victoria act as a ‘sophisticated landlord’. These views are discussed in section 4.9.

Administration of tour operator licences While most submissions commenting on aspects of the public land system focused on the barriers to investment in tourist facilities on public land, some expressed concerns about the administration of the tour operator licensing system. While pending changes to the licensing system may address some of these concerns, those highlighted in submissions related to: • enforcement of the licensing system • burdens imposed by the administrative processes including the duration of licences. As noted, tour operators on public land must obtain a licence setting out the conditions under which they are permitted to operate. Several participants were concerned licensing requirements are insufficiently enforced. Shipwreck Coast Marketing commented on a ‘lack of monitoring of visitors/tour operators to national parks’, which can lead to ‘loss of revenue’ for licensed operators (sub. 14, p. 2). The VTIC also commented that LTOs: … have long been frustrated by the presence of unlicensed tour operators, who operate on, and profit from, the use of public land, without paying their dues or adhering to the numerous requirements and conditions of a Licensed Tour Operator Permit (LTO licence). (sub. 40, p. 38) The VTIC argued ‘there has been only a slight increase in compliance activity’ since the release of a new LTO policy in 2010, which aimed to improve compliance, among other things (sub. 40, p. 38). In addition, some participants argued the licensing system imposes unnecessary reporting requirements and costs on operators. They also suggested DSE’s delegation of land management to multiple agencies creates complexities in obtaining LTO licences. According to the VTIC, it is not uncommon for three or four different land management agencies to have coinciding borders in a relatively small area (sub. 40, p. 35). To address this issue, the VTIC proposed a system whereby an operator could obtain a single LTO licence, enabling them to operate in multiple locations, subject to meeting any predetermined requirements for particular activities or areas of land (sub. 40, p. 40).

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An attendee at the Mornington roundtable meeting raised similar concerns, and commented that little use appears to be made of the information that regulators demand of business. The VTIC stated that meeting current reporting requirements ‘… can be [a] time-consuming and labour-intensive process’ and that the sector, including LTOs, councils or potential tourism investors, does not receive any direct benefits from providing use data and ‘the LTO sector effectively provides Parks Victoria with primary research data’ (sub. 40, p. 41). The VTIC called for the development of an online system (similar to that used by the Plumbing Industry Commission), which would allow operators to submit applications and relevant compliance information online (sub. 40, p. 41). In considering the issues raised, the Commission noted the following: • Pending changes to the LTO licensing system are intended to deliver greater enforcement, longer licence lengths and somewhat reduce the compliance burden of reporting. • Parks Victoria appears to use reported statistics by publishing general statistics in their annual report. More targeted statistics are provided internally and externally on request, and presented by Parks Victoria at forums. Tour operators’ statistics are often used in discussion of environmental and visitor impacts. The data can be used to indicate the scale of LTO operations, enabling Parks Victoria to direct resources towards maintenance and improvement of the areas that visitors most frequent. The upgrade of the electronic LTO system used by Parks Victoria could provide for better use of this information in capacity planning and impact studies. While reducing administrative and compliance burden should be a continual process, progress appears to be occurring in key areas raised by participants, although, as noted, some of these reforms are still to be implemented.

4.4.5 Impact on investment Participants had different views on how the issues raised have affected investment in the Victorian tourism industry. In discussions, DSE argued private development of tourist facilities is permitted on many types of public land, and there is little commercial interest in the development of large-scale, nature-based tourist facilities on public land in Victoria. This view is based on DSE's experience of seeking expressions of interest from the private sector to develop nature-based accommodation in state forest reserves it had pre-identified as being suitable for nature-based tourism. DSE advised it received no direct approaches from the tourism industry to develop such facilities. The tourism sector argued, however, the demand for nature-based tourism in Victoria will continue to grow, reflecting changing preferences of domestic and

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international visitors. It argued there is commercial interest in developing nature- based tourist facilities at a range of sites, on private and public land, including within national parks (box 4.5). Tourism groups pointed to evidence of increasing consumer demand for nature-based tourism experiences, and to forecasts for growth in such tourism (as outlined in the NBTS and section 4.2). The industry considered development of business cases has not been forthcoming because of the policy of prohibiting private development of tourist facilities in national parks, together with other impediments. These other impediments include limited lease durations and complex and uncertain approval processes.

Box 4.5 Potential developments in Victoria’s national parks Bothfeet walking The company Bothfeet walking (based on the Great Ocean Road) was interested in developing its world class eco-tourism product in the Alpine National Park, with a four-day walk through national park and state forest and ‘luxury lodge’ eco- accommodation. The close distance to Melbourne for the domestic and international fly-in market, the views, terrain and natural landscape features, the existing trail network and the area’s established branding, all fitted with the iconic experience desired. The company considers walk-in, walk-out accommodation is critical to the multi-day walk experience and the market that it targets. The distances and terrain involved mean it is neither feasible nor desirable to transport guests to and from the walk start and finish. The company said Parks Victoria made it clear that accommodation within the Park would not be permitted. Combined with the lack of iconic trail awareness and associated infrastructure, this refusal meant Bothfeet has not progressed with its planned business development. The business has over $34 million turnover and provides 1000–1500 ‘walker nights’ per year—approximately half its current capacity. With an eight-month season in Mansfield’s High Country, Bothfeet would expect 2000–3000 walker nights on a set four-day itinerary, with exclusivity. This would represent 100 per cent growth for Bothfeet, and new premium product for the region and state. Bothfeet was interested in pursuing opportunities to package ‘soft’ and ‘hard’ adventure with horse riding and helicopter operators in the area. (continued next page)

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Box 4.5 Potential developments in Victoria’s national parks (continued) Watson’s Trail Rides Watson’s Trail Rides and Adventure Victoria is a Mansfield-based horse riding operator in the Alpine National Park. The company has been running tours in the park since 1965. It would like to see a range of bookable wilderness accommodation developed in the Alpine National Park, including eco-lodge accommodation and demountable camps. The company has four full-time and six casual staff catering to 6500 visitors per year. Quality accommodation available in the national park would lead to a substantial increase (an estimated 25 per cent) in yield, given increased value adding and packaging options.

Source: Mansfield Shire Council, sub. 47, pp. 8–9.

Based on these different perspectives, and the description of the regulatory framework in section 4.3, the Commission’s view is that the current regulatory framework for managing public land does not encourage an innovative approach to investment from private tourism businesses. The next section considers whether it is possible to improve the regulatory and institutional framework for managing public land so that innovation in tourism experiences can be achieved while maintaining the economic, biodiversity and social values of the land involved.

4.5 Opportunities for improvement Participants suggested changes to the management and regulation of public land, to create a more enabling regulatory environment for tourism investment. Changes considered in the following sections include: • removing the prohibition on private investment in tourist facilities on land managed under the National Parks Act (section 4.6) • removing other regulatory barriers to private investment on public land (section 4.7) • improving the development approvals process (section 4.8) • clarifying roles and responsibilities (section 4.9). In response to the draft report, a range of participants were opposed to the draft recommendation to remove the prohibition to private investment in national parks. This opposition was mainly based on a perception that such controls are necessary to uphold the objectives of national parks for preservation and

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protection of the natural environment11 and given the size of Victoria’s national parks, development is more appropriate adjacent to the park.12 The VNPA, for example, strongly opposed this recommendation: An important hallmark of national parks is the concept of their protection in perpetuity. This involves taking a long-term view of management and conservation, to ensure their protection is not compromised. (sub. DR110, p. 7) Some participants were sceptical of the view that private development could complement environmental values and argued there were no examples of successful projects that achieved this.13 That said there was some support for the removal of restrictions on private investment in national parks.14 For example, TTF: … supports VCEC’s recommendation that the government removes the prohibition on private development of tourist facilities in national parks where they provide a net benefit and complement environmental, heritage and other values. (sub. DR78, p. 3) Other participants suggested certain controls need to be in place to allow such private development. For example, while strongly favouring an increase in government funding to support biodiversity and conservation, Rod Lambert noted a number of issues that must be addressed before contemplating private investment in national parks (sub. DR59). Also, some tourist operators, stressed that if more private investment was allowed in national parks, the process for specifying, monitoring and enforcing environmental protection would need to be rigorous.

11 See, for example, Mornington Peninsula Shire (sub. DR67), Adrian Infanti (sub. DR70), Richard Hughes (sub. DR74), Bernard Slattery (sub. DR75), Geoff Wescott (sub. DR77), Paul Caine (sub. DR87), Jim Walker (sub. DR88) and the VNPA (sub. DR110). 12 See, for example, Peter Lalor (sub. DR58), Mornington Peninsula Shire (sub. DR67), Gary Ardern (sub. DR72), Richard Hughes (sub. DR74), Bernard Slattery (sub. DR75), Geoff Wescott (sub. DR77), Friends of the Koala (sub. DR82), Paul Caine (sub. DR87) and the VNPA (sub. DR110). 13 See, for example, Paul Caine (sub. DR87), Jim Walker (sub. DR88), Green Wedge Protection Group (sub. DR96) and the VNPA (sub. DR110). 14 See, for example, Colac Otway Shire (sub. DR66), TTF (sub. DR78), Destination Gippsland (sub. DR79), Horsham Rural City Council Tourism Advisory Committee (sub. DR81), Bothfeet (sub. DR84), Murray Regional Tourism Board (sub.DR89), Mansfield Shire Council (sub. DR92), VTIC (sub. DR98) and Nillumbik Tourism Association (sub. DR107).

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4.6 Removing restrictions on private development in national parks As noted, government policy prohibits the development of ‘major new tourism facilities to service visitors to national parks and other areas managed under the National Parks Act’ unless ‘owned and developed by the Government’(Department of Natural Resources and Environment 2002, p. 10). The Commission’s draft report suggested lifting this ban to allow private investment in sensible and sensitive tourist facilities in national parks. As noted above, feedback on the Commission’s draft report was mixed. In formulating a view on whether a ban on private investment in Victoria’s national parks is justified, the Commission considered several reports and information sources including, but not limited to, the following: • Victoria’s NBTS—while the NBTS states ‘private investment into any new large scale facility … should be sited outside of the park’ (Tourism Victoria 2008a, p. 37), it also notes that current policy is limiting public-private partnerships within national parks because any private investment into new tourist facilities is essentially discouraged (Tourism Victoria 2008a, p. 39). The strategy argues Victoria’s national parks, while attracting the highest park visitor numbers in Australia, are failing to capture yield. This is mainly a result of gaps in tourism product, including accommodation, activities and amenities (Tourism Victoria 2008a, p. 34). The strategy suggests ‘Victoria is facing competition from other destinations, particularly those which are developing high quality tourism facilities in national parks’ (Tourism Victoria 2008a, p. 36). The NBTS suggested current policy be reviewed to better enable tourism facilities in or adjacent to national parks (Tourism Victoria 2008a, p. 39). • A 2001 review of the National Parks Act—prior to the introduction of the policy restriction on private investment in tourist facilities in national parks, this review recommended a limited range of commercial activities be allowed in defined areas of national parks. The review argued some commercial activities (including the provision of facilities and tour operations) in national parks have little or no impact on the environmental values of national parks. It argued commercial activities should be approved, if business can demonstrate the proposed activities are consistent with the objectives of the National Parks Act (Allen Consulting Group 2001, pp. 22-27).15

15 This recommendation was rejected partly because such a move would be inconsistent with the objectives of the National Parks Act.

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• Review into Tourism in NSW—the review considered concerns about barriers to private access to public land, including national parks. The barriers included: legislative barriers; difficulties in identifying tourism investment opportunities; uncertain government objectives; complex approval processes; and lease and licence tenure (O’Neill 2008, pp. 73-74). The review noted significant reforms were underway to reduce the legislative barriers (for example, allowing commercial tour operators in wilderness areas where such activities are compatible with conservation values), developing tourism products and experiences, and attracting visitors to NSW parks (O’Neill 2008, p. 75). It also recommended the NSW Government shift focus from protecting state assets to opening state assets (national parks, forests and lands) to tourism businesses willing to pay to sustain and enhance the assets (O’Neill 2008, p. 118).16 • A study on sustainable tourism and natural world heritage—published by the International Union for the Conservation of Nature (IUCN), this study considered the impact of tourism on World Heritage Listed sites, focussing on 12 sites that were chosen for their natural value. The study recognised that tourism development in these sites ‘has the potential to bring about economic benefits that support site conservation and the local/national economy, but on the other [hand], uncontrolled and poorly managed tourism can have severe consequences for the site’s integrity’ (Borges et al. 2011, p. 3). • Participants’ views were also considered—in addition to submissions, the Commission discussed issues with various individuals and organisations throughout the inquiry, including businesses, industry organisations, environmental groups and government bodies (see appendix A for a list of participants). These sources of information highlighted the risks associated with poorly managed development in areas like national parks, where conservation values are a priority. Such risks include: • the impact of construction activities on environmental and heritage assets such as native vegetation, flora and fauna, Aboriginal heritage such as scar trees, soil erosion, vehicle movement and fire risks • visual and amenity impacts of the development on other park users and adjacent landholders and whether development locks out these users

16 The NSW Government’s response to the review stated that ‘to improve the quality of the nature based experience and adapt to changing visitor needs it will be important to consider enhancing and developing new nature-based experiences either adjacent to, or where appropriate, in national parks and reserves’ (State Government of NSW 2008, p. vii).

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• environmental and other effects of the operation of tourist facilities and increased visitation, including the effect on groundwater, waste management, fire risks, car traffic, spread of weeds and impacts on other park infrastructure such as roads and walking tracks. The challenge is to consider whether in practice these risks can be contained while still realising the economic, environmental and social benefits that can accompany sensitive tourist facilities. These potential benefits include: • benefits to local communities and the State from investment in nature-based facilities in national parks • increased visitation and use of Victoria’s national parks • improved accessibility to national parks for people who would otherwise be unable to experience nature-based attractions • increased awareness and appreciation of the need for environmental protection and conservation, and of the importance of maintaining the environment for future generations • an increase in resources and expertise available to manage and enhance the natural assets of national parks • improved ability to identify and manage threats to the long-term sustainability and biodiversity of national parks, given improved monitoring as part of a partnership between government and the private sector. In light of the above, the Commission analysed the question of allowing private investment in tourist facilities in Victoria’s national parks by considering the following issues: • Is there demand for investment in national parks? • If such investment were allowed, is it possible to protect the parks environmental and biodiversity values? • Is investment in parks necessary or can all the infrastructure be accommodated outside the park?

4.6.1 Demand for investment As noted earlier, the lack of specific proposals put forward to develop facilities in national parks is likely to be a poor indicator of potential demand. It is clear that in an environment where a policy prohibition, other regulatory barriers, and other features of the regulatory framework all discourage business investment in this industry, there are no clear incentives for business to prepare or advocate detailed proposals. That said, box 4.5 highlights two cases where the Commission has heard of barriers to private investment in national parks limiting the potential of

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businesses to grow and create more attractive tourism offerings through the provision of sensitive accommodation in national parks. Furthermore, as highlighted in section 4.2.2, demand for nature-based tourism experiences in areas of high natural value is growing. Accessing this demand would require a more accommodating environment for businesses willing to provide unique nature-based experiences with supporting infrastructure.

4.6.2 Protecting environmental values Opposition to allowing private development in national parks generally stems from a concern that the environmental and other impacts of tourist developments cannot be effectively managed. While many forms of tourist development are not compatible with maintaining the biodiversity and environmental values of national parks, a number of studies have shown that sensitive development, effectively managed, can create positive returns to businesses, local communities and protected areas. The Sustainable Tourism CRC, in a study on trends in protected areas, acknowledged that ‘ecotourism appears to have global appeal as a means of securing sustainable income for many rural communities. It will also benefit protected areas and associated communities when meaningful participation and enterprise development is incorporated to secure their livelihoods’ (HB Gurung and Tourism 2010, p. 6). A paper in the International Journal of Biodiversity Science and Management, states that ‘to realise future sustainable conservation efforts in mountains (and elsewhere), people-oriented conservation approaches that call for ecologically sound, feasible and socially just protected area development will be needed’ (Kollmair et al. 2005, p. 1). Another study conducted on mountainous protected areas found, through an analysis of 74 case studies, that policy makers and practitioners can facilitate sustainable and equitable mountain tourism through, among other things, the ‘encouragement and reinforcement of infrastructure development appropriate to fragile environments’ (Godde et al. 1999, p. 6). While the same study acknowledged the negative impacts of infrastructure development in protected areas, there were also suggestions that as long as it was implemented in a sustainable manner, infrastructure development through tourism can address environmental, cultural and economic problems (Godde et al. 1999, p. 20).

Experience in other jurisdictions The experience in other countries demonstrates it is possible to address the environmental and other risks posed by tourist developments in sensitive landscapes, to achieve positive outcomes for both the economy and the environment (box 4.6).

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Box 4.6 Ultimate Hikes hut-based Milford Track walk in New Zealand Ultimate Hikes runs the Milford Track Walk, which is a five-day, four-night hut- based bushwalking product through Fiordland National Park in New Zealand. Ultimate Hikes has the sole commercial licence from the Department of Conservation to operate this walk commercially. The walk offers accommodation and amenities at points along the walk. The accommodation is owned by a private company that contributes significantly to the conservation of the National Park. In 2004, Ultimate Hikes took 6 000 bushwalkers (or 45 per cent of all bushwalkers on the Milford Track). The cost of the walk with Ultimate Hikes is around NZ$1750 per person. Based on the number of clients, this represents potential annual revenue of around NZ$10.5 million. Ultimate Hikes must meet a number of licence conditions, including paying five per cent of its gross revenue to the Department of Conservation and contributing to the management costs that the Department incurs to maintain the Milford Track.

Source: Tourism Victoria 2008a, p. 56; Ultimate Hikes 2011.

In similar examples in Australia, governments have recognised that these risks can be managed to achieve better outcomes. In a November 2009 parliamentary speech on lifting restrictions to private sector development in national parks, the Queensland Premier commented ‘other states have successfully managed to find the balance between protecting these precious environmental assets (national parks) and providing the opportunities for visitors and ordinary Australians to visit their own national parks’ (Queensland Parliament 2009, p. 1). While no jurisdiction provides unconditional access to private sector development in national parks,17 the majority of other states can ultimately allow this type of investment under the right conditions. Other than Victoria, only the Australian Capital Territory (ACT) has policy or legislative barriers that prohibit this type of investment (table 4.4).

17 For example, most jurisdictions specify that where possible, development should be located outside of the national park.

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Table 4.4 Comparison of the potential for private sector development in national parks Jurisdiction Allowed? How? Victoria No Previous government policy allows only public sector development and ownership of major tourism infrastructure. NSW Yes Division 2 of the National Parks and Wildlife Act 1974 (NSW) allows development on national parks in accordance with the relevant management plans. Queensland Yes The respective management plans can allow development in national parks, with some parks being divided into zones that each allow certain types of development in each zone. Western Yes Respective management plans can allow development in Australia (WA) national parks. South Australia Yes Respective management plans can allow development in (SA) national parks. Tasmania Yes The National Parks and Reserves Management Act 2002 (Tas) allows development to occur through the respective management plans upon approval by the Minister that the building is for tourist accommodation. Northern Yes Parks Australia operates NT national parks. Respective Territory (NT) management plans can allow development in national parks. ACT No Current policy restricts private tourist development in national parks and is enforced through management plans. New Zealand Yes Under section 50 of the National Parks Act 1980 (NZ), tourism accommodation development in national parks is allowed on approval by the Minister, in accordance with the relevant management plan. NZ policy also allows accommodation in national parks.a a Except for ‘exclusive private use’ (New Zealand Conservation Authority 2005, pp. 43-45).

Source: Relevant Acts, policies or management plans.

The IUCN identified the Tasmanian Wilderness as a particularly good example where sensible and sensitive infrastructure development has had positive economic and environmental outcomes (Borges et al. 2011). The Tasmanian Wilderness spans a large area of the State, with particular examples of private infrastructure being located in the northern section in Cradle Mountain-Lake Saint Clair National Park (box 4.7).

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Box 4.7 Cradle Mountain Huts The 60km Overland Track, within Tasmania’s World Heritage Area, runs from Cradle Mountain to Lake Saint Clair. The walk is one of the most widely recognised and patronised walking tracks in Australia. Walkers can arrange their own itinerary, staying in public huts or campsites, or complete the Track with the assistance of a private operator, Cradle Mountain Huts, who offers six-day guided walks, with guests staying in private hut accommodation. A formal partnership exists between the Tasmanian Parks and Wildlife Service and Cradle Huts Pty Ltd, as the sole private accommodation provider along the Overland Track. The partnership is based on a written agreement and has operated since the 1987 season. The purpose of this partnership is to provide visitors to the Overland Track with a fully guided bushwalk and hut-based tourism experience, while minimising environmental impact to the fragile alpine environment.

Source: Susan Moore et al. 2009, p. 12.

Tasmania's approach to tourism and conservation highlights the understanding by governments across Australia, and New Zealand that the two can coexist. In a teleconference with the Commission, a representative from the Tasmanian Parks and Wildlife Service stated ‘tourism and conservation can be harmonious, they are not mutually exclusive. It is the experience of the pristine natural environment that drives commercial viability’. In addition to the Cradle Mountain Huts and Ultimate Hikes Huts (box 4.6), there are other examples where sensitive private investment in tourist facilities in national parks has been able to contribute to the conservation of the surrounding protected areas (box 4.8).

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Box 4.8 Environmentally sensitive private tourist facilities in national parks Karijini Eco Retreat, Karijini National Park, WA Located in Karijini National Park, Karijini Eco retreat has been operating since 2007 and offers luxury eco tents and camping for around 140 people. The site was originally a national park campground; however, after an expression of interest process found no willing operators, the site was then put out to tender for accommodation. Operating a campground was not a financially viable business. The Gumala Aboriginal Corporation was successful in obtaining the lease and owns the accommodation property. The owner of this retreat considers nature accommodation on public land provides a strong means of regulation and ensures environmental standards remain high. Sal Salis Ningaloo Reef, Cape Range National Park, WA Sal Salis Ningaloo Reef is an exclusive safari camp in Western Australia’s Cape Range National Park. Nine wilderness tents are metres from the water’s edge. Sal Salis’ ecological principles ensure minimal environmental footprints.

Source: Karijini Eco Retreat 2011; Sal Salis Ningaloo Reef 2011.

Furthermore, a number of conservation funds, established by private business to maintain and improve the environmental values in a particular area, highlights private businesses’ commitment to sustainable operation. One such example is in Tasmania, where, ‘in 2008, Bruny Island Cruises, Tasman Island Cruises and Wildcare Inc established the Tasmanian Coast Conservation Fund to support the Tasmanian Parks and Wildlife Service in their work of managing the national parks, marine reserves and marine wildlife along the spectacular coastlines of Tasmania’ (Bruny Island Cruises 2011).

Managing impacts in Victoria The preceding discussion indicates that there are situations where private tourist development can be complementary to maintaining conservation values. However, several participants, who were critical of allowing such investments in Victorian national parks, argued these outcomes would not be realised in Victoria, because of: • a lack of confidence in the capacity of the regulatory system to set and enforce standards • the lack of resources for Parks Victoria to regulate effectively • allowing any investment is just the ‘thin edge of the wedge’. There is already a range of regulatory tools in Victoria to deal with environmental, heritage and other risks which may be posed by private

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investment in tourist facilities in national parks. These regulatory frameworks include: native vegetation clearing controls and associated offset requirements; building regulations to deal with fire and other safety risks; Aboriginal heritage controls; design guidelines for nature-based tourism; and water and wastewater treatment controls. Other tools are also available to help screen the environmental credentials of tourism businesses, for example, national environmental accreditation schemes. Bothfeet, a walking tours company, believes ‘operating in national parks goes hand in hand with sustainability management, and as such any one wishing to do so should be required to obtain Advanced Eco-Certification from Ecotourism Australia…or a similar scheme’ (sub. DR84, p. 9). Internationally there has been work on the principles for sustainable tourism in high value areas. An IUCN study found that ‘social, economic and environmental benefits are all achieved when appropriate site protection mechanisms are in place and tourism planning is integrated with site management planning’ (Borges et al. 2011, p. 10). The IUCN proposed nine principles that could be used to provide sustainable tourism at World Heritage properties (table 4.5). Table 4.5 Proposed principles for sustainable tourism at World Heritage properties Principle 1 Tourism development and visitor activities associated with World Heritage properties should always contribute to the protection, conservation, presentation and transmission of their heritage values. Tourism should also generate sustainable socio-economic development and equitably contribute tangible as well as intangible benefits to local and regional communities in ways that are consistent with the conservation of the properties. Principle 2 World Heritage properties should be places where all stakeholders cooperate through clear and effective partnerships to maximise conservation and presentation outcomes, whilst minimising threats and adverse impacts from tourism. Principle 3 The promotion, presentation and interpretation of World Heritage properties should be effective, honest, comprehensive and engaging. It should mobilise local and international awareness, understanding and support for their protection, conservation and sustainable use.

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Table 4.5 Proposed principles for sustainable tourism at World Heritage properties (continued) Principle 4 Continuous, proactive planning and management should ensure that tourism development and visitor activities associated with World Heritage properties contribute to their protection, conservation and presentation, while respecting the capacity of properties to accept visitors without degrading or threatening heritage values. It should have regard to relevant tourism supply chain and broader tourism destination issues, including congestion management and the quality of life for local people. Tourism planning and management, including cooperative partnerships, should be an integral aspect of the site management system. Principle 5 Planning for tourism development and visitor activity associated with World Heritage properties should be undertaken in an inclusive and participatory manner, respecting and empowering the local community including property owners, traditional or indigenous custodians, while taking account of their capacity and willingness to participate in visitor activity. Principle 6 Tourism infrastructure and visitor facilities associated with World Heritage properties should be carefully planned, sited, designed, constructed and periodically upgraded as required to maximise the quality of visitor appreciation and experiences while minimising adverse impacts on heritage values and the surrounding environmental and cultural context. Principle 7 Management systems for World Heritage properties should have sufficient skills, capacities and resources available when planning tourism infrastructure and managing visitor activity to ensure the protection and presentation of heritage their values and respect for local communities. Principle 8 A significant proportion of the revenue derived from tourism and visitor activity associated with World Heritage properties should be applied to the protection and conservation of their heritage values. Principle 9 Tourism infrastructure development and visitor activity associated with World Heritage properties should also contribute to local community development in an effective and equitable manner.

Source: Borges et al. 2011, p. 28.

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It is clear there is existing work Parks Victoria can draw on to design a management system that identifies private businesses with high environmental credentials and monitors and enforces their environmental obligations. The resourcing of Parks Victoria would also need to be considered in the context of ongoing government funding when developing the policy around charging for leases to develop a facility in a national park, and the monitoring and reporting obligations placed on private operators. The Government would also incur costs in assessing applications and agreeing on operating conditions, environmental offsets and other conditions. An application fee should reflect these costs. On the risks of increasing development that may result from allowing private investment in national parks, the argument is based on the premise that by allowing one investor, government will be under pressure to continue to offer national park land for further development, effectively urbanising national parks. As noted later in this chapter, the Commission considers that the number and scale of any tourist facilities in national parks would be limited by environmental obligations placed on such facilities and the relative attractiveness of less constrained development on adjacent private land (subject to the recommendations of chapter 3). This would be underpinned by responsible planning and management of private investment in national parks. Exclusivity for the private investor (without unduly constraining public access) could also be used to ensure continued development of a particular national park area is refused. The lease agreement between government and the private business (and any subsequent owner) could stipulate that in exchange for quality environmental upkeep, further grants for development in that park (or within a certain distance) will be denied. This provides incentives for the business to focus on conservation as part of their business model, to mitigate the risks of losing their investment.

4.6.3 Confining investment to outside national parks A number of submissions supported focussing the development of tourist facilities on private and public land outside national parks. For example, the VNPA argued ‘Victoria’s national parks are almost all adjacent to, or close to, sizeable townships or regional centres. There is ample opportunity for easy-to- manage accommodation and other infrastructure on private land near or adjacent to parks’ (sub. DR110, p. 17). There are many examples of successful and environmentally sensitive tourism developments on land that is adjacent to national parks (box 4.9).

