Norfolk Island's economy: tourism, freight and the end of tax freedom

How big the island's economy is

No official statistics agency measures the island's output. The figures that exist come from consultants hired by the Commonwealth. KPMG estimated gross territorial product, excluding investment, at $81.2 million in 2014, $86.5 million in 2015 and $81.8 million in 2016, an average of $83.2 million over the three years. An earlier estimate by the Centre for International Economics put it at around $68 million in 2013-14, 22% below its estimate for 2010-11. A 2023 report for the island's council summed the economy up as about $80 million a year.

These are small numbers for a place that once provided its own immigration, customs, health and social security services. The 2021 census counted 2,188 people. Of those aged 15 and over, 1,172 were in the labour force, a participation rate of 63.7%, against 61.1% for Australia as a whole. Unemployment stood at 2.8%, up from 1.6% in 2016.

Incomes are lower than on the mainland. The census put median weekly household income at $1,184 in 2021, against $1,746 for Australia, and median personal income at $736 a week against $805. Rents moved the other way: the median weekly rent rose from $138 in 2016 to $240 in 2021, a rise of 73.9%.

How the workforce changed between censuses

The population itself has swung. The island's own census counted 2,302 people in 2011; the first Australian census to cover it found 1,749 in 2016, and the count rose to about 2,190 in 2021 on the same statistical area. Between 2016 and 2021 the labour force grew by 178 people, or 18%. Almost all of the growth was part-time work, which rose by 141 jobs while full-time employment fell by 13. The island had 1,220 private dwellings in 2021, 140 more than in 2016, and nearly 98% of them were separate houses.

How tourism carries the island

Tourism became a mainstay after the airfield built in the Second World War stayed open, and Britannica dates it as the island's main activity from the mid-1960s. KPMG reckoned that around 40% of the island's economic activity is tied to tourism, and that 30,000 visitors in 2015-16 brought in about $33 million in tourist spending. Earlier work by ACIL Tasman put the share at 41% in 2012. A 2020 estimate by Regional Development Australia measured it differently, valuing tourism-related output at $72.4 million, or 23.5% of the economy.

The census shows where the jobs are. In 2021 the top industries of employment were accommodation at 8.4% of the employed, local government administration at 6.5%, general practice medicine at 4.4%, cafes and restaurants at 4.1% and schooling at 3.8%. Accommodation employed 0.9% of workers across Australia. Technicians and trades workers made up 17.5% of the island's workforce and managers 16.4%, against 12.9% and 13.7% across Australia. Clerical and administrative workers were 12.7%, about half the mainland share.

How visitor numbers have moved

The council's report describes a normal year as 20,000 to 30,000 arrivals, with the peak season running from September to April. Arrivals reached 35,399 in 2008-09 and fell to 24,268 by 2010-11, a fall Guardian Australia linked to the global financial crisis of 2009. About 30,000 people flew in as air passengers in 2018-19; 73% of them were tourists and 94% came from mainland Australia, according to the Commonwealth department, and almost 80% of visitors were aged 51 or over.

The pandemic emptied the island. Arrivals fell from 2,366 in September 2019 to 250 in September 2020, and to 13 in May 2020. Recovery was fast: by April 2023 the year's total had reached 28,071, with 31,700 forecast for 2022-23, which the council's consultants called the highest level in 15 years. Visitors have long been older than the travelling public at large: in 2012 ACIL Tasman found 66% of arrivals were aged 60 or over, and a council plan of 2023 sought to widen the market with a trail network for walking and mountain biking, estimated to bring 7,000 new visitors a year if built.

Where visitors stay and spend

Accommodation is small and locally owned. ACIL Tasman counted 66 properties offering 1,649 beds in 2012: five hotels, 60 self-catering units, cottages or houses, and one guest lodge. Average occupancy in 2010-11 was 36%, against 65% across Australia. Older figures give a sense of how far tourism reached into the economy: in 2004-05, 71% of the island's businesses and 68% of private sector jobs were strongly linked to serving tourists, visitors spent about $215 a day each, and the average stay was 7.6 days.

Marketing has always been a government job here. The island government's Tourist Bureau ran the visitor centre and promotion on a budget of $1.62 million in 2011-12, raising about $250,000 a year of its own from commissions and sales. After 2016 the council took the role over, and between November 2021 and February 2022 it ran a digital advertising campaign through a new official tourism website, after which it reported December 2022 occupancy approaching 100%.

Why freight sets the cost of living

The island has no port. Supply ships anchor offshore and whaleboats towed by launches carry the cargo to the Kingston or Cascade jetty, five tonnes at a time. The council's 2023 economic update estimated that shipping costs average just over $11,000 per person a year, and the Australian National Audit Office listed the lack of an all-weather port among the island's main barriers, raising freight costs and the price of everything brought in.

