Spend locally - circulation of money in a community
Multiplier factor
Work by Tim Mitchell of Northwest Earth Institute is often used to demonstrate the impact on a community of money spent locally.
“A dollar spent at a locally owned store is usually spent 6 to 15 times before it leaves the community. From $1, you create $5 to $14 in value within that community”
He also states “spend $1 at a national chain store and 80 cents leaves town immediately.”
These observations apply with greater emphasis when applied to tourism expenditure, because the service industries – accommodation, cafes etc use local labour and source materials locally.
The concept of a multiplier factor has been used for many years to demonstrate that the impact of expenditure goes beyond the first point of expenditure.
The introduction of GST on services complicates the process. However it can be shown that governments benefit because of the circulation of money in local communities
The following table shows money still circulating after 5 transactions.
$ Tax Leakages out Balance
of community
10% 10%
100 10 10 80
80 8 8 64
64 6 6 52
52 5 5 42
42 4 4 35
33 273
Of course if one recipient goes elsewhere to spend the money, the process stops.
However it is valid to apply a multiplier factor to the money spent by tourists and to remind governments that they benefit from promoting local expenditure. The above example shows the GST could produce $33 from the expenditure of an initial $100!
