Taylor Swift’s tour won’t bankroll Australia

Dear Reader, Tay Tay is coming to town and the economics fraternity can’t Shake it Off. 

The first press conference under the new regime of the RBA Board was hijacked by journalists asking Governor Bullock what the impact of the Taylor Swift Eras Tour was likely to have on the Australian economy and whether it was going to add to inflation.

There have been estimates that the Tay Tay Eras tour would result in an extra $140m injected into the economy, while others have gone up to $500m and even over $1bn. The reality, however, is that the net economic impact is likely to be much less.

Don’t’ Blame Me, I am not trying to be the Tay Tay Grinch, so let me explain.

The $140m spend seems about right – 570,000 tickets sold across 7 concerts in Sydney and Melbourne.  Of these, around 80% have been purchased by local residents. Technically any spend associated with these patrons is just a transfer from one category of spending (or saving) to another – in this instance Tay Tay. 

Of the remaining 20% of concert attendees, about 18% are expected to come from interstate visitors and 2% from overseas – the hard core Swifties. In GDP terms, the interstate spend is another transfer, but from a GSP perspective the concerts will lift economic activity in NSW and Victoria at the expense of other states. 

The real net economic benefit comes from the Gorgeous international Swifties; around 10,500 people are expected to each spend around $500 on the day of the concert. There is also likely to be significant spending by many staying on and enjoying some time in Australia. Pre-covid data shows the average international visitor to Australia stays 11 days and spends around $6,000; so working on the (admittedly fairly big) assumption that the average international Swiftie does the same then in addition to their $500 concert outlay they could spend an additional $5,500 – a total of $63m.

There could also be benefits from retaining expenditure by domestic fans who would otherwise go overseas (spending an average $5,000) if the concerts were not being held in Australia. Assuming we retain 2% of domestic fans, then that is another $50m being spent here rather than overseas.

The Australian economy will also gain from the spend associated with setting up, running and dismantling the concert set and other infrastructure. The costs are likely to be mostly labour as the concert sets have already been built; noting that Tay Tay operates 2 sets which leapfrog each other across concert locations. 

The costs are likely to be something approaching 25% of gross receipts (including merchandise) – alhough it has been suggested that costs of running a show like Eras would be around US$5m per week plus US$2m per concert. These cost benchmarks suggest the tour itself is spending between $36m and $41m to put on the 7 shows.

This also means… Are You Ready for it… that Taylor Swift is earning something like $110m profit from this part of the global tour in Australia. 

However, just like anyone else Tay Tay will need to pay some tax to the Australian government. Its Karma.

Tay Tay’s tax is likely to involve allocating the profit between a royalty paid to an offshore corporate vehicle and a fee paid to her personally.  It could be that the royalty paid to the offshore vehicle (assuming it’s a US entity) could benefit from a 5% WHT rate under the US/Australia tax treaty, while Tay Tay would be subject to tax at marginal rates – and she would also miss out on the impending reduction from the Stage 3 tax cuts. 

It’s difficult to say what the split between the royalty fee (use of brand, images, etc) and the personal fee would be, but if we assume Taylor gets paid personally $1m per concert and the rest is allocated to the OCV, then the ATO is likely to receive around $8m from Tay Tay from her earnings from the Australian leg of the Eras tour.

Assuming that Tay Tay is going to bank the after-tax profit outside of Australia then the after-tax profit of $101.7m will be treated as a services import, and from a GDP perspective, will be a negative in the March quarter national accounts.

So for those claiming the tour will make a huge boost to the economy, I would say: You need to calm down – it seems that Tay Tay is going to help grow the Australian economy, but only around $10m (or 0.002%!) in the March quarter! 

This revelation is going to cause Bad Blood in my house.  My 3 daughters have been lucky enough to get tickets to attend the concert in Melbourne this Saturday, and they will not hear a bad word about Tay Tay. At the end of the day the economics doesn’t matter, attending the concert is just about having a Love Story with one of the world’s greatest artists.

Ian Welch
iwelch@kpmg.com.au
0400 818 891