Disposable Income and Tax
It is important to understand that there has been a general increase in tourism for the last 50 years or more. Some of the reasons for this include:
- Greater awareness – through advertising and television programmes providing people with ideas and information about where they might go on holiday
- More car ownership – making it easier to travel to tourism destinations, especially for domestic tourism
- Improvements in technology – transport technology have made journey times quicker and information technology has made it easier to buy and book flights, holidays and other tourism products
- More leisure time – people now have more paid holidays and are able to travel more often
- More affluence – generally people are better off financially than they used to be and they have a greater disposable income.
Disposable income = the amount of money a person has left to spend after they have paid taxes.
So, very simply, if a person is paid £800 per week and they pay £100 in taxes, their disposable income is £700.
If there is a rise in taxation, disposable income will fall and vice-versa.
There are a number of items that a person or family has to buy out of their disposable income before thinking about what luxuries or extras they can afford. These items would include rent or a mortgage on the home in which they are living, heating costs, food and drink, getting to and from work, etc. Only when these items have been paid for can people or families start to think whether or not they can afford days out or a holiday.
Most products of tourism organisations are not ones that are needed to live week by week. Holidays etc. can only be afforded if all the necessities in life have been paid for. In modern Britain, some families can afford two or three holidays each year, some families might struggle to afford a few days out.
Although the reasons for the growth in tourism given above indicate that an increase in disposable income has increased over recent decades, a family’s disposable income can increase or decrease from year to year. This can affect tourism organisations in a number of ways. For example, a family might decide that they cannot afford a package holiday abroad but they decide to spend a week on a holiday park in the UK instead.
Disposable income increases by:
- Working extra hours
- Having a pay rise or bonus
- Taxes being reduced
Disposable income decreases by:
- Working less hours
- Having a wage cut
- Taxes being increased
For each of the situations, suggest whether the family has had an increase or decrease in its disposable income.
Tourism is not used as a separate category. Can you identify the five categories which might cover spending on tourism?