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Box 4.9 Environmentally sensitive private tourist facilities adjacent to national parks Little Desert Lodge, Little Desert National Park, Victoria The Little Desert Nature Lodge was established is 1969, beginning with 4WD tours into Little Desert National Park to raise awareness of the local flora and fauna. Over the years the Lodge has seen much growth and now comprises 24 rooms, 16 bunkrooms and a large dining room. The Lodge hosts a large number of schools, coach tours and international guests annually. The Little Desert Flora & Fauna Foundation was established in 2000, and now runs the Lodge. The Foundation also promotes environmental research into the flora and fauna of the region. Wolgan Valley Resort and Spa, Blue Mountains, NSW The 40 suites/cabins five-star development is carbon neutral, offers a range of interpretive activities focussed on the surrounding natural environment and has funded extensive replanting of indigenous species in the reserve. Southern Ocean Lodge, Kangaroo Island, SA The development adjoins the Flinders Chase and Cape Bouguer/Kelly Hill National Parks. It offers a range of activities focussing guests on the environmental values of the surrounding parks. In partnership with the South Australian Government, an ‘Environment Fund’ has been created, to be invested in a range of local environment projects on Kangaroo Island, with voluntary guest contributions making up part of the fund.

Sources: VNPA, sub. DR110, p. 19; Parks Victoria.

However, there are instances where investing in facilities inside park boundaries is required to provide particular tourism products. For example, huts are ideally sited on long distance and remote walking trails, such as the Cradle Huts along the Overland Track in Tasmania’s Cradle Mountain—Lake Saint Clair National Park.

The Commission’s view In the draft report, the Commission examined the strengths and weaknesses of three options to provide a more enabling environment for private investment in tourist facilities in national parks and for completeness have considered a further option that strictly protects national park areas. The options, therefore, include: (1) removing the policy prohibition and any other unnecessary constraints on private development (2) removing policy and other constraints in particular areas in the national park estate, using a strategic approach similar to that being developed in Queensland and Western Australia

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(3) maintaining the prohibition on direct investment but allowing private investment in partnership with the public sector (4) maintaining the statues quo and prohibiting private sector investment in national parks. Following consideration of feedback on the draft report, the Commission considers that, on balance, there is scope to provide a more enabling environment for private sector investment in tourist facilities in national parks. The current policy prohibiting development of private tourist facilities was introduced when the outlook for nature-based tourism was very different from what it is now—that is, before the introduction of regulatory frameworks for dealing with native vegetation clearing, Aboriginal heritage and other impacts of development proposals. There is now also an increased appreciation of nature- based tourism for raising environmental awareness in the broader community and for attracting private sector resources to the task of maintaining and enhancing national parks. The Commission, therefore, considers that private sector investment in sensible and sensitive developments in national parks should be allowed, provided the investment complements environmental, heritage and other values and there is a net public benefit. The Commission considers there are at least five likely implications of these changes. First, in general, the best course is to develop tourism ventures outside the boundaries of a national park. Chapter 3 discusses the importance of ensuring that the planning system does not unnecessarily constrain such developments. If the Government’s vision for growth in nature-based tourism is to be realised without undue pressure for development within parks, the processes for development on public or private land adjacent to the parks need to be as efficient and effective as possible, and not a de facto barrier. The Commission also notes that even when development is outside the park boundary, its impact on visitor numbers and use of the park will need to be managed. Despite this preference for facilities to be located outside park boundaries, for some types of investments the park is a superior location. This can be the case if the tourism experience offered depends on the visitors directly engaging with the park, perhaps in a way that makes travelling to and from the park impossible or inconvenient and the construction and operation of the facility does not detract from the values or objectives of the park. Second, government should set the ground rules for development proposals, having regard to the environmental condition of assets and community views. Tourism operators seeking to invest in facilities in a national park should expect to be subject to environmental controls that are not inappropriately burdensome but reflect the environmental sensitivity of the area. Such controls are likely to be

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considerably more onerous than on land outside the park boundary. Such controls may result in most operators concluding that developing their facilities outside the park boundary is more commercially attractive. Again, this relies on planning laws not unduly constraining access to alternative sites. Third, the Commission considers that its recommendations would result in only a small number of small-scale facilities with high environmental credentials being built in Victoria’s national parks. The scope of development would be constrained because sites within parks are suited to only a limited range of tourist facilities and the level of environmental obligations imposed on such facilities would be much higher than for developments elsewhere. Fourth, there are areas of land managed under the National Parks Act that are unsuitable for development due to their sensitivity (for example, reference areas). Therefore, there are likely to be benefits for both environmental management and commercial certainty in work being done to identify general areas in which tourism development would be contemplated. Some participants supported a strategic (land banking) approach where government identifies sites in national parks and offers them to the private sector through a competitive process (for example, the TTF (sub. 44) and Mansfield Shire Council (sub. 47)). However, it is not certain that government expenditure to identify suitable sites would lead to successful development. The Commission has heard that land banking approaches across Australia have not had the success anticipated, particularly given the resources devoted to it by governments. For example, a representative from the Tasmanian Parks and Wildlife Service commented in a teleconference with the Commission, ‘it is often difficult to second guess the needs of industry as developers have their own views and vision on tourism opportunities’. On the other hand, simply removing the prohibition on development within national parks might be insufficient and result in park authorities and private operators engaging in unproductive work and negotiation, as they try to clarify which sites are desirable and acceptable places to invest. To reduce uncertainty, government could indicate broad areas of the State where it would be willing to consider proposals for private tourist developments in national parks. Similar to the process of developing regional land-use plans for Victoria (discussed in chapter 3). The equivalent management plans for national parks may be a suitable vehicle for identifying broad potential locations. Finally, it is always necessary to ensure approval processes are as efficient and effective as possible, particularly in areas of substantial policy change where there is naturally a high level of uncertainty. Uncertainty could be reduced by developing guidelines on the approval process, criteria for approval, the standard terms and conditions for leases in national parks, and public consultation processes that developers would need to follow. These guidelines could draw on

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existing sources, such as the Leasing Policy for Crown Land in Victoria and the Draft Design Guidelines for Nature-Based Tourism (section 4.8). Also, to ensure the Government’s policy intent is clear it should publicly announce that businesses will be allowed to undertake sensible and sensitive private developments in national parks which complement the environmental and social values of national parks. Overall, locking up national parks would only be appropriate if government believed, on the basis of sound evidence, that economic development though tourism is completely incompatible with conservation and biodiversity objectives. However, discussion earlier in this chapter has provided evidence that it is both possible and practical to effectively manage private investment in national parks in a way that complements park values and objectives.

Recommendation 4.1 That the Victorian Government remove regulatory obstacles to private sector investment in tourism infrastructure in Victoria’s national parks so that from 1 January 2012 private sector investment is permitted and businesses are allowed to:

• propose sensible and sensitive developments in national parks provided they complement environmental, heritage and other values and generate a net public benefit • lease land within a national park for this development, provided they meet a set of guidelines and agree to a standard operating contract that includes incentives for the conservation and biodiversity protection of the national park (see recommendation 4.2). The Victorian Government should publicly announce this new policy approach.

An important implementation issue is the way in which the legislative objectives of the National Parks Act are interpreted. As noted, the objectives of the National Parks Act include: • preserving and protecting the natural environment • encouraging the responsible management of the land • encouraging the use of parks for enjoyment, recreation or education and controlling that use. Participants involved in the tourism industry suggested these objectives can limit the use of parks, if the objective of preservation and protection is interpreted to imply that activities should not result in any damage (for example, not even the

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minor loss of native vegetation from constructing a new facility). The Commission’s view, however, is that investment in sensible and sensitive tourist facilities can help achieve conservation awareness and contribute to preserving and protecting the natural environment. Therefore, the current objectives of the Act do not appear to be an absolute barrier to private investment in tourist facilities on land managed under the National Parks Act.

4.7 Removing other regulatory barriers Participants noted several other barriers to private investment on public land including: • legislated maximum lease durations • terms and conditions of leases • barriers within land-use planning and public land regulation.

4.7.1 Maximum lease durations The maximum duration permissible for leases on public land and public infrastructure such as visitor facilities is specified in legislation. Lease duration is important because it affects: • how the land is managed and whether it can be put to an alternative use • the level of uncertainty a tourism business faces and its investment security • the incentives for a private business to maintain and improve public assets such as the environment and infrastructure. Several participants acknowledged recent moves to extend the maximum leases for land under the Crown Land (Reserves) Act and for specific parks under the National Parks Act. However, participants expressed concerns about the limited maximum leases for areas reserved under the National Parks Act. The Act provides a lease can be granted only for up to 20 years ‘for use as a kiosk cafe or store or for scientific research or for a ski tow’ or up to seven years for ‘a camping ground or building in the park’. Compared with other jurisdictions, the maximum lease durations in the Victorian National Parks Act are much shorter (table 4.6). The maximum lease terms in Western Australia are closest to Victoria’s, but the Commission understands these may soon be extended. Notwithstanding that shorter leases may be negotiated in other jurisdictions, Victoria’s legislated maximum leases are likely to deter proposals for investment in tourist facilities in national parks.

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Table 4.6 Maximum allowable lease durations in national parks Jurisdiction Maximum lease term Victoria 20 yearsa New Zealand No maximum Parks Australia No maximum Tasmania 99 years Western Australia 42 years (21+21) South Australia No maximum Queensland 99 years a Fifty-year lease durations are legislated for Point Nepean and Mount Buffalo National Parks, the lighthouse at Wilsons Promontory and the Great Otways National Parks, and O’Shannassy Lodge at Yarra Ranges National Park.

Source: Tourism Victoria 2008a, p. 38.

The Commission’s draft report stated that if the Government wishes to create a more enabling environment for investment in tourist facilities in national parks, it would need to increase the maximum lease duration under the National Parks Act. With some minor exceptions (table 4.3), the maximum lease duration of seven years for buildings does not provide adequate security for investment, or incentives to develop and maintain tourist facilities and the surrounding environment. In response, a number of submissions opposed changes to current leasing arrangements18 with the VNPA suggesting existing leasing provisions of the National Parks Act ‘have allowed governments to match the nature of any development with the primary objectives of the Act’ (sub. DR110, p. 20). On the other hand, some participants supported extending the maximum lease terms in national parks.19 For instance, Bothfeet argued exclusive, long-term leases should be available ‘to give business the confidence to invest’ (sub. DR84, p. 8). The TTF acknowledged longer national park lease durations ‘will also be beneficial to Victoria’s regional product offering’ (sub. DR78, p. 3).

18 See, for example, Adrian Infanti (sub. DR70) and the VNPA (sub. DR110). 19 See, for example, Rod Lambert (sub. DR59), TTF (sub. DR78), Horsham Rural City Council Tourism Advisory Committee (sub. DR81), Friends of Nillumbik (sub. DR91) and Mansfield Shire Council (sub. DR92).

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The Commission does not have a view on the appropriate length of the maximum lease duration. But in setting a higher limit, the following principles may be appropriate: • the need for the land manager to exercise discretion to match the lease duration to factors such as the investment’s payback period and the asset’s durability • the creation of a competitive environment, having regard to other jurisdictions • consistency in providing lease holders with incentives to maintain physical assets and invest in raising the quality of land within, and adjacent to, the leased area to improve visitor experience and support a healthy park ecology. Submissions also raised the issue of criteria for determining when a lease should be renewed. Friends of Nillumbik, for example, submitted that criteria and benchmarks are needed to guide decisions to extend leases (sub. DR91, p. 5). Likewise, Rod Lambert argued that ‘if renewal with the existing operator is subject to demonstrated compliance with requirements to protect biodiversity and environmental values, this will provide strong incentives for operators to comply’ (sub. DR59, p. 10). The Commission considers the lease duration and extension of leases for any privately constructed facilities should primarily be based on clear key performance indicators for environmental protection and conservation, with automatic renewal where the operator meets all these (and any other) lease requirements. This would provide commercial certainty and positive environmental outcomes. Furthermore, the Commission understands that revenue generated through leases and licences on national parks is returned to consolidated revenue, whereas on other public land areas revenue is retained by the land manager. The Commission notes it is unclear why revenue is treated differently between different types of public land. At a minimum, lease fees should be set to cover costs such as ongoing monitoring of the lease and maintenance of the land area impacted by the lessees’ activities. It is, therefore, appropriate these charges, to the extent they are set to cover park costs, be retained by land managers and be used to administer the lease process and maintain and enhance the environmental values of the national parks estate.

4.7.2 Terms and conditions of leases Extending the maximum duration of leases would help create a more enabling environment for investment in tourist facilities in national parks. However, submissions and discussions with participants indicated that other aspects of leasing, across all types of public land, also need improvement. These aspects

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included consistency in lease administration, rights of renewal, the ability to transfer leases, the ability for government to terminate leases without cause, and the timeliness of decision-making by land managers. The Commission’s overall impression is that leasing practices are designed to provide maximum flexibility for land managers. While this flexibility allows land managers to quickly change park management arrangements, it can have adverse impacts on the returns to the State from leasing. From a business perspective, it can also make financing more difficult to attract and more expensive. As with short lease terms, it can weaken incentives to attract customers (and users of public land) and maintain facilities and environmental assets, and to assist park managers with ongoing management of public land. It is not clear how current leasing arrangements manage trade-offs between flexibility for land managers and commercial incentives for businesses. The Commission considers there is scope to examine leasing arrangements to ensure the appropriate balance is achieved. This examination could create a more enabling environment for investment in tourist facilities on public land, and better align the objectives of land managers and businesses.

4.7.3 Other regulatory barriers An issue that submissions did not raise, but that could arise if development were allowed in national parks, is the need to obtain a planning permit for such developments. Most land within national parks is zoned as Public Park and Recreation Zone (PPRZ) or Public Conservation and Resource Zone (PCRZ). The PPRZ recognises use of public land for ‘public recreation and open space’ and ‘commercial uses where appropriate’ and allows private development, if approved by the land manager and a planning permit is obtained. The PCRZ, however, does not mention either of these objectives and focuses on minimising the degradation of natural processes and the environment. The PCRZ restricts developments, including forms of accommodation, retail premises, restaurants, museums, art galleries and recreation facilities, unless they are ‘conducted by or on behalf of a public land manager or Parks Victoria’. These requirements could be interpreted to mean a private sector proposal to develop a tourist facility on a leased site within a national park would be prohibited under the PCRZ. A potential investor would need to apply to rezone land before applying for a planning permit, incurring additional uncertainty, time and costs. These examples suggest the Government, to enable tourist development in national parks, may need to review land-use planning provisions to identify and address other potential barriers to private sector investment.

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Recommendation 4.2 That the Victorian Government: • increase the maximum duration of leases on land managed under the National Parks Act, based on an appropriate incentive scheme • identify and address any provisions in public land leasing requirements and practice that undermine commercial interests without also delivering substantial offsetting benefits to land managers • identify and address any other regulatory barriers that exist in land-use planning and public land regulation that may be inconsistent with private investment.

4.8 Improving the development approval process Removing regulatory barriers to private sector investment on public land may not be sufficient to facilitate tourism investment. Unclear or overly complex approval processes and overly stringent conditions on proposed developments, can also discourage investment by increasing unnecessary uncertainty and costs. Efficient processes for all types of public land are also important to get the right development in the right location, including tourist facilities adjacent to national parks. Participants raised concerns about the complexity and length of the approval process and the Commission thus examined opportunities to improve this process and develop guidance for proponents and decision-makers.

4.8.1 Simplifying the development approval process Section 4.3 described the process of obtaining approval to develop a tourist facility on public land. The description of the development approval process highlighted its complexity and the involvement of multiple decision-makers. These features potentially weaken accountability for making timely and appropriate decisions. An applicant may, for example, receive a lease AiP from the Environment Minister for a development on public land, but then face council opposition to the proposal at the planning permit stage. For the applicant to obtain a planning permit, the Government would need to over-rule the council (perhaps by calling in the proposal under planning legislation). The approvals process for private development on public land could be simplified and streamlined in several ways. Options include: • establishing an integrated approvals process with a single decision-maker, such as the Environment or Planning Minister

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• removing duplicative steps in the process, such as the AiP from the Environment Minister or the relevant sections of the planning permit and other approval processes • assigning a specific agency the task of facilitating major development proposals through the existing process. The Commission has not attempted to recommend specific changes to the development approval process for public land because the need for change, and the appropriate arrangements, will depend on the Government’s response to the Commission’s recommendations for reforming public land regulation. The Commission has focused on outlining the principles that should guide the design of a more efficient development approval process. It previously identified such principles in the draft report for its inquiry into local government regulation (table 4.7). Table 4.7 Design principles for approval processes Principle Outcome Clear guidance about the policy outcomes Facilitates early withdrawal of unsound or objectives that the relevant government proposals, and early identification by wishes to achieve business of potential development constraints, avoids unnecessary costs. Clear separation, where possible, of Improves accountability and reduces accountabilities for developing policy and complexity, regulatory creep, regulatory for administering policy capture and compromised independence. Clear accountability, public monitoring, Provides incentives to deliver quality reporting and independent oversight outcomes. Progressively reduced uncertainty about Facilitates early withdrawal of unsound the overall outcome, and sharpened focus proposals and better targeting of effort at on key issues of uncertainty the key issues. Risk-based processes matching the rigour Better use of scarce resources, of both and extent of assessment processes to the administrators and regulated parties. scale and risk of proposals Certainty on timeframes for assessment, Minimise unexpected delay costs, and with binding or negotiated limits and discourage strategic behaviour by public reporting against these limits regulators and proponents. A whole-of-government approach to Achieves outcomes that meet approvals whole-of-government objectives. Independent checks or steps in processes Achieves more predictable and consistent and accountability mechanisms outcomes. Sufficient number and skill of policy- Is necessary to achieve all of the above. makers and administrators

Source: VCEC 2010c, pp. 96-97.

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The principles listed in table 4.7 can be related to participants’ concerns about the administration of public land regulation: • The principles state that an approval process should progressively reduce uncertainty about the overall outcome, and sharpen the focus on key issues of uncertainty. The current development process potentially allows for a project to receive approval on an issue but then be rejected on the same issue at a latter stage. • Another principle is that the accountabilities for developing policy and administering policy should be clearly separated where possible. As noted, DSE develops policies, such as the leasing policy, and administers the development approval process (that is, advises the Minister whether to grant AiP). • The principles also stress the need for more certain timeframes for assessment, with binding or negotiated limits and public reporting against these limits. Guidance on the approval process for development on public land does not mention timeframes and the process’s administration is not publicly reported. • The principles stress the desirability of a whole-of-government approach to approvals, particularly when multiple government agencies have a role. Given the complex issues raised by development on some public land, multiple bodies are likely to be involved in assessing and approving proposed developments. Options for taking a whole-of-government approach range from using a facilitation agency such as Tourism Victoria, to establishing an integrated assessment process with a single decision-maker. In the draft report, the Commission proposed that the Victorian Government develop an improved development approval process that: • progressively reduces uncertainty about the overall outcome, and sharpens the focus on key issues of uncertainty • separates responsibility for developing policy and administering the approval process • provides more certain timeframes for assessment, such as binding or negotiated limits, and public reporting against these limits • provides a more integrated decision-making process. The development of a streamlined approval process would ideally involve bodies with relevant knowledge of the characteristics of the tourism industry, the land- use planning system, and the issues that arise when assessing development applications. DSE’s development of a new approval process should involve close consultation with the tourism industry, Parks Victoria, Tourism Victoria, local governments, the Department of Planning and Community Development, and

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any other relevant stakeholders (including, for example, the Alpine Resort Management Boards). While few submissions commented on the Commission’s proposal to introduce a more streamlined approval process, those that did supported the proposal.20

4.8.2 Improving decision-making guidelines A variety of guidance material is available to assist proponents of private development on public land. It covers issues such as leasing policy and the design of nature-based tourism accommodation. If the Government accepts the need to change the development approval process for public land, it will need to produce revised guidance to explain the new process and outline criteria for assessing proposals. The revision of guidance material provides an opportunity to address participants’ perceptions that the administration of the development approval process assumes private investment in tourism facilities on public land will necessarily diminish the environmental, heritage and conservation values of the land. An alternative approach is to view development proposals as an opportunity to achieve improved economic, environmental and social outcomes. The current guidance on leasing policy acknowledges leasing can provide several types of public benefit. It also requires lease applications to demonstrate how the development would apply ecologically sustainable development principles (Commonwealth Government 1992). In listing the types of benefits, the guidelines do not explicitly recognise leasing can contribute to improved environmental outcomes from increased awareness of environmental values and the efforts of lease holders to maintain and improve public land. Similarly, references in the Guidelines to the application of ecologically sustainable development principles emphasise the need for proposals to minimise or avoid damage to natural assets such as native vegetation. The Guidelines do not acknowledge development may provide environmental benefits by bringing private sector resources and skills to bear on the threats (for example, pests, weeds, fire, and loss of biodiversity) to the natural values of public land.

20 See for example, Horsham Rural City Council Tourism Advisory Committee (sub. DR81), Mansfield Shire Council (sub. DR92) and the VNPA (sub. DR110). Mansfield Shire Council also suggested that Alpine Resort public land managers should be involved in developing a revised approval process.

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Recommendation 4.3 That the Victorian Government introduce a streamlined development approval process for public land, which: • progressively reduces uncertainty about the overall outcome, and sharpens the focus on key issues of uncertainty • separates responsibility for developing policy and administering the approval process • provides more certain timeframes for assessment, such as binding or negotiated time limits, and public reporting against these limits • provides a more integrated decision-making process. Also, that the Department of Sustainability and Environment release revised guidelines that identify: • the steps involved in any revised development approval process • the relevant contacts at each stage of the development approval process • criteria for assessing proposals. The Department of Sustainability and Environment develop the approval process and associated guidance material in consultation with the tourism industry, Parks Victoria, Tourism Victoria, local government, the Department of Planning and Community Development, and any other relevant stakeholders.

4.9 Roles and responsibilities If the Government wishes to create a more enabling environment for tourism investment on public land, it may need also to re-examine the roles and responsibilities of DSE and Parks Victoria in developing policy and administering public land regulation. Two key features of the institutional framework appear to be inhibiting private investment: (1) DSE has conflicting roles in developing and administering public land regulation, as it relates to private sector investment. (2) No single agency has a clear mandate to facilitate private investment in national parks. To address these issues, the draft report outlined changes to the roles and responsibilities of DSE and Parks Victoria designed to more clearly separate DSE’s policy and regulatory functions in relation to national parks and other forms of public land, and to provide Parks Victoria with a clear mandate to facilitate and regulate private investment in national parks.

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Responses to the draft report were mixed. Most submissions supported clarifying these bodies’ roles.21 However, this support was in many cases conditional. For instance, VTIC argued that a potential conflict of interest exists between the suggested regulatory role for Parks Victoria and its current commercial operations. To address this conflict, VTIC proposed ‘that Parks Victoria should withdraw from the commercial operation of any tourism facility or activity’ (sub. DR98, p. 6). However, the VNPA opposed the suggestion that Parks Victoria should take on the role of facilitating private investment in national parks, and indicated that ‘DSE should clearly remain as landlord on behalf of the Crown’, with Parks Victoria instead focusing on its primary role of ‘managing the natural values of the park system’ (sub. DR110, p. 22). Mornington Peninsula Shire suggested if the division of responsibility were to occur as suggested by the Commission, DSE should first ‘put in place site specific policy and regulation, including management plans, for each National Park’ (sub. DR67, p. 8). Taking this feedback into account, the following sections examine opportunities for improvement to the institutional framework governing public land managed by Parks Victoria. While the implications of the discussion for the management of other forms of public land are not drawn out, the broad principles could be applied to public land managed by the Alpine resort boards and CoMs.

4.9.1 Roles of DSE and Parks Victoria As noted, DSE22 develops policies (such as the leasing and licensed tour operator policies), and administers the development approval process (by advising the Minister on whether to grant an AiP for leases).23 Combining these roles makes it harder to determine whether participants’ concerns about the environment for private investment on public land are due to aspects of policy or its administration. Furthermore, combining the policy and regulatory functions within DSE provides a high degree of flexibility for the regulator but has led to the current uncertain, complex and lengthy assessment process. Separating the policy and regulatory functions could thus help create a more enabling environment for private investment in tourist facilities on public land by improving accountability and strengthening incentives to simplify the regulatory processes. Such a move would also be consistent with recently released whole-of- government guidelines on regulatory governance, which include standards to the

21 See, for example, Mornington Peninsula Shire (sub. DR67), Destination Gippsland (sub. DR79), Horsham Rural City Council Tourism Advisory Committee (sub. DR81), Friends of Nillumbik (sub. DR91), Mansfield Shire Council (sub. DR92), VTIC (sub. DR98) and the VNPA (sub. DR110). 22 The Parks and Forests Division of DSE. 23 Either indirectly by supporting a decision made by Parks Victoria on leases in national parks, or directly for other public land areas.

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effect that conflict should be avoided between functions where possible, with explicit and transparent management procedures where avoidance is impossible (Government of Victoria 2010). Options for more clearly separating DSE’s policy and regulatory functions include: (1) Allocating the policy and regulatory functions to different areas of DSE, with separate lines of reporting. This approach is used in the development and administration of native vegetation clearing controls (VCEC 2009, p. 162). (2) Retaining policy-related functions in DSE and allocating responsibility for proposal assessment to Parks Victoria (in addition to its existing responsibility for the LTO system). (3) Establishing a new group with representation from DSE, Parks Victoria and other agencies, to assess proposed developments on public land. Under each approach, the policy-related functions would continue to sit within DSE. Given responsibility for the LTO system is already delegated to Parks Victoria and CoMs, the key difference across these options relates to the accountability for administering a streamlined development approvals process. On balance, the Commission favours an approach that places the regulatory role with Parks Victoria: • This approach most clearly separates DSE’s policy and regulatory functions and avoids establishing a separate body to administer the development approvals process. • The role also fits within Parks Victoria’s existing objectives, which are ‘to conserve, protect, and enhance natural and cultural values, provide quality experiences, services and information to its customers, provide excellence and innovation in park management and contribute to the environmental, social and economic wellbeing of Victorians’ (Parks Victoria 2010e). • Parks Victoria is better placed to assess the impacts of a proposed development on a specific site and surrounding park infrastructure (such as roads and walking tracks), identify opportunities to improve environmental, heritage and other outcomes through private investment, and monitor the operation of developments to ensure compliance with lease requirements. • Parks Victoria could provide a one-stop-shop for business because it can provide guidance through the site selection process and links to other agencies such as councils, DSE, CoMs and Tourism Victoria. Allocating responsibility for the development approvals function to Parks Victoria would, however, raise some implementation issues. The main issue is that it creates a potential conflict with Parks Victoria’s current role of providing

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commercial tourist facilities such as visitor centres, accommodation and educational tours. To address the potential for conflict between the regulatory functions and Parks Victoria’s other roles, it will therefore be necessary to clarify its role in providing commercial activities and facilities on public land (see below). Furthermore, changes to the Parks Victoria Act 1998 (Vic) may be required to enable Parks Victoria to perform the regulatory functions currently discharged by DSE.

Recommendation 4.4 That the Victorian Government clarify the roles and responsibilities of the Department of Sustainability and Environment in developing and administering public land regulation. The Department would take the lead on: • advising the Minister on policy and regulation for private tourism investment in facilities and operations on public land, in consultation with other bodies such as Parks Victoria • developing processes and guidance for assessing proposals to develop private facilities on public land (associated with recommendation 4.3) • monitoring the administration of the development approvals and licensed tour operator systems. Responsibility for regulating private sector investment on public land should rest with Parks Victoria and, where relevant, with Committees of Management.

4.9.2 Managing private sector interest in tourism investment A number of participants argued that there is no clear ‘champion’ for private sector investment in national parks, within the current institutional framework. While this void reflects the current policy environment, if the Government were to lift the prohibition on private investment in tourist facilities in national parks, it could lead to an existing organisation such as Parks Victoria or Tourism Victoria assuming this role. Were the role to reside with Parks Victoria, however, there is the potential for conflicts to arise between the roles of regulating private activities on relevant public land and the tasks of managing park assets. Investing in tourist facilities is a high-risk undertaking, with factors such as site selection and marketing helping determine the commercial success of any venture. The commercial risks are best managed by the private sector; especially given the site selection process requires a level of visionary entrepreneurship. However, a body such as Parks Victoria could facilitate a more efficient process to ensure consistency and deliver better environmental outcomes. To this end,

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some participants supported a partnership approach that deals with community concerns about the environmental risks associated with private development in national parks (for example, Victoria University (sub. 51, p. 5)) and facilitates a more efficient approval process. In advocating for private investment to be allowed in national parks, the VTIC suggested that Parks Victoria be restructured to focus on facilitating recreational and tourism-related activities on all public land. It also suggested that Parks Victoria report to the Department of Business and Innovation, rather than DSE (sub. 40, p. 34). The TTF shared the view that Parks Victoria should manage tourism on public land (sub. 44, p. 44). The Commission considers that, with the lifting of the policy ban on private sector development of tourist facilities in national parks, Parks Victoria should take on responsibility for assessing proposed developments. To address the conflict between this regulatory role and its commercial operations, Parks Victoria should divest those commercial activities that can be delivered by private businesses. It should instead focus on providing public facilities (for example, amenities), with the private sector providing commercial infrastructure. Parks Victoria would assume the function of facilitating private sector investment in tourist facilities, consistent with its objectives to ‘conserve, protect, and enhance natural and cultural values’ of the public land estate it manages. Such a role would require Parks Victoria to be proactive and responsive in its dealings with those businesses proposing investments that would complement and contribute to park objectives and values.

