Insights from Funding for Tomorrow

waterfall surrounded by large rocks hero for funding for tomorrow
by Chris Adams
Head of Research & Insights

10 international best practices in tourism taxation and funding from two major studies across both North America and Europe

  • Access the full tourism funding reports, webinar and resources on the Funding for Tomorrow resource page here

The COVID-19 pandemic has created the largest crisis ever in the history of travel and tourism. It has also profoundly impacted tourism tax revenues and the funding for Destination Marketing and/or Management Organizations (DMOs). 

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Two major studies completed in late 2020 in North America and Europe looked at the options for addressing the current crisis and opportunities for change. The “Funding Futures” study (August 2020) led by Miles Partnership, Civitas and Tourism Economics, with research support from Destination Analysts, looked at tourism and DMO funding across 115 North American cities and all 50 U.S. states and 10 Canadian provinces. “Tourism Taxes by Design” (November 2020) led by Group NAO and the Global Destination Sustainability Movement looked at tourism taxes and revenue in 30 European nations and 67 European cities.

This blog shares the 10 global best practices from “Funding for Tomorrow,” a joint summary report from findings these two major studies around guidance for looking at new or enhanced funding options in your destination. After reviewing this summary, check out the two separate reports for more details and specific recommendations on options and opportunities for your destination.

10 Global Best Practices

1. Responsive Funding. Governments have a critical responsibility to help DMOs and tourism businesses weather the crisis and drive the recovery as the pandemic recedes and borders reopen. As the recovery proceeds, funding should be responsive to the growth of tourism enabling proper investment in, and management of, the visitor industry and its infrastructure.

2. Relevant Role & Responsibilities. A review of tourism funding often includes a review of the role and responsibility of DMOs and related organizations. Ensure your DMO takes the lead on a review of these structural issues, including the appropriate role for your organization in tourism marketing and destination management plus its relationship to government, economic development and community agencies.

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3. Resilient Funding. Risk mitigation mechanisms such as building reserve funds (up to one year’s operating budget) and nurturing private sector partnership revenue are critical to mitigating future risks. To help rebuild major conferences and events, the reports identified the need for public-private insurance to cover risks of the current or future pandemics or other risks excluded by expanded “force majeure” clauses. The German government recently announced a 2.5 billion euro publicly backed insurance scheme to cover these event risks during the recovery (see details here). 

4. Dedicated Funding. Tourism tax revenue has been increasingly diverted into general government funds over the years without focus, objectives or accountability.  Dedicated funding structures such as Tourism Improvement or Recovery Districts (TIDs) and Tax Increment Financing (TIF) offer perhaps the best approaches for achieving funding with a clear focus, objectives and accountability.

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5. Tourism Taxation that Reflects the Full Costs & Benefits of Tourism. The debate over tourism taxation and DMO funding should be based on a sound understanding of the full benefits and costs of tourism in your destination. This means understanding not just the economic and financial return of the industry, but its myriad of positives and impacts on the wider economy communities and the natural environment. (Recent research such as the The Invisible Burden of Tourism (2019) took a fuller look at the costs of tourism which funding should seek to cover.)

6. Transparency in Design, Management & Reporting. Tourism taxes and fees should be clear, obvious and transparent in their application and where the money is being used. Several studies cited in the “Tourism Taxes by Design” report show a far greater willingness to pay if travelers know where the money is being spent, especially if it is on regenerative tourism projects.

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7. Simple, Consistent & Efficient.  Tourism taxes and fees should be simple and consistent and with low compliance costs for businesses - especially SMEs. In their 2017 study for the EU, PricewaterhouseCoopers (PwC) highlighted the importance of these compliance issues in supporting the growth of tourism. This includes a consistent and professional approach to managing and collecting revenue from both commercial lodging properties and short term rentals - in an accommodation sector transformed by peer to peer platforms such as Airbnb. (Airbnb has launched ‘City Portal’ a set of analytics and tools to help destinations develop a more professional and consistent approach to managing and marketing short-term rentals.)

8. Local Consultation & Control. Genuine and ongoing local consultation and control forms the third pillar of how to build widely supported tourism taxes (along with #7 & 8 above). This includes consultation with locals, industry, visitors and other community partner groups (e.g.: education, arts and culture) with a high degree of local control in how tax revenue is prioritized and applied.

9. Regulatory Design or Outcome-based Funding Mechanisms. The way in which tourism taxes and fees are set and applied can be important “pricing signals” to visitors and businesses. For example, tourism taxes and fees can use market mechanisms to vary taxes based on demand (e.g.: higher taxes in peak season, lower in the off season).

10. Regenerative Funding Focus. Finally, regenerative funding is a central part of the opportunity for tourism to help “build back better”. The two reports cite a wide range of examples, primarily in Europe, of tourism revenue that help protect, restore and enhance a local community and/or the natural environment. It is critical that DMOs are not only involved in shaping such revenue decisions but involved in their ongoing management. (Iceland and Spain’s Balearic Islands provide examples of tourism funding for regenerative tourism projects.)

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