Prices show it. When the council reinstated a local retail price index it found inflation of 11.09% for 2022 and an annualised 10.54% in the first quarter of 2023, above the mainland rate for the same period. A 2012 comparison by ACIL Tasman found a basket of groceries dearer on Norfolk Island than in Australian cities or in Broome: long-life milk cost $6.60 a litre against $1.90 on the mainland.

The fixes proposed have been large for an economy this size. The Commonwealth committed $13 million in 2015 to rebuild the Cascade pier. In 2023 the council was planning a floating jetty at Ball Bay, costed at about $31.5 million, and later a permanent roll-on, roll-off facility there, The business case for the jetty expected it to save each resident $2,240 to $3,360 a year in shipping costs, and to let cruise ships land passengers by tender more easily.

What the land and sea still produce

Farming is small. About a quarter of the island is permanent pasture and none is irrigated. Biosecurity rules forbid importing fresh fruit and vegetables, so most produce is grown locally. Beef is both raised on the island and imported, and there is one winery, Two Chimneys Wines. Most families have at least one member in primary production of some kind.

The pine has long been an export, as an ornamental tree grown elsewhere and through its seed, and Britannica lists Kentia palm seed among the island's farm products along with cereals, fruit and vegetables. The sea is the island's main natural resource, but Australia controls the exclusive economic zone of 200 nautical miles and its revenue. Islanders may fish recreationally in one small section of it, known locally as the Box, under an agreement with the Australian Fisheries Management Authority. Geoff Bennett told the 2023 parliamentary inquiry that when self-government began in 1979 islanders expected fishing access and a share of revenue, and that the expectation was not met. Suggestions that the zone holds oil or gas have not been proven.

Other ventures have come and gone. In 2015 a company was licensed to grow medicinal cannabis on the island for export; the Commonwealth overturned the decision and the local licence was revoked.

How the tax system changed after self-government

Under self-government the island had no income tax. Its government raised money through a local goods and services tax, import duty, a fuel levy, a medical levy and charges for telephone calls, along with stamp sales and a government monopoly on the sale of liquor. Accounts of the tax rate differ: islanders' submissions to a 2023 parliamentary inquiry gave 12%, and the Commonwealth department told the same inquiry 12.5%, applied to basic groceries as well.

Budget deficits were recorded every year of the decade to 2015 except 2007-08, and between 2009-10 and 2013-14 the Commonwealth provided $28 million to the island's government. The Centre for International Economics estimated in 2014 that the island faced $77 million of infrastructure and capital spending over ten years, beyond what its government and tax base could meet, and that extending Commonwealth law would raise household consumption by $20 million. Income tax took effect on 1 July 2016, together with Australian social security, Medicare and the Pharmaceutical Benefits Scheme. Medical evacuation is the clearest example of what changed: serious cases are flown to the mainland, and an air charter that can cost up to $30,000 is paid for by the Australian Government. Land rates followed: the Commonwealth legislated the requirement to levy them in 2017. Many Pitcairn families oppose them, arguing that a tax on land falls hardest on those who hold family land to pass on, an argument set out in the politics of the island.

How the council came to depend on grants

The Norfolk Island Regional Council inherited a run-down asset base. A public inquiry found that between 2016 and 2020 Commonwealth grants rose from about 18% to 30% of its revenue while its own income shrank, and the council was dismissed in December 2021. Under administration it set a capital works budget of $13 million for 2023-24, including $2.0 million for roads, $2.5 million for airport fencing and $1.8 million for new electricity meters.

What powers the island and connects it

Electricity comes from diesel generators run by Norfolk Island Electricity, a government body, with rooftop solar panels on private houses adding to supply. The 2023-24 council plan put money into the transition to renewable power, electric council vehicles and batteries.

The roads are a recurring problem. The council's 2023 report recorded that 40 of the island's 80 kilometres of road needed urgent attention and 12 bridges needed repair, complicated by shortages of rock and machinery. Passenger flights have been underwritten by the Australian Government; in 2018-19 the contract was with Air New Zealand, which also carried freight on every flight, alongside dedicated freight flights subsidised under a separate contract. Telecommunications have been a weak point. The 2021 audit listed the lack of a reliable network among the island's barriers, a small mobile network runs from three towers, and in 2023 the council was considering a $7.3 million tender to expand satellite capacity for homes, businesses, the hospital and the school. The island uses the Australian dollar and its own internet domain, .nf. What the economy looks like from a visitor's side is in travel on Norfolk Island.