Recommendation 4.5 That the Victorian Government clarify the roles and responsibilities of Parks Victoria for the administration of relevant public land regulation and private sector access to national parks. Parks Victoria’s role as a sophisticated landlord for the parks would be extended to take the lead on: • supporting private business to identify opportunities for private investment in tourist facilities in national parks • facilitating the assessment of applications to develop private tourist facilities in national parks through the approvals process • regulating private activities on public land to ensure compliance with the Licensed Tour Operator system and leasing policy. As part of these changes, Parks Victoria would divest its own commercial operations and focus on providing facilities where there is an identified gap in the offerings of the private sector.

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5 Impacts of aviation policy

The terms of reference require the Commission to report on ‘the impact of international and domestic aviation policy on the Victorian tourism industry and the broader economy, and any implications for policy positions that the Victorian Government might adopt in its own right or present to the Commonwealth Government’. A number of participants considered that aviation policy will have an important influence on the future growth of Victoria’s tourism industry. An important issue is the need to ensure Australia’s international air services agreements are not impeding airlines meeting the anticipated growth in international visitors from countries such as China, India, Indonesia and other growing markets in the Asia-Pacific region. This chapter considers how aviation policy affects the number of international visitors to Victoria and the extent to which the Victorian Government can pursue or advocate for changes that would benefit the Victorian tourism industry. Aviation policy covers international, domestic and regional aviation. International policy includes issues that are largely outside the Victorian Government’s control such as the arrangements that govern airlines’ access to international passenger markets. Domestic aviation policy covers issues such as government investment in and regulation of airports as well as safety and security regulations applying to international and domestic airlines operating in Australia. In both of these areas, the Victorian Government’s role is largely limited to making representations to the Commonwealth Government. Recognising the broad scope of aviation policy and the Victorian Government’s limited direct role, the Commission has focused on areas of potential constraints raised by participants, including: • the capacity of airlines to fly to Australia, and to Melbourne in particular, especially in markets that are forecast to experience rapid growth (section 5.3) • the development of additional airport infrastructure capacity in Melbourne (section 5.4) • other issues relating to regional airport pricing and aviation policy, flights over national parks, and public transport access to airports (section 5.5). Before examining these issues in detail, the next two sections discuss the importance of aviation to the Victorian tourism industry and outline key aspects of the aviation policy framework.

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5.1 Importance of aviation to Victoria’s tourism industry The capacity to meet the expected growth in international visitors to Victoria is dependent on the availability of adequate airport infrastructure: • 99 per cent of inbound tourists and 65 per cent of interstate tourists arrive by air (DITRDLG 2009) • around 5.5 million international passengers travelled through Melbourne airport in 2009–10, representing one-fifth of all international passenger traffic through Australian airports (table 5.1) • passenger movements through Melbourne airport have been growing more rapidly than Sydney and this trend is expected to continue, with movements forecast to rise to 15.6 million by 2029 (table 5.1) • most of the forecast growth in passenger movements is predicted to come from China and other emerging Asian markets (TRA 2010a, p. 18). Table 5.1 International passenger traffic through Australian international airports Airport Year ended June Share of total (%) Forecast annual 2010 (million) average growth rate (per cent)a Sydney 11.1 43.4 4.7 Melbourne (excl. Avalon) 5.5 21.4 5.7 Brisbane 4.2 16.2 6.0 Perth 3.0 11.6 5.8 Gold Coast 0.73 2.8 - Adelaide 0.52 2.0 4.9 0.43 1.7 - Darwin 0.21 0.8 4.6 a Annual average growth rate 2008-09 to 2029-30.

Source: DITRDLG 2010, p. 11, BITRE 2010.

Victoria is considered to be well served by airport capacity and has a number of advantages as a destination compared to other major gateways. Unlike Sydney airport, Melbourne airport does not have a curfew, has access to additional runway capacity and currently has relatively low airport fees and charges. A further advantage is that a substantial amount of general aviation traffic passes through Essendon airport which allows a greater proportion of Melbourne

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airport’s capacity to be directed towards scheduled domestic and international passenger flights. Victoria’s second airport is Avalon which provides domestic aviation services to around 1 million passengers each year; a figure that is expected to grow. Low cost carriers such as Jetstar and Tiger Airways operate domestic flights from Avalon, with international flights being a future priority for the airport (see below). Victoria has a number of regional airports catering mostly to business and local travellers. Essendon and Moorabbin airports together with regional airports such as Mildura, Portland and Hamilton provide domestic and regional airline services (table 5.2). Mildura airport is the busiest regional airport in Victoria with Qantas, Virgin Blue, Regional Express and Sharp Airlines providing scheduled passenger services (Mildura airport 2010). Table 5.2 Airport traffic at selected Victorian airports 2008- 09 Airport Inbound passengers – Inbound passengers – Total passengers – inbound major domestic airlines regional airlines and outbound passengers Avalon Not publicly available Not publicly available Not publicly available Essendon 0 7 394 14 545 Mildura 16 041 78 071 187 720 Moorabbin 0 6 347 12 684 Portland 0 5 740 11 612

Source: BITRE 2009.

5.2 Importance of international aviation policy International aviation is regulated, amongst other things, by a series of government to government (bilateral) air service agreements that determine the levels of market access for countries’ respective airlines. The underlying regulatory framework was established by the 1944 Convention on International Civil Aviation (the Chicago Convention), and is given effect in Australia by the Air Navigation Act 1920 (Cth). Australia’s international aviation policy goal is: An open and competitive international aviation market that serves the national interest by benefiting tourism, trade and consumers, allows Australian and overseas airlines to expand, and maintains a vibrant Australian-based aviation industry. (DITRDLG 2009, p. 40)

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Australia currently has 68 bilateral air service agreements. These agreements are negotiated with other countries by the Commonwealth Government and, in general, set out the number of seats that the airlines of the two countries may provide, the cities they may serve in each country and the rights to operate to third countries. These agreements typically also include provisions on matters such as airline ownership and control, competition law, safety and security (DITRDLG 2008, p. 99). Once an agreement is finalised, the capacity available to individual Australian carriers on these routes is allocated by the Commonwealth Government’s International Air Services Commission. The issue for this inquiry is the current and future capacity within ASA’s and how the capacity for international flights by Australian and foreign airlines is allocated among Australian cities. While the Victorian Government does not have any direct role in the negotiation of these bilateral air service agreements, it has several avenues to influence the Commonwealth Government’s position, the most important of which is through Victoria’s membership of the Tourism Access Working Group (TAWG) (previously the National Tourism and Aviation Advisory Committee (NTAAC).

5.3 Restrictions on international aviation capacity Some participants considered that the system of negotiating international air services agreements has the potential to impede the future development of Victoria’s tourism industry. The specific concerns were that: (1) the international system of bilateral air service agreements harms Victoria’s interests by limiting capacity on some key routes (2) that even where sufficient capacity exists in Australia’s air services agreements, airlines prefer to operate flights through Sydney rather than flying direct to Melbourne (3) the process of negotiating these agreements is cumbersome, slow and non-transparent so that capacity may not respond rapidly enough to increases in demand from particular countries.

5.3.1 Participants’ views The Victorian Tourism Industry Council (VTIC), for example, considered that the international system of negotiating bilateral air service agreements has the potential to harm Victoria’s interests: The existing international system of bilateral Air Service Agreements (ASA) is fundamentally anti-competitive and inefficient, and harmful to the competitiveness of air service users. (sub. 40, p. 52)

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Likewise, Tourism Victoria argued that: … growth in services [to Melbourne] is constrained by the global regulatory regime governing air access. Progress towards substantive liberalisation, particularly in multilateral fora, remains slow. Bilateral agreements provide some scope for progressive liberalisation, but with a focus on bartering commercial air services rights. (sub. 48, p. 7) According to the City of Melbourne, a lack of direct inbound flights to Melbourne can increase travel costs and travel time for international visitors to Victoria. It submitted that despite recent rapid growth in international passenger numbers: Passenger demand, however, continues to outstrip supply on key international routes, with more than 600 000 people each year still flying between Melbourne and Sydney solely to connect with international flights. (sub. 53, p. 12) The Tourism and Transport Forum (TTF) also suggested that there is a lack of capacity on international flights into Melbourne, but that this mainly reflects airlines’ decisions to operate direct flights to Sydney: Victoria and Melbourne have a lower share of international airline seat capacity to Australia than their share of origin/destination international airline traffic. This reflects the historic bias of international airlines to first establish services to Sydney, as well as the preference by Qantas for first servicing international destinations from their Sydney base. (sub. 44, p. 50) The TTF provided data on capacity and visitation (table 5.3) suggesting that around 30 per cent of international visitors to Victoria enter Australia through an interstate gateway.1

1 TTF considered that Melbourne’s share of inbound flights to Australia will increase due to the growth in international services offered by Jetstar and as Qantas seeks to regain market share into and out of Victoria (sub. 44, p. 50).

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Table 5.3 Capacity, arrivals and departures for Victoria, New South Wales and Queensland Victoria New South Wales Queensland a (per cent) (per cent) (per cent) Share of seats to Australia (inbound) 20 44 21 Share of international visitorsb 29 52 38 Share of outbound travellers 25 35 18 a Queensland includes Brisbane, Gold Coast and Cairns. b International visitors commonly visit more than one state/territory, with the average being 1.5 states/territories per trip.

Source: Adapted from TTF (sub. 44, p. 50), based on Tourism Research Australia, International Visitor Survey and National Visitor Survey; Airport Coordination Australia for international airline seats.

5.3.2 Is supply limited by air services agreements? In the draft report the Commission examined whether there were overall capacity constraints by comparing the capacity limits under the air service agreements of key markets and the extent to which this capacity was being used by foreign airlines flying to Australia. Airline capacity utilisation for several important tourism export markets is shown in figure 5.1. Figure 5.1 Capacity use by selected country airlines

100

75

50 Capacity use (%) use Capacity

25

0 China Hong IndonesiaMalaysia Vietnam Korea Japan United India United New Singapore Kong Kingdom States Zealand

Note: New Zealand, Singapore, the United Kingdom, and the United States have open capacity entitlements. No capacity is currently being utilised under the Indian air service agreements.

Source: Tourism Access Working Group, Mapping Tourism Access Priorities – Stage One.

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The capacity utilisation data presented suggested that: • There were no capacity limits under Australia’s air services agreements with several countries that are important sources of visitors to Victoria (the United Kingdom, the United States, New Zealand and Singapore). • Capacity limits under air service agreements were evident for several inbound tourism markets including China, Hong Kong, Indonesia Malaysia and Vietnam. The Commission is aware that a new Memorandum of Understanding has been signed which increased the seat capacity available to airlines of both Australia and China. Specifically, the old cap of 145 000 seats per week was increased in March to 18 500 seats per week, increasing again to 225 000 seats from February 2012 (Albanese 2011). While this increase is significant and is likely to address the immediate constraints on airline seat capacity to and from China, the solution is temporary. Also the Commission does not have access to the necessary data to analyse how much of this capacity is needed to meet current demand and how much remains available to accommodate future growth. Nevertheless, the overall picture suggests that while Australia has ‘extremely liberalised aviation regulations’ (sub. 42, p. 6) this does not appear to extend to all inbound tourism markets. Even for the Chinese market, where capacity constraints have been relieved by recent negotiations, ongoing growth in demand means that such constraints could re-emerge. In reviewing available capacity under Australia’s air services agreements and arrangements the Commission understands that airlines have the flexibility to use available capacity on inbound flights to Melbourne or other major gateways such as Sydney, Brisbane and Perth. This suggests that in the majority of cases commercial decisions rather than regulatory controls determine the likely entry point for tourists. The 10 Year Tourism and Events Industry Strategy (DIIRD 2006) identified actions to encourage airlines to increase the number of inbound flights to Melbourne from destinations such as China, the United Kingdom, the United States and India. These actions focused on influencing the commercial decisions of airlines, rather than the Commonwealth Government negotiating position with other countries. The Strategy, for example, identified opportunities to attract more direct flights to Victoria by developing ‘Network Development Agreements’ with high value carriers, and the goal of working with Jetstar International to boost inbound passenger numbers from strategic destinations (DIIRD 2006, p. 23). A subsequent progress report indicated that new airlines, including AirAsia X, Etihad Airways, Qatar Airways, V Australia and Korean Air had established direct flights to Melbourne. It also reported that additional capacity had been

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added from carriers including Cathay Pacific, Emirates, Singapore Airlines, Air China and China Southern. The progress report also identified further actions aimed at influencing airlines commercial decisions such as developing a new strategy to attract direct air services from key inbound markets, building Melbourne as a connection hub between other popular short haul tourist destinations and population centres, and strengthening research, data collection and analysis capabilities to support the development of aviation strategy (Tourism Victoria, p. 16).

5.3.3 Future regulatory constraints? The available evidence suggests that the current pattern of direct flights to Melbourne reflects the commercial decisions of individual airlines. It also suggests that current air service agreements between Australia and some Asian markets could constrain the growth of inbound visitors to Australia, should passenger demand exceed current capacity entitlements. A failure to expand the limits on capacity in air services agreements in line with growth in demand could have adverse consequences for the Victorian tourism industry. According to the Tourism and Transport Forum (TTF): Victoria has a strong interest in the Australian Government negotiating bilateral agreements with seat capacity set well ahead of current traffic levels. If the bilaterals offered limited unutilized seat capacity, Melbourne’s opportunities for growth in seat capacity will be severely affected. (sub. 44, p. 50) Several participants therefore supported further liberalisation of international aviation markets. VTIC submitted that: In order to enhance tourism industry competitiveness, there must be further liberalisation of international air access arrangements. Priority must be given to increasing direct inbound services to Melbourne, including low-cost carrier services. Priority should be given to key routes, high-yield inbound destinations, and growth areas including China and India. In addition, Victoria must support policies to increase direct flights into all Australian airports, and recognise the significant benefits of the tourism industry nationally. (sub. 40, p. 52) The Commonwealth Government’s position is that it will seek to enter into ‘open skies’ agreements on a bilateral basis, where possible, and otherwise ensure that capacity available to foreign and Australian airlines under the bilateral agreements grows ahead of demand. This position was set out in a recent White Paper on aviation policy in which the Commonwealth Government stated that it: … will continue to pursue liberalisation of the international aviation market, including ‘open skies’ style agreements, where these are assessed to be in the national interest.

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In all cases the Australian Government will seek to ensure capacity available under our bilateral agreements remains ahead of demand so that airlines are free to make commercial decisions about the frequency and types of services they operate. Such an approach provides airlines with the regulatory certainty to enable them to commit to long-term growth plans in the Australian market. (DITRDLG 2009, p. 41) While the long-term goal may be an ‘open skies’ agreement between China and Australia, which would remove the cap on Australian and Chinese airlines operating between the two countries, the latest air services negotiations with China appear to be based on the second best solution of ‘setting capacity ahead of demand’. There are two additional ways of responding to potential capacity constraints: (1) The Commonwealth Government could unilaterally open up its skies with those countries where there is excess demand for seats into Australia. (2) The Commonwealth Government could designate Avalon airport as a regional international gateway, thereby effectively allowing international carriers to operate an unlimited number of flights to and from Avalon airport (section 5.4.1). Some participants supported the current policy stance of the Commonwealth Government. Qantas stated that: The Federal Government’s policy on air services liberalisation strikes an important balance in that it seeks to promote further liberalisation of air services whilst also recognising the need to support a strong local aviation industry. (sub. 42, p. 5) Qantas also suggested that any decision to move from the current policy stance of the Commonwealth Government would require careful consideration of a number of matters including: • Australia already has extremely liberalised aviation regulations • foreign carriers currently enjoy a high level of access to the Australian market • there is surplus capacity for foreign airlines in major [origin/destination] markets that is not being utilised • Qantas and Jetstar are major contributors of inbound tourism into Australia and Victoria. (sub. 42, pp. 5-6) In response to draft recommendation 5.1, Qantas reiterated and expanded on some of the above points in arguing that ‘further analysis as proposed in the draft report would be of little value’. It also suggested that such a cost/benefit analysis should be prepared by stakeholders who believe that ‘the potential

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outcomes would add value to the Commonwealth Government’s consideration of its position’ (sub. DR109, p. 2).

The Commission’s view With forecast growth in the number of tourists wishing to travel to Australia over the coming years it is important that there is sufficient unutilised capacity in the air service agreements to ensure that demand is not unnecessarily constrained—which would negatively impact on the tourism industry. Capacity constraints may lead to higher airfares than would otherwise be the case, and can be viewed as a ‘tax’ on the export of Australian tourism products. Inbound tourism may be deterred as a result, leading to net costs to the Australian tourism sector, from reduced growth in international tourism. A simple analysis of forecast Victorian tourist numbers and total inbound economic value (TIEV) illustrates that a small reduction (for example five per cent) in tourist numbers from China and Indonesia over the next five years may lead to large reductions in income for the Victorian economy, in the order of $500 million.2 Recent forecasts by the Tourism Forecasting Committee suggest that China, India and Indonesia will be significant sources of growth in inbound tourism to Australia in the coming decade, with more modest growth also coming from a number of other regions and countries (figure 5.2).

2 This estimate has been developed for illustrative purposes only and is based on (International visitor forecast (Vic.) x TIEV) for 2011 to 2015. For each year this amount has been reduced by 5 per cent to arrive at a total for China and Indonesia. Data source Tourism Forecasting Committee 2010a, pp. 26-29 and Tourism Victoria 2010b.

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Figure 5.2 Forecast growth rates of visitor arrivals to Australia- selected markets

10

9

8

7

6

5

4

3

2

1 Forecast Annual Growth (per Rate cent) 0 India China Indonesia Thailand M alaysia South Singapore United Hong Taiwan Germany New United Japan Korea States Kong Zealand Kingdom

Growth rate 2009-2020

Source: TRA 2010a, p. 19.

The information available to the Commission suggests that there are capacity constraints within several existing agreements (Hong Kong, Indonesia, and Malaysia). The recent expansion in capacity to China has resolved immediate capacity constraints but given future forecast tourism growth, particularly with respect to China and Indonesia, it is important that additional capacity continues to be provided for these markets to ensure that inbound tourism is not unnecessarily constrained. Current Commonwealth Government policy is to attempt to negotiate extra capacity with China ahead of this demand. Clearly, an open skies agreement with China would remove any regulatory impediment to airlines adding the necessary capacity to meet future demand growth but it is not clear if, or when, such an agreement will be forthcoming. The Victorian Government can play a constructive role in this process by arguing for an open skies agreement with China and other countries. Recognising that current Commonwealth Government policy seeks to consider, among other things, the impact of such agreements on the domestic aviation industry, the Victorian Government should also argue for transparency in the way that the Commonwealth Government evaluates the industry impacts of air service agreements (particularly on tourism) in arriving at an assessment of the national

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interest. Understanding all the costs and benefits for the Australian economy is important for informed negotiation.

Recommendation 5.1 The Victorian Government seek agreement from the Commonwealth Government that, in the lead-up to future air service negotiations, the Commonwealth would develop estimates of the potential costs and benefits of potential outcomes and test these in discussions with stakeholders (including state governments) through existing consultation mechanisms. This would ensure that negotiations for more liberalised air services are driven by a full understanding of the relative net benefits of preferred negotiated outcomes.

5.4 Other impediments to the development of additional airport capacity in Victoria Ensuring that the system of international air services agreements is flexible enough to accommodate current and future demand for travel to Victoria is clearly important for the future of Victoria’s tourism industry. But it is also important that the infrastructure to support interstate and international visitation is provided efficiently and competitively. As noted, Melbourne airport is the principal gateway to Victoria for interstate and international visitors. Avalon airport has emerged recently as the second . While participants considered that Victoria is well placed to accommodate growth in international and domestic tourism there are some issues requiring attention. Charges for parking at Melbourne airport were identified as a negative factor by some participants. VTIC, for example, argued that measures are needed to encourage greater competition in the provision of car parking facilities at airports (sub. 40, p. 9). While this is clearly an important issue, the Commission notes that the Productivity Commission (Cth) has recently commenced an inquiry into the economic regulation of airport services which includes a review of current arrangements for monitoring airport car parking charges. Participants also considered that there is scope to build on Victoria’s strengths by investing in additional airport infrastructure. While there were a number of suggestions for public and private investment in areas such as transport and air traffic control systems (see chapter 6), the focus in this section is on two potential regulatory issues: (1) The process of obtaining approval for Avalon to become a second international airport in Victoria.

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(2) The need for efficient planning controls to address land-use conflicts in proximity to the airport. In addition the TTF also raised a number of Commonwealth and international policy issues that it considers impact on the sector, including: • fast tracking implementation of Required Navigation Performance (RNP) at Melbourne Airport and other Australian airports • endorsing the ICAO resolution calling for a global aviation industry solution to deliver emission reductions rather than inclusion of aviation in individual countries approaches to pricing carbon • incentives for airlines to introduce more fuel efficient aircraft through changes to depreciation through the 2011 review of Australia’s taxation system • providing a concessional excise tax treatment for second generation bio-fuel for airline use in aircraft on domestic routes, similar to the approach applied to the taxing of Ethanol for use in motor vehicles • arguing against other governments introducing aviation specific carbon taxation, as this will particularly impact Australia as a commonly long haul destination • establishing a research and development fund to develop second generation bio-fuels in partnership with the major Australian airlines and Boeing (sub. 44, p. 8). The issues raised by TTF are part of the much broader issue of ‘climate change’ and potential solutions that are specific to the aviation sector. Given this broader perspective, which raises a number of Commonwealth and international policy issues, the Commission considers that these issues are not in the scope of its current inquiry.

5.4.1 International airport status for Avalon airport Several participants supported measures that would allow Avalon airport to cater for the expected growth in international visitors. Victoria University, for example, stated that: With regard to aviation policy, we support the expansion of airport capacity to accommodate the growth in international tourism across business, leisure and [Visiting Friends and Relatives] markets. We also believe that the granting of ‘Regional Package’ status to Avalon airport is pivotal to increasing capacity for international airlines in accommodating this growth. This will provide improved access to regional areas increasingly sought by international visitors. Avalon airport is strategically located as a gateway to the Great Ocean Road and other regions that are linked through regional touring routes such as the Great Southern Touring Route. (sub. 51, p. 6)

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Tourism Victoria noted that in the past the Victorian Government has argued for: … the Commonwealth [Government] to support the development of Avalon as an international airport by identifying it as a ‘Regional Package’ airport. This outcome would place Avalon on equal footing with other gateways which have internationally capable regional airports which complement capital city airports. (sub. 48, p. 8) VTIC also supported Avalon airport becoming Victoria’s second international airport (sub. 40, p. 52). The TTF and Qantas were, however, sceptical about the benefits of expanding capacity at Avalon as a means for overcoming any barriers arising from restrictive bilateral air service agreements (sub. 44, p. 51; sub. DR109, p. 5). Specifically, TTF argued that: Victoria is better served as a State by having Australia negotiate seat capacity well ahead of demand rather than a third best alternative of hoping that tight capacity will encourage international carriers to use Avalon as a regional airport (if the Australian Government allows Avalon as a regional airport). In reality the regional package has not led to significant new international airline services to ‘regional’ airports as international carriers much prefer to go to the major airports like Melbourne which have existing large traffic flow. (sub. 44, p. 51)

The Commission’s view Avalon is currently a domestic only airport, with Jetstar, Tiger Airways and Sharp Airlines operating services to destinations including Sydney, Brisbane, Gold Coast, Adelaide, Perth, Alice Springs, Mackay, and Portland. The Commonwealth Government offers foreign airlines unlimited access to airports other than Brisbane, Sydney, Melbourne and Perth. This policy, often referred to as the ‘regional package’ is designed to spread the benefits of international tourism more broadly across Australia and, in particular, to regional centres (DITRDLG 2008, p. 8). The designation of Avalon as a regional international airport would allow foreign airlines to access Victoria without being constrained by capacity agreements with Australia. The Commission acknowledges a number of benefits may flow from Avalon being granted ‘regional package’ status, including: • Greater access to those markets where air service agreements are constraining tourism access to Australia (for example China) • Increased tourism and airport related activity in the region • Competitive pressure on Melbourne airport (landing, car parking fees etc) and greater choice for consumers

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• Reduced risk of airport capacity in Victoria being constrained in the future. These benefits significantly rely on the extent to which international airlines seriously consider choosing Avalon airport over Melbourne airport. Some organisations, such as the TTF, are sceptical about the level of demand from international airlines to land at Avalon. The potential gains would also be affected if ‘open sky’ arrangements were negotiated with China and other countries where demand is constrained by current capacity restrictions. While there may be benefits to Avalon being granted ‘regional package’ status there are also potentially significant costs of upgrading Avalon to accommodate international traffic including: • costs of planning and other approval processes • private and public infrastructure upgrades (for example runways, refuelling facilities, terminals, roads, and transport facilities) • provision of Commonwealth Government required security, customs and other services. There is a range of benefits and costs that may be incurred through the process of Avalon becoming an international airport and being granted ‘regional package’ status. These costs and benefits would need to be explored by the private sector to ensure that expansion activities to cater for international air services are commercially viable. Following the development of a business case and preparedness of a private sector operator to invest in required airport upgrades, the Victorian Government should again advocate for regional status for Avalon.

5.4.2 Planning controls Melbourne airport’s curfew-free status ‘plays a vital role in boosting airline services in the State, including passenger and freight services’ (sub. 40 p. 52), and also provides Melbourne Airport with a competitive advantage relative to Sydney. Several submissions pointed to the importance of ensuring that Melbourne retains this advantage and can expand its capacity as demand for services increase. VTIC commented that: There should be coordination between the leased federal airports and privatised airports, to ensure the long-term requirements for infrastructure are met, including the provision of safe and reliable services. There must be consultation with state and local authorities and the community to ensure a coordinated and considerate approach to investment and development. (sub. 40, p. 52) Qantas also identified the importance of long-term and coordinated planning for the expansion of Melbourne airport and supported recent Commonwealth

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Government measures to implement such an approach (sub. 42, p. 3). In relation to state governments, Qantas noted: It is essential that State Governments adopt a similar collaborative approach to ensure that critical economic and tourism benefits provided by aviation and airports are not undermined by inappropriate developments in and around airports. This is an area where the Victorian Government could take a leading role in Australia in ensuring the benefits of Melbourne airport’s current curfew free status is not threatened by residential creep towards the airport or other inappropriate development. (sub. 42, p. 4)

The Commission’s view In the past, recognition of the importance of Melbourne Airport’s competitive advantages and the interaction of planning regulation has been a feature of state planning policy. Melbourne Airport, as the State’s premier, curfew free airport and the country’s second international gateway, is protected under State planning legislation, through the Melbourne Airport Environs Strategy Plan and Melbourne Airport Environs Overlay planning scheme provisions. These provisions provide certainty to land use and development around the airport. (Victorian Government 2009, p. 4) The National Aviation White Paper also established a framework to support better-integrated planning outcomes, including through the establishment of: … planning coordination forums for each primary capital city airport to enable airports and governments to more effectively engage on strategic planning issues. (DITRDLG 2009, p. 170) The Commission acknowledges that the curfew-free status of Melbourne airport and its ability to invest in additional capacity is an important issue for tourism and broader Victorian economy, and for the communities close to the airport. At this stage, in the absence of submissions indicating a significant issue, the Commission is of the view that airport planning related issues are sufficiently addressed by current and future initiatives outlined in the National Aviation White Paper, together with current state planning regulations.

