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Council Procurement Policy Economic Impact Statement
TWEED SHIRE COUNCIL AUGUST 2013
Authors Authors Authors Authors Mike Ruzzene Shashi Karunanethy
© Copyright, Urban Enterprise Pty Ltd, August 2008.
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Filename: Tweed Shire Procurement Policy Economic Impact Assessment 20130229
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Disclai Disclai Disclai Disclaimermermer mer
Neither Urban Enterprise Pty. Ltd. nor any member or employee of Urban Enterprise Pty. Ltd. takes responsibility in any way whatsoever to any person or organisation (other than that for which this report has been prepared) in respect of the information set out in this report, including any errors or omissions therein. In the course of our preparation of this report, projections have been prepared on the basis of assumptions and methodology which have been described in the report. It is possible that some of the assumptions underlying the projections may change. Nevertheless, the professional judgement of the members and employees of Urban Enterprise Pty. Ltd. have been applied in making these assumptions, such that they constitute an understandable basis for estimates and projections. Beyond this, to the extent that the assumptions do not materialise, the estimates and projections of achievable results may vary.
COUNCIL PROCUREMENT POLICY ECONOMIC IMPACT STATEMENT
TWEED SHIRE COUNCIL
2 URBAN ENTERPRISE PTY LTD
AUGUST 2013
E CONOMIC I MPACT OF L OCAL P ROCUREMENTS
B B B
BACKGROUNDACKGROUNDACKGROUNDACKGROUND
1. Urban Enterprise has been commissioned by Tweed Shire Council to undertake an economic impact assessment of Council procurements of local goods and services in Tweed Shire.
2. The following economic impact assessment relates to Council procured local goods and services, above the value of $10,000 per purchase.
3. This assessment reviews the economic impact of procured local goods and services with regards to:
a. The impact on the value Tweed Shire’s Gross Regional Output;
b. The impact on the number of full time equivalent (FTE) jobs supported in Tweed Shire; and
c. The impact of an increased level of expenditure on local goods and services, on the Tweed Shire’s economy and employment.
M M M
METHODOLOGYETHODOLOGY AND ETHODOLOGYETHODOLOGYAND AND AND AAAASSUMPTIONSSSUMPTIONSSSUMPTIONSSSUMPTIONS
4. Information relating to the value of Council’s procured goods and services is sourced from Tweed Shire Council.
5. Urban Enterprise has undertaken an economic impact assessment of the Council’s locally procured goods and services based on the input-output analysis framework. Urban Enterprise has constructed regional specific input-output multipliers for Tweed Shire.
6. Input-Output (I-O) analysis is a widely used technique for estimating economic impacts of an activity in a region. It examines how the industry affects an economy through its linkages between all other sectors in the industry. Detailed methodology of the Urban Enterprise Regional Input-Output model is described in Appendix A.
7. The Economic Impact Assessment examines the direct economic impact (expenditure by Council) and indirect economic impact (flow-on expenditure to other industries in Tweed Shire). The analysis will also assess the level of Full Time Equivalent (FTE) employment generated as a result of the expenditure. FTE employment is the estimated number of annualannualannualannual full time equivalent jobs supported by the economic impact.
EE
EECONOMIC CONOMIC CONOMIC CONOMIC IIIIMPACT MPACT MPACT MPACT AAAASSSSSSSSESSMENTESSMENTESSMENTESSMENT
8. Council procured goods and services1 to the value of $74.28 million in the 2011/12 financial year. $17.24 million or 23% of procurements were sourced from local suppliers in Tweed Shire. This is depicted in the following table.
1 Information relates to purchase of goods and service, above the value of $10,000.
VALUE OF COUNCIL PROCURED GOODS AND SERVICES, ABOVE $10,000 – 2011/12 FINANCIAL YEAR
Location of Business
Value of Council Procured Goods and Services (valued above $10,000 per
purchase) % of Total Procurement
Tweed Shire $17,236,685 23%
Other Councils/States $57,044,025 77%
Total Council Expenditure (above $10,000 per purchase) $74,280,710 100%
Source: Tweed Shire Council, 2011/12 Financial Year. Information relates to purchase of goods and service, above the value of $10,000.
9. Urban Enterprise has apportioned $17.24 million of local procurement into expenditure by industry categories, based on detailed expenditure data as provided by Council. Further information is outlined in Appendix B.
10. The input-output model estimates that $17.24 million in local expenditure has generated an indirect economic impact of $2.76 million on Tweed Shire’s gross regional output. In total, the local procurements have supported over $20 million in total economic impact on Tweed Shire’s gross regional output. An estimated 145 FTE jobs have been supported by Council’s local procurement and flow-on expenditure to supplying industries.
