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Centre for International Economics: Economic Impact of Norfolk Island reform scenarios

Media Release

19 December 2014

Following the recent community consultations, the Assistant Minister for Infrastructure and Regional Development, the Hon. Jamie Briggs MP has asked me to release the independent analysis of the Norfolk Island economy by the Centre for International Economics (CIE).

The executive summary of the CIE report which notes substantial economic improvements from the extension of the Australian taxation and social security systems:

  • The Norfolk Island Government will no longer have to fund social service type payments of over $1.6 million nor allocate nearly $2 million to subsidising the local hospital, which means greater resources being available.
  • Combined, the income taxation, welfare payment and Medicare reforms are estimated to see a sizable increase in economic activity of around 14 per cent, but a larger increase in household consumption (the preferred welfare measure) of around 38 per cent.
  • The higher level of economic activity, increased employment and wages combine to see (nominal) household consumption each year being some $20 million higher than otherwise.

Key points from the CIE report include:

  • Norfolk's Gross Territory Product (GTP) (at market prices) was estimated at around $68 million in 2013–14. This estimate was around 22 per cent lower than a previous estimate from 2010–11.
  • This equates to a GTP of nearly $41 900 per person. Various indicators point to a sharp contraction in Norfolk Island's economy over recent years.
  • Over recent time, Norfolk Island has been attracting around 25 000 visitors per year, a decline of around 35 per cent compared to a decade earlier.
  • GST collections suggest the value of sales have fallen by around 25 per cent over the past four years, or an average of 7 per cent per year. As prices are likely to have increased over this period, the volume of sales on Norfolk Island is likely to have fallen by even more.
  • Workers Compensation Levy receipts suggest that the number of hours worked has fallen by around 24 per cent since 2009–10, or around 6.6 per cent per year on average.
  • The Norfolk Island population has also declined steadily since 2001. As at September 2014, the population has fallen by around 360 people or 18 per cent since the 2001 Census.

Of importance to economic growth potential, the CIE report finds for most of this past decade the Norfolk Island Government Budget has not provided what CIE describes as “necessary expenditure to maintain and expand the stock of infrastructure”.

CIE notes a number of other significant problems with the current Norfolk Island Government financial position:

  • Until 2007–08, the budget was broadly balanced in cash terms, but has deteriorated significantly, particularly in the past two years.
  • Norfolk Island has recorded budget deficits in every year except 2007–08. Budget years 2004–05 to 2012–13 the deficit has been some $40.9 million.

CIE has modelled the advantages to residents of the inclusion of Norfolk Island in the Australian taxation and social security systems. The report indicates Norfolk Island households will receive around $4.9 million by means of welfare type payments, while saving around $5 million in healthcare related costs. CIE suggests household consumption will increase in excess of $20 million as a result of these reforms.

CIE has also modelled the removal of Norfolk Island's GST, import duty and Fuel Excise (without extending comparable mainland taxes as is the case in the other external territories—see Fact Sheet 1—November 2014).

The full 62 page CIE report is available on line at  infrastructure.gov.au.

His Honour the Hon. Gary Hardgrave