5.5 Other issues raised Several other issues were raised by stakeholders over the course of the inquiry. Some of these were discussed in the draft report. The issues include the following: • regional airport pricing—it was suggested by Qantas (sub. 42, pp. 4-5) that there should be greater transparency and price monitoring of aviation charges imposed by regional airports on users of these facilities. The draft report

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sought more evidence on whether this was likely to significantly impact the Victorian tourism market more broadly. Qantas and Mildura provided further views to the Commission (sub. DR109; sub. DR112). The issue however appears to be predominantly a commercial matter involving ongoing negotiations between private parties over price. The Commission was not convinced that the issue currently translates to a significant impact on tourism in Victoria more broadly. • flights over national parks—this issue concerns current regulations, made under s 48 of the National Parks Act 1975, prohibiting the landing of a helicopter or other aircraft in a park except in an emergency or if a permit has been granted. Mansfield Council argued that greater access for appropriately licensed helicopters should be permitted in the Alpine National Park (sub. 47, p. 10). The VNPA also raised concerns about potential increases in helicopter flights over national parks, their impact on the experience of other park users and tour operators, and policy clarity regarding this activity (VNPA, sub. DR110, p. 22-23). Access to national parks by commercial operators, which would include helicopter operations, is considered more broadly in section 4.1. • regional aviation policy—issues raised included the financial challenges facing many of Victoria’s regional airports, restrictions on airport expansion due to environment regulations and lack of direct air services (East Gippsland Shire, sub. 11, p. 7), poor connectivity of regional airports with other transport services (Central Goldfields sub. 30, p. 3), the need for a more coordinated approach to aviation policy in Victoria based on a longer-term vision and ‘greater alignment between aviation, transportation and tourism policies’ (VTIC, sub. 40, pp. 51-52). • public transport access to Melbourne airport—the PTUA raised concerns about the accessibility of Melbourne Airport, and suggested that more attention should be focussed on the new Government’s commitment to fast rail, and improving bus network planning to provide greater competitive pressure on airport parking fees (sub. DR94, p. 5). The aviation issues raised above are of relevance to the inquiry and tourism in Victoria. However, on the basis of the information received and in the context of other issues raised, the Commission considers that they are likely to have relatively small impact on the overall development of Victorian tourism more broadly.

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6 Other regulatory and supply-side impediments

6.1 Introduction Previous chapters focused on a number of regulatory and other barriers to the development of Victoria’s tourism industry, specifically land-use planning, public land regulation and aviation policy. Participants also identified additional regulation and other potential barriers to the industry’s development, including the cumulative impact of regulation. This chapter identifies these barriers and their potential impacts on the industry. The chapter covers: • taxi industry regulation (section 6.2) • short-term accommodation (section 6.3) • registration of tourist accommodation (section 6.4) • caravan park regulation (section 6.5) • occupational health and safety requirements for events (section 6.6) • liquor licensing regulation (section 6.7) • cumulative burden of regulation (6.8) • other regulatory issues (section 6.9) • other supply-side issues, focusing particularly on education exports and skills (section 6.10). Where possible, the Commission has provided a view on the impact on the tourism industry of the regulatory issues covered in this chapter, including in the areas of building, taxi, liquor licensing and public health regulation. Where specific regulations are adversely affecting the tourism industry, the Commission has attempted to identify specific solutions. Where modifying the regulations would lead to flow on effects for other industries, or there is no evidence that regulations are having a significant adverse impact on the tourism sector, the Commission has not made recommendations. Broad areas of regulation affecting tourism and other sectors have been examined in the Commission’s inquiry into Victoria’s regulatory system (box 6.1). Several submissions identified other impediments to tourism development, including the need for government investment in tourism-related infrastructure and skills, and regulation of the international education sector. While these issues are beyond the inquiry’s terms of reference, the Commission has noted participants’ concerns so the Government can draw on a more comprehensive presentation of stakeholder views when it develops future tourism policy.

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A number of participants raised particular concerns relating to possible competitive tensions between a government-owned service provider/s and the private sector. As the Commission is unable to pursue individual participant issues through the inquiry process, it has written to the relevant participants providing them specific details as to the available avenue to pursue such concerns.

Box 6.1 Inquiry into Victoria’s regulatory framework In June 2010, the Commission was directed to inquire into Victoria’s regulatory framework. The terms of reference required the Commission to report on areas of regulation that should be reformed as a matter of priority and the scope to improve the institutional framework that influences regulatory reform. More specifically, the Commission was to inquire into and report on: (1) specific areas of Victoria’s regulation which are unnecessarily burdensome, complex, redundant or duplicative (2) those areas of regulation that should be reformed or reduced as a matter of priority (3) the scope for improvements to the institutional framework which influences regulatory reform in Victoria, which could include consideration for reform to regulatory agencies and legislative processes (4) a framework for achieving the largest net reductions in Victoria’s ‘red tape’ burden on businesses, including small businesses, with indicative estimates of potential cost savings where possible (5) ways to strengthen support for regulatory reform (6) the scope for greater use of non-regulatory options for achieving desired outcomes, including greater application of market-based instruments (7) the scope for greater use of risk-based regulation and other methods for enhancing the efficiency and effectiveness of regulators (8) the scope for improvements to processes for evaluating the effectiveness and efficiency of regulations once in place. The Commission released a draft report in February 2011 covering items (3) to (8). The final report covering these items—Strengthening Foundations for the Next Decade— was delivered to the Victorian Government in April 2011. A further draft report— Priorities for Reform—covering priority areas of regulation that should be reformed (the first two items in the terms of reference) was released in March 2011. In accordance with the terms of reference received from the Victorian Government on 29 April 2011, the Commission’s draft recommendations in the Priorities for Reform draft report will be examined in more detail through its inquiry into a State-based reform agenda.

Source: VCEC 2010b, pp. v-vi.

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6.2 Taxis Taxis are an important element in the experience of tourists, many of whom arrive at their destination without personal transportation. Tourists rely on taxis, public transport and rental vehicles for mobility and the quality and cost of these services affects their tourist experience. For many visitors, their ‘taxi’ experience is their first and last experience in Victoria. It is particularly important therefore, that this service in all dimensions - price and non-price - demonstrates excellence. (VTIC, sub. 40, p. 56) Tourists are also an important source of taxi industry revenue, with one study reporting that tourism demand accounts for about 17 per cent of taxi industry revenue in Victoria (ESC 2008, p. 57). Reflecting this importance, participants highlighted general concerns about the performance of the taxi industry and several specific areas for improvement. The Commission considered these in the draft report and proposed a recommendation relating to the zoning restrictions preventing Melbourne-based taxi drivers from accepting fares from Avalon Airport (draft recommendation 6.1). On 28 March 2011, after the release of the draft report, the Victorian Government announced an independent inquiry into the Victorian taxi and hire car industry. The Commission welcomes this inquiry, as the Commission’s draft report on priorities for regulatory reform identified taxi cabs and hire cars as one of the priority areas for regulatory reform. The Commission previously considered the need for a review of the regulation of the Victorian taxi industry in its 2008 report, A State of Liveability: They [taxis] represent the closest substitute to private transport as they offer a door-to-door on-demand service. Taxis offer a flexible service and thus have a great potential to meet the increasing demand for more complex trips and reduce the use of private cars. (VCEC 2008, p. 175) The Commission went on to note problems in the industry, with the escalating price of taxi licences, which results in the taxi industry becoming more investor-driven with deteriorating working conditions for drivers, inadequate customer service and increasing waiting times (VCEC 2008, p. 175). Accordingly, the Commission proposed a public review of the sector, independent from the key stakeholders (while being informed by their knowledge and views), with a strong community-wide focus (VCEC 2008, p. 176). The first official background paper of the Taxi Industry Inquiry acknowledges that visitors are part of the travelling public and the importance of the taxi industry for the Victorian tourism industry:

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Taxis and hire cars also have a critical role to play in tourism, giving visitors their first and last impressions of our state. The quality and quantity of taxi and hire car services therefore has a major impact on the long term “brand” of Melbourne and Victoria. (Taxi Industry Inquiry 2011, p. 3) How the Government responds to the Commission’s recommendation may depend on the outcomes of the Taxi Industry inquiry, and how the specific issues outlined below are addressed.

6.2.1 General concerns about taxis The VTIC expressed concern that the quality of Melbourne’s taxi service is inferior to other visitor experiences Melbourne has to offer. Accordingly, it recommended that any review of the regulation of the taxi industry must ‘have as its primary focus the provision of a high quality service that provides value for money’ (sub. 40, p. 56). The TTF drew attention to a perception of serious problems in the taxi industry: Poor customer service and driver knowledge, uncleanliness and poor availability and reliability continue to be major problems with the taxi industry. Of particular concern is the lack of competition in the industry. The major taxi companies in Victoria have holdings in a vast number of subsidiaries, including fare payment systems, resulting in poor service standards and general customer dissatisfaction. (sub. 44, p. 41) The TTF urged for the Government to conduct an immediate review of the industry with the aim of urgent reform. In its submission, Tourism Victoria acknowledged that Victorian transport regulations have undergone substantial review since the Department of Transport’s (DOT’s) legislation review process commenced. Nonetheless, Tourism Victoria suggested that further taxi reforms are needed: Taxi and car hire regulation remains an outstanding area for review, with multiple, complex and overlapping regulations governing the taxi and car hire industry in Victoria. Furthermore, there is a question mark regarding whether these regulations are delivering on key objectives in relation to the industry, including safety, service availability, service quality and price. The quality and competitiveness of the taxi industry is critical to the growth of the tourism industry. The quality and cost of the service has a major impact on the long term perceptions of visitors to Victoria and therefore to the Victoria and Melbourne ‘brand’. VCEC may wish to consider whether the regulations governing the taxi and car hire industry require review and reform. (sub. 48, p. 7)

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DOT also identified significant problems in the taxi industry: There is widespread and growing concern about the state of Victoria’s taxi services among customers, drivers, operators, other industry participants, the media and the general public. (sub. 54, p. 8) Accordingly, DOT concluded that there should be a comprehensive review of the taxi industry: DOT’s view is that a strong case can be made for conducting a thorough review of the taxi and hire car industry and its regulatory settings. (sub. 54, p. 9) Although wide-ranging reform of the taxi industry in Victoria falls outside the scope of this inquiry, the Commission agrees with the calls for reform. As noted above, these issues are expected to be covered in the new Taxi Industry Inquiry.

6.2.2 Taxi services at Avalon airport Specific concerns about aspects of taxi regulation were raised with the Commission by Avalon Airport. Avalon airport is 55 kilometres from Melbourne and 19 kilometres from Geelong. To travel to and from the airport, travellers rely on private cars, buses (which meet all arriving and departing flights) and, to a small extent, taxis. A further transport mode is also under consideration in that the Victorian Government has foreshadowed a substantial feasibility study into a rail link to the airport in the next few years. Representatives of Avalon Airport raised two concerns that bear on tourism. The first is that since Avalon airport is in the Geelong zone for taxis, Melbourne- based drivers are not permitted to pick up passengers at the airport. Similarly, Geelong-based drivers who transport passengers from Avalon airport to Melbourne cannot pick up customers in Melbourne for their return trip. Consequently, Melbourne-based taxis ordinarily return to Melbourne empty. Avalon Airport told the Commission that each flight arriving into Avalon airport has on average three or four taxi departures. All of these taxis are Geelong-based, because of the zoning restriction, and most travel to Melbourne. For each departing flight, two or three taxis drop passengers at the terminal. Most of these taxis are from Melbourne and presumably return empty to Melbourne. The reason for this arrangement is that taxis are subject to zoning restrictions which prevent them from standing or plying for hire outside their designated zone. There is a limited exception in that a taxi driver may pick up a pre-booked passenger outside the driver’s taxi operating zone. Pre-booked taxis do not stand on ranks; they are parked separately and the drivers meet their assigned passenger. Avalon Airport argued that if the zoning restrictions were relaxed, Melbourne taxi drivers would be more likely to obtain return fares and more willing to

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negotiate reduced fares. This would benefit consumers and may reduce the cost of air travel. Although Avalon Airport did not provide evidence that negotiated fares would result, an easing of the zoning restrictions may benefit Melbourne- based taxi drivers if they were more likely to obtain return fares to Melbourne. On the other hand, Geelong-based taxi drivers would miss out on occasional big fares to Melbourne, to their disadvantage. The second concern of Avalon Airport is that existing taxi regulation prevents taxi users from negotiating (cheaper) fixed price fares to and from the airport. Taxi fares are set by the Minister for Public Transport, principally to protect taxi users, and are calculated on an approved and sealed taximeter and apply throughout a particular taxi zone. An exception to the regulations to permit negotiated fares to and from Avalon airport would have wider ramifications for taxi fares. Avalon Airport argued that taxi users would benefit if they could negotiate their taxi fare before leaving the airport (or leaving their office or home to travel to Avalon) as the surprise of an unexpectedly large fare would be removed. Moreover, the availability of negotiated fares would allow users to better compare the costs of different modes of transport, for example, between coach services and taxis. These arguments are of limited weight because these costs are readily ascertainable and easily compared. The fare for coach transfers from the Melbourne central business district to the airport is $20 one way per person from Southern Cross Station1 and the taxi fare is around $80 from the Melbourne central business district to Avalon airport. The Commission understands that the Taxi Industry Inquiry intends to consider, as part of its comprehensive review of the taxi and hire car industry, the appropriateness of the zoning conditions under the current licences in Victoria (Taxi Industry Inquiry 2011, p. 14). Assuming that, prior to responding to this report the State Government has not made a decision on zoning at Avalon Airport, the Commission considers that a trial should be conducted to evaluate the impact of freeing up zoning arrangements preventing Melbourne-based drivers from picking up passengers at Avalon Airport. Such a modification could be trialled relatively easily and would provide valuable information relevant to the consideration of broader taxi reforms. The impact of the trial would be felt mostly by Geelong-based taxi drivers. At present, the Commission has little information on the level of demand for modification of the zoning arrangements and whether Avalon Airport is willing to designate a separate rank for Melbourne drivers, as would be required.

1 According to its website, Sita coaches meet all passenger flights arriving and departing from the airport with services to and from Geelong and Melbourne.

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Recommendation 6.1 That the Department of Transport conduct a twelve-month trial to evaluate the impact of freeing up zoning restrictions that prevent Melbourne-based taxi drivers from accepting fares (that have not been pre-booked) from Avalon Airport.

6.3 Short-term tourist accommodation Participants raised concerns about regulation of short-term tourism accommodation, including: • differences in the building standards applying to hotels and buildings originally constructed as residential apartments but subsequently let on a nightly-basis • fire safety requirements for backpacker hostels.

6.3.1 Building standards Several participants argued that national building standards and their administration in Victoria are impeding the development of major new hotels in Melbourne and regional Victoria. The context for these concerns is that in recent years new investment in serviced apartments in most major cities, including Melbourne, has outstripped investment in stand-alone hotels. Figure 6.1 presents data on occupancy rates and the number of hotel and serviced apartment establishments. Figure 6.2 presents projects completed since 2006 and the forecast developments of hotels and serviced apartments until 2015 in the City of Melbourne.

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Figure 6.1 Occupancy rates and number of hotels and serviced apartments in Victoria

80 180

160 75 140

70 120

100 65 80

60 60 licensed establishments(units)

room occupancy rates (per cent) (per rates room occupancy 40 55 20

50 0 Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07 Jun 08 Jun 09 Jun 10

Hotels (LHS) Serviced apartments (LHS) Hotels (RHS) Serviced apartments (RHS)

Source: Australian Bureau of Statistics 2010.

Figure 6.2 Hotel and serviced apartment room completions and projects upcoming in the City of Melbourne 1,076 Hotel Serviced Apartment 556 462 457 450 264 226 206 188 175 159 142 107 100 56 52 185 51 51 0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: City of Melbourne 2010.

The difficulty in making an assessment of hotel and serviced apartment supply and demand is some serviced apartments are provided through buildings originally built for residential purposes. Concerns arise when such residential

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buildings are not modified to incorporate the standards required for accommodation purpose built as a hotel or serviced apartment. The TTF argued that Federal, state and local government policies ‘deliberately support residential use’ over tourism use. The TTF highlighted, for example, differences in the taxation treatment of residential and short-term accommodation, arguing that this pushes up land values, including the cost of land for the tourism sector. The impact of taxation policies on the mix of hotel and serviced apartment accommodation is beyond the scope of this inquiry. One issue raised by TTF that is in scope, however, is the concern that differences in building standards for serviced apartments (which can be used for residential purposes or short-term accommodation) and hotels is distorting investment in tourist accommodation. The Building Act 1993 (Vic) and Building Regulations 2006 (Vic) set the key components of building regulation in Victoria. They apply to construction or modification of short-term accommodation, including hotels and serviced apartments. The building requirements establish technical standards for all buildings to ensure that they are safe and meet community standards for accessibility and environmental performance, amongst other things. The national building standards applying to short-term accommodation are specified in the Building Code of Australia (BCA), which exists to ‘enable the achievement of nationally consistent, minimum necessary standards of relevant, health, safety (including structural and fire safety), amenity and sustainability objectives efficiently’ (ABCB 2011a). The BCA sets out requirements for each type of building through a system of classifications. Under the BCA, hotels are defined as class 3 buildings, while there is no defined class to which serviced apartments must adhere to. Those built as residential apartment buildings are subject to class 2 requirements. An apartment must have certain features, including a self-contained laundry and food preparation/cooking facilities and natural lighting to all rooms (not just bedrooms), to be classified as a class 2 building. Buildings are classified as class 3 if they contain single- occupancy units but do not meet the requirements to be a class 2 (or class 1) building (ABCB 2011b). Fire standards and disability access requirements are the main differences in prescribed building standards between class 2 and 3 buildings. The main difference in the fire standards between the two classes is the requirement to install automatic sprinkler systems for class 3 buildings that are less than 25 meters high. All class 2 and 3 buildings above 25 meters must have automatic sprinkler systems installed. The main difference in disability access is the requirement for 3.5 per cent of rooms in a class 3 building to be accessible rooms (soon to be increased to 4.5 per cent).

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Participants were mainly concerned about the impact of differences in the disability access requirements. Tourism Victoria argued, for example: … traditional commercial accommodation faces a range of more stringent standards, even though serviced apartments may be used in a broadly similar manner. From a tourism perspective, both forms of short-term accommodation provide services to travellers, and it is ultimately a matter for the marketplace to determine which will be provided. However, the anomalous treatment of differing forms of accommodation creates uncertainty, particularly where accommodation can be moved between short and long-term uses with comparative ease. (sub. 48, p. 7) According to the TTF, the different building standards for class 2 apartments and hotels (built to class 3 standards) impose several costs on hotel operators: • Lost revenue from the accessible rooms which have significantly lower occupancy rates and require larger floor spaces. • Higher costs of construction and greater lending requirements compared to class 2 buildings. • Lost revenue to class 2 buildings competing in the short term market with lower room rates, because they do not have to cover the cost of providing accessible rooms (sub. 44, p. 38). A joint TTF and Australian Hotels Association survey estimated the ‘average demand for accessible rooms is 0.47 per cent of rooms per night, per establishment’ and ‘occupancy for accessible rooms was 30.7 per cent compared to 71.4 per cent for other rooms’ (sub. 44, p. 38). This is significantly lower than the requirements for accessible rooms in the BCA. If the standard is set well in excess of the demand, it is potentially imposing an unnecessary cost that could be addressed by lowering the standard.

The Commission’s view Assessing the impact of the different building standards for hotels and apartments operating in the short-term tourist market is difficult because of the different cost structures for the two types of buildings. For example, class 2 apartments are required to include kitchens whereas hotel rooms are not. In discussions with the Commission, TTF indicated the costs imposed by accessibility and safety standards may represent around five per cent of the construction cost of a hotel. The Commission notes that a regulatory impact statement (RIS) was released in March 2010 that considered the increase in accessibility ratios from 3.5 to 4.5 per cent for large hotels (and motels), as well as other accessibility amendments. While there was considerable variability in the benefits and costs presented in the RIS, it was found the amendments resulted in a net benefit to society. However,

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the broad scope of analysis in the RIS meant it was difficult to identify the expected costs and benefits of the proposed increase in accessibility ratios. The Commission also notes, in 2009, a House of Representatives Standing Committee reviewed the accessibility requirements for class 3 buildings. The Committee’s report, stated it ‘does not believe that this (low utilisation of accessible rooms) is primarily due to a lack of demand’ and ‘many of the issues … could be ameliorated or eliminated through careful design of accessible rooms, better marketing to older people as well as people with a disability, staff education, and through consultation with the disability sector’ (Tourism Victoria 2010d, p. 1). The Committee arrived at this view based on consultation with relevant parties rather than any explicit analysis of the costs and benefits of accessibility ratios for class 3 buildings. Overall, the Commission considers there is insufficient evidence to determine whether accessibility ratios for hotel accommodation should be changed or whether the current level is appropriate. The Commonwealth Government has committed to reviewing accessibility standards by 2016. To ensure future policy is based on an assessment of the benefits and costs and inform its position on any national review, the Government could evaluate accessibility ratio requirements in Victoria for all affected accommodation types, including hotels.

Recommendation 6.2 That the Department of Planning and Community Development, in consultation with the accommodation industry, evaluate the accessibility ratio standards. The evaluation would assess the costs and benefits of the standards, and their impact on hotel supply. This evaluation should inform Victoria’s position on the accessibility ratios and a decision to pursue potential changes to the accessibility ratios nationally.

6.3.2 Regulations affecting backpacker hostels Backpacker tourism is a significant industry in Victoria that has grown rapidly in the last decade. In December 2009, backpackers accounted for around 17 per cent of all international visitors and 6.7 million visitor nights (Tourism Victoria 2010d, p. 1). Backpackers stay an average of 26 nights, mostly in budget backpacker hostels. Thus the quality and cost of accommodation can influence the length of stay and the overall experience of backpackers. The TTF raised concerns about the strict fire obligations imposed on backpacker hostels:

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After the heavy loss of life in the fire in the Childers Hostel in Queensland, the Victorian Government introduced much tougher fire safety laws for backpacker hostels than did Queensland. This has resulted in heavy costs for compliant operators, such as the Youth Hostels Association of Australia. At the same time, the large ‘fly by night’ side of the backpacker hostel sector has largely ignored the new regulations, safe in the knowledge of the lax enforcement of the laws by local government. This has resulted in compliant operators losing business and non-compliant operators being highly profitable but putting many visitors in considerable danger. (sub. 44, p. 22) Backpacker hostels are required to install sprinkler systems and hard-wired smoke alarms under Victoria’s Building Regulations 2006. The RIS, which was prepared to support these regulations, pointed out that there was limited information to reach a conclusion about the net benefit of the requirement to install sprinkler systems for shared accommodation buildings. It stated that it would be worthwhile for the Government to further analyse and monitor the issue, to ensure there are net benefits to society: In general we have found that the Regulations are justified on cost-benefit grounds although with a few qualifications. A key qualification is that we have been unable to quantify some factors, particularly the benefits, so that qualitative assessments have been made. One exception is the requirement for retrofitting fire sprinkler systems in shared accommodation buildings and the corresponding requirement to install sprinklers in new shared accommodation buildings that is difficult to justify on cost-benefit grounds. There is limited data and a degree of uncertainty about the data that is available. The proposal has benefits greater than costs if the lower range of estimates for installation costs and average size of establishment are assumed. However under scenarios with higher estimates the costs of the proposal are significantly greater than the benefit. (Building Commission 2006, p. 4) VTIC also raised the issue of residential premises that are rented out illegally as budget or backpacker accommodation. It argued that ‘such premises are usually not compliant with the health or fire safety standards otherwise required of registered hostel accommodation providers on the basis that the properties are residential, rather than commercial accommodation’ (sub. DR98, p. 7). It suggested that this issue should be further investigated in the context of improving regulatory frameworks and that local government should be given greater assistance to enforce regulations and legislation (VTIC, sub. DR98, p. 7). While addressing lax enforcement of the existing standards would help ensure compliance by hostel businesses and eradicate non-compliant operators, the question of the appropriate level of ongoing fire safety standards remains. Given that the fire standards for backpacker hostels have operated for some time, relevant cost and benefit data should now be available. The Commission considers the operation of fire safety standards for sprinkler systems in shared

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accommodation buildings should be evaluated and in doing so, that information gaps identified in the RIS are addressed in the evaluation. The evaluation should identify and measure (where possible) the costs of these standards (for new and existing accommodation) and the benefits achieved. The evidence obtained would inform the Government’s position on the appropriate form of fire safety standards for backpacker accommodation and enforcement of the requirements.

Recommendation 6.3 That the Department of Planning and Community Development should evaluate the operation of fire safety standards for sprinkler systems in shared accommodation buildings, ensuring that information gaps in the regulatory impact statement are addressed in the evaluation. The evaluation would consult with the relevant stakeholders and be released with recommendations on appropriate fire safety standards for backpacker hostels within 12 months.

6.4 Registration of tourist accommodation In Victoria, accommodation providers must register with councils each year under the Public Health and Wellbeing Act 2008 (Vic). This involves an annual registration fee, dependent on the council, compliance inspections by council health and safety officers, and record keeping obligations (maintaining the names and addresses of people occupying their premises along with the dates of their arrival and departure) for a period of 12 months. The Act regulates: • prevention of overcrowding • maintenance and cleanliness • water supply (including drinking water) • waste disposal • toilet and bathing facilities. Some participants questioned the need for registration on the grounds that private accommodation rating systems provide sufficient information and ensure transparency. For example, Jackson’s on Middle Park said that: Recently … inspections [under the Public Health and Wellbeing Act] have been conducted by council and with a fee as usual. This is an unnecessary duplication on what the private sector does already… For guest accommodation AAA Tourism/RACV do a star rating inspection annually which does the job and is superior to the council inspection. Up to date star rated accommodation should be exempt from a council inspection which allows the council to concentrate on the dodgy operators which is the real purpose of the well being inspection in the first place. (sub. 1, p. 1)

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The Australian Tourism Accreditation Program (ATAP) noted that programs other than the star rating scheme, including ATAP, provide information on the type of standards covered by the Act. It also specifically commented on: …the lack of consistency in the interpretation of the act by local Government for identifying who is and is not excluded from the prescribed accommodation requirements. We have found that the application of this legislation varies greatly from council to council, making it difficult for accreditation schemes and the businesses themselves to understand accommodation providers’ responsibilities. (Australian Tourism Accreditation Program, sub. DR61, p. 2) The types of accommodation that constitute ‘prescribed accommodation’ in the Act are: • residential accommodation • rooming houses • hotels and motels • hostels • student dormitories • holiday camps. The Act was introduced in 2010 and the purposes of the accommodation-related provisions were to reduce public health risks, such as the transmission of disease due to a failure to properly maintain and clean accommodation, and regulate the quality of accommodation. A RIS prepared by the Department of Health, when the new arrangements were introduced, commented that the Act principally provides for monitoring of ‘high-risk’ accommodation (such as hostels), although it also covered low-risk accommodation (such as hotels) (Department of Health 2009). The inclusion of low-risk sites like hotels in the Act seems unnecessary especially given the ubiquity of private star rating and other accreditation systems for accommodation, and the ability for consumers to detect many of the problems that the Act seeks to address (such as cleanliness of bathrooms and other facilities). The justifications in the RIS for including star-rated accommodation was that it is sometimes difficult to define different premises types (for example, defining the difference between a hotel and a boarding house), and secondly, that registration of all premises allows disease outbreaks to be traced and addressed more efficiently by health authorities. The costs and benefits of these requirements were identified in the RIS. In most cases the costs were predicted to be minimal. Alternative systems could require accommodation providers to register, but inspections would either be no longer required unless there was a complaint, or councils would concentrate their inspections on high-risk premises. Such systems

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would still allow councils to identify who is in the industry but they would also give them more opportunity to focus their attention on the non-compliant operators. Mansfield Shire Council however had some concerns about the Commission’s draft recommendation: There are a number of star rating schemes and accreditation programs; some of them are largely self assessed and not all have regular nor comprehensive audits. It is not appropriate for Council to determine which scheme is at or above standard in its checks. It is not compulsory for accommodation providers to be a member of a rating scheme and the ratings are not suitable nor necessarily considered a competitive advantage for all accommodation types and operators. Council again recommends a regulatory environment that reinforces performance based results and enables negotiated solutions for rural/remote tourism businesses to comply with relevant health and safety regulations. (sub. DR92, p. 6) The Commission acknowledges that there will be differences in rating and accreditation schemes, in their take-up rates by businesses, and in the degree to which they elicit the same outcomes sought by regulations. These factors can be taken into account in implementing the Commission’s recommendation by determining the appropriate rating and accreditation schemes for regulators to consider. To assist councils the Municipal Association of Victoria, in consultation with Tourism Victoria, could review the criteria in the major rating and accreditation schemes and identify those schemes that cover standards relevant to the application of the Public Health and Wellbeing Act. This includes also reviewing the effectiveness of these rating regimes in providing a consistent and reasonable performance measure. This information could be used by councils to target their compliance and enforcement activity. Alternatively, the Department of Health could assess the rating and accreditation schemes with a view to certifying those that meet the standards required in the Act, so that an accommodation provider that meets the requirements of the private scheme is deemed to also meet the requirements of the Public Health and Wellbeing Act.