ECONOMIC IMPACT OF COUNCIL PROCURED GOODS AND SERVICES – 2011/12 FINANCIAL YEAR
Economic Impact Value
Direct Economic Impact (Value of Local Procurement) $17,236,685
Indirect Economic Impact $2,756,282
Total Economic Impact Total Economic Impact Total Economic Impact
Total Economic Impact $19,992,967$19,992,967 $19,992,967$19,992,967
Total FTE Jobs Impact 145
Source: Tweed Shire Council, 2011/12 Financial Year.
EE
EECONOMIC CONOMIC CONOMIC CONOMIC IIIIMPACT OF MPACT OF MPACT OF MPACT OF IIIINCREASED NCREASED NCREASED NCREASED LLLLEVELS OF EVELS OF EVELS OF EVELS OF LLLLOCAL OCAL OCAL OCAL PPPPROCUREMENTROCUREMENTROCUREMENTROCUREMENT
11. The following table provides the estimated Total Economic Impact of Tweed Shire’s Gross Regional Output and estimated FTE jobs supported, for a range of local procurement values.
12. The assessment has found that an increase in the level of local expenditure will support a growth in employment and gross regional output of Tweed Shire. For example, an increase in the share of local procurement to $35.7 million, or nearly half of total procurements in 2011/12, is estimated support:
a. A Total Economic Impact of $41.4 million to Tweed Shire’s Gross Regional Output; and b. 300 FTE jobs in Tweed Shire.
COUNCIL PROCUREMENT POLICY ECONOMIC IMPACT STATEMENT
TWEED SHIRE COUNCIL
4 URBAN ENTERPRISE PTY LTD
AUGUST 2013
VALUE OF COUNCIL PROCURED GOODS AND SERVICES – SCENARIO ANALYSIS
Annual local value of
procurement Share of total procurement Estimated Total Economic Impact
Estimated FTE Jobs Impact
$17,236,685 23% $19,992,967 145
$20,798,599 28% $24,124,459 175
$24,512,634 33% $28,432,397 206
$28,226,670 38% $32,740,337 238
$31,940,705 43% $37,048,275 269
$35,654,741 48% $41,356,215 300
$39,368,776 53% $45,664,153 331
$43,082,812 58% $49,972,093 363
$46,796,847 63% $54,280,031 394
$50,510,883 68% $58,587,971 425
$54,224,918 73% $62,895,909 456
$57,938,954 78% $67,203,849 488
$61,652,989 83% $71,511,787 519
Source: Tweed Shire Council, 2011/12 Financial Year and Urban Enterprise Economic Impact Model.
A PPENDIX A
IIIINPUTNPUTNPUTNPUT----OOOOUTPUT UTPUT UTPUT UTPUT MMMMODELODELODELODEL
INTRODUCTION
The following section provides the description of use and methodology of the economic impact assessment through a regional input-output table.
WHAT IS AN INPUT-OUTPUT TABLE?
An Input-Output (I-O) table fulfils two key functions; it is a descriptive framework for showing the relationship between industries and sectors and between inputs and outputs in an economy. It is also an analytical tool for measuring the impact of autonomous disturbances on an economy’s output, employment and income. Utilising the Leontief Inverse and several other augmentation methods, the economic impact of expenditure the region can be depicted through the I-O model.
INPUT-OUTPUT MODEL METHODOLOGY
As regional input-output models are not readily available, top-down techniques drawing and modifying direct import coefficients from the most recent 2006-2007 Australian National I-O tables are necessary to study the economic affects within small regional areas.
The report will further utilise input-output model technique from Flegg and Webber (2000), the Flegg Location Quotient (FLQ) adjustment technique to construct a Regional Input-Output Table2. The FLQ adjustment technique will allow for accounting the regional industry mix of the region, the relative size of the region’s economy and cross industry relationships.
The report will utilise the ABS 2007 Input-Output Industry Groups (IOIG) consisting of 111 industry sectors for the economic impact analysis. The Total Economic Impact is constructed through three categories:
• InitiInitiInitiInitial Output Effectsal Output Effectsal Output Effectsal Output Effects – the estimated initial expenditure on the general regional economy.
• Production Induced EffectsProduction Induced EffectsProduction Induced EffectsProduction Induced Effects – this is the estimated impact of the Initial Output Effects on the general economy. The Production Induced Effects are made up of two components:
• The First Round Effects – is the amount of output required from all industries of the economy to product the Initial Output Effect; and
• Industrial Support Effects – the effects of the second and subsequent rounds of induced production;
• Consumption InConsumption InConsumption InConsumption Induced Effectsduced Effectsduced Effectsduced Effects – the induced production of extra goods and services as a result of private final consumption expenditure of households affected by the initial output affects.
2Flegg. A.T., Webber, C.D., and Elliot, M.V., 1995, On The Appropriate Use of Location-Quotients In Generating Regional Input-Output Tables, Regional Studies, Vol. 29, No. 6,
WHAT IS THE DIFFERENCE BETWEEN EXPENDITU PRODUCT?