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Recommendation 6.4 To better target non-compliant operators, that the Victorian Government require councils to adopt a risk-based inspection program, whilst maintaining the current system of registration. In determining the risk profile of accommodation providers, regulators should draw on star rating and other accreditation schemes administered by recognised ratings and accreditation bodies, and concentrate their attention on those areas that are of high risk.

6.5 Caravan park regulation Victorian caravan parks are regulated under the Residential Tenancies (Caravan Parks and Movable Dwellings Registration and Standards) Regulations 2010 (Vic). The Regulations came into effect in 2010, and are intended to improve the health and safety of occupiers and improve construction standards by, for example, setting minimum energy efficiency requirements and improving fire safety. Inquiry participants raised concerns about aspects of the new regulations, including the administration of the Regulations, and the costs on caravan parks of meeting increased fire safety requirements. The Mount Alexander Shire Council, for example, stated that recent changes to the Regulations: … require caravan parks to provide and maintain fire fighting equipment. This will incur significant capital costs in order for some caravan parks to comply with the regulations and could cause such businesses to be unsustainable. (sub. 18, p. 1) Also, the Victorian Caravan Parks Association (VCPA) submitted that: The Victorian Residential Tenancies Act 1997 and the Residential Tenancies (Caravan Parks and Movable Dwellings Registration and Standards) Regulations 2010 refer to CFA Caravan Park Fire Safety Guidelines. As the guidelines are flexible in their application to established parks, they are subject to differing interpretation by Council and CFA officers and are further complicated where staff within either department change. Often, much liaison is required to demonstrate to officers that performance standards are appropriate for established parks rather than the prescriptive standards. (sub. 26, p. 7) VCPA has further noted that: There appears to be wide variance in the interpretation of the RTA [Residential Tenancies (Caravan Parks and Movable Dwellings Registration and Standards) Regulations] and the CFA Guidelines across different Councils and CFA regions. Members of the Victorian Caravan Parks Association who own parks of similar age, structure and amenity in a number of municipalities report differing interpretations and different levels of compliance requirements resulting in

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differences of many thousands of dollars in the required Schedule of Works notices. (sub. DR106, p. 6) Although the Country Fire Authority (CFA) Caravan Park Fire Safety Guidelines referred to by the Regulations allow caravan park owners to choose whether they meet fire safety objectives by (1) performance measures, (2) prescriptive provisions, or (3) a combination of both, the VCPA argued that on many occasions they are being assessed against an inspection template based on prescriptive provisions in the CFA Guidelines. The option of satisfying fire safety standards by prescriptive requirements, performance based measures or a combination of both was designed to introduce ‘a degree of flexibility that was not previously available’ and accommodate both prospective and existing caravan park owners (CFA 2006, 3). However, the VCPA submitted that the prescriptive provisions in the CFA Guidelines are being interpreted as mandatory requirements, resulting in existing caravan park owners being required to make costly changes, to retain their registration (sub. DR106, pp. 2-6). Concerns about the costs of meeting increased fire safety standards and the consistent administration of the standards are difficult to address because the Regulations have only been in place for a short period. VCPA stated that in many cases complying with the prescriptive provisions in the CFA Guidelines is prohibitively costly for existing caravan park owners. For example, existing parks with separations of less than 2 metres between sites would need to make significant changes to existing infrastructure, electricity, water supply and drainage to comply with prescriptive provisions for fire separation. VCPA has estimated that this would result in a loss of up to 25 per cent of sites, ‘to the point that the better business decision would be to wind up the business and sell the park for another land use’ (sub. DR106, p. 3). A further challenge is that any assessment of the impact of the new standards on caravan parks also needs to take account of the benefits. The Commission notes that a RIS on the new requirements concluded that the benefits of the fire safety requirements would outweigh the costs. However, the RIS stated that the cost estimates were based on changes to housing construction standards, not unregistrable moveable dwellings and ‘… therefore there is significant uncertainty surrounding the cost (and benefit) estimates presented. As such these estimates should be seen as indicative only’ (PWC 2010b, p. 4). There is no information in the RIS to indicate that the types of costs now being identified by caravan park owners were accounted for in the assessment of the costs and benefits of the Regulations. Given the uncertainty surrounding the estimated costs and benefits of the increased fire safety standards in the Regulations, the Commission recommends that the Department of Planning and Community Development review the costs and benefits of the Regulations as they apply to caravan parks. In the interim, it

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may also be appropriate for the CFA to institute an internal review process to allow caravan park owners to request that determinations—that they have not adequately complied with fire safety objectives and the resulting Schedule of Works—be reviewed against the performance measures in the CFA Guidelines.

Recommendation 6.5 That the Department of Planning and Community Development review the Residential Tenancies (Caravan Parks and Movable Dwellings Registration and Standards) Regulations 2010 (Vic) to reassess the costs and benefits of fire safety standards required by regulations 20 and 21. That the Country Fire Authority establish an internal review process for decisions about compliance with regulations 20 and 21 of Residential Tenancies (Caravan Parks and Movable Dwellings Registration and Standards) Regulations 2010 (Vic) and referenced Country Fire Authority Caravan Park Fire Safety Guidelines. This would allow caravan park owners to request that adverse findings about compliance with fire safety standards, be reviewed against the performance measures contained in the CFA Guidelines.

6.6 Occupational health and safety requirements for events The events sector is a major contributor to Victoria’s tourism industry. In 2006 the events industry attracted over 324 000 overseas visitors, contributing approximately $1.2 billion to the local economy (VEIC nd). The VTIC argued that the current occupational health and safety (OH&S) requirements that apply to low-risk events impose unnecessary costs on the events sector: There is a need to review OH&S regulations as they relate to event construction to ensure that only relevant events or event staff are incorporated in the definition of ‘construction’, therefore reducing the regulatory burden on organisers of low-risk events. It is not necessary for employees that are involved in low-risk events, or non-construction elements of a large event, to undertake OH&S construction training. This is an unnecessary cost and administrative burden. (sub. 40, p. 57) The Occupational Health and Safety Act 2004 (Vic) places a duty on the organisers of events as well as employers of staff working at events, to ensure a safe workplace for employees and the public. The events sector is very diverse, ranging from large events, such as the Melbourne Grand Prix, through to small agricultural shows. The OH&S issues

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for the events sector appear to relate to how construction standards are applied, given the differences in the scale and sophistication of events. The application of standards is further complicated because the events industry sometimes uses volunteer or untrained workers who are unfamiliar with the risks and hazards in the industry, and equipment is commonly transported between events (for example amusement rides). In such circumstances, the underlying risk levels may be high and action by the industry is necessary to manage those risks. Based on discussion with VTIC, the issue of OH&S standards applying to events and their administration could be addressed by developing more specific guidance for the events industry. Guidance on OH&S is already available for construction activities generally, and on developing procedures to address safety risks at events (WorkSafe Victoria 2010). WorkSafe also has a publication ‘Major Events, Advice for Managing Safety’ which ‘provides practical guidance to major event organisers, venue owners and suppliers about the management of safety risks at major events and meeting their duty of care through integrated event safety planning’ (WorkSafe Victoria nd). The Commission understands that WorkSafe and the Victorian events sector have initiated discussions about developing specific OH&S guidelines or a code of practice for the events sector (VTIC, sub. DR98, p. 8). However, the development of this guidance has been put on hold due to the work underway in harmonising OH&S laws nationally under the auspices of Safe Work Australia. WorkSafe supports the Commission’s draft recommendation 6.5 in principle but questions the value of introducing new guidance under current Victorian OH&S laws, given these will be repealed when harmonised legislation takes effect on 1 January 2012. Safe Work Australia has also convened a working group to consider national work health and safety guidance (WorkSafe, sub. DR83, pp. 1-2). In light of these developments the Commission considers that the Victorian Government should advocate for national guidance under the harmonised OH&S laws, that recognises the event sector’s diverse characteristics and addresses the underlying risks in an effective and proportional way. In addition, the Commission considers that if the development of national guidance does not progress as envisaged, work on developing such guidance in Victoria should recommence.

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Recommendation 6.6 That WorkSafe, in consultation with the events industry, advocate for national guidelines for events that address the underlying occupational, health and safety issues in an effective and proportional way. If the development of national guidance for the events sector has not been progressed within one year of harmonisation, discussions between the industry and WorkSafe on the development of such guidance in Victoria should recommence.

6.7 Liquor licensing Inquiry participants raised concerns about the design and administration of Victorian liquor licensing regulation. The primary concerns related to the increased stringency of the regulations and increased costs of obtaining and maintaining a licence, particularly for low-risk tourism businesses. Recent changes to liquor licensing regulation reflect growing community concerns about the service of alcohol and alcohol-fuelled violence, particularly in urban centres with a high concentration of licensed premises. The changes were not targeted at the tourism industry but have affected the costs of tourism businesses. The broader issues of the impact on the community and business sectors of liquor licensing regulation extend well beyond the Victorian tourism industry. The Commission’s inquiry into Victoria’s regulatory framework examined some of these broader impacts, including risk-based fees and licence conditions. The key issue for this inquiry is whether the recent changes in liquor licensing regulations have had an unintended adverse impact on some sections of the tourism industry. The main concern identified in submissions and discussions were: • rising compliance costs (particularly fees) • inadequate tailoring of regulatory burdens to risks • burdensome processes for assessing licence applications • lack of incentives for good behaviour by licence holders. Mount Alexander Shire Council argued that a key regulatory challenge is to tailor the requirements to the risks posed by businesses: Changes to liquor licensing requirements over previous years have meant rising costs and increased regulation for the tourism industry. However recent changes, such as exempting certain businesses such as B&B operators and allowing permits to cover multiple events, should be recognised and further

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analysis done to ensure that liquor licensing requirements are appropriate to the business activity being undertaken. (sub. 18, p. 1) The VCPA considered that, despite recent changes, there should be further exemptions for low-risk business activities: In an attempt to control problematic venues, the tightening of liquor laws was globally applied and fortunately some concessions have since been granted. Caravan Parks in general only have Liquor Licences to facilitate the provision of wine-on-arrival accommodation packages and sales of small packaged alcohol for consumption of guests at their site/cabin. Recent exemptions were granted to Bed & Breakfast accommodation with 8 [adult guests] or less, however, larger Bed & Breakfast venues and Caravan Parks have been overlooked and burdened with hefty fee increases and additional licensing criteria. (sub. 26, p. 7) The Central Goldfields Shire considered that regulatory processes for applying for and assessing applications for liquor licences are unnecessarily burdensome: Liquor licensing is in real need of review. The system is too cumbersome and the time taken for new licences or even licence transfers works against tourism in smaller locations, the writer was involved in supporting a constituent in a very lengthy license transfer in a small tourism town where the restaurant/cafe he was now operating was the only dining alternative to the local hotel. Many willing to stay in the towns B&B’s wanted access to a non hotel evening dining which could not be offered for many weeks pending the license transfer. In city locations a dining alternative may be in easy walking distance. In small country towns the alternative is simply not there. (sub. 30, p. 2) The VTIC said that: Rather than the imposition of increased license fee or compliance penalties being the only mechanism available to motivate behavioural change among non- compliant licensees, Government must implement systems that identify repeated breaches of licenses conditions and lead to periodic license suspension or eventual cancellation of licenses should noncompliant licensees continue to breach the conditions of the license. (sub. 40, p. 6) Some of the issues participants raised appear to have been addressed by recent changes (from 1 January 2011). In particular, the costs of applying for and renewing a liquor licence for restaurants, cafes and related activities have been cut by between 27 and 35 per cent (table 6.1).

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Table 6.1 Changes in the “Restaurant and cafe” category licence fee Fee component Regulation prior to January 2011 New regulation effective January 2011 Application Fee $584.50 $387.70 Renewal Fee $323.90 $200.00 Total $908.40 $587.70

Source: Department of Justice.

The new liquor licensing regulations included a risk fee for high-risk businesses and introduced penalty fees for operators who breached their liquor licence in the past few months. This penalty fee is multiplied by the venue capacity multiplier to derive the final payment. Currently there is no incentive program for good behaviour or demerit point system to penalise bad operators. This is something that could be incorporated into the licence fees and regulations. The draft report of the Commission’s Inquiry into Victoria’s Regulatory Framework further discussed liquor licensing issues (VCEC 2011b, section 5.2.2). The Commission suggested that there should be a comprehensive review of Liquor Control Reform Act 1998 (Vic) and related regulations, which would examine key aspects of these laws including: purpose and objectives; modes of regulation including licences, permits and other instruments; risk-based approaches to setting licence fees and conditions; and administration and enforcement including offences and penalties (VCEC 2011b, draft recommendation 5.1).

6.8 Cumulative regulatory burden in the tourism industry The diversity of businesses in the tourism industry (chapter 2), and the complementarity between many of the products and services those businesses produce, means a wide range of regulatory requirements might apply to tourism businesses. Many businesses in the tourism industry integrate and bundle complementary products and services, for example, restaurants in hotels or kiosks in caravan parks. Such diversification responds to tourists’ demands for convenience. It may also help spread commercial risks. The downside, however, for such multi-faceted businesses is that they attract a wider range of regulations. While individually these regulations may only have a small impact, cumulatively they can add up. The Victorian Guide to Regulation

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recognises the problem of cumulative regulatory burden, particularly for small business (Government of Victoria 2007, p. 5-20). Stakeholders suggested that cumulative regulatory burden is more acute for the high proportion of Victoria’s tourism businesses that are micro or small businesses (chapter 2), many of which are also located in regional Victoria. For example, the Bed & Breakfast Farmstay & Accommodation Australia (BBFAA) argued: Micro businesses are particularly vulnerable to increases in regulatory costs because of less potential for sufficient revenue to cover all regulatory imposts. Any significant changes to the regulatory rules of running a hosted accommodation business invariably result in either loss of businesses or in some discontinuing services that become too onerous to offer. (sub. 31, p. 2) Some regulations of concern highlighted by the BBFAA included: Food Act 1984 (Vic); Public Health and Wellbeing Act; Prescribed Accommodation Fee; Liquor Control Reform Act; Hard wired smoke alarms AS 3786-1993; Safe Drinking Water Act 2003 (Vic); Tourism Levies; Planning and Environment Act 1987 (Vic)(sub. 31, pp. 2–3). The VCPA also argued ‘it is the cumulative impact of regulation on small businesses with limited human and financial resources which is of greatest concern’ (sub. 26, p. 4). Its submission listed regulations affecting the operation of caravan parks including: Land Use Regulations, Building Regulations, Liquor Licensing, Crown Land Caravan Parks, Food Handling Compliance, WorkCover, CFA Regulations, and regulations on water use. Combined with ineffective enforcement, cumulative burdens can lead to higher levels of non-compliance. This can have the perverse, flow-on effect of putting compliant firms at a competitive disadvantage relative to non-compliant firms, and increasing the commercial incentive for them to be also non-compliant. The Australian Camps Association submission highlighted this effect: Ineffective enforcement has the effect of encouraging the permitted operators to consider engaging in similar behaviours to merely compete, and is a source of much frustration. (sub. DR69, p. 3) Similarly, Bothfeet argued there are multiple examples of non-compliance and lack of enforcement of regulation, emphasising the impact this has on businesses that do comply and the tourism industry as a whole (Bothfeet, sub. DR84, pp. 8-9). Appendix D outlines some of the requirements (registrations, licenses and permits) applying to businesses generally and specific requirements for tourism businesses such as restaurants, accommodation (hotel, motels, caravan parks), clubs and pubs, and casino or gaming venues. The amount of ‘red-tape’ can easily add up for small diversified businesses with limited management resources.

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Regulatory burdens can also arise from the cumulative costs or uncertainty of identifying, searching for and understanding relevant regulation. Victoria University’s submission cited a study by the University’s Centre for Tourism and Services Research (CTSR), which examined critical success factors for small operators entering the nature-based tourism sector: This found that legal compliance was the greatest concern amongst operators in relation to successful start-up…The concerns regarding permits and licensing were generally related to ‘not knowing what you should know’. It seems that sourcing advice was based on luck and, even when advice was found, the general nature of the information did little to clarify issues. It would appear that these concerns are still relevant today. (sub. 51, p. 3) Ideally, cumulative burdens would simply reflect the cumulative risks of the regulated business. If regulation is well-designed, the same set of standards should apply to all businesses that expose the public to the same types and levels of risk. Whether a business is diversified or not, or whether it is tourism-related should be irrelevant. But poorly designed regulations are common and small or unusual business models that are less visible, or only account for a small percentage of the market, can be overlooked in the analysis of new regulation. The assessment of cumulative burdens is also difficult, and therefore determining how these costs compound may be similarly overlooked in the design of the regulation. The importance of good regulatory process to minimising regulatory cost, including the cumulative burden of regulation, is discussed in the Commission’s draft report for its inquiry into Victoria’s Regulatory Framework (VCEC 2011a). The draft report makes recommendations to improve Victoria’s regulatory processes. A final report was delivered to the Government on 29 April 2011.

6.9 Other regulations affecting the tourism sector Submissions identified a wide range of other potential regulatory barriers including: • regulation of the travel and travel-related services industry • food regulation • industrial relations (award rates of pay) • road signage • traffic management plans • accreditation of tour guides • retail trading hours • regulation of regional trams.

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6.9.1 Regulation of travel and travel-related services industry In Australia, the operation of travel agents is governed by industry-specific regulatory regimes in each state and territory. In Victoria, the regulation of travel agents in governed by the Travel Agents Act 1986 (Vic) and the Travel Agents Regulations 2007 (Vic), which provide for: • the licensing of travel agents, including setting entry requirements • insolvency protection measures for consumers, including a compensation scheme administered by the Travel Compensation Fund (TCF) • business conduct requirements. In addition, travel agents in Victoria are also subject to generic consumer protection provisions under the Australian Consumer Law (ACL), applied by the Fair Trading Act 1999 (Vic). Travel agents in other Australian jurisdictions are also subject to the generic consumer protections contained in the ACL. The ACL prohibits: • misleading or deceptive conduct • unconscionable conduct • false or misleading representations • harassment and coercion • bait advertising • accepting payment without intending or being able to supply • unfair standard form consumer contracts. The regulation of travel agents throughout Australia was recently examined in the Review of Consumer Protection in the Travel and Travel Related Services Market (November 2010). The Review was prepared on behalf of the Standing Committee of Officials of Consumer Affairs (SCOCA). The Review concluded that: … there is no longer sufficient justification for industry-specific consumer protection regulation in this sector… the measures in the regime are duplicative, obsolete, disproportionate and/or poorly targeted to achieve desired consumer protection outcomes... The regime also fails to reflect the national nature of the market. It remains a state based system and creates unnecessary duplication for businesses operating in multiple jurisdictions. (PWC 2010a, pp. i, vii) The Review argued that the generic provisions in the ACL provide sufficient protection to travel industry consumers and that additional state based industry- specific regulation is unnecessary and causes duplication, overlap and inconsistency across state and territory borders. The regulatory costs of the current scheme nationally—including the licensing of travel agents and

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compensation under the TCF—were estimated to be $25.3 million per annum, while the average pay out to consumers was only $2.9 million, averaged over the last 10 years (PWC 2010a, pp. viii-ix). The Review recommended that: • state based licensing of travel agents be replaced by national registration that: – is administered by a single national body – removes existing competency requirements, including mandated training – retains basic disclosure and ‘fit and proper person’ character requirements • an accreditation program be developed in conjunction with the travel agent industry, consistent with the existing National Tourism Accreditation Framework • an optional enforceable industry code of conduct be developed under the ACL • insolvency protection functions of the TCF be discontinued • a transition plan be developed for the phased implementation of these reforms(PWC 2010a, pp. ix- x). SCOCA released a consultation RIS on consumer protection in the travel and travel-related services market in March 2011. The consultation closed on 1 April 2011. SCOCA is preparing recommendations for consideration at the next Ministerial Council on Consumer Affairs (Commonwealth of Australia 2010). The Commission supports the progress of these reforms.

6.9.2 Food regulation Despite recent changes in the regulation of businesses serving or selling food in Victoria, some participants considered that food regulation is imposing unnecessary costs, particularly for low-risk tourism businesses. For example, the VCPA stated: Often caravan parks offer small kiosks that generally only sell pre-packaged low- risk foods, however, are required to complete various daily and weekly forms/registers despite being categorised as the lowest level except for the fact that they sell pre-packaged bacon and eggs. (sub. 26, p. 7) BBFAA submitted: Under recent amendments to the Food Act 1984, local government health departments are advising accommodation providers, irrespective of size that if they provide food such as a cooked breakfast they come within the new Class 2. This is despite the very low volume of food served compared with other businesses in this category and the food is cooked and served directly to the guest without the need to keep it hot for a period of time. For this latter reason,

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Class 4 may be appropriate. BBFAA has met with staff of the Department of Health and will work with them to clarify the amendments and other provisions of the Act for operators and municipalities. It is apparent that there is incorrect interpretation of the new amendments on both sides and some municipalities have imposed substantial fee increases to cover the administration of the regulations which may not be necessary. (sub. 31, p. 3) The issues raised by participants appear to relate to implementation of the new risk-based approach to the regulation of food safety. These changes came about after a review of food regulation by the Commission (VCEC 2007). This was considered in the Commission’s Inquiry into Victoria’s Regulatory Framework (VCEC 2011b, section 6.3.1).

6.9.3 Award rates Based on submissions and discussions with participants, the tourism industry is concerned that current award provisions for tourism and hospitality workers disadvantage tourism businesses that rely on non-conventional working times for most of their trade. Special emphasis was placed on the cost of public holiday penalty rates. According to Mansfield Shire Council: Tourism and hospitality businesses are typically small to medium sized businesses that employ high numbers of casual and part time staff, rostered on in response to fluctuating demand. Award flexibility is provided in theory but in practice is difficult to achieve. Given the nature of short break regional tourism, the busy times generally coincide with weekends and public holidays attracting penalty rates. (sub. 47, p. 11) While noting the potential for award terms and conditions to impact on tourism businesses, consideration of any changes is a Commonwealth Government matter and would affect a broad range of industries. Assessing the impact of award rates on tourism businesses is beyond the scope of this inquiry.

6.9.4 Road signage Several participants argued that VicRoads is making it difficult to attract tourists by restricting the use of destination or pictorial signs on roads managed by VicRoads. For instance, East Gippsland Shire Council stated: East Gippsland has a number of key tourism destinations that lie off highways and other main roads, for example the coastal towns of Mallacoota, Bemm River, Orbost, Mario, Metung and Paynesville. Currently, only tourism signage that comprises plain lettering (white on brown) and service symbols (white on blue) are permitted to be installed. Pictorial signage, that would far better highlight the unique natural attractions of these towns, is prohibited. (sub. 11, p. 3)

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Also Mount Alexander Shire Council said: Many towns along the Calder Freeway corridor hold events that rely on tapping into the potential market travelling on the Calder Freeway, particularly during the event duration. Currently there are no structures or processes in place for event committees to legally advertise their event on the freeway. This leads to the practice of signs being erected or placed illegally along the freeway which is both dangerous and ineffective as a marketing exercise. It would be encouraged for some thought to be given to possible solutions such as event boards, within the appropriate road safety guidelines. (sub. 18, p. 1) Greater Shepparton City Council also received complaints from its residents that signage is insufficient: The Vineyard has been operating for 26 years and for five years has sought to have tourism signage erected on the intersection of the Goulburn Valley Highway and River Road, and the Midland Highway and Doyles Road intersection. The lack of signage has had a direct effect on their business as potential customers are unable to locate them. The Shepparton Visitor Information Centre provides assistance to visitors, but again, many are unable to locate the vineyard. On occasions, the business owners have arranged to meet visitors and guide them to their property. The owners advise that many patrons simply give up and move onto better signed wineries at Nagambie. (sub. 55, p. 1) Tourism Victoria’s Regional Tourism Action Plan 2009-2012 recognised the importance of signage: Effective road signing is important for visitor navigation, dispersal and satisfaction. It is also significant for the many small to medium-sized tourism operators in regional Victoria that rely on signing to direct visitors to their businesses. (Tourism Victoria 2008c, p. 14) In acknowledging the importance of signage, the Action Plan stated that: … VicRoads and Tourism Victoria have cooperatively developed new State- wide Tourist Signing Guidelines to provide greater clarity to stakeholders about the approval process required to install new tourism road signs. (Tourism Victoria 2008c, p. 15) The Tourist Signing Guidelines, available on VicRoads website, cover the ‘Principles and Design Standards’ and ‘Application Process and Administration’ (VicRoads 2009a). There is also a guideline specifically for tourism businesses called Tourism Signing Guidelines: Information for Tourism Businesses, which clarifies the types of businesses that are eligible for signage and how to go about applying for such signage (VicRoads 2009b). However these guidelines do not address all of the issues raised in the submissions. The guidelines do not allow pictorial signs (an issue raised by East Gippsland Shire Council) for any use other than as state gateway signs (state

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entry points), major state tourist gateway signs (entry points to geographic areas) and state border signs (state entry points that do not have a state gateway sign). The only exceptions are as follows: A small number of tourist attractions within Victoria may be considered for special road signing when it is the view of Tourism Victoria, in consultation with VicRoads, that the attraction: • is considered to be of state and/or national tourism significance • attracts a paid visitation of at least 200 000 patrons per year • provides an interpretive and/or interactive experience considered to be of national and international standing • exemplifies one or more of the State’s core tourism strengths • is open for casual visitation for as least 360 days per year. (VicRoads 2009a) Several submissions commenting on the draft report provided additional examples of difficulties tourism businesses have in trying to erect advertising and other signs (Whittlesea & Plenty Valley Tourism Association, sub. DR80; Frog Gully Cottages, sub. DR90; and Elizabeth and Ken Jacka sub. DR93). Road signage is a highly contentious issue for tourism businesses. There may be cases in which controls on the use of signs has been excessively restrictive, constraining the capacity of some businesses to notify tourists of their location (see the example by Greater Shepparton City Council). The Commission has insufficient information to determine whether the various examples are indicative of a problem with a specific area of the regulation or a more fundamental disagreement about signage policy.

6.9.5 Traffic management plans Some participants considered that the need to prepare Traffic Management Plans impose unnecessary costs on organisers of tourism-related events. For example, East Gippsland Shire Council said: Event organisers are currently required to appoint a consultant to write a Traffic Management Plan (TMP) at a cost of $2500, in the event that road closures are required for their event. In addition, the approval process for TMPs can take up to three months, firstly going through local government and then to VicRoads. The cost and time required for this process is burdensome. (sub. 11, p. 2) The Commission has not been made aware of the specific concerns about requirements for traffic management plans and thus is unable to assess the extent of the issue or the reasonableness of the requirements.

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6.9.6 Accreditation and regulation of tour guides The association representing tour guides was concerned the conduct of professional tour operators is not regulated. The Professional Association of Australia (PTGAA) argued: Too often overseas visitors, particularly, but not confined to, groups from the burgeoning Chinese market, are not receiving the sort of destination experience they deserve. Currently many overseas groups are accompanied by untrained and inexperienced escorts (group leaders) who provide a superficial and inferior service at best. Groups return home with a total lack and appreciation of the history, culture, traditions, sights and services available etc. One of the greatest ‘advertisements’ of a country is post tour ‘talk’ to family and friends. The PTGAA believes that those “guides” accompanying groups from overseas are working illegally in Australia. (sub. 20, p. 2) Reflecting this concern, the PTGGA called for development of a Tour Operator Permit to ensure that tour operators are knowledgeable and deliver quality services to visitors. The Commission has not examined visitor satisfaction with tour operators but notes there is scope for the industry to develop voluntary codes and accreditation mechanisms to inform visitors about the quality of service providers. In commenting on the draft report, a number of participants called for more regulation of other parties operating in their space, for example: • Mountain Top Experience (a Licensed Tour Operator of 4WD tourism subjected to fees and other mandatory regulatory requirements) argued that 4WD Clubs and private 4WD owners should also be subject to licensing requirements and a permit system (sub. DR60, p. 1). • Bothfeet argued that the requirement that tour operators seeking longer licence periods obtain Advanced Eco-Certification from Ecotourism Australia, should be made mandatory to all operators. It was suggested that ‘increasingly customers immersing themselves in nature based experiences will expect operators to act sustainably, so the sooner this initiative is mandated the better for the professionalism and perception of the industry.’ (sub. DR84, p. 9). • VTIC recommended ‘a requirement that all operators using the Great Ocean Walk as part of their product offering become Licensed Tour Operators with Parks Victoria’ because currently ‘between the various operators and offerings, there is no apparent cohesion around the brand of the Great Ocean Walk and no means of quality assurance around what is supposed to be one of the State’s iconic nature-based attractions’ (sub. DR98, p. 3) The enforcement of and conditions on licenses to operate on public land are discussed in chapter 4.

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6.9.7 Retail trading hours One submission proposed retail trading hours should be extended in designated international shopping precincts, such as in central Melbourne, including over public holidays. The TTF submitted: Retail trading is a critical tourism offering for visitors and regulation often presents as a barrier to achieving optimum participation. For example, retail trade activates precincts and provides critical mass to enliven public spaces. Restrictions on retail trading hours over public holiday periods have become a bugbear for the many Victorians who look to take advantage of their time off work to shop. (sub. 44, p. 39) Currently, only three and a half days in Victoria are classified as restricted trading days where, under the Shop Trading Reform Act 1996 (Vic), only ‘exempt’ shops can trade. These days are: • Good Friday • Easter Sunday2 • Christmas Day • Between 12.01am and 1pm on ANZAC Day. Exempt shops are businesses employing fewer than 20 people on a restricted trading day in sectors that include chemists, petrol shops, restaurants and hire outlets (including video stores). Consequently, the direct impact of restricted trading is felt most by larger businesses, especially large retailers in Melbourne and major regional cities. Businesses choosing to trade on a public holiday must pay usual holiday penalty rates. This could have a greater effect in determining opening hours than the rules regarding public holidays. High wage costs can be a problem for tourism businesses. Pippies by the Bay is in an unusual situation in which it is required, under its current lease with the local government, to trade from 10am to 8pm, seven days per week, all year with the exception of Christmas day. It argued that ‘Public Holidays do not guarantee increased trade in tourism precincts and it is virtually impossible to recoup the increased costs’ and would like to be able to set its own trading hours to manage the operational costs public holidays and seasonal influences (sub. DR68, p. 1). Rules regarding retail trading hours—whether they are prohibitions or obligations to trade—impact on a tourism business’s ability to respond to the ebbs and surges in consumer demand. The result is waste and inefficiency. These

2 In February 2011 the Government announced that it will remove the trading restrictions on Easter Sunday.

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costs need to be weighed against the benefits, when retail trading hour controls are imposed on businesses.

6.9.8 Regional trams The Whittlesea & Plenty Valley Tourism Association argued that the application of regulations for certain types of businesses to ‘like tourism operations’ can have significant adverse effects on their tourism appeal. They referred to an example involving the regulation of trams: The conditions and regulations that apply to the operation of Yarra Trams has also been applied to the Bylands Tram Museum. This has lessened the appeal of the museum in that it is now not able to operate its trams on its one kilometre track. This situation needs to be corrected and, in future, consideration should be given when imposing such regulations to like tourism operations. (sub. DR80, p. 3) It is not clear whether the particular tourism impact referred to above was considered when the regulations were introduced. It might highlight the potential for regulations to have unintended consequences and the value of rigorous and consultative regulatory development processes.

6.10 Other supply-side issues Participants identified several other issues, which they considered impede Victoria’s tourism industry. For example, several submissions indicated that tourism industry impacts should be considered in framing policies on international students, such as regulating visas and education service providers. Submissions also called for additional public investment in tourism-related infrastructure, the operation of existing assets such as public transport, or skills development. While the Commission recognises that these issues are important to the tourism industry, regulation of international students and public investment in skills development and new infrastructure are not within the Commission’s terms of reference. The Commission has noted these views but has not recommended improvements.

6.10.1 Educational exports International students and their family and friends are an important group of visitors to Victoria and education is a major export sector for the State (chapter 2). The TTF noted that 41 per cent of total international visitor nights in Victoria in 2009–10 were due to education visitors (sub. 44, p. 5). The demand by international students to study in Victoria is a function of the cost and quality of the educational experience, which is influenced by regulatory and non-regulatory

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factors such as perceptions about Victoria’s quality of life, immigration controls and state regulation of education providers. The VTIC said: We believe it is important to incorporate students within the definition of the tourism industry. Education services provided to international students make a significant contribution to Victoria’s export earnings. Although education visitors comprise only a small proportion of inbound arrivals, their average length of stay is considerable. As such any movements in their visitation patterns can be significant for international visitor nights and consumption. Many of these students spend time visiting Victoria’s attractions and destinations during their residence. There is also a close link to the visiting friends and relatives (VFR) market, and it is common for students to be visited by family and/or friends while in Australia. Many of the factors that impact Victoria’s brand appeal for visitors (including safety, cultural awareness and quality of goods and services) also impacts on Victoria’s potential to attract students. And in turn, factors influencing Victoria’s reputation as an educational destination also impact on the reputation of Victoria as a visitor destination. When the students, families and/or friends return home, they share their experiences and impressions with other potential visitors. (sub. 40, p. 16) Victoria University emphasised the significant proportion of students whose relatives visit Australia: … 500,000 plus international students in Australia are a major opportunity for the travel industry and in particular [have a] significant role as ambassadors for Australia as a destination and major hosting of friends and family members. In particular, it was noted that over 80% of Chinese, Indian and Korean students bring friends and family to attend graduations in Australia. Whilst Victoria specific data have not been disaggregated, this proportion is likely to be similar. (sub. 51, p. 3) VTIC and Victoria University mentioned that student numbers are affected by social issues, such as anti-social, alcohol and drug related incidents, and the change in visa regulations. The TTF identified several recent challenges that have affected the international student sector: Some of these challenges relate to overdue reforms of migration rules for students following on the recommendations of the Baird Review of the Education Services for Overseas Students (ESOS) Act 2000. The implementation of these reforms, including additional scrutiny of education providers and strengthened visa integrity arrangements for education visas, is expected to depress international education sector growth in the short term. Other changes in the sector which are expected to impact on demand for education from international students include an increase in the financial requirements of potential students and a new points test to assess independent

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skilled migrants which will take effect on 1 July 2011 as part of ongoing reforms to the skilled migration program. These changes, as well as some highly publicised attacks on Indian students, have caused many potential student visitors to reconsider the location for their study. In addition, pressure from the high Australian dollar and increasing competition from other countries, with lower financial requirements, faster visa and application processing times and increased marketing, has added to stress already placed on international education exports. (sub. 44, p. 13) Any fall in the number of international students can affect other areas of the economy, as described by VTIC: Not only does this have a direct impact on education exports and tourism (including the VFR market), it also has an impact on the availability of labour and skills. As the number of international students is decreasing with the emergence of better education facilities overseas, whilst the government is clamping down on work permits and employment visas, this transient labour pool [required to assist with seasonal employment] will potentially get smaller and thus more expensive. This may have a significant impact on already struggling leisure operations. (sub. 40, p. 55) While acknowledging the importance of international students to the Victorian tourism industry, the Commission has not examined regulations affecting the demand to study in Australia. The issues relevant to examining the regulation of education providers and visa arrangements are much broader than the tourism industry. That said, the Victorian Government can play a role in ensuring impacts on the tourism industry are considered in the framing of regulation in the education sector.

6.10.2 Skills and the availability of labour Several participants indicated that the availability of skilled staff and provision of training are major supply-side issues for the Victorian tourism industry. Some participants are concerned about difficulties in attracting and retaining skilled staff, which is exacerbated by recent declines in international student arrivals, the limited career progression opportunities for staff, and a lack of good quality training providers. The TTF submitted that a shortage of labour is the major challenge for the Australian tourism industry in reaching its potential in 2020 (sub. 44, p. 14). The VTIC also said: There are many issues in this area including: the provision of training places; the quality of education providers; the need for both specialist and generalist skills; opportunities for retraining and re-skilling; the uptake of business excellence programs; employer and employee incentive programs; the engagement of mature aged workers in light of the aging workforce as well as labour shortages in regional Victoria. (sub. 40, p. 54)

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Victoria University argued that supply side factors are important, including employment, education and training of the tourism workforce: In particular, the forecast growth of international tourism from the key markets of China and India has major implications for the cross-cultural and service delivery skills required by the tourism workforce in the future. Whilst we recognise the need to reduce regulatory burdens on the tourism industry, this cannot be considered in isolation from consideration of measures to develop a sustainable, quality and skilled tourism workforce and developing excellence in business planning and service delivery practices of the industry through accreditation and other quality improvement programs. This will ensure that Victoria’s tourism industry flourishes in a competitive environment. (sub. 51, p. 2) Reflecting the importance of a skilled workforce, the Victorian Tourism Workforce Development Plan 2010-2016 identified seven critical objectives to improve the tourism workforce: (1) Making tourism a career of choice (2) Supporting sustainable workforce structures (3) Retaining quality people (4) Growing the tourism workforce. (5) Training and skilling the tourism workforce (6) Supporting small business excellence (7) Growing the tourism workforce in regional Victoria (Tourism Victoria 2010a). The strategy also identified broad actions to achieve these objectives, including: encouraging national recognition and portability of training qualifications and certification of tourism occupations, promoting tourism as a career, and encouraging leadership development. The Commission’s Inquiry into Victoria’s Regulatory Framework examined some of the priority issues in Victoria’s vocational education and training system, which is a major supplier of skilled tourism labour. The Commission made a number of draft recommendations to reduce the regulatory burden in this sector (VCEC 2011b, section 4.2).

6.10.3 Public and private infrastructure Several submissions called for investment in or additional spending on tourism- related infrastructure. These suggestions ranged from more space for bicycles on V/Line trains through to major investments in public transport, such as a high- speed rail link between Melbourne and Sydney. The Commission has assessed these issues as outside its terms of reference, consistent with the approach flagged in the inquiry issues paper (VCEC 2010d, p. 3).

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Table 6.2 summarises participants’ views on where new tourism-related infrastructure is required. Table 6.2 Participants’ views on areas for new infrastructure investment Topic Specific issue Transport Improve public transport access to Melbourne airport through the creation of a train or improved bus service (sub. 42, 43, 44, DR94) Increase frequency and reliability of SkyBus services (sub. 19) Increase airport access to competing bus services (sub. DR94) Increase competition in car parking facilities at Melbourne airport (sub. 40, DR94) Improve public transport to Apollo Bay (sub. 14) Improve public transport to the Mornington Peninsula (sub. DR94) More space on V/Line trains for cyclists (sub. 4, 18, 34, 43) Develop a V/Line booking system for cyclists (sub. 4) Upgrade broad gauge tracks into standard gauge (sub. 43) Improve east-west bus services in regional areas (sub. 43) Create a high-speed rail link from Melbourne to Sydney (sub. 43) Allow international students to be eligible for transport concessions (sub. 44) Public land Increase investment in visitor facilities and maintenance of tracks and other facilities (sub. 18, 30, 50) Invest in huts designated for use by licensed tour operators and a booking system (sub. DR62) New tourism Create man-made islands in Port Phillip Bay (sub. 10) attractions Heritage assets Increase investment in the maintenance of heritage assets (sub. 11) Other Improve the visual attractiveness of Melbourne’s laneways (sub. 29) Increase black and grey waste water disposal points for RV (recreational vehicle) tourists (sub. 22) Create RV friendly towns (sub. 22) Increase investment in tourist facilities in the Apollo Bay/Lorne area (sub. DR95) Improve road networks around Nillumbik, including bushfire safety of access points (sub. DR101)

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7 Cooperation and coordination

7.1 Introduction The diverse and fragmented structure of the tourism industry contributes to the perception of many stakeholders that the industry is not given due recognition. It also contributes to cooperation and coordination problems. This is an increasing concern because poor cooperation and coordination across the private and public sector can constrain Victoria’s tourism destinations from realising their full potential. Cooperation and coordination issues contribute to many of the challenges highlighted in this inquiry—in land-use planning, management of state assets, and aviation policy1—where misaligned institutional arrangements, rules and organisational attitudes can impede progress. The quality of cooperative structures and cultures are important for tourism destinations to develop and meet growing competition. Destinations that can effectively manage sustained cooperation and respond more effectively when opportunities emerge can create a competitive advantage. The intended benefits of the Commission’s recommendations in previous chapters could also be lessened if there is poor coordination across government and industry. This chapter examines some of the key cooperation and coordination issues facing Victoria’s tourism industry, including those raised by stakeholders. The Commission considers that: • cooperation and coordination are increasingly important to the success of tourist destinations (section 7.2) • there are examples of where this cooperation is both working well and struggling (section 7.3) • there are factors that influence the effectiveness of coordination structures and processes and improving these processes could assist in implementing the Commission’s recommendations (section 7.4).

1 Qantas highlighted the importance of a coordinated approach to airport planning, and the National Aviation White Paper’s focus on coordinated approach (sub. 42, p. 2).

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7.2 Cooperation and coordination are increasingly important to the success of destinations A key theme in this report is that the tourism industry is changing and facing increasing competition. Tourists have more information and are more mobile making competition between destinations more intense. There is an increasing need to bring together all the attributes of a destination to create a total experience that is competitive. The role of better relationships and cooperation between industry participants and all levels of government is gaining more prominence as a means to help tackle these challenges.

7.2.1 Why cooperation and coordination are constant challenges in tourism The dispersed nature of the tourism industry can make coming together as ‘a destination’ difficult. Cooperation will not always happen naturally due to the transaction costs involved in collective action and some market failures which are characteristic of tourism.2 One source of market failure is ‘spill-over’ effects or ‘externalities’. These spill-over effects are particularly important in the tourism industry because each participant, acting individually, can have significant positive and negative impacts on experiences at the destination and on others in the industry. For example, Tourism Australia’s recent initiative to bring Oprah Winfrey to Australia was designed to benefit all tourism-related businesses in Australia. A coordinated calendar of events can be a source of competitive advantage for Melbourne (VTIC and VEIC 2010, p. 27). Conversely, firms can negatively impact on a visitor’s experience (and their likelihood of return) to the detriment of all businesses along the value chain. See for example Professional Tour Guide Association of Australia (sub. 20). Other market failures associated with the tourism industry include the free-rider problem. Government intervention and coordination in destination marketing is often said to be justified on this ground. The freerider problem is a major market failure within many visitor economies. Because of the fragmented nature of the industry, marketing is often uncoordinated and insufficient. Individual operators or groups of businesses are unlikely to market a destination (country, city, or region) to international or domestic tourists. Many tourism providers also see themselves as being in direct competition with their immediate neighbors rather than with other destinations and products. (Kyriakidis et al. 2009, p. 73)

2 Several submissions noted the existence of market failures in the tourism industry, including Tourism Victoria (sub. 48, p. 2), VTIC (sub. 40, p. 30-31), and TTF (sub. 44, p. 31).

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This also highlights another important characteristic of the tourism industry— the tension between competition and cooperation. Competition is essential to stimulate businesses to innovate and focus on what tourists want, but as the tourist’s experience usually extends well beyond what is offered by any single firm or locality in Victoria, cooperation remains crucial. … how the tourism industry in a destination keeps the balance between cooperation and competition determines, to a great extent, the effectiveness of their destination marketing efforts as well as the long term competitiveness and success of the destination. (Wang and Krakover 2008, p. 127)

7.2.2 Need to refocus on supply-side cooperation Victoria has well established structures and tools for overcoming coordination and incentive problems in destination marketing. Campaigns are integrated across jurisdictional boundaries and mechanisms are in place to encourage buy-in by dispersed industry players. This ensures that local brands can be built around consistent coordinated messages that sell the destination as a clearly identifiable package of experiences. It strengthens a destination’s visibility to potential visitors, differentiating it against other destinations, and improves the competitiveness of all businesses. Less well understood is the impact the diversity of the tourism industry has on the supply side. There is, however, a growing recognition that ‘people don’t buy destinations, they buy experiences and that experiences need managing to ensure that visitors’ expectations are met’ (Hardwick nd, p. 3). Tourism Victoria’s submission noted the importance of supply side coordination and that such coordination can be difficult: … tourism investments may be characterised by coordination failures, particularly in regional areas. As the success of a tourism business may be related to the availability of associated services (eg dining and attractions in order to support accommodation), development may be hindered by the capacity of businesses to synchronise investment in these services. (sub. 48, p. 2) Governments around the world have started to focus more on cooperation and collaboration as a strategic priority for enhancing the competitiveness of their tourism destinations. This includes some of Australia’s neighbours like Singapore who are, like Australia, targeting growing Asian markets. The recent annual general meeting of Crown Ltd, is an example of where an assessment of Victoria’s external competition prompted calls for closer cooperation and coordination in the Victorian tourism industry (box 7.1). Supply side coordination is increasingly imperative due to intense and well coordinated competition from international tourist destinations (Corangamite Shire sub. 50, p. 1). In response to the draft report, VTIC:

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… contends that a more concerted and concentrated effort is required in the area of major tourism investment if Victoria is to adequately meet projected demand and visitation from the major source markets of China and India over the coming years. (VTIC, sub. DR98, p. 7)

Box 7.1 Closer cooperation to meet the competition At Crown Limited’s (Crown) recent AGM, its chairman and CEO focussed on the intensifying competition from overseas for Australia’s tourism market share. In particular, they highlighted threats from integrated resorts being developed in Singapore and Macau, and major planned developments in Japan, Philippines, Malaysia, Thailand, Taiwan and Vietnam, principally targeting tourism out of China. Crown raised questions about whether Australia was ‘sufficiently geared to attract the key tourism markets, namely China and India’. It pointed to the end-to-end approach to tourism development and destination management of places like Singapore, which aimed to provide an integrated visitor experience from arrival to departure. James Packer, chairman of Crown, concluded the AGM by raising as a core issue— how Crown can cooperate more effectively with Australian tourism agencies and the broader tourism sector to increase visitation to Melbourne and Perth: In conclusion, I believe that Australia needs to meet the challenges and capture the opportunities that the fast growing tourism markets from Asia are presenting to this country. In order to progress this, I truly believe that it will be necessary for Federal and State Governments, the broader tourism industry and key Asian focused tourism operators such as Crown to work more closely together. Without better cooperation and a coordinated response, the risks to Australia’s tourism market share posed by these global developments will be realised.

Source: Packer and Craigie 2010.

Finally, some also see cooperation and coordination as critical to the environmental and social sustainability of the tourism industry: ‘The process of collaboration and partnership is a key element for planning and managing natural and cultural assets/products. Partnerships are at the core of sustainable development and sustainable tourism’ (De Lacy et al. 2002, p. 2).

7.3 Cooperation in Victoria There is a wide range of cooperative arrangements across the Victorian tourism industry. The Commission found examples where cooperation is working well and where it is not, as well as evidence of changes to improve overall coordination effectiveness.

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Box 7.2 Tourism and tourism-related organisations at different jurisdictional levels Organisations include (non-exhaustive list for example only): • National: Tourism Australia (includes Tourism Research Australia, Indigenous Tourism Australia and Tourism Events Australia); Aboriginal Tourism Association; Australian Tourism Export Council; Young Australian Tourism Export Council; Tourism & Transport Forum; National Tourism Alliance; Australian Federation of Travel Agents; Ecotourism Association of Australia; Australian Tourism Accreditation Program; Australian Standing Committee on Tourism; Australian Hotel Association; Caravan, RV & Accommodation Industry of Australia; Professional Tour Guide Association of Australia; Restaurant & Catering Australia; Australian Ski Areas Association; government departments with tourism services/facilities • State: Tourism Victoria; Young Tourism Network; Service Skills Victoria; Victorian Employers’ Chamber of Commerce and Industry (Victorian Tourism Industry Council, Tourism Alliance Victoria, Hotel Motel & Accommodation Association of Victoria, Backpacker Operators Alliance of Victoria, Industry Group); Aboriginal Tourism Victoria; Royal Automobile Club of Victoria; other industry associations (such as Victorian Caravan Parks Association, Victorian Wine Industry Association) and accreditation bodies; government departments with tourism services/facilities: such as DSE, Parks Victoria • Regional (cross local government boundaries) and local: Regional Tourism Organisations/Associations (such as Geelong Otway Tourism Inc (GOT), Swan Hill Inc, Shipwreck Coast Tourism); Local Tourism Associations (such as the four associated with GOT include Tourism Geelong, Bellarine Tourism, Surf Coast Tourism, Otways Tourism); local government (both in their own capacities and in supporting other local/regional bodies); Visitor Information Centres; Destination Melbourne Ltd; Western Melbourne Tourism Inc; Destination Docklands. Some tourism-related bodies (including some of those above) specialise in a particular product or service provided in a single region or sub-sector. A good example is the events sector, where there is a number of specialist coordinating organisations, including: • Victorian Events Industry Council (associated with VECCI); Business Events Victoria; Melbourne Convention and Visitors Bureau; Victorian Major Events Company; International Special Events Society; Exhibition and Event Association of Australasia; Meetings and Events Australia.

Source: VCEC. See also Tourism Alliance Victoria 2008.

7.3.1 Cooperative arrangements are wide ranging In Victoria, cooperation and coordination are achieved in different ways and take different forms across destinations and product segments.

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(1) Organisations and formal structures have a range of functions, and include government funded bodies and privately funded industry associations and co-funded tourism organisations. Box 7.2 outlines some of the numerous tourism-related organisations at each jurisdictional level. (2) Agreements, partnerships and Memoranda of Understanding (MOUs) that formalise links among organisations with overlapping interests are very common. The City of Melbourne’s (CoM) partnerships under the Melbourne Tourism Partnership, Melbourne Airline Development Group, Inner Melbourne Action Plan,3 Office of Knowledge Capital, and the MOU between the CoM and Melbourne Convention Centre (CoM sub. 42, Attachment 3) are good examples. The private sector also partners with public bodies. For example, Qantas recently executed a three year MOU with Tourism Australia on co-operative destination marketing, major trade events, business events and international media hosting. Qantas also works closely with several regional tourism organisations (Mildura Tourism, Hotham, Falls Creek and Destination Albury Wodonga), Melbourne Convention Bureau, Australian Export Council, and with Tourism Victoria on a range of joint partnerships and investments (sub. 42, p. 1). (3) Project-specific groups or steering committees of stakeholders put together for a specific joint task (such as developing a specific precinct or attraction). An example is the group put together for the Sandridge Bridge/ Queensbridge Square/Northbank precinct redevelopment project. These mechanisms all help to facilitate cooperation and coordination in the tourism industry and are often effective, being born of shared self-interest. However, the Commission also found examples where coordination is struggling for a range of reasons, including the fragmentation of responsibilities, and sheer size and complexity of the network of organisations.

7.3.2 Many coordination arrangements work well In Melbourne, coordination arrangements seem to be working well and appear to be part of its overall success as a tourist destination. This assessment is based on the Commission’s consultations with Melbourne based stakeholders (including representatives of key attractions, councils, businesses, cultural and sporting events organisations, and state government bodies), all of whom argued that, on the whole, the working relationships in the Melbourne tourism sector are highly

3 The Inner Melbourne Action Plan is a collaborative partnership among the inner Melbourne Councils of the Cities of Melbourne, Port Phillip, Stonnington and Yarra. These councils ‘work together to strengthen the liveability, attraction and prosperity of the region.’ One of the Action Plan’s strategies, is to promote the Inner Melbourne Region as a tourism destination (Inner Melbourne Action Plan).

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cooperative. A recent study by the Cooperative Research Centre for Sustainable Tourism also found that there was a cooperative culture in Melbourne: One of the issues commented upon by many people interviewed was that there is a sense of cooperation between major players in state and local government and industry that supports the effort in attracting tourists and tourism investment. (Driml et al. 2010, p. 38) This comment supports the statement by the CoM that ‘coordination and relationships with key areas of the state government are very good in the area of land use planning and building’ (CoM, sub. 53, p. 6). Their submission provided specific examples including the development of the new Melbourne Convention Centre, and the Melbourne Olympics Parks Trust. This cooperation might help explain differences in perceived levels of impediments to tourism investment between Melbourne and the regions. No one interviewed had experienced problems with approvals processes in Melbourne. … People interviewed who also had experience in regional Victoria did express the view that the approvals process was an impediment to developing high standard accommodation in high amenity areas including adjacent to or in national parks. (Driml et al. 2010, p. 37) The CoM’s approach to tourism development planning and partnerships building provides a good case study of how a collaborative framework can be a strategic part of an overall destination planning process (box 7.3). Mansfield Shire Council also highlighted its destination approach, which recognises the importance of nurturing cooperative outcomes in developing and managing a destination: Our destination is not unique in that there are numerous land managers and authorities that impact on its sustainability. ‘Cows don’t read maps’ is our way of saying for the visitor, it’s all about the experience and not on whose patch or patches the experience occurs. For business operators the variety of regulatory environments that preside over the destination patch can be difficult to navigate. Mansfield’s Destination Sustainability project is an exercise in building cross land manager and agency understanding and co-operation about the inter relatedness of our actions on each other and the destination as a whole. It is a project that recognizes fundamentally that sustainability is not all about tourism. Signatories to our key principles include DSE, Parks Vic, ARMB, Council, Goulburn Murray Water, Catchment Management Authority, VicForests, Tourism Vic, Buller Ski Lifts, and Adventure Victoria. (sub. 47, p. 19) The examples above suggest that successful coordination mechanisms are those that can: • facilitate the identification and realisation of common interests and joint goals • form necessary partnerships and build a collaborative framework • recognise and articulate roles and responsibilities

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• help each party to find and allocate resources to areas where they will add the most value in the context of the collaborative framework.

Box 7.3 City of Melbourne Tourism Plan 2007–2012 The following is an extract from a case study in Tourism Excellence Strategy ‘Growing destinations’: “The City of Melbourne is a major provider of visitor information, infrastructure and services for Melbourne and Victoria. During the last ten years, Council’s tourism role has expanded from basic visitor information to leadership in destination marketing and destination management. In July 2007, the City of Melbourne launched the City of Melbourne Tourism Plan 2007-2012: Managing Melbourne as a tourist destination. Most Tourism Development Plans (TDP) emphasise marketing and product development. The City of Melbourne’s preparation of its first TDP began with recognition that Council’s key role in tourism is destination management: ensuring the destination delivers on the ‘promise’ made by marketing campaigns. Campaigns promoting the city promise intending travellers ‘You’ll never want to leave’ and that you can ‘Lose Yourself in Melbourne’. Delivering on that promise - by providing quality experiences, product, information, services, signage and infrastructure – falls largely into industry’s and local government’s remit. In the City of Melbourne’s case, this involves most areas of Council’s operation: strategic planning, sustainability, urban design, the planning and regulatory framework, arts and culture, parks and gardens, events, transport, engineering services, asset management, international and business development, tourism services and marketing. It is an important initial acknowledgement that the ‘experience’ enjoyed by a visitor to the municipality is influenced by [a] myriad [of] council policies and the day to day actions of its 1000 workforce and contractors. The City of Melbourne’s Tourism Plan takes a capital city view: it recognises that the Melbourne ‘experience’ for most visitors involves places, attractions, facilities and services across metropolitan Melbourne and beyond; not just those within the CBD. A starting point for the Plan’s development was a recognition that visitors to Melbourne experience our city as a single destination. Therefore, linkages and working relationships with other metropolitan councils and destinations like the Yarra Valley, Geelong, Ballarat and Bendigo are very important. The third major feature of the Melbourne TDP planning process is the focus on partnership: development of shared goals; formation of strategic partnerships; and articulation of the unique roles and responsibilities each body brings to the agenda. This enables a coordinated, integrated approach, avoids duplication and enables council to focus on its value-adding role in this collaborative framework. What emerged from the six month planning process is a document that clearly outlines Council’s objectives for Melbourne’s development as a sustainable tourist destination, the strategic direction the organisation is taking, what needs to be done to get there, and with whom Council seeks to collaborate.”

Source: Hardwick nd.

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7.3.3 Some arrangements could be improved Participants suggested areas where they felt arrangements need to be improved. These included: (1) coordination within and between levels of government (2) certain regional destinations where intra-regional tensions may be hindering cooperative action (3) some areas of Melbourne where stronger coordination mechanisms may be needed to overcome structurally fragmented responsibilities and control.