Expenditure or industry consumption Expenditure or industry consumption Expenditure or industry consumption Expenditure or industry consumption government for particular given industry.
Direct Direct Direct
Direct IIIIndustry ndustry ndustry Ondustry OOutputOutpututpututput is equal to expenditure [or industry consumption] less the costs to retailers of d goods sold, costs to industry of imported goods sold and net taxes on products. In the context of regional economies, imports relate to goods and services purchased outside a defined
goods sold sourced from outside the region
certain industries that rely heavily on imports from outside a regional area, the value of direct output will be significant less than the value of industry expenditure.
DireDire
DireDirect Ict Ict Ict Industry ndustry ndustry ndustry Value AValue AValue AValue Addddddedddededed is calculated by subtracting industry intermediate inputs (goods and services product and supplied by other businesses).
Direct Industry Gross Direct Industry Gross Direct Industry Gross
Direct Industry Gross Regional Regional Regional Regional Domestic Product Domestic Product Domestic Product Domestic Product direct industry value added
The figure below depicts flow of industry expenditure to industry output, value added and gross domestic product.
Costs to industry of domestic goods sold
(transport and wholesale margins)
Second round (indirect) effects
to supplier industries
Intermediate inputs used by
industry Second round
(indirect) effects to supplier industries
CE BETWEEN EXPENDITURE, OUTPUT, VALUE ADD AND GROSS DOMESTIC
Expenditure or industry consumption Expenditure or industry consumption Expenditure or industry consumption
Expenditure or industry consumption represents the internal consumption by households, business and government for particular given industry.
is equal to expenditure [or industry consumption] less the costs to retailers of d
goods sold, costs to industry of imported goods sold and net taxes on products. In the context of regional imports relate to goods and services purchased outside a defined region. As such, costs of imported the region are not attributed to the value of Output for a given Industry; for certain industries that rely heavily on imports from outside a regional area, the value of direct output will be significant less than the value of industry expenditure.
is calculated by subtracting industry intermediate inputs (goods and services product
Domestic Product Domestic Product Domestic Product
Domestic Product is then calculated by adding industry next taxes on products t
The figure below depicts flow of industry expenditure to industry output, value added and gross domestic product.
Expenditure Total value of goods and
services consumed by households, businesses and government for a given industry
Direct Industry Output
Intermediate inputs used by
industry
Direct Industry Value Added
Direct Industry Gross Domestic
Product Costs to industry of
imported goods sold Net taxes on products
Net taxes on industry product
Direct Industry Gross Regional
Domestic Product
D AND GROSS DOMESTIC
represents the internal consumption by households, business and
is equal to expenditure [or industry consumption] less the costs to retailers of domestic goods sold, costs to industry of imported goods sold and net taxes on products. In the context of regional . As such, costs of imported are not attributed to the value of Output for a given Industry; for certain industries that rely heavily on imports from outside a regional area, the value of direct output will be
is calculated by subtracting industry intermediate inputs (goods and services product
s then calculated by adding industry next taxes on products to
The figure below depicts flow of industry expenditure to industry output, value added and gross domestic product.
Net taxes on products
Net taxes on
industry product Net taxes on indirect output
A PPENDIX B
AA
AALLOCATION OF LLOCATION OF LLOCATION OF LLOCATION OF LLLLOCAL OCAL OCAL OCAL CCCCOUNCIL OUNCIL OUNCIL OUNCIL PPPPROCUREMENT BY ROCUREMENT BY ROCUREMENT BY ROCUREMENT BY IIIINDUSTRY NDUSTRY NDUSTRY NDUSTRY CCCCATEGORYATEGORYATEGORYATEGORY
Input Output Industry Group ABS 2006 Direct Economic Impact Indirect Economic Impact
Total Employment Impact
Waste Collection, Treatment and Disposal Services $10,645,518 $387,947 73
Construction Services $3,103,782 $1,098,058 27
Retail Trade $754,373 $740,960 26
Building Cleaning, Pest Control, Administrative and Other Support
Services $1,221,203 $246,025 10
Public Administration and Regulatory Services $310,151 $77,531 3
Non-Residential Building Construction $283,419 $93,447 1
Heavy and Civil Engineering Construction $318,435 $41,607 1
Computer Systems Design and Related Services $85,105 $8,348 1
Other Repair and Maintenance $63,765 $1,326 0
Agriculture, Forestry and Fishing Support Services $152,851 $8,731 0
Professional, Scientific and Technical Services $40,862 $14,026 0
Road Transport $33,659 $13,816 0
Other Agriculture $72,000 $12,053 0
Heritage, Creative and Performing Arts $31,000 $483 0
Non-Residential Property Operators and Real Estate Services $18,000 $8,927 0
Iron and Steel Manufacturing $40,953 $1,137 0
Non Metallic Mineral Mining $50,983 $1,700 0
Cement, Lime and Ready-Mixed Concrete Manufacturing $10,627 $159 0