Coordination of government agencies The concept of a ‘whole of government’ approach has been difficult to achieve. Coordination can be challenging when decision making occurs in the context of multiple authorities, unclear roles and objectives, inadequate communications, inconsistent approaches, and attitudinal differences. These issues feature in many of the problems raised in previous chapters. They can lead to confusion, duplication of effort, costly regulatory burdens, uncertainty and delays for tourism businesses and potential investors. The following summarises the range of views expressed by stakeholders: • A ‘whole of government approach’ is not evident in practice. There needs to be a ‘much better alignment’ between Regional Development Victoria and Tourism Victoria ‘on many fronts including regional development (differing regional boundaries) and investment into developing tourism’ (Central Goldfields Shire Council, sub. 30, p. 2). ‘Tourism seems to consistently fall between the cracks’ (GOT, sub. 9, p. 4). Coordination and consistency between local councils was also raised as an issue, for example in their interpretation of health and wellbeing regulations applying to tourism accommodation providers (Australian Tourism Accreditation Program, sub. DR61, p. 2). The interdependencies of tourism need to be recognised in broader government policy and planning. For example, the Public Transport Users Association suggested that the new Public Transport Authority should be recognised as a key stakeholder because the ‘cooperation of the PTA will be crucial in meeting the transport needs of many tourists’ and to ‘maximise the value of tourism assets on their urban fringe’ (PTUA, sub. DR94, p. 1). • A single point of contact or decision making is needed. To cut red tape and better ‘champion’ the supply side of tourism, responsibility for tourism investment should sit with one government department or a whole of government cabinet level committee (Mansfield Shire Council, sub. 47, p. 6). A ‘single “table” or forum at which issues relating to management of state assets can be resolved’ between local and state government is

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needed (CoM, sub. 53 p. 10). CoM suggested that tourism be a ‘standing item on the Lord Mayor’s and the Premier’s regular meetings’ (CoM, sub. 53, p. 10). VTIC also suggested that a ‘tourism version’ of the Victorian Major Events Company could be established as ‘a dedicated organisation responsible for seeking, attracting and coordinating significant tourism development investment for Victoria’ (VTIC, sub. DR98, p. 7). • Complexity, caused by the plethora of government agencies with varying missions and strategic priorities over a natural asset, is making it hard to efficiently develop appropriate tourism projects (East Gippsland Shire Council, sub. 11, p. 5). Sea Safari on Lakes Explorer cited their concerns with liaison among Parks Victoria, Gippsland Ports and the local shire (sub. 49, p. 3). • The approach to on and off airport planning at all levels of government needs to be better integrated to protect Melbourne’s curfew-free status, and provide for transport links (Qantas, sub. 42, p. 2). Similarly, Geelong Otway Tourism highlighted the importance of implementing long term strategies ‘to develop strong partnerships between the government, the airlines and the tourism industry’ (GOT, sub. 9, p. 4). • Coordination problems with tourist signage and duplicative (council and VicRoads), complicated, costly and time-consuming approval processes for Traffic Management Plans were reported (East Gippsland Shire Council, sub. 11, pp. 2-3). • Different attitudes between decision-makers involved in the management of public land. This includes differences between what councils and state agencies regard as appropriate land use in green wedge zones (Manningham City Council, sub. 32, p. 4). Tourism often has to compete with other priorities within agencies. For example, the Australian Ski Areas Association (ASAA) argued that although the Alpine Resorts Coordinating Council is a unit within the DSE, the department has ‘other “whole of government” accountabilities and priorities which sometimes conflict with the provision of tourism related product in alpine resorts.’ Generally, the ASAA argued, ‘active engagement and improvement of alpine resorts has never been a priority at DSE level’ (ASAS, sub. 46, p. 5).

Coordination of tourism bodies in regional Victoria The Commission received many contributions from participants suggesting that cooperation and coordination is currently somewhat tenuous in parts of regional Victoria. Many submissions were from the south western Victoria region. For example, Otways Tourism suggested that the structures are problematic, and that funding is uncoordinated and being spread too thinly:

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The Tourism Association Structure is unworkable. A labyrinth of association[s], sub associations and side organisations like GORM [Great Ocean Road Marketing] & GSTR [Great Southern Touring Route]. Membership money goes around in circles. No real focus on targeted marketing plans, and if there was, no access to funds to execute them… Activity is diffused across a mish mash of different marketing concepts, event tourism, family and friends, conferences etc. Funding is aligned with Shire & Council boundaries rather than the different tourism brands. (sub. 8, p. 2) Beacon Point Villa Accommodation also raised the current structure of tourism organisations along the Great Ocean Road and the region around Apollo Bay and the Otway National Forest. This included obstacles to addressing excessively bureaucratic structures and lack of coordination among local tourism groups (sub. 38, p.1). Johanna Seaside Cottages (sub. 28, p. 2) suggested that the current structure and funding of the tourism industry needs to be reviewed and to ‘seek greater coordination and accountability with fewer layers of bureaucracy’ (sub. DR86, p. 3). Their submission raised questions about the quality of representation of local tourism businesses on bodies reporting to and funded by local councils. Concern was expressed about competing local priorities of councils, and the lack of accountability and transparency around marketing development for the Great Ocean Road (sub. 28, p. 2). Lorne Bush House Cottages also suggested that tourism structures tend to be bureaucratic and ‘out of touch’ with local tourism businesses who are often not made aware of or informed about decisions until its too late (sub. 35, p. 1). In response to the draft report, it was also suggested that effective leadership—in particular, the ‘appointment of tourism managers with a track record of putting “bodies in beds”’—may be more important for improving cooperation and coordination than structural changes (Peter Lalor, sub. DR58, p. 1).

Fragmented responsibilities and coordination in Melbourne The situation of Pippies by the Bay (sub. 37) discussed in chapter 4 (box 4.4), is an example of where fragmented control and responsibility between private business and a number of government bodies created significant problems hindering investment development. Even in Melbourne where planning and management processes are relatively well coordinated there are still some concerns about multiple authorities, and fragmented responsibilities, ownership and control creating coordination problems that hinder tourism development. Participants frequently referred to aspects of tourism development that were ‘everybody’s responsibility and nobody’s responsibility’. The fragmentation can be among government and/or private bodies.

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The CoM also suggested several priority tourist areas in Melbourne where progress will require stronger coordination mechanisms. CoM argued that the Queen Victoria Market site—a highly strategic and valuable attraction in Victoria—has been underutilised and underdeveloped due to the ‘multiplicity of authority and fragmentation of accountability: including Crown land, Heritage Victoria, residents’ amenity and traffic calming requirements’ (CoM, sub. 53, pp. 8-9). It argued that ‘The combined effect of the restrictions placed on the market management company and the market lands has effectively kept the market unchanged for many years’ (CoM, sub. 53, p. 9). The solution suggested was to centralise control in the Council because it would be in a better position ‘to secure a long term future for the Queen Victoria market in a rapidly changing marketplace’ (CoM, sub. 53, p. 9). In addition, the CoM highlighted the Sturt Street Arts/Culture Precinct as a potentially important tourism development for Victoria that requires ‘some kind of coordinating agency’ or ‘structure that facilitates cooperation by key agencies and stakeholders.’4 Docklands is another area where currently ‘The City of Melbourne is responsible for marketing and promoting Docklands, but has very little control over development of the “product”.’ CoM suggested that coordination would be improved if there was greater clarity ‘about which agency/s is/are responsible for developing a tourism development strategy for Docklands or providing the investment required to deliver the strategy’ (CoM, sub. 53, pp. 8-9).

7.3.4 Changes to improve the cooperation and coordination in the industry A number of the concerns identified above have been recognised and private and government bodies overseeing tourism in the State are implementing changes to improve cooperation and coordination in the industry. These include: • government initiatives to promote the use of ‘destination management planning’ (DMP) under the National Long-Term Tourism Strategy (DRET 2011a). According to the Department of Resources, Energy and Tourism, DMP ‘has emerged as an excellent mechanism for improved cooperation and collaboration with local industry, and for strengthening partnerships with regional economic development agencies/boards and education and training providers’ (DRET 2011b). The Commission understands that the Great Ocean Road Region is about to commence the development of a detailed DMP (GOT, sub. 9, p. 2). While these types of plans are relatively

4 Stakeholders that would need to be coordinated include the CoM, National Gallery of Victoria, Australian Centre for Contemporary Art, Malthouse Theatre, ABC, Australian Ballet, Opera Australia, University of Melbourne/Victorian College of Arts, Melbourne Recital Centre, and the Melbourne Theatre Company.

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new for Victoria, they are the norm in Queensland and gaining support in other states • re-organisation of ‘regional industry structures’. This ongoing work, led by Tourism Victoria, is expected to address some of the issues raised by regional stakeholders in this inquiry (Tourism Victoria 2008c, p. 11). As outlined in the Regional Tourism Action Plan, the ‘cornerstone’ of this initiative is the creation of a Regional Tourism Board (RTB) for each region to set the overarching strategic vision and direction for tourism. To date six RTBs have been established in Victoria, these include: Gippsland, Grampians, Yarra Valley and Dandenong Ranges, Daylesford and Macedon Ranges, Murray, and North East Victoria (High Country). Work has commenced on establishing RTBs in: Goldfields, Great Ocean Road and Mornington Peninsular. Work on the final region (Phillip Island) commenced in March/April 2011. The RTBs will be made up of approximately eight skills based members and a senior manager from Tourism Victoria to facilitate liaison with Tourism Victoria (Tourism Victoria correspondence 10/1/11). • evolution and some rationalisation of private sector associations representing tourism interests (for example, the Council of Tourism Organisations proposed by VTIC/VEIC) (VTIC and VEIC 2010, p. 27). The Commission considers that these initiatives, if successfully implemented, have the potential to facilitate improvements in cooperation and coordination in the industry and shift the emphasis of coordination to supply side issues. The changes above should be reviewed in due course for their effectiveness in, among other things, improving destination cooperation and coordination and the impact this had on reducing constraints on tourism development and improving the competitiveness of Victoria’s destinations. Specifically, the new tourism structures and DMP approaches should be evaluated (recommendation 7.1) prior to the consideration of proposals for new centralised coordinating bodies such as that proposed by VTIC (section 7.3.3). There are compelling reasons for why at first instance a more decentralised but better coordinated approach to tourism development may be preferred to coordination by a centralised body. These trade-offs between centralised and decentralised coordination approaches are discussed in 7.4.1 below.

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Recommendation 7.1 That Tourism Victoria undertake and publish an evaluation, by 2014, of: • the performance and impact of the Regional Tourism Boards (RTBs) established in Victoria • the performance and impact of the Destination Management Plans (DMPs) developed and implemented in different Victorian tourism destinations or regions. This evaluation will: • determine the extent to which the intended benefits from these reforms were achieved, including: an integrated tourism experience, coordinated approach to tourism, minimisation of research duplication, clear roles, better value for money from local council tourism investment, a represented and coordinated voice on tourism issues, and regional ownership • consider the impact of RTBs and DMPs on key demand indicators (such as, visitor numbers, nights, and expenditure, return visits) and supply side indicators (for example, investment in tourism infrastructure, new attractions and supporting coordination mechanisms) in the relevant destination or region • highlight case examples of where cooperation and coordination has added value to the overall tourism offering at the destination • identify any persisting coordination failures and opportunities for stronger cooperation and/or coordination mechanisms to improve the competitiveness of the destination in domestic and global tourism markets.

7.4 The contribution of coordination mechanisms to reform Effective cooperation and coordination processes can enhance the ability of industry to inform regulatory reform decisions. Several of the draft recommendations proposed in this report would require substantial input from the tourism industry. For example, explicitly factoring tourism development into strategic land-use planning would require an understanding of the potential areas of tourism growth and whether certain types of planning restrictions could undermine commercial viability. Similarly, identifying areas of public land that might be suited to tourism development requires an understanding of the tourism potential of the sites. The consultation processes needed to feed into these reforms would be less costly and more effective if they can call on existing, well functioning, coordination processes.

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Given that concerns about cooperation and coordination processes arose frequently in submissions and roundtable discussions, and the influence such processes have on the effectiveness of reform, the Commission has made some observations on the factors that influence effective structures and processes. The experiences outlined above and the literature point to some key issues that should guide efforts to improve cooperation and coordination. As noted above, coordination structures in the Victorian tourism industry are evolving. These changes are expected to improve the efficiency and effectiveness of cooperation and coordination in the tourism industry. However, while structure is important, the conduct of industry participants will also determine actual industry performance. As highlighted in the examples above, structural solutions are sometimes necessary to facilitate coordination, but they are not a substitute for cooperative relationships. In the tourism sector, relationships between industry participants are a crucial determining factor of industry performance (Cooper et al. 2006, p. 14). The challenge of managing these relationships is illustrated in the tension between competition and coordination: Such conflict is not necessarily bad, as it reflects the complexity and ongoing adaptation of an industry to changing circumstances. What matters is whether such conflicts can be managed productively and channelled into meaningful responses and learning, rather than into damaging turf wars and destructive responses. (Cooper et al. 2006, p. 13)

7.4.1 Improving coordination structures and cooperative conduct The Commission has identified some key issues for balancing the inherent tensions and improving the efficiency of coordination structures and cooperative conduct. The key considerations relate to the best way to reconcile tradeoffs in structural design (centralisation versus decentralisation) and the relative roles of external and internal assessments, that is, whether collaborative processes focus on external competition or building local capability.

Centralisation versus decentralisation Consolidation and centralisation can help in some cases to gain economies of scale and scope and reduce duplication. As noted above, some stakeholders have argued that tourism funds are currently ‘spread too thinly’ across bodies, sub- regions and segments. Centralisation might also reduce inconsistencies and transactions costs because a ‘centralised structure facilitates coordination by allowing information flow to be efficient’ (Cooper et al. 2006, p. 23). Reducing the number of tourism organisations might make it easier for government agencies to engage with the tourism industry (Australian Tourism Export

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Council (ATEC) 2007, p. 8). Similarly, reducing the number of government agencies may also, in theory, make it easier for investors to navigate the system and get the necessary approvals. Government supported or centralised coordination can be effective when it is prohibitively costly for interested parties to coordinate themselves. This is especially the case when there are many, diverse parties and the benefits of coordination flow beyond a small number of businesses. But centralisation is not always the answer. A large number of organisations does not necessarily mean fragmentation if ‘parties work well together, sharing information and resources to achieve their common goal of supporting the industry and its [on]going development’ (VTIC and VEIC 2010, p. 27). Decentralised approaches are more self-driven. They are necessary for innovation and they increase the responsiveness to local business and community interests. There is increasing recognition globally that some decentralisation of destination planning and management can facilitate environmentally and socially sustainable tourism and long-term business viability (De Lacy et al. 2002). Tourism Victoria notes that: There is not an [ideal] ‘one size fits all’ tourism structure. How each destination chooses to organise its tourism industry is often determined by local factors, including resourcing, industry leadership, the size and importance of tourism to the local economy, and the attitude of local government. It is unwise to impose a ‘top-down’ tourism model on a region or destination without taking into consideration local attitudes, industry aspirations, resourcing and leadership. A ‘ground-up’ approach is usually preferable, involving the public and private sector in discussion and planning. (Tourism Victoria nd) The Commission is of the view that there is a role for both decentralised and centralised coordination, recognising that the ‘relationship between different network structures and performance of tasks is not an exact science’ (Cooper et al. 2006, p. 23). Decentralised, locally-driven processes will always be necessary to respond flexibly to local opportunities. But in some cases centralising control is needed to reduce coordination costs and gain economies of scale. In these cases, maximising information flows to preserve responsiveness and encourage innovation is essential.

External and internal assessments and collaborator engagement Collaborative structures can be formed around a need to manage challenges outside the destination or manage processes and interests within the destination.

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External assessment (outside the destination) External assessments are particularly important for those sections of the industry facing international competition. As highlighted by Crown’s example (box 7.1), forming and sharing a ‘big picture view’ of where the competition is coming from helps sharpen the focus of industry participants on necessary cooperation. This often widens participants’ view of ‘the destination’ and discourages a ‘strictly local’ vision: Market circumstances (globalization) require strategic alliances and a broad vision of what is competitive. (C4T - Tourism Business & Planning 2010) This external perspective also requires focussing on the package of services in the geographic areas of interest to tourists. Lessons may be learnt from the Meetings Incentives Convention Events (MICE) sector, which some have described as the ‘paradigm of coopetition’. ‘Convention Bureaus’ around the world have matured as coordinating organisations that: … have the particularity of bringing together different sub-companies (travel agencies, professional congress organizers, hotels, restaurants, meeting halls, conference, simultaneous translation companies, audiovisual rental companies, etc.), all of them cooperating whilst competing within a single destination that is also competing with other[s] to attract customers. Together they prepare nominations to host congresses, promote themselves at specific exhibition fairs and pool their capabilities to provide the customer with a wide outlook upon the destination capabilities. (C4T - Tourism Business & Planning 2010) However, meeting external competition together in an efficient way also requires a rigorous assessment of the environment inside the destination and the roles and strengths of each organisation. Internal assessment (inside the destination) As highlighted in the CoM’s case example (box 7.3), building a collaborative framework requires explicit recognition of interdependencies among organisations, and a focus on partnership. Such a collaborative framework is built by: • clearly defining each organisation’s role and operations that impact on tourism experiences at the destination • examining the organisation’s place in the broader destination environment and existing structures to identify co-dependencies with other potential collaborators • engaging these collaborators in developing a shared understanding of joint interests and identifying ‘unique roles and responsibilities’ (where each party can best add value) to achieve shared goals.

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The Commission considers that the key strengths in this approach are the explicit consideration of the links necessary to coordinate outcomes and focus on identifying and leveraging each collaborator’s ‘comparative advantage’. This reduces some of the duplication, transactions costs, uncertainty and other inefficiencies suggested by some stakeholders above. It also maximises the use of available resources across the destination to achieve common goals.

7.4.2 Role of government The Commission considers that the Government has a clear role in removing supply-side barriers and generating an environment in which the private sector can efficiently respond to the changing operational and competitive conditions. The main barriers identified in this draft report include unnecessarily burdensome regulation, especially in land-use planning, and overly restrictive access to government assets, particularly national parks. Other impediments include potential constraints on future aviation capacity, the impact of cumulative regulatory burdens and coordination problems within and between the public and private sector. In addition, as illustrated in section 7.3.3, there appears to be scope for governments to improve coordination among their agencies, including more cooperation among councils, closer alignment of objectives and processes, and better communication across levels of government. The Commission considers these to be ‘no regrets’ solutions that would benefit the tourism industry, other businesses and the community more generally. This report has also made several recommendations whose implementation would require cooperation across government and the private sector. Changes to land-use planning are an obvious example. Other examples include the potential for local government to use private sector star ratings and other accreditation programs to help inform their risk assessment of tourism accommodation providers, and drawing on the private sector to assist in identifying sites on public land that might be suited to development as tourist facilities. Already government support for systems that encourage cooperation and coordination is common. This role is consistent with economic principles that recognise that there are barriers to businesses achieving sufficient coordination on their own. It is also supported by industry. VTIC for instance, argued that: In order for the tourism industry to prosper, we need a strong Tourism Victoria, with a strong marketing focus, that works in partnership with industry to maximise strong cooperative marketing and development. (VTIC, sub. 40, p. 31) VTIC argued that Tourism Victoria’s ‘primary role should be, as a destination marketer, to create demand and work with industry to convert demand into visitation, yield and dispersal’ (VTIC, sub. 40, p. 32).

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But the role of government does need to be approached cautiously as it can extend into areas that could be taken on by the private sector. A number of stakeholders raised concerns about direct competition between the public and private sector (VTIC, sub. 40, pp. 30-31; Mansfield Shire Council, sub. 47, pp. 18-19; Shipwreck Coast Marketing, sub. 14, p. 2). Mansfield Shire Council argued that government provision can create an unlevel playing field: There are numerous examples of the public sector providing tourism product and services with both positive and sometimes unintended negative consequences. Where such provision addresses an important gap in the market, that would not otherwise be provided, one can easily argue the merit. (sub. 47, p. 18) Examples provided of where public and private offers overlap included accommodation provision, ‘guided and interpretive scenarios’ and booking services. Mansfield recommended that the Government ‘Develop entry and exit criteria and periodic tests of [the] market to ensure tourism product provided or supported by the public sector is appropriate’ (sub. 47, p. 18). Government’s role in tourism may need to change over time as industrial organisation, technology or other developments allow coordination to be undertaken by the private sector. For example, VTIC argued that the Government needs to consider withdrawing from areas where, in the past, provision was not forthcoming from the private sector due to market failures or so-called ‘market weakness’—where ‘the private sector has not had sufficient coordination or leadership to drive its own development’ (VTIC, sub. 40, p. 31). VTIC argued that some industry development services (such as the Tourism Excellence program) could now be adequately delivered by industry (VTIC, sub. 40, p. 31). Given the dynamism of the tourism industry, government’s role in cooperating with and enabling coordination in the industry needs to be regularly evaluated to ensure that it evolves in keeping with changes in the tourism industry.

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Appendix A: Consultation

A.1 Introduction The Victorian Competition and Efficiency Commission received the terms of reference to hold an inquiry into Victoria’s tourism industry on 23 September 2010. In keeping with its charter to consult extensively during public inquiries, the Victorian Competition and Efficiency Commission advertised the inquiry in The Age in November 2010. The Commission also published an issues paper in October 2010, which outlined: • the scope of the inquiry • how to make a submission • the Commission’s consultation process • the inquiry timetable The issues paper invited participants to register an interest in the inquiry and to make submissions. One hundred and fifty-two registrations of interest were received and the Commission also received 56 written submissions before the release of the draft report and another 55 written submissions after the draft report was released (section A.2). The Commission held three roundtables at Mornington, Colac and Wangaratta. The roundtables included participants from of state and local government agencies, small business and industry associations. A fourth roundtable was held with Department of Sustainability and Environment staff (section A.3). Following the release of the draft report, the Commission also presented at an industry forum organised by the Victorian Employers’ Chamber of Commerce and Industry. The Commission also met with key stakeholders to discuss the Commission’s draft recommendations. The Commission undertook an extensive program of meeting and visiting with businesses, academics, associations and individuals, including groups that had not been involved in the consultation prior to the draft report (section A.4)

A.2 Submissions The invitation to make submissions was open to members of the public, community groups, employees, businesses, industry associations, Victorian Government departments and agencies, and local government. The Commission received 111 submissions (table A.1). All but five of the submissions are public documents that can be viewed on the Commission’s website.

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Table A.1 Submissions received Participant Submission no. Jackson’s on Middle Park 1 Clonmara Cottages & Tearoom 2 David Gittus 3 Julia Blunden 4 Stephen Downes 5 Wynndean Holiday Resorts Pty Ltd 6 Roger Stuart-Andrews 7 Otways Tourism 8 Geelong Otways Tourism 9 Melbournepeninsula.com 10 East Gippsland Shire Council 11 Frankston Tourism 12 East Gippsland Regional Business & Tourism Association 13 Shipwreck Coast Marketing 14 Save Albert Park 15 Peter Lalor 16 Australian Forest Growers 17 Mount Alexander Shire Council 18 SkyBus 19 Professional Tour Guide Association of Australia 20 Graeme Menère 21 Campervan & Motorhome Club of Australia 22 Surf Coast Shire Council 23 Peter Logan 24 Graeme Menère 25 Victorian Caravan Parks Association 26 Peter Lalor 27 Johanna Seaside Cottages 28 James Harding 29 Central Goldfields Shire 30 Bed & Breakfast Farmstay & Accommodation Australia 31

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Table A.1 Submissions received (continued) Participant Submission no. Manningham City Council 32 Judy Harrison 33 Janet Bennett 34 Lorne Bush House Cottages 35 Confidential (not publicly available) 36 Pippies by the Bay 37 Beacon Point Villa Accommodation 38 Ridge Café 39 Victoria Tourism Industry Council 40 Cardinia Shire Council 41 Qantas 42 Public Transport Users Association 43 Tourism & Transport Forum 44 Colac Otway Shire 45 Australian Ski Areas Association 46 Mansfield Shire 47 Tourism Victoria 48 Sea-Safari on Lakes-Explorer 49 Corangamite Shire Council 50 Victoria University 51 Royal Automobile Club of Victoria 52 City of Melbourne 53 Department of Transport 54 Greater Shepparton City Council 55 Confidential (not publicly available) 56 John Fitzpatrick DR57 Peter Lalor DR58 Rod Lambert DR59 Mountain Top Experience DR60 Australian Tourism Accreditation Program DR61 High Country Horses DR62

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Table A.1 Submissions received (continued) Participant Submission no. Bill Taylor DR63 Ray Nichols DR64 Bettina Terry DR65 Colac Otway Shire Council DR66 Confidential (not publicly available) DR67 Pippies on the Bay DR68 Australian Camps Association DR69 Adrian Infanti DR70 Richard Aumann DR71 Gray Ardern DR72 Goulburn River Valley Tourism DR73 Richard Hughes DR74 Bernard Slattery DR75 Tom Tootell DR76 Geoffrey Westcott DR77 Tourism and Transport Forum DR78 Destination Gippsland DR79 Whittlesea & Plenty Valley Tourism Association DR80 Horsham Rural City Council Tourism Advisory Council DR81 Friends of the Koala DR82 WorkSafe Victoria DR83 Bothfeet DR84 Go West Tours DR85 Johanna Seaside Cottages DR86 Paul Caine DR87 Jim Walker DR88 Murray Regional Tourism Board DR89 Frog Gully Cottages DR90 Friends of Nillumbik DR91 Mansfield Shire Council DR92 Elizabeth & Ken Jacka DR93

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Table A.1 Submissions received (continued) Participant Submission no. Public Transport Users Association DR94 Beacon Point Villa Accommodation DR95 Green Wedge DR96 Foster’s Group DR97 Victorian Tourism Industry Council DR98 Lynette Hughes DR99 Lorne Bush House Cottages DR100 Nillumbik Ratepayers Association DR101 City of Whittlesea DR102 Land Owners Rights Association Inc DR103 Victorian Farmers Federation DR104 Victorian Caravan Parks Association DR105 Nillumbik Tourism Association DR106 Bend of Islands Conservation Association DR107 Qantas DR108 Victorian National Parks Association DR109 Interface Councils DR110 Mildura Airport DR111

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A.3 Roundtables The Commission held four roundtables. Tables A.2 to A.5 outline the various participants who attended. Table A.2 Mornington roundtable Participant Organisation Alva Hemming Mornington Peninsula Tourism Andrew Benallack Red Hill Epicurean Centre Fraser Bell Discovery Attractions Greg O’Donaghue Green Olive at Red Hill John Mitchell Tourism Victoria Board Judith Muir Polperro Dolphin Swims Judy Barratt Morning Star Estate Kristina Burke Victorian Employers’ Chamber of Commerce and Industry Mercedes Stringer Morning Star Estate Richard Davidson Peninsula Hot Springs Shane Murphy Mornington Peninsula Shire

Table A.3 Colac roundtable Participant Organisation Andrew Mason Corangamite Shire Carol Reid Shipwreck Coast Tourism Association Inc Chris Burchett Grampians Tourism Gavin Ronan Both Feet Walking Lodge John Riches Otways Tourism Inc Joy Evans Johanna Seaside & Holiday Park Kristina Burke Victorian Employers’ Chamber of Commerce & Industry Mick Cosgriff Colac Otway Shire Peter Abbott Warrnambool City Council Roger Grant Geelong Otway Tourism

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Table A.4 Wangaratta roundtable Participant Organisation Charlie Lovick Lovicks Trail Rides David McAuliffe Echuca-Moama River Resort Dean Oberin Oscar W’s Wharfside Helen Moran North East Victoria Tourism Jonathan Chivers Mount Buller and Mount Stirling Alpine Resort Management Board Judy Dixon Mansfield Shire Council Kaye Hall Mansfield Shire Council Mark Francis Greater Shepparton City Council Simon Latchford Echuca-Moama Tourism Sonya Boaden Tourism Greater Shepparton Todd Blake Victorian Employers’ Chamber of Commerce and Industry

Table A.5 Department of Sustainability & Environment roundtable Participant Position Department of Sustainability & Environment Division Benjamin Bunting Senior Policy Officer, Land Public Land Division Management Policy Brad Miles Executive Officer, Alpine Resort Public Land Division Coordinating Council Dick Ford Acting Director, Public Land Public Land Division Management and Use Gil Marshall Director, Integrated Land Strategies Office of Land and Fire Helen Fedoroff Manager, Policy and Projects Forests and Parks Ingrid Duncan Director, Natural Resources Policy Natural Resources and Strategy, Joan Phillips Chief Executive Officer, Victorian Public Land Division Environmental Assessment Council Kim Crozier Manager, Land Management Policy Public Land Division Kim Lowe Director, Ecosystem Services Biodiversity and Ecosystem Services

Kylie Shanahan Director, Major Projects and Biodiversity and Ecosystem Environmental Approvals Services

APPENDIX A: CONSULTATION 225

A.4 Stakeholder consultations The terms of reference required the Commission to consult with employees, businesses, industry associations and key interest groups and to draw on the knowledge and expertise of relevant Victorian Government departments and agencies. Stakeholder consultations (table A.6) may include organisations that also attended one of the roundtables. Table A.6 Consultation participants Organisation (or individual) Organisation (or individual) Adventure Forests Pty Ltd Arts Victoria Australian Ski Areas Association Avalon Airport Australia Both Feet Walking Lodge Cape Schanck Lighthouse Chateau Elan Hotels and Resorts City of Greater Geelong City of Melbourne Colac Otway Shire Corangamite Shire Crown Limited Department of Business & Industry Department of Infrastructure & Transport (Cth) Department of Planning & Community Department of Resources, Energy & Development Tourism (Cth) Department of Sustainability & Department of Transport Environment Department of Treasury & Finance Discovery Attractions Echuca-Moama River Resort Echuca-Moama Tourism Federation Square Geelong Otway Tourism Glenelg Shire Council Grampians Tourism Greater Shepparton City Council Green Olive at Red Hill Grollo Leisure & Tourism Heritage Council of Victoria Heritage Victoria Intrepid Travel Johanna Seaside & Holiday Park Lovicks Trail Rides Mansfield Shire Melbourne Airport Melbourne Convention & Visitors Bureau Morning Star Estate Mornington Peninsula Shire Mornington Peninsula Tourism Mount Buller & Mount Stirling Alpine National Trust Resort Management Board North East Victoria Tourism Inc Oscar W’s Wharfside

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Table A.6 Consultation participants (continued) Organisation (or individual) Organisation (or individual) Otway Tourism Parks Victoria Peninsula Hot Springs Polperro Dolphin Swims Qantas Red Hill Epicurean Centre Shipwreck Coast Tourism Association Inc South Gippsland Shire Council Tasmanian Parks & Wildlife Service Tennis Australia Tourism & Transport Forum Tourism Greater Shepparton Tourism Victoria Victoria Tourism & Industry Council Victorian Employers’ Chamber of Victorian Farmers Federation Commerce & Industry Victorian National Parks Association Wangaratta Shire Warrnambool City Council

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Appendix B: Top activities of international visitors to Victoria

Table B.1 Top activities of international visitors to Victoria (% of visitors)

All ‘Tier 1’ Countries ‘Tier 2’ Countries internat. CHN NZ UK USA India Mal Kor HK Can Ger Sing Jap Rank Activities % % % % % % % % % % % % % 1 Eating out at restaurants 70 49 66 70 70 63 80 75 80 63 44 81 61 2 Sightseeing/looking around 64 64 50 62 60 70 60 79 62 52 56 65 70 3 Go shopping (pleasure) 55 55 48 45 49 54 66 67 48 37 25 62 47 4 Go to the beach 30 34 25 30 24 33 25 44 24 26 27 37 25 5 Pubs clubs discos etc. 27 - 27 35 24 20 16 26 - 28 25 - 14 6 Go to markets 27 15 22 19 28 39 45 35 29 15 16 33 27 7 Visit national parks or State parks 27 46 15 21 22 20 24 44 19 19 26 25 23 8 Visit museums or art galleries 21 24 17 17 21 - 15 28 20 - 16 - 18 9 Visit historic buildings/sites 22 44 13 18 20 - 15 37 - - 15 - 10 10 Visit botanical or other public gardens 22 33 12 17 21 - 18 37 - 12 12 16 13 11 Visit casinos 16 33 7 8 11 - 15 27 17 - - 17 16 12 Visit wildlife parks/zoos/aquariums 14 - 9 14 17 - 14 20 - - 9 - 24 13 Tourist trains 13 8 - - - - 11 15 - - 6 - 10 14 Go on guided tours or excursions 10 13 - 10 15 - - 17 - - - - 19 15 Bushwalking or rainforest walks 11 13 9 12 9 - - - - - 24 - -

(continued next page)

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Table B.1 Top activities of international visitors to Victoria (% of visitors) (continued)

All ‘Tier 1’ Countries ‘Tier 2’ Countries internat. CHN NZ UK USA India Mal Kor HK Can Ger Sing Jap Rank Activities % % % % % % % % % % % % % Other activities Attend movies/cinema 9 - 9 ------8 - - Attend theatre/concerts etc. 7 - 8 - - 15 10 ------Visit wineries 6 - - - 11 ------14 Attend an organised sporting event 5 - - 10 ------Visit farms 4 11 ------5 - - Visit amusements/theme parks 4 ------14 - - - - - Visit the outback 1 9 ------Volume of visitors and growth rates CHN NZ UK USA India Mal Kor HK Can Ger Sing Jap Overnight visitors (000s), year ending March 2010 157.6 232.5 202.6 132.3 51.9 76.3 31.1 43.3 33.4 60.4 74.4 38.7 % Annual average growth 2000–2010 +14.5 +4.9 +2.9 +0.4 n/a +7.3 +6.4 +4.1 +3.3 +1.0 +0.6 -6.2 % Change 2009–2010 -3.4 +2.0 +0.8 +8.4 +17.4 +34.6 -10.9 +11.5 -15.2 +2.5 +5.0 -7.1

Notes: Activities of visitors from countries are based on 3 years to December 2009. Shaded areas indicate activities that visitors—from a country—are substantially more likely (shaded green) or less likely (shaded red) than the average international visitor to have partaken in during their visit to Victoria. Not all countries had data for 15 activities.

Source: Table compiled by VCEC from international market profiles prepared by the Tourism Victoria Research Unit (Tourism Victoria nd).

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Appendix C: Tourism in Victoria’s land-use planning system

C.1 Introduction This appendix provides background information on the following aspects of planning regulation: • references to tourism in the State Planning Policy Framework (SPPF) • tourism-related activities in the Green Wedge and Rural land-use zones in the Victoria Planning Provisions (VPPs).

C.2 References to tourism in the State Planning Policy Framework All council planning schemes contain the SPPF, which consists of general principles and specific land-use policies, set by the Victorian Government. Table C.1 identifies references to ‘tourism’ and ‘tourist’ in the SPPF and records whether the reference was in the context of objectives, strategies or policy guidelines.

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Table C.1 References to tourism in the SPPF Clause Heading Objectives Strategies Policy guidelines 11.04-2 Activity Support role of Central Activities Districts as Metropolitan Centre Melbourne’s largest centres of activity with a great variety hierarchy of uses and functions, including tourism uses Strengthen Central Activities Districts’ functions and role as primary business, retail and entertainment hubs—the CBD has a distinctive role as a tourist destination 11.04-4 Central Maintain and build on the CBD’s role as Victoria’s tourist Melbourne centre Development of Yarra River precinct for tourism activity 11.04-7 Open space Ensure development does not compromise waterways as Maribyrnong River–Vision network in significant tourism assets for Recreational and Metropolitan Tourism Development Melbourne (Melbourne Parks and Waterways 1996) 12.02-1 Protection • Provide clear direction for future sustainable use of the of coastal coast for tourism purposes areas • Protect and maintain areas of environmental significance • Identify suitable areas and opportunities for improved facilities 12.02-4 Coastal ‘To encourage suitably located ‘Ensure tourism developments demonstrate a tourist tourism and designed coastal and marine accommodation need and support a nature based tourism opportunities’ approach …’

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Table C.1 References to tourism in the SPPF (continued) Clause Heading Objectives Strategies Policy guidelines 12.02-6 The Great Improving management of access and transport, including Ocean Road for tourism access region ‘Encourage sustainable tourism and resource use’ 12.03-2 Sustainable ‘Maintain Mt Stirling as an all season nature based tourist… development resource’ in alpine areas 17.03-1 Facilitating ‘To encourage tourism Encourage development of well designed and sited tourist Planning and Building tourism development to maximise the facilities, including integrated resorts, motel Tourism from Concept to employment and long-term accommodation and smaller scale operations (for example: Reality: Guidelines for economic, social and cultural retail, host farms and B&Bs) Planning and Developing benefits of developing the State Ensure tourism facilities have access to suitable transport Tourism Projects in Victoria as a competitive domestic and and are compatible with and build upon assets and qualities (Tourism Victoria 2000) international tourist destination’ of surrounding urban or rural activities and attractions (cultural and natural) Any relevant regional tourism development strategy 17.03-2 Tourism in ‘To maintain and develop Metropolitan Metropolitan Melbourne as a Melbourne desirable tourist destination’ 17.03-3 Maritime Support development of ecotourism, tourism and major precincts maritime events

Source: VCEC analysis of Victoria Planning Provisions, State Planning Policy Framework.

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C.3 References to tourism-related activities in land-use zones

C.3.1 Introduction The VPPs include generic zones which control particular uses of land. These zones are then applied by councils to areas within their municipal boundaries. The zones most frequently raised in discussion with participants were the Green Wedge Zones (GWZ and GWAZ), Rural Living Zone (RLZ), Rural Conservation Zone (RCZ), Farming Zone (FZ) and the Rural Activity Zone (RAZ). This section highlights aspects of these zones that relate to tourist development and tourism-related activities.

Section uses Each of the zones contains a table of uses, divided into: • section 1 uses: permit not required • section 2 uses: permit required • section 3 uses: prohibited uses A section 1 use does not require a permit, provided that the condition(s) specified in the table opposite the use are met. If condition(s) are not met, than the use becomes a section 2 use and therefore requires a permit. The exception is if the use is specifically included in section 3 as a use that does not meet the section 1 condition, in which case the use is prohibited (VPPs clause 31.01). All section 2 uses require a permit. If the condition(s) in the table opposite the particular use are not met, then the use is prohibited. Despite this, a permit will not be automatically granted for a section 2 use. A responsible authority (generally a municipal council) has discretion whether or not to grant the permit. It must determine whether the planning proposal: … will produce acceptable outcomes in terms of the State Planning Policy Framework, the Local Planning Policy Framework, the purpose and decision guidelines of the zone and any of the other decision guidelines in Clause 65. (VPPs clause 31.02)

Existing uses The VPPs also contain provisions governing existing uses of land, which are relevant to the Green Wedge and Rural zones (clause 63). Existing uses are protected, even if increased conditions or restrictions have since been applied to the relevant zone and the existing use would be prohibited under current

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zoning. However, how the existing use is ‘characterised’ limits an existing use right. Land use is ‘characterised by the purpose of the actual use at the relevant date, subject to any conditions or restrictions applying to the use at that date’ (clause 63.02). The existing use is not characterised by its classification as a section 1, 2 or 3 use of a zone; or by broad categories (such as ‘accommodation’ or ‘food and drink premises’) as defined in clause 74 of the VPPs. For example; an application to operate a golf course (which falls within the category of ‘outdoor recreation facility’) would be granted for the purpose of operating a golf course, and not the general purpose of operating an outdoor recreation facility. Narrow characterisation of existing land use can significantly impact on tourist development. For example, if an outdoor recreation facility operator had an existing use right to operate a golf course and they wished to expand their business to include a paintball games facility, they would need to apply for a new permit (even though a paintball games facility is also classified as an outdoor recreation facility in clause 74). The original permit, while falling within ‘outdoor recreation facility’, would have been granted for the specific purpose of operating a golf course, not the more general purpose of providing outdoor recreation and leisure.

C.3.2 Green wedge zones (GWZ and GWAZ) Table C.2 Section 1 and 2 permitted uses Section use Tourism-related activity Permit required? Conditions 1 Bed and Breakfast No No more than 6 guests accommodated. At least 1 car park space for each 2 guests able to be accommodated. 1 Informal outdoor No recreation 2 Camping and caravan Yes park 2 Exhibition centre Yes (continued next page)

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Table C.2 Section 1 and 2 permitted uses (continued) Section use Tourism-related activity Permit required? Conditions 2 Function centre Yes Must be in conjunction with agriculture, outdoor recreation facility, rural industry or winery. Number of patrons present at any time must not exceed the lesser of 150 patrons or the number specified in a schedule to the zone. Lot size requirements below. 2 Group accommodation Yes Must be in conjunction with agriculture, outdoor recreation facility, rural industry or winery. Number of dwellings must not exceed the lesser of 40 dwellings or the number specified in a schedule to the zone. Lot size requirements below. 2 Host farm Yes 2 Indoor recreation Yes Must be for equestrian based facility leisure, recreation or sport. 2 Leisure and recreation Yes . (excludes indoor recreation facility, informal outdoor recreation, major sports and recreation facility and motor racing track) 2 Major sports and Yes Must be for outdoor leisure, recreation facility recreation or sport.

(continued next page)

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Table C.2 Section 1 and 2 permitted uses (continued) Section use Tourism-related activity Permit required? Conditions 2 Residential building Yes Must be in conjunction with (includes backpackers’ agriculture, outdoor recreation lodge, boarding house facility, rural industry or and hostel) winery. Must be used to provide accommodation to persons away from their normal place of residence. Lot size requirements below. 2 Residential Hotel (only Yes Must be in conjunction with in GWZ) agriculture, outdoor recreation facility, rural industry or winery. Number of bedrooms must not exceed lesser of 80 bedrooms or number specified in a schedule to the zone. Lot size requirements below. 2 Restaurant Yes Must be in conjunction with agriculture, outdoor recreation facility, rural industry or winery. Number of patrons present must not exceed the lesser of 150 patrons or the number specified in a schedule to the zone. If used in conjunction with a function centre, number of patrons present at any time must not exceed the lesser of 150 patrons or number specified in a schedule to the zone. Lot size requirements below.

Source: VCEC analysis of Victoria Planning Provisions, clauses 35.04-1 and 35.05-1.

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Lot size requirements • For GWZ: lot must be at least the minimum subdivision area specified in a schedule to this zone. If no area is specified, the lot must be at least 40 hectares. • For GWAZ: lot must be at least the minimum subdivision area specified in a schedule to this zone. If no area is specified, the lot must be at least 8 hectares. Uses not specified in the zone: a permit is also required for any other use not specified in section 1 (as not requiring a permit) or section 3 (as prohibited).

Section 3 prohibited uses • accommodation (other than camping and caravan park, dwelling, group accommodation, host farm and residential building) • cinema based entertainment facility • retail premises (other than manufacturing sales, market, plant nursery, primary produce sales and restaurant) for GWZ (clause 35.04-1) • retail premises (other than community market, plant nursery, primary produce sales and restaurant) for GWAZ (clause 35.05-1).

Long term lease or licence for accommodation A permit is required to lease or licence a portion of a lot for more than 10 years, if the portion is to be leased or licensed for the purpose of accommodation. Each portion of the lot must be the minimum subdivision area specified for land in a schedule to the GWZ or GWAZ. If no area is specified, each portion of the lot leased or licensed for the purpose of accommodation must be at least 40 hectares for GWZ or 8 hectares for GWAZ (clauses 35.04-4 and 35.05-4).

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C.3.3 Rural living zone (RLZ) Table C.3 Section 1 and 2 permitted uses Section use Tourism-related activity Permit required? Conditions 1 Bed and Breakfast No No more than 6 guests accommodated. At least 1 car park space for each 2 guests able to be accommodated. 1 Informal outdoor No recreation 2 Accommodation Yes . (includes camping and caravan park, group accommodation and host farm) 2 Convenience shop Yes Leasable floor area must not exceed 80 square metres. Site must not have direct access to a rural freeway. 2 Hotel Yes Site must not have direct access to a rural freeway. 2 Leisure and recreation Yes . (excludes informal outdoor recreation and motor racing track) 2 Restaurant Yes Site must not have direct access to a rural freeway.

Source: VCEC analysis of Victoria Planning Provisions, clause 35.03-1.

Uses not specified in the zone: a permit is also required for any other use not specified in section 1 (as not requiring a permit) or section 3 (as prohibited).

Section 3 prohibited uses • amusement parlour • cinema based entertainment facility • nightclub • retail premises (other than community market, convenience shop, hotel, plant nursery, postal agency, primary produce sales, restaurant and tavern) (clause 35.03-1).

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C.3.4 Rural conservation zone Table C.4 Section 1 and 2 permitted uses Section use Tourism-related activity Permit Conditions required? 1 Bed and Breakfast No No more than 6 guests accommodated. At least 1 car park space for each 2 guests able to be accommodated. 1 Informal outdoor No recreation 2 Group Yes Must be in conjunction with accommodation agriculture, rural industry or winery. No more than 6 dwellings. Lot size requirements below for metropolitan Melbourne. 2 Host farm Yes 2 Residential hotel Yes Must be in conjunction with agriculture, rural industry or winery. Number of bedrooms must be the lesser of 80 bedrooms or the number specified in a schedule to the zone. Lot size requirements below for metropolitan Melbourne. 2 Restaurant Yes Must be in conjunction with agriculture, rural industry or winery. Number of patrons present must be the lesser of 150 patrons or the number specified in a schedule to the zone. Lot size requirements below for metropolitan Melbourne. 2 Winery Yes

Source: VCEC analysis of Victoria Planning Provisions, clause 35.06-1.

For land in metropolitan Melbourne only: lot must be at least the minimum subdivision area specified in a schedule to this zone. If no area is specified, the lot must be at least 40 hectares.

Section 3 prohibited uses • accommodation (other than dwelling, group accommodation, host farm and residential hotel) • leisure and recreation (other than informal outdoor recreation)

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• retail premises (other than community market, plant nursery, primary produce sales and restaurant) • any other use not specified in section 1 or 2 (clause 35.06-1).

Long term lease or licence for accommodation in metropolitan Melbourne A permit is required to lease or licence a portion of a lot for more than 10 years, if the portion is to be leased or licensed for the purpose of accommodation. Each portion of the lot must be the minimum subdivision area specified for land in a schedule to this zone. If no area is specified, each portion of the lot leased or licensed for the purpose of accommodation must be at least 40 hectares. This only applies to land in metropolitan Melbourne (clause 35.06-4).

C.3.5 Farming zone Table C.5 Section 1 and 2 permitted uses Section use Tourism-related activity Permit Conditions required? 1 Bed and Breakfast No No more than 6 guests accommodated. At least 1 car park space for each 2 guests able to be accommodated. 1 Informal outdoor No recreation 2 Group accommodation Yes Must be in conjunction with agriculture, outdoor recreation facility, rural industry or winery. No more than 6 dwellings. 2 Host farm Yes

(continued next page)

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Table C.5 Section 1 and 2 permitted uses (continued) Section use Tourism-related activity Permit required? Conditions 2 Leisure and recreation Yes (other than informal outdoor recreation and motor racing track) 2 Residential Hotel Yes Must be in conjunction with agriculture, outdoor recreation facility, rural industry or winery. 2 Restaurant Yes Must be in conjunction with agriculture, outdoor recreation facility, rural industry or winery. 2 Winery Yes

Source: VCEC analysis of Victoria Planning Provisions, clause 35.07-1.

Section 3 prohibited uses • accommodation (other than dwelling, group accommodation, host farm and residential hotel) • retail premises (other than community market, manufacturing sales, primary produce sales and restaurant) • any other use not specified in section 1 or 2 (clause 35.07-1).

C.3.6 Rural activity zone Table C.6 Section 1 and 2 permitted uses Section use Tourism-related activity Permit required? Conditions 1 Bed and Breakfast No No more than 6 guests accommodated. At least 1 car park space for each 2 guests able to be accommodated. 1 Informal outdoor No recreation 2 Backpackers’ lodge Yes

(continued next page)

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Table C.6 Section 1 and 2 permitted uses (continued) Section use Tourism-related activity Permit Conditions required? 2 Camping and caravan Yes park 2 Convenience shop Yes Site must not have direct access to a rural freeway 2 Group Yes accommodation 2 Host farm Yes 2 Leisure and recreation Yes (other than informal outdoor recreation) 2 Residential Hotel Yes 2 Restaurant Yes 2 Tavern Yes 2 Winery Yes

Source: VCEC analysis of Victoria Planning Provisions, clause 35.08-1.

Uses not specified in the zone: a permit is also required for any other use not specified in section 1 (as not requiring a permit) or section 3 (as prohibited).

Section 3 prohibited uses • accommodation (other than backpackers’ lodge, camping and caravan park, dwelling, group accommodation, host farm and residential hotel) • amusement parlour • cinema based entertainment facility • nightclub • retail premises (other than community market, convenience shop, equestrian supplies, hotel, landscape gardening supplies, manufacturing sales, primary produce sales, restaurant and tavern) (clause 35.08-1).

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Appendix D: Business licences and regulations

The information in this appendix is provided for general purposes only to describe the sorts of regulatory requirements, permits and licences that may be relevant to typical businesses in sections of the tourism industry. VCEC and the State of Victoria do not represent or warrant that the information is accurate, current or complete. You should assess whether the information is accurate, current or complete and where appropriate, seek independent professional advice.

APPENDIX D: BUSINESS LICENCES AND REGULATIONS 245

Box D.1 Regulations applicable to setting up and running a business The following licences and registrations apply to most businesses regardless of what segment of the tourism market they operate in. • Register a business or company name (business name registration is with Consumer Affairs Victoria, company name registration is with the Australian Securities and Investments Commission). • Register for tax involves a Tax File Number, Australian Business Number, GST and PAYG withholding registrations with the Australian Tax Office. • To set up a business requires a planning permit from the local council • To demolish part of a building and change its use needs a building permit from a registered building surveyor. • Putting up a permanent advertising sign requires a planning permit from the local council. • Register for WorkSafe, unless annual financial year payroll is expected to be $7500 or less. • If the business intends to conduct commercial activities on public holidays the business must obtain a permit to ‘hold an activity or event on a specific public holiday’. An application fee is required and the business must provide documentation stating the reasons for operating on a public holiday. • If the business intends to hand out pamphlets or other forms of advertising material a permit to Distribute Handbills is required (Local Government Act 1989 (Vic)). An application fee of $51.50 is required and a payment of $5.15 per location, per day. • Registration for payroll tax is required if total wages will exceed $45,833 a month or $550,000 over a financial year. • If the business premises owns and operates a cooling tower system then this needs to be registered under the Public Health and Wellbeing Act 2008 (Vic) Registration fees per cooling tower are $89.60 for I year, $167.30 for 2 years or $245 for 3 years. Registration requires the submission of the application form and accompanying documentation where required (for example, a risk management plan). • If the business owns land with a total taxable value of $225,000 or more it is required to pay land tax annually in accordance with the Land Tax Act 2005 (Vic), (excluding exempt land, for example, principal place of residence, land used for primary production etc).

Source: VCEC based on Business Victoria nd.

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Box D.2 Accommodation In addition to regulations applying to all businesses the following licences and registrations may apply to various types of accommodation. Hotel/motel: • Must register a hotel or motel premises with the local council if the premises can accommodate five or more guests (Public Health and Wellbeing Act and Public Health and Wellbeing Regulations 2009 (Vic)). Involves contacting the local council to apply for registration, having the premises inspected and then paying the registration fee. • Accommodation building must have specific fire safety systems installed (Building Regulations 2006 (Vic)). • If intending to sell alcohol a liquor licence is required and employees involved in dealing with alcohol must hold a current ‘responsible serving of alcohol’ certificate. Caravan Park: • Registration of a caravan park with the local council. • If it has long term residents, it also comes under the Residential Tenancies Act 1997 (Vic) and Consumer Affairs Victoria (CAV). • Accommodation building must have specific fire safety systems installed (Building Regulations). • Must follow the various Australian Standards specific to moveable dwellings, such as drainage and electrical installations. Bed & Breakfast, or Farmstay: • Must register a B&B, guest house or farmstay premises with the local council if the premises can accommodate five or more guests (Public Health and Wellbeing Act and Public Health and Wellbeing Regulations). Involves contacting the local council to apply for registration, having the premises inspected and then paying the registration fee. • Accommodation building must have specific fire safety systems installed (Building Regulations). Rooming House: • Must register a rooming house premises with the local council if the premises can accommodate four or more guests (Public Health and Wellbeing Act and Public Health and Wellbeing Regulations). Involves contacting the local council to apply for registration, having the premises inspected and then paying the registration fee. • Accommodation building must have specific fire safety systems installed (Building Regulations).

(continued next page)

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Box D.2 Accommodation (continued) Hostel: • Must register hostel premises with the local council if the premises can accommodate five or more guests (Public Health and Wellbeing Act 2008 and Public Health and Wellbeing Regulations 2009). Involves contacting the local council to apply for registration, getting the premises inspected and then paying the registration fee. • Fire safety, accommodation building must have specific fire safety systems installed (Building Regulations 2006). Student Dormitory or Holiday Camp: • Must register hostel premises with the local council if the premises can accommodate six or more guests (Public Health and Wellbeing Act 2008 and Public Health and Wellbeing Regulations 2009). Involves contacting the local council to apply for registration, getting the premises inspected and then paying the registration fee. • Accommodation building must have specific fire safety systems installed (Building Regulations 2006).

Source: VCEC based on Business Victoria nd.

Box D.3 Restaurants In addition to regulations applying to all businesses the following may apply to restaurants: • Must register as a food business with their local council (Victorian Food Act 1984). The local council will charge a food business registration fee and registration must be renewed every year. Must also have a food safety supervisor and a food safety program which is a written plan of how to ensue food sold at the premises is safe for human consumption. • A permit to establish an Outdoor Eating Facility is required from the local council if the business intends to use footpath space to provide tables and chairs. • To play recorded music requires music licences from the Australasian Performing Right Association and Phonographic Performance Company of Australia. • If intending to sell alcohol a Liquor Licence is required and employees involved in dealing with alcohol must hold a current Responsible Serving of Alcohol certificate.

Source: VCEC based on Business Victoria nd.

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Box D.4 Clubs and pubs In addition to regulations applying to all businesses the following licences and registrations may apply to clubs and pubs: • A Liquor Licence is required and employees involved in dealing with alcohol must hold a current Responsible Serving of Alcohol certificate. • If live performances are part of the entertainment the business will need a licence from APRA. The annual fee for this is 2.2% of gross expenditure on live-artist performers plus 1.65% of gross admission receipts where ‘door deals’ occur. • If recorded music is used, such as by DJs, a licence for Recorded Music is required. This involves a cost of either 1.859% of gross sums paid for admission or 13.78 cents per person admitted (whichever is greater). • If music is for dance use, such as in the case of nightclubs a licence for Recorded Music for Dance Use in Nightclubs is required. This will cost 64 cents per person admitted to the Nightclub. • Karaoke requires a Karaoke licence which costs $16.45 per day on days that karaoke functions are held.

Source: VCEC based on Business Victoria nd.

APPENDIX D: BUSINESS LICENCES AND REGULATIONS 249

Box D.5 Casino/gaming venues In addition to regulations applying to all businesses the following licences and registrations may apply to casino/gaming venues: • A Liquor Licence is required and employees involved in dealing with alcohol must hold a current Responsible Serving of Alcohol certificate. • To operate a gaming venue, you must hold a Venue Operators Licence which is granted for 10 years. The application fee for approval of a premises is $5,054.90 and the fee for a New Venue Operator’s Licence is $1,918.00 (Victorian Commission for Gambling Regulation 2010). • If you intend to conduct a raffle, you must hold a Commercial Raffle Organisers Licence. (Victorian Commission for Gambling Regulation 2010). • If operating a wagering business, a wagering and betting licence is needed which will last 12 years. (Department of Justice nd.). • If intending to conduct keno, a Keno Licence is required by the wagering outlet (and extended to hotels and clubs with full club liquor licences) which lasts 10 years. (Department of Justice nd.). • Employees of a gaming venue must hold a Gaming Industry Employee’s Licence. A new licence costs $143.40 while a renewal costs $59.80 (Victorian Commission for Gambling Regulation 2010). • Employees who work in gaming machine areas are required to undertake Responsible Gaming Training and a refreshed course within three years. • Rules based on responsible gambling measures must be followed, such as the restriction on placing ATM’s in a gaming machine area.

Source: VCEC based on Business Victoria nd.

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